Europe’s leading
floorcovering
distributor
Annual Report
and Accounts
2010
Financial Highlights
Market Presence
The Year in Review
Chairman’s Statement
Chief Executive’s Review
Financial Review
Directors, Officers and Advisers
Accounts
Financial Calendar
Directors’ Report
1
2
10
12
20
22
23
24
Statement of Directors’ Responsibilities
in respect of the Annual Report and
Accounts and the Financial Statements 28
Corporate Governance
Remuneration Report
Corporate and Social Responsibility
Independent Auditor’s Report to the
members of Headlam Group plc
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Statements of Financial Position
Statement of Changes in Equity
Cash Flow Statements
Notes to the Financial Statements
Principal Trading Subsidiaries
Financial Record
Notice of AGM
Explanatory Notes
Shareholder Information
29
36
47
51
52
53
54
55
57
58
103
104
105
110
113
Headlam markets, supplies and
distributes an extensive range of
floorcovering products to independent
flooring retailers and contractors
throughout the UK, France, Switzerland
and the Netherlands.
The group’s operational strategy is focused on providing
our customers with an up to date comprehensive range of
competitively priced floorcovering products with the support
of a next day delivery.
As part of this strategy, Headlam offers its suppliers the
opportunity to achieve wide market penetration backed by
cost effective distribution.
In implementing this strategy, Headlam has developed
a diverse and autonomous structure with 49 businesses
in the UK and a further five in Continental Europe.
A key factor contributing to the group’s success is the
individuality of experienced management teams who are
responsible for the market presence, development and
ultimate profitability of their business.
Each business is supported by the commitment to
continued investment in people, product, facilities and IT.
This commitment has provided the basis for the group’s
growth and performance enabling it to develop into
Europe’s leading floorcovering distributor.
www.crucial-trading.com
www.plantationrug.co.uk
Financial Highlights
Financial Highlights
Revenue (£m)
Operating Profit (£m)
486.7
509.9
544.7
557.3
533.8
535.7
41.5
43.9
46.0
41.7
26.1
24.8
2005
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
Earnings Per Share (p)
Proposed Dividends (p)
33.1
35.1
37.1
34.5
20.15
18.00
23.10
19.70
21.5
19.1
11.00
12.40
2005
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
Headlam Group plc Annual Report and Accounts 2010
01
Market Presence
The UK operating structure is based on five market
sectors each aimed at maximising penetration and
supporting different aspects of the floorcovering market.
Our Regional and National multi-product
businesses provide a comprehensive
residential and commercial product
range and extensive geographical
coverage.
The Regional commercial
businesses focus on strong
relationships with suppliers and a
high level of localised service for
their customers.
Our Residential specialist businesses supply
medium to premium residential carpet on
a national basis and the Commercial specialist
businesses, which have a national presence, provide
a range of products servicing various aspects of the
commercial market.
Our business in France operates from two distribution
centres and 21 service centres and the businesses in
Switzerland and the Netherlands each operate from
a single distribution centre. All five businesses on the
Continent offer an extensive range of products providing
full national coverage
across their respective
countries.
02
Headlam Group plc Annual Report and Accounts 2010
Market Presence
Regional Multi-product Distribution
Distribution Centre
Service Centre
Headlam Group plc Annual Report and Accounts 2010
03
Market Presence continued
National Multi-product Distribution
Distribution Hub
Distribution Centre
Trans-shipping Location
04
Headlam Group plc Annual Report and Accounts 2010
Market Presence
Regional Commercial Distribution
Distribution Centre
Shared Distribution Centre
Service Centre
Headlam Group plc Annual Report and Accounts 2010
05
Market Presence continued
National Residential Specialist Products
Distribution Centre
National
Carpets
Orientalweavers@bmk
06
Headlam Group plc Annual Report and Accounts 2010
Market Presence
National Commercial Specialist Products
Distribution Centre
Headlam Group plc Annual Report and Accounts 2010
07
Market Presence continued
European Multi-product Distribution
Distribution Centre
Service Centre
08
Headlam Group plc Annual Report and Accounts 2010
Market Presence
Excellence in Systems
A
C
Select
Immediate order processing,
comprehensive product ranges and
high stock levels allow us to respond
quickly to customer demand
Deliver
Orders, which are received on a daily
basis, are processed immediately and
subject to customers requirements
delivered the following day
Order
Customers in the UK, who are principally
independent flooring retailers and
contractors, placed 3,807,034 orders
during 2010
Cut
Investment in material processing
and handling equipment enables us
to increase efficiency and reduce waste
B
D
Headlam Group plc Annual Report and Accounts 2010
09
Chairman’s Statement
I am pleased to report that in 2010, we were able to increase
revenue by 0.4% to £535.7 million. This was against market
conditions where most indicators suggested further reductions
in market size in both the UK and Continental Europe.
Earnings and dividend
Profit before tax increased from £22.1 million to
£25.0 million and earnings per share improved by
12.6% from 19.1p to 21.5p. The board has therefore
elected to increase the final dividend by 17.4% from
7.30p to 8.57p. This results in a total dividend for
the year of 12.4p, which represents an increase
of 12.7% on 2009.
Maintaining our fundamental structure
has strengthened our market position in
a challenging environment.
The group remains fully committed to the product
development, sales, marketing and distribution
of floorcovering in the UK and Continental Europe.
In the UK, revenue growth and the consequent
increase in profitability, has been achieved through
our policy of operating through 49 individual
management teams and businesses, focused on
their geographical areas and product categories.
This performance has been enhanced by a positive
contribution from our businesses in Continental Europe.
The group’s growth objectives will continue to be
focused on the development of our floorcovering
businesses in the UK and Continental Europe.
The final dividend, if approved by shareholders at the
Annual General Meeting, will be paid on 1 July 2011
to shareholders on the register at close of business
on 3 June 2011.
Strategy
Whilst the group implemented limited restructuring
in 2008 and 2009, we believe that maintaining
our fundamental structure has strengthened our market
position in a challenging environment and gives us
the opportunity to continue to enlarge the business
as market conditions stabilise and improve.
10
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
Management and Employees
The board were pleased to advise you in May
2010, of the appointment of Andrew Eastgate as
a non-executive director. Andrew brings a wealth of
corporate experience and we look forward to working
with him in the future.
Outlook
We have made a positive start to 2011 and whilst
January and February are relatively lower trading
months, it does give a good indication to future
trading assuming normal seasonality.
Following the retirement last year of Andrew Simpson,
we have realigned the responsibilities of the senior
executive managers, Gary Phillips, Tony Judge,
Keith Yates and Mike McMaster, to develop both
their group and operational objectives. They direct
and encourage the individual management teams to
ensure compliance with group strategy, policy and
achievement of their individual business objectives.
I would like to thank our management and employees
for their contribution to another successful year in the
development of our group.
With the group’s strategic direction established and
the individual management teams having many sales
and marketing initiatives in place, we are therefore
confident, at this stage, of achieving our internal
objectives for the year.
Graham Waldron Chairman
Headlam Group plc Annual Report and Accounts 2010
11
Chief Executive’s Review
The 0.4% increase in the group’s revenue was achieved in both
a challenging market environment and particularly harsh weather
conditions in the UK during January and December 2010. If the
effects of these two months are excluded, the increase in revenue from
February to November is 1.2% in the UK, which is a better reflection
of the underlying performance during the year.
Various market indicators would suggest that conditions
remained difficult in both the UK and Continental
Europe and therefore, the group’s revenue increase
reflects an outperformance in our respective markets.
We believe that with our autonomous operating
structure and proactive management teams, we can
continue to outperform the floorcovering market and
develop our business, principally by organic growth,
but also, with appropriate strategic acquisitions.
Our managers have spent many years
gaining a thorough understanding of
the floorcovering market.
UK Structure
As referred to in the Chairman’s Statement, we
considered it appropriate for the group to retain the
fundamental structure that has been developed over
the last 19 years, in order to preserve the inherent
culture and maintain the opportunity to increase the
group’s market presence.
The UK operations incorporate 49 individual
businesses, operating from 18 distribution centres and
14 service centres. These businesses are positioned
within five market sectors, based on their geographical
focus and product offering.
The individual businesses market very diverse product
portfolios, therefore offering an extensive choice to our
customers throughout the UK.
The five market sectors are:
Regional multi-product: These 20 businesses
represent 52% of UK revenue, selling both residential
and commercial floorcovering and provide a
comprehensive geographical coverage. They have
continued to develop their market share providing
a solid base for the group to expand.
National multi-product: Operating principally under
the Mercado trade brand, these businesses, offering
a national service for residential and commercial
floorcovering throughout England, Wales and
Northern Ireland, maintained their market position.
Regional commercial: Following on from the
successful development of this sector, it is our intention
over the next three years to increase the number
of operations from 16, either through acquisition
or development of new service centre operations,
to further enhance our position in the regional
commercial market.
Residential specialist: Operating mainly in the middle
to premium quality carpet market, the performance
of these 14 businesses has been particularly
encouraging, given the challenging market conditions.
They have added an extra dimension to our business
over the last 10 years and have undoubtedly taken
the group into additional product areas and widened
our customer base within the floorcovering market.
Commercial specialist: Following the restructuring
of our commercial specialist business in 2009, it is
pleasing to report that JHS has prospered and further
developed its market position in 2010.
12
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
Management
Our individual managers have spent many years
gaining a thorough understanding of the floorcovering
market. They are clearly focused on their individual
objectives against which they are measured and
subsequently rewarded.
Within the autonomous teams we have taken the
opportunity, due to retirement and certain changes
in management, to promote internally and the early
results of this are particularly encouraging.
It has been the group’s policy to promote from within
wherever possible, but there are certain instances,
particularly with our more specialist businesses,
where it is appropriate to recruit externally.
These various opportunities demonstrate to all our
employees that there is a career path within the group
and sufficient opportunities for them to expand their
individual aspirations.
Active Customer Accounts
41,539
41,334
41,994
2008
2009
2010
Headlam Group plc Annual Report and Accounts 2010
13
Chief Executive’s Review continued
The independent floorcovering retailers and contractors
are at the forefront of all new floorcovering products.
Suppliers
We continue to work closely from a group
strategic perspective and also through our individual
operating businesses with our suppliers, principally
the leading floorcovering manufacturers in the UK
and Continental Europe.
Our supplier base has remained fairly stable
throughout the last 12 months and we would like to
thank our suppliers for their ongoing support through
the launch of new products, which ensures that the
independent floorcovering retailers and contractors
are at the forefront of all new floorcovering products
in our respective markets.
Market Presence
The individual management teams operate within
a specified strategy relating to their market position,
complying with standard operating disciplines and
financial controls. However, within this structure they
are given autonomy to develop their business through
UK Warehouse Capacity
52
million cubic feet
14
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
their relationship with suppliers and customers.
This ensures that we have a constant programme
of promotional events, customer initiatives, marketing
plans and product launches.
During 2010, we have experienced a similar
performance from our UK businesses in residential
and commercial floorcoverings. This has resulted
in the product mix being stable at 69% residential
and 31% commercial.
Our individual management teams are continually
developing product and during 2010, our businesses
in the UK launched 3,109 new products, including
carpet, residential vinyl, laminate and wood. These
were supported by our 366 external sales people
in the UK placing, into independent flooring retailers
and contractors, 626,637 new point of sale items,
typically display stands and pattern books.
Furthermore, we launched, through our regional and
national multi-product businesses, the Lifestyle Floors
brand during 2010. This was originally intended to
promote a limited number of carpet ranges, but with
such a positive reaction from our customer base, we
have both extended the number of carpet ranges and
also developed other products under the Lifestyle Floors
brand, including residential vinyl, laminate, wood and
luxury vinyl tile.
The Lifestyle Floors initiative, in conjunction with our
normal daily product activities, will undoubtedly further
support and develop the market presence of the group.
UK Revenue Percentage by Market Sector
Commercial specialist
5%
Residential
specialist
19%
Regional
Commercial
12%
Regional
multi-product
52%
National
multi-product
12%
UK Revenue Percentage by Principal Product
Commercial: 2010
31%
Residential: 2010
69%
Commercial: 2009
31%
Residential: 2009
69%
Headlam Group plc Annual Report and Accounts 2010
15
Chief Executive’s Review continued
Each of our business teams are focused on meeting their individual
targets, which provides the group with confidence to achieve its overall
objectives for the year.
Customers
In order to maximise our position with independent
floorcovering retailers and contractors, we closely
monitor the call rate of our individual external sales
people, which has culminated in 475,901 visits
to our customers during the year.
Our customers are able to place orders until late
afternoon for delivery the following working day.
This service has resulted in our commercial vehicle
drivers making 1,126,676 deliveries to customers’
premises during 2010.
This continual interface with customers has been
largely responsible for the increase in the number
of active accounts during 2010 to 41,994 from
41,334 in 2009. In conjunction with this, our
debtor days decreased from 45.4 to 44.8 days.
It is encouraging that this activity and the payment
to credit terms of our customers further reflect their
positive performance and financial health.
Continental Europe
Our three operations in Continental Europe collectively
produced a solid operating profit during 2010.
The most positive performance was produced by
Belcolor in Switzerland. Whilst market conditions in
the Netherlands were generally challenging, our three
businesses, Lethem Vergeer, Interplan and Silvester,
showed some improvement towards the end of 2010.
In France our single business, LMS, operating from two
distribution centres and 21 service centres, produced
a satisfactory result in a difficult market.
Investments
In May, we completed the purchase of a 110,000
square feet freehold distribution centre, located in
Rochdale, to provide National Carpets with increased
capacity to expand its activities. We are still awaiting
planning approval, for the construction of a 127,000
square feet purpose built freehold distribution centre,
in connection with the project to relocate Faithfulls,
our regional multi-product business in the southeast
of England, to a site in Hadleigh near Ipswich.
UK Cut lengths
34,200
per week
16
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
UK Deliveries
1,126,676
during 2010
Outlook
The performance in 2010 and a positive start to
2011 is a result of the tremendous effort from our
management, sales people and all our employees.
The group has positioned autonomous businesses
into specific market sectors to take full advantage
of all opportunities.
Through this structure we have extensive penetration
into the floorcovering market encompassing both
suppliers and customers.
Each of our business teams are focused on meeting
their individual targets, which provides the group
with confidence to achieve its overall objectives
for the year.
Tony Brewer Group Chief Executive
Headlam Group plc Annual Report and Accounts 2010
17
18
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
Headlam Group plc Annual Report and Accounts 2010
1919
Financial Review
TRADING
Revenue
Group revenue increased during the year by 0.4% from
£533.8 million to £535.7 million.
In the UK, which accounts for 80.8% of group revenue
(2009: 80.5%), like for like revenue increased by 0.4%
from £428.8 million to £430.4 million with new businesses
introduced during 2009 and 2010 contributing £2.4 million
(2009: £0.8 million).
Based on constant currency, the Continental European
businesses, which account for the balance of the group’s revenue,
recorded a 0.7% decline in revenue. The affects of currency
translation increase this to a 1.3% decline with revenue falling
from £104.1 million to £102.9 million.
Gross margin and expenses
During the year, the businesses received an increased number
of cut length orders for residential carpet, which yielded higher
margins and a reduced number of orders for full rolls, which
attract a lower margin. In addition, the group continues to develop
initiatives to reduce the costs associated with withdrawing product
from the market at the end of its life. These two factors were the
principal reasons for the gross margin improving by 40 basis
points, compared with 2009.
Taxation
The effective rate of taxation increased to 28.5% during the
year, which reflects the group’s mix of profits across the UK and
Continental Europe and current level of disallowable expenditure.
The anticipated effective rate for 2011 is expected to reduce
to 28%.
Property valuation
In keeping with the company’s practice of updating the valuation
of its freehold and long leasehold properties on a triennial basis,
the portfolio was valued at 31 December 2010 on an existing
use basis. The results of the valuation revealed an £11.3 million
shortfall compared with depreciated historical cost. This is a
considerable change compared with the position at 31 December
2007, when the valuation exceeded depreciated historical cost
by £12.1 million. The result is because the valuation is based
on rental yields and of course, commercial property rentals have
declined markedly during the period since December 2007.
An impairment review has been undertaken on the portfolio
and with the exception of one property, which has been impaired
by approximately £0.5 million, no further impairment was
considered necessary.
The valuation excludes freehold properties located in Continental
Europe and the property classified as held for sale as at
31 December 2010.
Distribution and administration expenses, collectively representing
25.9% of revenue, were unchanged on the previous year. In
isolation, distribution expenses increased, year on year, by 1.3%,
fuel costs being the principal cause, whilst administration expenses
registered a slight increase of 0.2%.
Cash flows and net funds
Net cash flow from operating activities
Cash flows from operating profit before changes in working
capital were unchanged year on year at £31.5 million.
Net finance costs
Net finance costs reduced during the year by £1.6 million
compared with 2009. Approximately half of the decrease
was attributable to the reduced interest charge associated with
the group’s UK borrowings, which occurred on cessation of the
interest rate swap contract during April 2010. The other significant
contributor to the change in the year was the net reduction in
finance cost associated with the group’s pension plans.
Investment in net working capital during the year amounted to
£0.2 million, which compares with a net contraction in 2009
amounting to £12.2 million. The £12.4 million movement in
year on year investment occurred as a result of the businesses
moving back into a normal operating cycle following the unusual
trading conditions during 2008 and 2009. In particular, the
movement in inventory, which changed from a cash inflow of
£6.6 million in 2009 to a cash outflow of £5.8 million in 2010,
represented a substantial year on year reversal of £12.4 million,
as the businesses replenished their product positions following the
reductions of 2009.
20
Headlam Group plc Annual Report and Accounts 2010
The Year in Review
The additional net working capital investment explains the
£12.3 million decline in cash generated from operations. The
reduced interest paid of £0.9 million and the £7.5 million cash
outflow relating to the enhanced transfer value exercise are the
principal reasons for the adverse variance in net cash flow from
operating activities increasing by £6.8 million to £19.1 million.
Cash flows from investing and financing activities
Net cash outflows from investing activities totalled £3.0 million
compared with £5.8 million during 2009 with investment
in property, plant and equipment amounting to £7.0 million,
compared with £7.3 million for 2009. The principal investment
during the year was the purchase of the freehold distribution
centre, located in Rochdale, for National Carpets. Cash
proceeds, amounting to £3.2 million, as a result of the sale
of property, plant and equipment were significantly higher
in 2010 compared with £0.7 million in 2009.
Cash out flows from financing activities totalled £10.0 million
compared with £15.2 million during the previous year, with the
reduction in dividend payments of £7.2 million being the main
reason for the change.
Changes in net funds
Group net funds increased by £0.8 million from £9.7 million
to £10.5 million during the year as detailed in the table below.
Employee benefits
During the year, the net deficit relating to the defined benefit
pension plans decreased by £10.1 million from £22.8 million
to £12.7 million. The additional contributions to the plan,
£2.7 million (2009: £2.6 million) and the cash spent on the
enhanced transfer value exercise, £7.5 million (2009: £nil)
significantly contributed to the reduction. As mentioned last year,
the company offered deferred members of the UK defined benefit
pension plan the opportunity to transfer out. The amount finally
expended in connection with this exercise was £0.3 million
ahead of the £7.2 million reported at the half year. In addition,
associated costs amounted to £0.3 million.
The additional contributions of £2.7 million, made to the plan
during 2010, will be reassessed during 2011 when the UK
plan’s actuary undertakes the triennial valuation as at 31 March
2011. Furthermore, additional enhanced transfer value payments,
totalling £3.3 million, have been made in 2011 as the group
continues its strategy of eliminating the plan deficit.
Going concern
Having reviewed the group’s resources and a range of likely
out-turns, the directors believe they have reasonable grounds
for stating that the group has adequate resources to continue
in operational existence for the foreseeable future and that it
is appropriate to adopt the going concern basis in preparing
the group’s financial statements.
Steve Wilson Group Finance Director
Changes in net funds
Cash at bank and in hand
Bank overdraft
Debt due within one year
Debt due after one year
At
1 January
2010
£000
45,737
(758)
44,979
(900)
(34,392)
9,687
Cash
flows
£000
(1,444)
730
(714)
642
224
152
Translation
differences
£000
465
28
493
33
157
682
At
31 December
2010
£000
44,758
–
44,758
(225)
(34,011)
10,522
Headlam Group plc Annual Report and Accounts 2010
21
Directors, Officers and Advisors
DIRECTORS
G Waldron
Chairman i
Graham was appointed an executive director
in June 1991 becoming Chairman later
that year until 31 December 1999. On
the resignation of Trevor Larman on 1 June
2006 he was re-appointed Chairman. He
has 58 years experience in the floorcovering
industry. He was the non-executive Chairman
of Tandem Group plc until his retirement from
their board on 21 June 2010.
A J Brewer
Group Chief Executive n
Tony was appointed an executive director in
June 1991, becoming Managing Director of
the Floorcoverings Division in January 1992,
and was appointed Group Chief Executive
in November 2000. He has 33 years
experience in the floorcovering industry.
S G Wilson
Group Finance Director
Steve was appointed Group Finance
Director in December 1991. He was the
non-executive Chairman of Synergy Health
plc until his retirement from their board
on 22 September 2010. He is a fellow
of the Institute of Chartered Accountants.
R W Peters
Non-executive Director u l n
Dick was appointed a non-executive director
in December 2005. He was formerly Senior
Partner for the East Midlands practice of
Deloitte & Touche in Nottingham. He is a BSc
in Mathematics and Statistics and is a fellow
of the Institute of Chartered Accountants.
He has considerable experience of auditing
large companies, both UK and overseas,
transactional support and project management
activities. He is a director and Chairman
of Headlam Pension Trustees Limited.
M K O’Leary
Senior Independent Director u l n
Mike was appointed a non-executive director
in March 2006. He previously served on the
Board of Misys plc in an executive capacity for
15 years, was CEO of Marlborough Stirling
and later a non-executive director at the Stroud
& Swindon Building Society. He is currently
non-executive Chairman of EMIS Group plc
and Digital Healthcare Limited and a non-
executive director at Psion plc.
A K Eastgate
Non-executive Director u l n
Andrew was appointed a non-executive director
in May 2010. He was formerly a Partner in
Pinsent Masons and head of the corporate
practice in Birmingham. Andrew has a broad
experience of advising quoted companies,
particularly in connection with transactions
and compliance issues. He is a non-executive
director of Epwin Group Limited.
COMPANY SECRETARY
G M Duggan
Geoff was appointed Company Secretary
in April 1998. He is a fellow of the Institute
of Chartered Secretaries and Administrators
and a fellow of the Chartered Institute of
Management Accountants.
SENIOR EXECUTIVE MANAGEMENT
G B Phillips
Finance Director Operations
Gary joined the group in June 1992 and
is the Finance Director of floorcovering
operations. He is an associate of the Chartered
Institute of Management Accountants.
A R Judge
Commercial Director, Coleshill
and Tamworth businesses
Tony joined the group in May 1992, is the
Managing Director of all the businesses
operating from the Coleshill and Tamworth
distribution centres and has operational
responsibility for businesses located in
Thatcham and Stockport. Tony has 30 years
experience in the floorcovering industry.
K R Yates
Managing Director, Mercado
Keith joined Mercado in April 1983 and
was subsequently appointed its Managing
Director in 1996. In addition he has
operational responsibility for the businesses
located in Scotland. Keith has 28 years
experience in the floorcovering industry.
M W McMaster
Commercial Director selected UK Operations
Mike joined the group in September 1997
following the acquisition of MCD (UK) Ltd
and was appointed to the Senior Executive
Management in January 2009 with operational
responsibility for fifteen of the UK businesses.
Mike has 40 years experience in the
floorcovering industry.
22
Headlam Group plc Annual Report and Accounts 2010
u Audit committee
l Remuneration committee
n Nomination committee
i Charities committee
ADVISERS
Auditors
KPMG Audit Plc
One Snowhill
Snow Hill Queensway
Birmingham, B4 6GH
Taxation Advisers
Deloitte LLP
Four Brindley Place
Birmingham B1 2HZ
Principal Bankers
Barclays Bank PLC
PO Box 3333
One Snowhill
Snow Hill Queensway
Birmingham, B3 2WN
The Royal Bank of Scotland plc
Corporate and Institutional Banking
5th Floor, 2 St Philips Place
Birmingham B3 2RB
Solicitors
Pinsent Masons LLP
3 Colmore Circus
Birmingham
B4 6BH
Stockbrokers
Arden Partners plc
Arden House
17 Highfield Road, Edgbaston
Birmingham B15 3DU
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0GA
Financial Calendar
Announcements
Interim Management Statement
Annual General Meeting
Interim results announced
Interim Management Statement
Full year results announced
Dividend Dates
Final dividend for 2010, if approved, payable to qualifying
shareholders on the register as at 3 June 2011
Interim dividend for 2011 announced
Interim dividend for 2011 payable
Accounts
18 May 2011
17 June 2011
19 August 2011
18 November 2011
March 2012
1 July 2011
19 August 2011
3 January 2012
Headlam Group plc Annual Report and Accounts 2010
23
Directors’ Report
The directors present their annual report to shareholders on the affairs
of the group and the parent company (“company”) together with the
audited Financial Statements and Independent Auditor’s Report, for
the year ended 31 December 2010.
who retires at the first AGM following his appointment, and being
eligible, offer themselves for re-election and election respectively at
the forthcoming AGM.
Principal activities
The principal activities of the group are wholly aligned to the sales,
marketing, supply and distribution of floorcovering and certain other
ancillary products. The principal activity of the company is that of
a holding company and its principal trading subsidiaries are listed
on page 103.
Review of the business
The Chairman’s Statement on page 10 and the Chief Executive’s
Review and the Financial Review on pages 12 to 21 provide
a detailed review of the group’s activities. The information contained
in these sections fulfils the requirements of the Business Review, as
required by Section 417 of the Companies Act 2006, and should be
treated as part of this report. The reports on corporate governance on
pages 29 to 35 and corporate and social responsibility on pages 47
to 50 are also incorporated into this report by reference. A description
of the group’s financial risk management objectives and policies and
its exposure to price, credit, liquidity and cash flow risk is contained
in note 23 to the Financial Statements on page 91.
Financial results and dividends
The profit attributable to equity shareholders of the company for
the financial year was £17.9 million as shown in the Consolidated
Income Statement set out on page 52.
The directors are proposing a final dividend for the current year of
8.57p per share (2009: 7.30p), making a total dividend of 12.40p
per share for the year (2009: 11.00p).The final dividend, if approved
by shareholders at the Annual General Meeting (“AGM”), will be
payable on 1 July 2011 to shareholders whose names appear on
the register at the close of business on 3 June 2011. The associated
ex-dividend date is 1 June 2011. An interim dividend of 3.83p per
share (2009: 3.70p) was paid on 4 January 2011 to shareholders
on the register at the close of business on 4 December 2010.
Directors and their interests
The directors of the company during the financial year ended
31 December 2010 were Graham Waldron, Tony Brewer, Steve
Wilson, Dick Peters, Mike O’Leary, David Grove and Andrew
Eastgate. Biographical details of the directors currently serving on
the board being set out on page 22. There were two changes to
the board in the year, David Grove resigning on 17 March 2010
and Andrew Eastgate being appointed on 17 May 2010. No
other person has acted as a director of the company during the
financial year ended 31 December 2010. The company’s Articles of
Association (“articles”) give directors’ power to appoint and replace
directors. They also provide that each director shall retire from office
and shall be eligible for re-appointment at the third AGM after the
general meeting at which they were appointed or last re-appointed.
Accordingly Tony Brewer who retires by rotation and Andrew Eastgate
24
Headlam Group plc Annual Report and Accounts 2010
In proposing their re-election and election, the board confirms to
shareholders that following evaluation, each of these individuals’
performance continues to be effective and they have expressed a
willingness to continue in their roles.
Details of directors’ remuneration and service contracts are set out in
the Remuneration Report on pages 41 and 44. The beneficial interests
of the directors and their immediate families in the company’s shares
and their interests in share options are detailed in the Remuneration
Report on page 42.
Directors’ conflict of interests
No director had, at any time during the period under review, any
interests in any contract with the company or any of its subsidiaries,
further detail of which is set out in the report on Corporate
Governance.
Directors’ indemnity
The company maintains directors and officers liability insurance
and indemnity cover (as defined in sections 233 and 234 of the
Companies Act 2006) which is provided for the benefit of the
company’s directors and officers. No indemnity is provided for
the company’s auditors. Further detail is set out in the report on
Corporate Governance.
Management changes
With effect from 17 May 2010, Andrew Eastgate was appointed a
non-executive director. Additionally, Mike McMaster was appointed
to the senior executive management with responsibility for a number of
the regional distribution businesses. Biographical details are shown on
page 22.
Principal risks and uncertainties
The group’s business, results and financial condition are influenced
by a range of risks and uncertainties many of which are beyond the
control of the board. Whilst the following highlights some of these
risks it is not intended to provide an exhaustive analysis of the risks
affecting the business. For instance, there are some risks which are
as yet not known and others which whilst not presently material
could become a significant factor in the future.
Market demand
A significant proportion of the group’s revenues are to independent
retailers and flooring contractors. The activity levels within this
customer base are determined by consumer demand created through
residential property refurbishment or moves, new residential housing
developments and a wide range of commercial refurbishment and
new building projects. Periods of recession, low consumer confidence
or changes in trends and preferences have the potential to affect
market activity and therefore demand for products supplied by the
group. However, market activity is monitored in each individual
Accounts
Directors’ Report
continued
business and at group level on a daily basis which enables a rapid
response to any factors adversely affecting trading. Furthermore, since
the group’s principal activities are supply and distribution, it has the
ability to quickly respond to market changes. This, coupled with the
development of broad market penetration through the establishment
of a range of diverse regional, national and specialist businesses
provides the group with a degree of resilience and protection.
Competitor risk
The group operates in four different geographical markets which
generally share similar trading characteristics. Within each market,
the group competes with a variety of regional and national
distributors, with manufacturers selling directly to our customer base
and indirectly with multiple retail chains. The group seeks to sustain
its competitive position by maintaining close relationships with its
supplier and customer base. Substantial and continued investment
in management, an extensive product offering, a knowledgeable
sales resource, stock availability, IT, efficient material handling, and
logistics removes the need to compete strictly on price and allows the
group to enhance its overall market position through its commitment to
service. The distribution competition in Continental Europe is diverse
and very fragmented. The group has deliberately adopted a cautious
acquisition policy in these markets, searching for opportunities that
provide good growth opportunities but at sensible valuations. Given
the number of opportunities it is possible that a competitor, following
a more aggressive acquisition strategy in Continental Europe, could
challenge the group’s position as Europe’s leading floorcovering
distributor.
Credit risk
The group trades with the majority of its customers on credit terms
and therefore, there is always the risk that customers are unable
to pay outstanding balances. The group has standardised credit
checking and debt collection procedures at each individual business.
Businesses are encouraged to share credit information with other
group businesses on a regular basis in order to prevent the escalation
of small credit risks. All open accounts are subject to credit limits and
businesses must obtain approval from executive directors or senior
executive management for credit limits in excess of £10,000. These
procedures, combined with the local knowledge of the credit control
teams, not only reduce the risk of default, but also, in a number of
instances, provide opportunities to assist the customer to trade out of
their default position. The group does not use credit insurance since
the level of default is generally low. Appropriate impairment provisions
are made whenever the likelihood of default is high.
Infrastructure
An important element of the group’s ability to service its customer
base is its network of distribution and service centres. The group’s
policy of improvement through continued investment in new or
extended facilities has been one of the principal drivers behind the
group’s historic growth rates. In order to support growth rates in the
future, the group will continue to invest in new centres. There is a risk
that future growth will be constrained if these development projects
are unduly delayed through land availability, planning consent
or prohibitive building cost.
Systems
The group is reliant on its IT systems to deliver its operational
objectives and maintain financial control. As a consequence, any
prolonged IT failure has the potential to adversely affect business
activity. However, each business has its own dedicated computer
system and failure in one will not interrupt another. Furthermore, the
group operates well defined back up procedures and has contingency
plans in place to enable swift recovery from a failure of this nature.
Transport
The majority of customer orders result in next day deliveries on
vehicles operated by the group. Any interruption to this service, for
example, major disruption to road networks or the prolonged reduced
availability of vehicle fuel could have an adverse affect on activity.
People
The group’s ability to deliver continued success is very dependent
upon its people. The group is committed to providing a workplace
that is safe and environmentally sound and creating opportunities
for individuals to progress their careers. Recruitment, training and
development are aimed at ensuring that the group has suitably skilled
and qualified people to meet the operational needs of the business.
Pension
The cost of funding the group’s defined benefit plans may increase
due to a decline in investment returns, movement in interest rates and
longer life expectancy. As a result of the triennial actuarial valuation
of the UK plan, undertaken at 31 March 2008, the group agreed
to make additional payments every year until 2018, details of which
are provided in note 20. The results of future scheme valuations,
the next being 31 March 2011, could result in this commitment
increasing or decreasing.
Government legislation
The group’s operations are regulated by a variety of laws, which
relate, amongst others, to health and safety, the environment,
employment, commercial, corporate, financial and tax. The group is
committed to complying with these requirements in each of the markets
in which it operates and achieves this by managing its obligations at
the group level and within individual businesses. Where appropriate,
the group engages the services of competent third party advisers.
Changes in regulations are incorporated into the group’s policies and
procedures on a timely basis.
AGM
This year’s AGM will be held at the group’s distribution facility in
Coleshill, Birmingham on Friday 17 June 2011 at 10.00am. The
notice convening this meeting is set out within this Annual Report and
Accounts at page 105, along with explanatory notes regarding the
resolutions that will be proposed at the meeting at pages 110 to 112.
Headlam Group plc Annual Report and Accounts 2010
25
Directors’ Report
continued
Recommendation
The directors consider that each of the resolutions to be proposed at
the AGM is in the best interests of the company and the shareholders
as a whole. Accordingly, the directors unanimously recommend that
all shareholders vote in favour of all resolutions, as the directors intend
to do in respect of their own beneficial holdings.
Takeovers directive
The following provides the additional information required to be
provided for shareholders as a result of the implementation of the
Takeovers Directive into English law.
As at 31 December 2010, the company’s issued share capital
comprised a single class of shares referred to as ordinary shares.
Details of the ordinary share capital can be found in note 22 to
the Financial Statements which should be treated as forming part
of this report.
On a show of hands at a general meeting of the company every
holder of ordinary shares present in person and entitled to vote shall
have one vote and, on a poll, every member present in person or
by proxy and entitled to vote shall have one vote for every ordinary
share held. The Notice of AGM specifies deadlines for exercising
voting rights and appointing a proxy or proxies to vote in relation
to resolutions to be passed at the AGM. All proxy votes are counted
and the numbers for, against or withheld in relation to each resolution
are announced at the AGM and published on the company’s website
after the meeting.
The holders of ordinary shares are entitled to receive the company’s
Annual Report and Accounts, to attend and speak at general meetings
of the company, to appoint proxies and to exercise voting rights.
There are no restrictions on the transfer of ordinary shares in the
company other than certain restrictions that may from time to time be
imposed by laws and regulations (for example, insider trading laws),
and pursuant to the Listing Rules of the Financial Services Authority
whereby certain directors, officers and employees of the company
require the approval of the company to deal in the company’s
ordinary shares.
There are no requirements for prior approval of any transfers and
none of the shares carry any special rights with regard to control
of the company.
Shareholders passed a resolution at the 2010 AGM to permit the
directors to allot shares up to an aggregate nominal amount of
£1,122,500. This authority will expire at the earlier of the 2011
AGM or 30 June 2011. No shares have been allotted by the
company during the year.
Shareholders passed a resolution at the 2010 AGM to permit the
directors to undertake market purchases of up to 8,536,000 of the
company’s shares. This authority will expire at the earlier of the 2011
AGM or 30 June 2011. No shares have been purchased by the
company during the year.
26
Headlam Group plc Annual Report and Accounts 2010
The company is not aware of any agreements between shareholders
that may result in restrictions on the transfer of securities and/or
voting rights.
There are no agreements between the company and its directors
or employees providing for compensation for loss of office or
employment (whether through resignation, purported redundancy
or otherwise) that occurs because of a takeover bid. The company’s
banking arrangements are terminable upon a change of control
of the company.
The rules about the appointment and replacement of directors are
contained in the company’s articles. Directors may be appointed
by the company by ordinary resolution or by the board. A director
appointed by the board holds office only until the next AGM.
Directors are required to retire from office and shall be eligible for
reappointment at the third AGM after the general meeting at which
they were appointed or last re-appointed.
The company’s articles may only be amended by a special resolution
at a general meeting of shareholders.
Substantial shareholdings
As at the last date prior to posting the Annual Report and Accounts,
in accordance with the disclosure and transparency rules, the
company had been notified of the following substantial interests in
the share capital of the company.
Ordinary shares of 5p each
Shareholder
Franklin Templeton
Institutional, LLC
Aviva plc
Tweedy, Browne
Company LLC
Aberforth Partners LLP
Schroders plc
Legal & General Investment
Management Limited
Blackrock, Inc
Liverpool Victoria Friendly
Society Limited
Number
Per cent
11,657,571
5,831,244
4,523,274
3,796,026
3,565,486
3,317,829
2,775,989
2,644,912
14.02
7.02
5.44
4.57
4.18
3.99
3.25
3.18
Accounts
Directors’ Report
continued
Contributions for political and charitable purposes
The group’s Charities Committee considers requests for charitable
donations within set criteria. During 2010, in addition to donations
made to overseas charities, the group contributed charitable donations
to UK charitable organisations, principally to local organisations serving
the communities in which it operates, of £26,253 (2009: £29,280).
The group’s policy is not to make any donations for political purposes
in the UK or to donate to EU political parties or incur EU political
expenditure. Accordingly neither the company nor its subsidiaries
made any political donations or incurred political expenditure
in the financial period under review (2009: £nil).
Financial instruments
Details of the use by the company and its subsidiaries of financial
instruments can be found in note 23 to the Financial Statements.
Supplier payment policy
It is the group’s policy that payments to suppliers are made in
accordance with those terms and conditions agreed between the
company and its suppliers. The group seeks to strictly comply with
these payment terms whenever it is satisfied that the supplier has
provided the goods and services in accordance with the agreed terms
and conditions. The payment policy has been and will continue to be
developed to meet the group’s specific requirements and is not based
on any particular code or standard relating to payment practice. The
number of creditor days of the company at 31 December 2010 was
45 days (2009: 46 days).
The environment
The group regards compliance with relevant environmental laws
and the adoption of responsible standards as integral to its business
operation. It is also committed to introducing measures to limit any
adverse effects its business may have on the environment and will
promote continuous improvement in accordance with best available
techniques.
Employees
The total number of employees at the end of the period was 2,020.
The group recognises the value of its employees and seeks to create
an energetic, dynamic and responsive environment in which to work.
The company maintains a policy of employing the best candidates
available in every position, regardless of gender, ethnic group or
background. It places considerable importance on communications
with employees which take place at many levels through the
organisation on both a formal and informal level.
and promotion wherever appropriate. Further details of arrangements
relating to employees are described in the Corporate and Social
Responsibility report on pages 47 to 50.
A “whistle-blowing” policy and procedure is in place and has been
notified to employees. The policy enables them to report any concerns
on matters affecting the group or their employment, without fear of
recrimination, and reduces the risk of malpractice taking place and
remaining unreported. In addition, the group does not tolerate matters
of discrimination, harassment and bullying, whether they relate to sex,
race, national origin, disability, age, religion or sexual orientation and
policies and procedures are in place for reporting and dealing with
these matters.
Employees are encouraged to own shares in the company and the
group operates an HMRC Approved Savings Related Share Option
Scheme (SAYE). Those employees who choose to take up the option to
purchase shares in the company may enter into a savings arrangement
for either a three or five year period, with the option price determined
by reference to the share price at the date of grant. On exercise
the shares are purchased by the employee free of income tax and
national insurance, although capital gains tax rules apply.
Directors’ responsibilities
The Statement of Directors’ Responsibilities in respect of the Annual
Report and the Financial Statements can be found on page 28 of the
Annual Report.
Disclosure of information to the auditor
The directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no relevant
audit information of which the company’s auditor is unaware, and each
of the directors has taken all steps that he ought to have taken as a
director to make himself aware of any relevant audit information, and
to establish that the company’s auditor is aware of that information.
Auditor
KPMG Audit Plc has expressed its willingness to continue in office
as auditor of the company and in accordance with the provisions
of section 489 of the Companies Act 2006, a resolution for its
re-appointment and to authorise the directors to agree its remuneration
will be proposed at the forthcoming AGM. Auditor remuneration and
fees paid during the year to 31 December 2010 are set out in note 3
to the Financial Statements.
This directors report has been approved by the board and signed
on its behalf by
The group gives full and fair consideration to applications for
employment from disabled persons where the requirements of the
job can be adequately fulfilled by handicapped or disabled persons.
Where existing employees become disabled, it is the group’s policy
wherever practicable, to provide continuing employment under normal
terms and conditions and to provide training, career development
G M Duggan
Company Secretary
11 March 2011
Headlam Group plc Annual Report and Accounts 2010
27
Statement of Directors’ Responsibilities in respect of the
Annual Report and Accounts and the Financial Statements
The directors are responsible for preparing the Annual Report and
Accounts and the group and company financial statements in
accordance with applicable law and regulations.
Responsibility statement of the directors in respect of the annual
financial report
We confirm that to the best of our knowledge:
Company law requires the directors to prepare group and company
financial statements for each financial year. Under that law they are
required to prepare the group financial statements in accordance with
IFRSs as adopted by the EU and applicable law and have elected to
prepare the company’s financial statements on the same basis.
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the company
and the subsidiaries included in the consolidation taken as a whole;
and
• the Directors’ Report includes a fair review of the development
and performance of the business and the position of the company
and the group taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Signed on behalf of the board
Steve Wilson
Group Finance Director
11 March 2011
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 company and of their profit
or loss for that period. In preparing each of the group and company
financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs
as adopted by the EU; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and 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 enable them to ensure that its
financial statements comply with the Companies Act 2006. They have
general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the directors are also
responsible for preparing a Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement that complies with that
law and those regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
28
Headlam Group plc Annual Report and Accounts 2010
Accounts
Corporate Governance
The Combined Code on Corporate Governance
The company is of the view that in seeking to achieve a high standard
of corporate governance in all of its activities, the group’s reputation
and performance will be enhanced, to the benefit of the interests of
investors, employees, customers, suppliers and other stakeholders.
Companies listed in the UK in the FTSE 100 and FTSE 250 indices
are required to disclose how they have applied the principles of the
Combined Code on Corporate Governance (“the Code”) issued by
the Financial Reporting Council (“FRC”) in June 2008 and whether
they have complied with its provisions throughout the year, providing
an explanation where the provisions have not been complied with.
The Code sets out guidance in the form of principles and provisions
on how companies should be directed and controlled to follow good
governance practice.
Whilst the company is currently a constituent member of the FTSE
Small Cap and FTSE All Share indices, it continues to seek to comply
with the provisions of the Code having been a constituent member
of the FTSE 250 index in prior years.
To this end, the directors consider that the company has, with the
exception of a two month period following the resignation of a non-
executive director and before a successor was appointed, complied
throughout the year ended 31 December 2010 and up to the date of
this report with the relevant provisions set out in Section 1 of the Code
having applied the main and supporting principles set out in section 1
of the Code.
This report sets out how the principles of the Code are applied and
reports on the company’s compliance with the Code’s provisions.
Directors’ and board effectiveness
The board of directors (“board”) is collectively responsible to
shareholders for the proper management and success of the group.
Its role is to provide entrepreneurial leadership within a framework of
prudent and effective controls which enables risk to be assessed and
managed; to set strategic aims, ensure that the necessary financial
and human resources are in place to meet its objectives and review
management performance; to set the group’s values and standards;
and to ensure that its obligations to its shareholders and others are
understood and met.
The board operates on a unitary basis and comprises the Chairman,
three independent non-executive directors and two full time executive
directors, being the Group Chief Executive and the Group Finance
Director. A key element of the board’s responsibility is monitoring and
reviewing the effectiveness of the group’s system of internal control.
The non-executive directors play a pivotal role in challenging and
scrutinising its effectiveness and integrity.
The roles and responsibilities of the Chairman and Group Chief
Executive are clearly divided and periodically reviewed by the board.
Whilst collectively they are responsible for the leadership of the group,
the Chairman’s primary responsibility is for leading the board and
ensuring its effectiveness and the Group Chief Executive is responsible
for implementing strategy, running the businesses in accordance with
the objectives and policies agreed by the board and for the executive
management of the group. The Chairman communicates frequently
with the non-executive and executive directors and the non-executive
directors have the opportunity to meet with and discuss any issues or
concerns with the Chairman at any time throughout the year. Matters
that are not specifically reserved for the board and its committees
under their terms of reference or for shareholders in general meeting
are delegated to the Group Chief Executive. The Chairman’s other
business commitments are set out in the biographical details on page
22. During the year he resigned as the non-executive Chairman of
Tandem plc. The board is satisfied that his other business commitments
did not unduly restrict his availability to the group.
The board maintains overall control of the group’s affairs through a
schedule of matters reserved for its decision, most recently updated
in October 2010. These include, but are not limited to, setting
group strategy, approval of the business objectives and annual plan,
acquisitions and disposals, authority limits for capital and other
expenditure, material treasury matters, changes to capital structure and
dividend policy, committee terms of reference, auditor appointment or
removal and remuneration, board composition, succession planning,
health and safety, investor relations, financial reporting and controls
and corporate governance.
Further details of the board’s role in relation to the group’s systems of
internal control and risk management are given on pages 34 and 35.
A description of the specific responsibilities delegated to the principal
board committees is given on pages 31 to 34.
The effectiveness of the board is vital to the success of the group.
In line with agreed procedures, using an in-house process, the
board has conducted an evaluation of its own performance and
that of its committees and individual directors, including the Chairman.
No actions were considered necessary as a result of the evaluations.
The board intends to conduct a further evaluation of its performance
during 2011 with the aim of continually improving processes,
procedures and performance. The evaluation process is designed
to cover board processes, the structure and capability of the board,
strategic alignment, board dynamics and the skills brought to the
board by each director. The board is of the opinion that the directors
seeking re-election/election at the AGM have continued to give
effective counsel and commitment to the company and accordingly
should be re-elected/elected.
Board of directors
As referred to above, during the year the board consisted of six
members, three executive directors comprising Graham Waldron,
Chairman, Tony Brewer, Group Chief Executive and Steve Wilson,
Group Finance Director and three independent non-executive
directors, Dick Peters, Mike O’Leary, David Grove up until his
resignation on 17 March 2010 and with effect from 17 May
2010, Andrew Eastgate.
Headlam Group plc Annual Report and Accounts 2010
29
Corporate Governance
continued
The board considers that the balance achieved between executive
and non-executive directors during the year was appropriate and
effective for the control and direction of the business.
The board is assisted by committees that it has established with
written terms of reference, details of which are set out below.
Mike O’Leary was the Senior Independent Director throughout
the year. All of the directors bring strong judgement to the board’s
deliberations and the board is of sufficient size and diversity that the
balance of skills and experience is considered to be appropriate for
the requirements of the business. The non-executive directors are all
independent of management and free from any business or other
relationship, including those relationships and circumstances referred
to in provision A.3.1 of the Code that could materially interfere with
the exercise of independent and objective judgement. In making
this determination the board has considered whether each director
is independent in character and judgement and whether there are
relationships or circumstances which are likely to affect, or could
affect, the director’s judgement. The board believes that it is evident
from the consideration of the non-executive directors’ biographies
that they are of the integrity and stature to perform their roles of
independent non-executive directors. The Senior Independent Director
is available to shareholders if they have concerns which are not
resolved through the normal channels of the Chairman, Group Chief
Executive or Group Finance Director, or for which such contact is
inappropriate. The board will keep under review the size and structure
of the board to ensure it is appropriate for the ongoing business.
The non-executive directors do not participate in any bonus, share
option or pension scheme of the company. The biographical details
of the current directors are given on page 22.
The procedure for the appointment of new directors to the board
is described in the section on the Nominations committee below.
Non-executive directors are initially appointed for a three-year term
and, subject to review and re-election, can serve up to a maximum
of three such terms.
All directors are subject to election by shareholders at the first AGM
following their appointment by the board. Under the articles of the
company, each of the directors is required to retire by rotation at least
once every three years. Details of the directors retiring and seeking
re-election at an AGM are given to shareholders in the Directors’
Report and also in the Notice of AGM.
Board information, induction, training and professional development
All directors are equally accountable for the proper stewardship of
the group’s affairs. The non-executive directors have a particular
responsibility to ensure that the strategies proposed by the executive
directors are fully discussed and critically examined to ensure that they
take proper account of the best long term interests of the shareholders,
employees, customers, suppliers and the community.
30
Headlam Group plc Annual Report and Accounts 2010
To enable them to do this, the board has a forward rolling business
agenda which is regularly updated to include specific topics that
directors have requested for review at future meetings. The board
reviews the key activities of the business receiving papers and
presentations from executive management and external advisers,
generally a week in advance of the meeting, to enable it to do
so effectively. There is an established procedure for the preparation
and review, by the board of the annual budget. The board receives
regular reports from the senior executive management covering a
broad range of issues including health, safety and environmental
matters, finance and operational performance, risk management,
business development initiatives, special projects, legal and regulatory
developments, governance and best practice guidelines that affect
the group. The Company Secretary is responsible to the board, and
is available to individual directors, in respect of board procedures.
In conjunction with the Chairman, the Company Secretary ensures
that information distributed to the board is sufficient, clear and
accurate, that it is circulated in a timely manner and is appropriate
to enable the board to discharge its duties.
On joining the board, a director receives a comprehensive
induction pack which includes background information about
the group and its directors, details of board meeting procedures,
directors’ responsibilities, procedures for dealing in company shares
and a number of other governance-related issues. The director
meets with the Group Chief Executive to be briefed on the general
group strategy encompassing visits to group businesses. External
training, particularly on matters relating to the role of a director and
the role and responsibilities of board committees, is arranged as
appropriate. Ongoing training is provided as and when necessary
and may be identified in annual performance reviews or on an ad
hoc basis. The suitability of external courses is kept under review
by the Company Secretary. Training and development in the year
took various forms, including visits to group businesses with the
Group Chief Executive, attendance by certain directors at courses
run by professional bodies on various commercial and regulatory
matters. Directors receive regular updates appropriate to the business
throughout the year and the company provides resources for directors
to develop and refresh their knowledge and capabilities as required.
All directors are suitably qualified, trained and experienced so as to
be able to participate fully in the work of the board. To assist with the
independent conduct of their function and if required in connection
with their duties, the non-executive directors are able to obtain
professional advice at the company’s expense, and a process is in
place to facilitate this. The company provides directors’ and officers’
insurance cover, in line with normal market practice, for the benefit of
directors in respect of claims arising in the performance of their duties.
Accountability and audit
The Statement of Directors’ Responsibilities in respect of the Annual
Report and Financial Statements under adopted IFRS is set out on
page 28. The directors’ confirmation that they consider it appropriate
to prepare the accounts for 2010 on a going concern basis is given
on page 21.
Accounts
Corporate Governance
continued
Board meetings and attendance
The board usually meets nine times a year and normally includes at
least one meeting at an operating business. During the year there are
sufficient opportunities for the Chairman to meet with the non-executive
directors without the executive directors being present should this be
deemed appropriate. In addition, directors have frequent contact
between meetings and directors visit trading locations in
order to maintain close contact with the group’s business.
A record of the meetings held during the year by the board,
its committees and the attendance by individual directors
is set out below.
Board attendance statistics for the 52 week period ended
31 December 2010
Total number of meetings
Graham Waldron
Tony Brewer
Stephen Wilson
Dick Peters
Mike O’Leary
David Grove (resigned 17 March 2010)
Andrew Eastgate (appointed 17 May 2010)
Board
Committee meetings
meetings Remuneration
Audit Nomination
9
9
9
8
9
8
1
6
4
*
*
*
4
4
1
2
3
*
*
*
3
3
–
2
2
*
2
*
2
2
–
–
*Executive directors do not attend these meetings unless invited to do so by the respective committee Chairman.
In addition to the board meetings above there were two meetings which approved the 2010 Interim and 2009 Annual Report and Accounts. These meetings are constituted
by a committee of the board formed for that sole purpose comprising the Group Chief Executive and Group Finance Director having considered the views of the whole board
beforehand.
Directors’ interests and indemnity arrangements
At no time during the year did any director hold a material interest in
any contract of significance with the company or any of its subsidiary
undertakings other than a third-party indemnity provision between
each director and the company and service contracts between each
executive director and the company. The company has purchased
and maintained throughout the year directors’ and officers’ liability
insurance in respect of itself and its directors. The directors also have
the benefit of the indemnity provision contained in the company’s
articles. These provisions, which are qualifying third-party indemnity
provisions as defined by Section 236 of the Companies Act 2006,
were in force throughout the year and are currently in force. Details of
directors’ remuneration, service contracts and interests in the shares of
the company are set out in the directors’ Remuneration Report.
The company also provides an indemnity for the benefit of each
person who was a director of Headlam Group Pension Trustees
Limited, which is a corporate trustee of the company’s occupational
pension schemes, in respect of liabilities that may attach to them in
their capacity as directors of that corporate trustee. These provisions,
which are qualifying pension scheme indemnity provisions as defined
in Section 235 of the Companies Act 2006, were in force throughout
the year and are currently in force.
Directors’ conflicts of interest
The board has maintained procedures whereby potential conflicts
of interests are reviewed regularly. These procedures have been
designed so that the board may be reasonably assured that any
potential situation where a director may have a direct or indirect
interest which may conflict or may possibly conflict with the interests
of the company are identified and where appropriate dealt with
in accordance with the Companies Act 2006 and the company’s
articles. The board has not had to deal with any conflict during the
period.
Board committees
The board has established Audit, Nomination and Remuneration
committees to oversee and debate important issues of policy and
assist in attending to its responsibilities, each with terms of reference
that each comply with the provisions of the Code and are available
on written request from the Company Secretary at the registered office
and will be available on the company’s website during April 2011.
The roles of the Remuneration, Audit and Nomination committees
are set out below. The Audit and Remuneration committees were
comprised of the three independent non-executive directors with
the Group Chief Executive additionally serving on the Nomination
committee.
Headlam Group plc Annual Report and Accounts 2010
31
Corporate Governance
continued
Audit committee
The Audit committee was chaired during the year by Dick Peters
and is comprised of all of the non-executive directors.
The committee monitors the integrity of the company’s financial
statements and the effectiveness of the external audit process. It is
responsible for ensuring that an appropriate relationship between the
company and the external auditor is maintained, including reviewing
non-audit services and fees, and makes recommendations to the
board on the appointment, re-appointment or dismissal of the external
auditor. It also reviews the group’s systems of internal control and
the processes for monitoring and evaluating the risks facing the group
on an ongoing basis. The committee periodically reviews its terms
of reference and its effectiveness and recommends to the board
any changes required as a result of such review.
The Audit committee comprises the three non-executive directors.
The Company Secretary acts as secretary to the committee. Dick
Peters is a chartered accountant with considerable financial and
audit experience and is considered by the board to have recent
and relevant financial experience.
Only members of the committee are entitled to be present at meetings
however the auditor, Chairman, Group Chief Executive and Group
Finance Director attend meetings by invitation. The company does
not have a formal internal audit function, considering that one is not
appropriate. However detailed monthly reviews are carried out by the
Finance Director for Operations and Financial Controller. The Finance
Director for Operations reports to the Group Finance Director and has
access to the Chairman of the committee. The committee members, all
other directors and senior executive management have direct access
to the external auditor throughout the year, to seek advice or raise any
issues or concerns.
The committee has an agenda linked to events in the group’s financial
calendar, normally meeting at least twice a year, including meetings
before the annual and interim results announcements. The committee
met three times in the year, members’ attendance record being given
on page 31, during which it discharged its responsibilities as set out
in its terms of reference and schedule of business for the year. All of
the committee members attended the meetings that they were eligible
to attend. The committee has authority to investigate any matters within
its terms of reference, to access resources, to call for information and
to obtain external professional advice at the cost of the company.
At each meeting there is an opportunity for the external auditor to
discuss matters with the committee without any executive management
being present. The committee has independent access to the external
auditor who has direct access to the Chairman of the committee
outside formal committee meetings. The Audit committee has the
specific task of keeping under review the nature and extent of non-
audit services provided by the external auditor in order to ensure that
objectivity and independence are maintained. The Audit committee
reviews annually the independence of the external auditor and
the individuals carrying out the audit.
32
Headlam Group plc Annual Report and Accounts 2010
The committee seeks to balance the benefits of continuity of audit
personnel and the need to ensure independence through a change
of audit personnel by agreeing with the auditor staff rotation policies.
Whilst KPMG have been an external auditor to the group since
1992, there is a procedure in place for the audit partner to change
every five years, so maintaining objectivity and independence without
the need to change firm, the last such change taking place during
2009.
The external auditor has in place processes to ensure its independence
is maintained including safeguards to ensure that, where it does
provide non-audit services, its independence is not compromised.
It has written to the Audit committee confirming that, in its opinion,
it is independent. During the year the committee reviewed the scope
and programme of work to be undertaken by the external auditor,
considered the independence and objectivity of services provided
and reviewed the level of fees paid for those services.
During 2010, the Audit committee discharged its responsibilities by:
• reviewing the group’s draft 2009 preliminary annual results
announcement and financial statements and 2010 interim results
statement prior to board approval, including consideration of the
significant accounting judgments contained therein, and reviewing
the external auditors’ detailed reports thereon.
• reviewing the consistency of and any changes to the group’s
accounting policies, the application of appropriate accounting
standards and methods used to account for significant or unusual
transactions.
• reviewing the potential impact on the group’s financial statements
of certain matters such as impairment of asset values and employee
benefits.
• reviewing the effectiveness of the 2009 external audit process
and recommending to the board, after due consideration, the
re-appointment of the incumbent external auditor at the AGM.
• reviewing the application of the board’s policy on non-audit work
performed by the group’s external auditor together with the non-
audit fees payable to the external auditor in 2009.
• reviewing the external auditors’ plan for the audit of the group’s
2010 accounts, which included key areas of focus, key risks on the
accounts, confirmation of auditor independence and the proposed
audit fee and approving the terms of engagement for the audit.
• reviewing reports from the external auditor on the group’s systems
of internal control in advance of the announcement of the group’s
results for 2009 (the internal report included a summary of and
commentary on the business risks and internal control processes)
and reporting to the board on the results of this review and
reviewing interim updates prior to the interim results.
• receiving regular updates from executive directors and senior
executive management on key financial control matters arising in
the group.
• considering the appropriateness of an internal audit function.
• reviewing and assessing the group’s compliance with corporate
governance principles.
• reviewing arrangements by which staff may in confidence raise
concerns about possible improprieties in matters of financial
reporting and other matters.
Corporate Governance
continued
Resolution 5 set out in the Notice of AGM recommends that
shareholders re-appoint KPMG Audit Plc as the group’s auditor and
resolution 6 authorises the directors to determine their remuneration.
When appointing advisers for non-audit work, the group considers
the value for money, experience and objectivity required and in
this respect it has used Deloitte to conduct non-audit tax work.
The committee recognises that there are occasions when it is
advantageous to use the external auditor to undertake non-audit
services, when they are best placed to do so. The committee
operates under a formal policy approved by the board to help
ensure the independence and objectivity of the external auditor is
not compromised. The policy states that non-audit fees paid to the
principal external auditor should not exceed 250% of the audit
fee, except in the case of significant events. The Chairman of the
committee is required to authorise non-audit work above a pre-agreed
threshold. Note 3 to the Financial Statements provides a breakdown
of 2009 and 2010 audit and non-audit fees. In 2010, the non-audit
services provided by the external auditor, predominantly in respect of
iXBRL mapping, winding up dormant companies and P11D software,
amounting to £21,000 was below the pre-agreed threshold.
As a result of its work during the year, the committee has concluded
that it has acted in accordance with its terms of reference and has
ensured, as far as possible by enquiry of them, the independence
of the external auditors. The terms of reference of the committee are
available on request from the Company Secretary at the registered
office and will be available on the company’s website during April
2011. The Chairman of the committee will be available at the AGM
to answer any questions on the work of the committee.
Remuneration committee
The Remuneration committee, chaired by Mike O’Leary and
comprising all of the non-executive directors, establishes, on behalf
of the board, the remuneration policy generally, approves specific
arrangements for the Chairman and the executive directors and
reviews and comments upon the proposed arrangements for senior
executive management so as to ensure consistency within the overall
remuneration policy and group strategy. Further information on the
activities of the committee is given in the directors’ Remuneration
Report on pages 36 to 46 which should be read in conjunction with
this report. The directors’ Remuneration Report also describes how the
principles of the Code are applied in respect of remuneration matters
and includes a statement on the company’s policy on directors’ and
senior executive managers’ remuneration, benefits, share scheme
entitlements and pension arrangements. During the period no
director was, and procedures are in place to ensure that no
director is, involved in deciding or determining their own
remuneration. A resolution to approve the Remuneration Report
will be proposed at the AGM.
Accounts
Nominations committee
The Nominations committee, chaired during the year by Mike
O’Leary, comprises all of the non-executive directors and the Group
Chief Executive. The terms of reference of the committee are available
on request to the Company Secretary at the registered office and will
be available on the company’s website during April 2011.
The committee leads the process for identifying and makes
recommendations to the board on candidates for appointment as
directors of the company and as Company Secretary, giving full
consideration to succession planning and the leadership needs
of the group. It also makes recommendations to the board on
the composition and Chairmanship of the Audit and Remuneration
committees. It keeps under review the structure, size and composition
of the board, including the balance of skills, knowledge and
experience and the independence of the non-executive directors,
and makes recommendations to the board with regard to any
changes. The committee meets periodically when required. The
Nominations committee met twice in the year, as reflected in the
attendance record during 2010 given on page 31. Only members
of the committee are entitled to be present at meetings but others may
be invited by the committee to attend. The board has agreed the
procedures to be followed by the Nominations committee in making
appointments to the various positions on the board and as Company
Secretary. The committee has access to such information and advice
both from within the group and externally, at the cost of the company,
as it deems necessary. This may include the appointment of external
executive search consultants, where appropriate. No director is
involved in any decisions regarding their appointment.
All non-executive directors are appointed for an initial three year
term pursuant to a standard letter of appointment, which is available
for viewing at the company’s registered office during normal business
hours or at the AGM.
The committee ensures that newly appointed directors receive a
full induction and when considering the re-appointment of directors
ensures that the board has an appropriate balance of skills,
knowledge and experience. Items discussed by the committee
during the year to enable it to discharge its duties in accordance
with its terms of reference included the size, structure, composition
and skills of the board membership, the resignation of David Grove,
the appointment of Andrew Eastgate, the proposal to elect Andrew
Eastgate and to re-elect Tony Brewer under the retirement by rotation
provisions and the evaluation process relating to the board and
its committees, the operation of which is described above. When
considering the appointment of Andrew Eastgate, the committee
did not seek advice in respect of potential candidates from external
executive search consultancies or publicly advertise the role, preferring
to make its own enquiries and pursue recommendations.
Headlam Group plc Annual Report and Accounts 2010
33
Corporate Governance
continued
The committee, in conjunction with the board, receives updates
from the Group Chief Executive on succession and development
planning for senior positions within the group. Changes to directors’
commitments are reported to the committee as they arise and are
considered on their individual merits. There were no significant
changes to any of the directors’ external commitments during the
year. Appointments to the committee are made by the board.
Communication with shareholders
The company places considerable importance on communication
with shareholders and engages with them on a regular basis. The
board aims to present a balanced and understandable assessment
of the group’s financial position and prospects in its reporting to
shareholders and this is outlined in the Financial Review. The company
reports formally to shareholders twice a year when its half year and
full year results are announced and an interim and an annual report
is issued to shareholders.
The company has an ongoing programme of dialogue and
meetings between the executive directors and institutional investors
and analysts which cover strategy, trading and market conditions.
The company seeks to present an accurate and objective view in a
manner appropriate for the intended audience. Contact with the major
shareholders is principally maintained by the Group Chief Executive
and Group Finance Director. The Chairman ensures that the views
of shareholders are communicated to the board as a whole.
The Group Chief Executive and Group Finance Director have met
with the company’s brokers during the year to ensure they are aware
of the current views of major shareholders and of any material issues
they may have. These reports include summaries on the market’s
reaction to results announcements and the subsequent meetings
between management and investors. External brokers’ reports
on the company are circulated to all directors.
The Senior Independent Director and the other non-executive directors
are invited to attend presentations to analysts and institutional
shareholders, in particular the annual and interim results presentations.
The Senior Independent Director attended several meetings with
shareholders in the year during which a variety of subjects were
discussed.
The company’s AGM provides an opportunity for the board to
communicate with private investors. At the meeting, the company
complies with the Code as it relates to voting, the separation of
resolutions and the attendance of committee Chairmen. Wherever
possible directors attend the AGM and shareholders are invited to ask
questions during the meeting and to have the opportunity to meet with
the directors following the conclusion of the formal part of the meeting.
The group seeks to present an accurate, objective and balanced
picture in its annual and interim reports, trading statements, results
presentations and city announcements in a style and format which is
appropriate to the intended audience. Copies of annual and interim
reports, along with other published information and press releases,
34
Headlam Group plc Annual Report and Accounts 2010
are available on the company’s website at www.headlam.com.
The Notice of the AGM and related papers are sent to shareholders
at least twenty working days before the AGM and separate
resolutions are proposed on each substantial issue. Shareholders
at the meeting are advised as to the level of proxy votes received,
including the percentage for and against each resolution together
with the level of abstentions, following each vote on a show of
hands. In line with the Code, details of proxy voting by shareholders,
including votes withheld, are made available on request and are
placed on the company’s website following the AGM.
Details of the 2011 AGM are set out in the Notice of AGM which
forms part of these Annual Report and Accounts along with details
of the facilities available for proxy votes to be cast electronically.
The company offers shareholders the right to withhold their vote,
if they so wish, in line with best practice.
Risk management and internal controls
The board recognises that the management of risk through the
application of a consistent process during the year as required by
Code provision C2 (Internal Control) is key to ensuring that a robust
system of internal control is monitored by the business. The principle
risks and uncertainties facing the company may include some of those
identified on pages 24 and 25 in the Directors’ Report. It should be
borne in mind that this is not an exhaustive list and that there may be
other risks that have not been considered or that the board consider
now are insignificant or immaterial in nature, but that may arise and/
or have a larger effect than originally expected.
The Code requires directors to review and report annually to
shareholders on the effectiveness of the company’s systems of
internal control which include financial, operational and compliance
controls and risk management. The board has overall responsibility
for establishing and maintaining the group’s systems of internal
control and for reviewing its effectiveness whilst the implementation
of internal control systems is the responsibility of management. The
board continues to apply the internal control provisions of the Code
through a continuous process for identifying, evaluating and managing
the significant risks the group faces. This process has been in place
throughout the year and up to the date of approval of this report,
and the group has been in compliance with the provisions set out
in section 1, C2, of the Code, including consideration of corporate
social responsibility matters.
The objective of the group’s risk management processes is to
ensure sustainable development throughout the conduct of its
business in a way which satisfies its customers, maintains proper
relationships with suppliers and contractors, protects against losses
from unforeseen causes, provides a safe and healthy workplace,
develops environmentally friendly processes, minimises the cost and
consumption of increasingly scarce resources, prevents pollution
and waste and maintains a positive relationship with the communities
in which it does business.
Accounts
Corporate Governance
continued
Against this background, the systems are designed to meet the
group’s particular needs and designed to manage rather than
eliminate risks. By their nature, they provide only reasonable and
not absolute assurance against material misstatement or loss. The
board considers that the measures taken, including physical controls,
segregation of duties and reviews by management, provide sufficient
and objective assurance.
During the year the board maintained its process of hierarchical
reporting and review in order to evaluate the effectiveness of the
group’s systems of financial and non-financial controls. The group
has developed a comprehensive series of operating and financial
control procedures which are applied at all businesses and the
group finance team performs monthly reviews to verify that the
businesses are complying with the prescribed operating and financial
control procedures. In addition, the board reviews risk management
arrangements. Furthermore, the Audit committee receives reports from
the external auditor on matters identified in the course of its statutory
audit work.
These procedures provide a documented and auditable trail of
accountability, the results of which are periodically reviewed by
management for completeness and accuracy. These procedures allow
for successive assurances to be given at increasingly higher levels
of management through to the board. Planned corrective actions
are monitored for timely completion. During the course of its review
of the system of internal control, the board has not identified any
failings or weaknesses, or been advised of any, which it has
determined to be significant. Therefore a confirmation in respect of
necessary actions has not been considered appropriate. In addition,
there were no changes in the group’s internal controls or financial
reporting that have materially affected, or are reasonably likely
to affect, the group’s systems of internal control.
The group operates a comprehensive planning system, including
detailed reviews at all subsidiaries, together with formal reviews
and approval of annual plans by the board. Actual performance is
reported on a monthly basis measured against plan and prior year
including a detailed explanation of major variances and on a daily
basis, revenue, gross margin and cash flow, measured against plan
and prior year are reported. The company and its subsidiaries have
implemented control procedures designed to ensure complete and
accurate accounting for financial transactions and to limit the potential
exposure to fraud. The group has clearly defined guidelines for capital
expenditure and investment appraisal. These include annual plans,
detailed appraisal and review procedures, authority levels and due
diligence requirements when businesses are acquired. Any acquisition
or disposal of a business needs formal board approval. The board
reports that full procedures are in place to achieve compliance with
the internal control aspects of the Code for the next financial period.
The output of these reviews form an important element of management
reporting and a process is in place for monitoring the achievement
of action plans together with the identification of new and emerging
risks. An ongoing process of risk management and internal control
in accordance with the Code has been in place for the financial
year under review and up to the date of this report. The group
views the careful management of risk as a key managerial activity in
delivering business opportunities. The ethos of the group, delegation
of responsibility and other control procedures together with accounting
policies and procedures are communicated through the group and
laid out in the group procedures manual, which is periodically
updated, and the employment handbook which includes ethical
standards expected of personnel. The integrity and competence of
personnel is assessed during the recruitment process and monitored
throughout employment.
A high standard of health and safety management is promoted at
all levels within the group. The group’s health and safety approach
is supported by training programmes at operating businesses, group
health and safety rules and monitoring and auditing to promote a high
level of awareness and commitment. Individual businesses are assessed
on a periodic basis, and remedial solutions implemented where
necessary. Line management retain the responsibility for completion
of action plans with progress being monitored and reported.
The Audit committee meets at least twice a year and in accordance
with its terms of reference, reviews the effectiveness of the group’s
systems of internal control. In accordance with the Code the board
has undertaken an assessment of the need for a group internal audit
function. The board considers that the control systems and procedures
undertaken by the group are adequately performed by management
and therefore does not currently propose to introduce a group internal
audit function but will keep the matter under review.
This process has over the years identified a number of risks where
action plans have been developed to eliminate, minimise or mitigate
these risks (including the use of insurance where appropriate).
The Corporate Governance report and the Audit committee report
contained within have been approved by the board and are signed
on its behalf by
Geoff Duggan
Company Secretary
11 March 2011
Headlam Group plc Annual Report and Accounts 2010
35
Remuneration Report
Introduction
This report has been prepared by the Remuneration committee
(“the committee”) on behalf of the board and in accordance with the
Companies Act 2006, Schedule 8 of the Large and Medium sized
Companies and Groups (Accounts and Reports) Regulations 2008,
the UK Corporate Governance Code and the Listing Rules of the
Financial Services Authority.
The report is divided into two parts. The first part, which is not
required to be audited, details the role of the committee and
commentary on remuneration policy. The second part contains the
remuneration review detailing directors’ and a former directors’
emoluments, share awards and options and pension arrangements
that have been audited in accordance with the relevant statutory
requirements.
The purpose of this report is to inform shareholders of the company’s
policies on directors’ and senior executive managements’ remuneration
for the year ended 31 December 2010 and, so far as practicable, for
subsequent years as well, and to provide details of the remuneration
of individual directors as determined by the committee. This report
has been approved both by the committee and the board and, in
accordance with the Companies Act 2006, shareholders will be asked
to approve the report by way of a resolution that will be proposed at
the AGM of the company on 17 June 2011, at which the Chairman
of the committee will be available to answer any questions.
Unaudited information
Composition and role of the Remuneration committee
The members of the committee during the period under review,
whose experience and other roles are set out in the biographies
on page 22, are set out in the table below and comprise the three
independent non-executive directors. The members have no personal
financial interest, other than as shareholders, in matters to be decided,
no potential conflicts of interest and, as independent non-executive
directors, no day to day involvement in running the business. David
Grove resigned as a director with effect from 17 March 2010 and
Andrew Eastgate joined the committee on 17 May 2010 on his
appointment as a non-executive director. The two other members
served throughout both the period under review and the prior period.
The committee met four times during the year, members’ attendance
being as set out below.
Members during the year
Current directors
Mike O’Leary (Chairman)
Dick Peters
Andrew Eastgate
Former director
David Grove
Number of
meetings
attended during
the year
Meetings
eligible
to attend
4
4
2
1
4
4
2
1
The executive directors are invited to attend the committee’s meetings,
when appropriate, in an advisory capacity, but are not present when
their own remuneration is discussed. Meetings are attended by the
Company Secretary who acts as secretary to the committee.
During the period under review the committee obtained independent
advice from executive reward consultants, Hay Group.
The committee is responsible for setting the framework and policy
for the remuneration of the executive directors which it reviews
annually for appropriateness and relevance. The terms of reference
of the committee are available from the company on request and
will be available on the company’s website during April 2011.
It is also responsible for determining the specific elements of the
executive directors’ and senior executive managements’ remuneration,
performance targets, contractual terms and compensation arrangements.
This is to ensure that on termination, contractual terms and payments
are fair both to the company and to the individual so that failure is not
rewarded and the duty to mitigate loss is recognised. In addition, the
committee oversees any major changes in employee benefit structures
throughout the group.
In implementing this policy, in addition to receiving advice from its
external consultants, members attend seminars on the subject and review
data and surveys from a variety of published sources with particular
reference to the scale and composition of the total remuneration
packages to executives.
In setting the remuneration of the executive directors and senior
executive management, the committee takes into account the economic
environment and financial performance of the group, along with pay
and employment conditions of other group employees. In particular, the
committee endorsed the proposal made by executive directors that pay
rises in respect of executive directors remained frozen at their 2008
levels and that pay rises in respect of the senior executive management
were in line with the level of increases applied in 2011 to the wider
employee population which averaged 2%.
36
Headlam Group plc Annual Report and Accounts 2010
Accounts
Remuneration Report
continued
Remuneration policy
The objectives of the committee’s remuneration policy are to:
• ensure that the remuneration structure motivates the executive
directors and senior executive management to succeed and
appropriately rewards them for their contribution to the attainment
of the group’s short and long term results;
• maintain, particularly through reward schemes based on
performance, a competitive package of pay and benefits which
provides the motivation for future achievement;
• facilitate the building and retention of a high calibre and focussed
team which will work effectively to achieve the group’s longer term
strategic objectives;
• align the executive directors’ and senior executive management
interests with those of shareholders by offering participation
in schemes which provide opportunities to build shareholdings
in the company; and
• facilitate effective succession planning.
The committee considers that a substantial proportion of the executive
director’s remuneration should be variable and performance related
in order to encourage and reward enhanced business performance
and shareholder returns. The committee is satisfied that the incentive
structure does not raise governance issues by inadvertently motivating
or encouraging irresponsible or reckless behaviour.
In deciding the appropriate remuneration strategy for 2011 the
committee has taken into account the group’s performance over the
last year and the current economic environment. The committee will
continue to monitor and review the remuneration policy to ensure
that the remuneration structure and associated performance measures
remain appropriately aligned with the group’s strategic objectives.
The individual salary, bonus and benefit levels of the executive
directors and senior executive management are and will continue
to be reviewed annually by the committee.
Summary of Remuneration
The table below summarises the current components of executive
remuneration and shows how they are aligned with the overall
business strategy:
Component
Salary
Policy for executive directors and senior
executive management
- Reviewed annually
- Benchmarked using data from a variety of published sources
Annual bonus
- Based on achieving stretching group profit before tax targets
- Maximum of 150% of base salary
2008 Co-investment Plan
- Deferral of between 15% and 100% of annual bonus
- Other funds can be invested under certain circumstances
- Up to 2 for 1 matching subject to stretching EPS and TSR targets
Purpose and link to business strategy
- Market competitive salaries enable
the group to recruit and retain the
best talent
- Focus on improving profitability,
in accordance with the group’s
strategic priorities
- Target setting ensures that maximum
bonuses are only available for the
delivery of above target growth
in earnings
- Encourages retention and the making
of a personal financial commitment
- Assists in building and increasing
long term share ownership
- Alignment with long-term corporate
performance and shareholder returns
- Reduction of opportunity in 2010 to
reduce the cost to the company
Pension
- The group provides an opportunity for its executive directors
and senior executive management to participate in occupational
arrangements
- Market competitive arrangements enable
the group to recruit and retain the best
talent
Other benefits
- Typically company car, medical insurance and life assurance cover
- Provision of market typical benefits to
ensure the group attracts and retains
the best talent
Headlam Group plc Annual Report and Accounts 2010
37
Remuneration Report
continued
Remuneration structure
Base salaries
As a general policy, base salaries reflect the committee’s assessment
of the appropriate market rate for comparable positions and levels of
responsibility and the individual executive’s experience, performance
and value to the business. The committee also assesses pay and
employment conditions of employees of the group when determining
the executive directors’ remuneration. The committee reviews base
salary annually with any change taking effect from 1 January.
The base salary of the executive directors and of the senior executive
management remained unchanged in 2009 and 2010. With the
exception of the executive directors, whose base salaries will continue
to be unchanged for 2011, the committee has approved an average
inflationary increase of 2% to base salaries for the group’s workforce.
The exception to this increase will be where pay increases need to be
granted to any employees whose basic salary is considerably behind
the market or to individuals who are promoted to a more senior role.
Annual performance bonus
The committee reviews the annual performance related bonus scheme
to ensure that it remains competitive and, whilst stretching, continues
to offer an incentive to the executive directors and senior executive
management. The scheme focuses on annual objectives and links
individual performance with a business financial target. The financial
target is calculated by reference to the extent to which the group’s
profit before tax meets the planned target. The committee establishes
the objectives that must be attained for each financial year if a bonus
is to be paid. These are designed to drive performance and to
strengthen the alignment between the interests of shareholders and its
senior management, whilst encouraging management retention.
In 2009 the annual performance bonus comprised an annual cash
bonus based on the achievement of the group’s financial target, with
an award of 77% of base salary being paid.
The performance related scheme for 2010 was similarly based
on the achievement of a profit before tax target. Increasing profitability
and cash management has been an area of major focus for the
group over the last twelve months and the maximum bonus was only
achievable for over-achievement against the target. In the event of
underperformance of financial target, no bonus was to be awarded.
Furthermore, the committee determined not to use discretion to make
bonus awards for under performance.
For 2010, the committee is satisfied that the profit before tax target
was exceeded and accordingly performance-related bonuses,
including 22% of base salary in respect of over-achievement, were
awarded to the executive directors as shown in the table on page 44.
38
Headlam Group plc Annual Report and Accounts 2010
Bonus ranges for 2010 and 2011 and actual bonus outcome
for 2010 as a percentage of salary
Executive Director
Group Chief Executive
Group Finance Director
Chairman
Actual
bonus
level
97%
97%
–
Maximum
bonus
opportunity
150%
150%
–
Target
bonus
level
75%
77%
–
The performance related components of remuneration for executive
directors and senior executive management are paid in March
following the completion of the annual audit.
For 2011, the annual performance bonus will comprise a
cash bonus on the achievement of the group’s financial target.
On achievement of the profit before tax target a bonus of 75% of
base salary would be applicable and on attainment of 90% profit
before tax target, a bonus based on 10%, with incremental attainment
in between. The maximum of 150% of base salary will only be paid
for achievement of performance of 28% or more above the profit
before tax target.
The bonus target for 2011 has been set at a level which is more
demanding relative to 2010 using benchmarks that reflect both
internal business objectives and external expectations. The committee
is satisfied that the target is challenging and would represent
an increase in group profit relative to 2010.
Share incentive arrangements
The committee is keen to encourage directors and key employees to
increase their shareholdings in the company, so aligning their interests
with the company’s shareholders. The committee recognises the
importance of share incentives in recruiting and retaining directors
and employees on whose performance the success of the company
depends. The share incentive arrangements are also key in providing
a link between rewards to executive directors and senior executive
management and sustainable, long-term financial performance. It is
also worth noting that the Group Chief Executive and Group Finance
Director have significant personal shareholdings which enhance their
alignment with investors.
The company has adopted five share plans. In June 2002 the company
adopted the Headlam Group Sharesave Scheme which is open to all
eligible employees on the same basis, providing a long-term savings
and investment opportunity.
Remuneration Report
continued
In June 2008 the company adopted the Headlam Group Co-
Investment Plan 2008 (“CIP”) and the Headlam Group Performance
Share Plan 2008 (“PSP”). Shareholders also authorised the adoption
of the Headlam Group Approved Executive Share Option Scheme
2008 and the Headlam Group Unapproved Executive Share Option
Scheme 2008, both being market value share option plans (“ESOS”).
The CIP and PSP are intended to be the main incentive vehicles for
executive directors and senior executive management with awards
intended to be made on an annual basis. However, the committee
has not yet implemented the PSP and it does not intend to do
so during 2011. The ESOS are intended to be used to reward
employees below the board and it is not the current intention to
grant awards under the ESOS to executive directors. The executive
directors are also eligible to participate in the Headlam Group
Sharesave Scheme, an all employee SAYE scheme. For those options
and awards subject to a performance target, determination that the
conditions have been met is made by the committee once the relevant
EPS and TSR figures are known for the relevant financial year and
targets are tested only once.
Headlam Group Co-Investment Plan 2008 (the “CIP”)
The CIP provides for the grant of matching share awards in the
form of a non-transferable nil-cost option to acquire existing shares.
A matching share award may be made to participants of up to
twice the number of shares that would have been acquired with the
pre-tax amount of bonus or other funds that they are invited to apply
to acquire shares.
At the discretion of the committee, participants may be invited to take
not less than 15% and up to 100% of their annual bonus in the form
of shares, the net amount after income tax and employees national
insurance being used to acquire shares. If no annual bonus is paid
in a year, the committee may permit investment of other funds but
subject to a maximum of 50% of any bonus paid in the preceding
year. In the first year that an award is made, the participant may
apply shares which they already hold with the requisite market value.
It is currently intended that awards will be satisfied by the transfer
of shares from an employee share trust, such shares having been
acquired by the trust on the market.
Subject to the satisfaction in full or part of performance targets,
an award will normally be exercisable at least three years after
the award date however cannot be exercised more than ten years
after the award date.
Accounts
Performance targets are measured over a fixed period of three
years, beginning not earlier than the year in which an award is
made. Performance targets are a mix of EPS growth targets and
total shareholder return (“TSR”) targets against the FTSE 250 index
(excluding investment trusts) with 50% of the award determined by
the EPS growth targets and 50% by the TSR targets. The committee
considers that achieving real EPS growth in the medium term is of
paramount importance for the long-term success of the business and
has therefore decided to continue to base 50% of the award on this
metric. In addition, 50% of the award is based on TSR against a wide
range of companies to ensure that directors only receive the maximum
payouts available under the plan if the group significantly outperforms
the general market.
The committee carefully considered using a specific comparator
group rather than a broad index. However, on balance, it considered
that due to the nature of the group’s operations, it would be difficult
to construct an appropriate comparator group. The FTSE 250 index
had been chosen as it was a relevant broad based equity index in
which the group had over a number of years predominantly been
a constituent member. To the extent that future awards contain a TSR
target, the FTSE Small Cap index may be selected, if relevant.
Vesting of the TSR and EPS elements under the CIP and PSP
TSR ranking
of the group
Below median
Median
Upper quartile
Between median
and upper quartile
Matching under
the CIP
None
1 for 1 matching
2 for 1 matching
Vesting under
the PSP*
0%
30%
100%
Straight line matching Straight line vesting
Vesting of the EPS element under the CIP and PSP
EPS growth
relative to RPI
Matching under
the CIP
Vesting under
the PSP*
Less than RPI+3% p.a. None
RPI+3% p.a.
RPI+6% p.a.
Between median
and upper quartile
1 for 1 matching
2 for 1 matching
0%
30%
100%
Straight line matching Straight line vesting
*The PSP has not been implemented.
Headlam Group plc Annual Report and Accounts 2010
39
Remuneration Report
continued
In October 2010 awards were granted under the CIP to the executive
directors and senior executive management which were subject to
the TSR and EPS performance targets described above. The awards
were determined by reference to prior year bonus with matching
share awards of up to 2 for 1, dependent on achievement of the
performance targets. As this was the first award made under the
scheme there was provision for existing shareholdings to be used
by participants for matching purposes as approved by shareholders
at the 2010 AGM.
Proposed changes to the Headlam Group Co-Investment Plan 2008
(the “CIP”)
Before the 2010 awards were granted under the CIP, the
Remuneration committee accepted the recommendation made by the
executive directors to reduce the award by 75%, to 25% of salary
in order to reduce the cost for the company. The executives were
therefore not able to take full advantage of the first year opportunity
of using existing shares to fund the arrangement.
The company is therefore proposing an amendment to the rules of the
CIP at the AGM on 17 June 2011 to allow executives to use further
existing shares for future awards retaining the overall cap of 100% of
2008 base salary, which is consistent with the arrangement originally
approved by shareholders. Further details of the proposals can be
found in the Notice to the meeting on pages 106 and 112.
The committee believes that the executive director’s recommendation
to scale back the first year opportunity and the proposed amendment
to the rules of the CIP are in the best interests of the company and its
shareholders for the following reasons:
• the cost of the award in 2010 is reduced to 25% of base salary.
• the proposals do not increase the overall level of awards to
executive directors and other participants in the form of matching
shares.
• the CIP is currently the company’s only long-term incentive vehicle.
• the committee has not yet implemented the 2008 PSP nor does
it intend to do so during 2011 and it has not granted any option
awards under the 2008 Option Schemes.
• executive directors are required to commit shares to the CIP in
order to receive matching awards of shares. This commitment
is greater than established UK market practice for executive
directors to be eligible for long-term incentive awards without
the need to commit any of their own shares or funds.
Headlam Group Performance Share Plan 2008 (the “PSP”)
The PSP provides for the grant of non-transferable awards, in the
form of nil cost options, to acquire existing shares. It is currently
intended that awards will be satisfied by the transfer of shares
from an employee share trust, such shares having been acquired
by the trust on the market.
40
Headlam Group plc Annual Report and Accounts 2010
Whilst selected directors and employees are eligible to participate
at the discretion of the committee, it is intended only the executive
directors and senior executive management will participate in the
PSP. The aggregate market value of shares over which an award
may normally be made to a participant in any year may not exceed
their basic annual salary however awards may be made in excess
of this limit in circumstances the committee deems exceptional.
Subject to the satisfaction in full or part of performance targets,
an award will normally be exercisable at least three years after
the award date however cannot be exercised more than ten years
after the award date.
Under the rules of the plan, performance targets are to be measured
over a fixed period of three years, beginning not earlier than the year
in which an award is made. Performance targets are to be a mix
of EPS growth targets and total shareholder return (“TSR”) against
an appropriate index. Subject to committee approval before awards
are granted, awards made in the 2008 year were to be split with
50% determined by EPS growth targets and 50% by the TSR targets.
The targets that would have applied to the original award are those
described on page 39 and are the same as those that apply to any
awards under the CIP.
To date there have been no options granted under this scheme.
It is not the current intention of the committee to implement the PSP
for the executive directors in 2011.
Headlam Group Approved and Unapproved Executive Share Option
Schemes 2008
The schemes are respectively an HM Revenue & Customs (“HMRC”)
approved discretionary share option scheme and a non-HMRC
approved discretionary share option scheme which provide for the
grant of non-transferrable options to acquire ordinary shares in the
company by way of purchase or subscription to eligible employees.
It is intended the executive directors and senior executive management
will not participate in these schemes.
The exercise price of an option cannot be less than the market value
of a share, or in the case of subscription, not less than the share’s
nominal value. Options may normally be exercised three years after
the grant date subject to the satisfaction in full or part of performance
targets however cannot be exercised more than ten years after the
grant date.
On adoption of the schemes in 2008, the performance target for
options granted in the first year was to be earnings per share (“EPS”)
growth against growth in the Retail Prices Index (“RPI”) over a three
year performance period, measured on a scaling basis. To date there
have been no options granted under either of these schemes.
Accounts
Remuneration Report
continued
Headlam Group Executive Approved and Unapproved Share Option
Schemes 1998
As set out in the analysis of share options on page 45, there remain
capable of exercise options granted in 2005. The performance
targets for options granted under the 1998 Share Option Schemes
are based on the extent to which growth in the group’s earnings
per share (“EPS”) exceeds growth in the Retail Prices Index (“RPI”)
over a three-year performance period, EPS being calculated as fully
diluted earnings per share. In respect of the approved scheme EPS
growth must exceed RPI growth by 3% pa or more over the three year
performance period. In respect of the unapproved scheme, for options
up to one times eligible earnings, EPS growth must exceed RPI growth
by 3% pa or more over the three year performance period and by 5%
or more over the three year performance period for options granted
of between one times and two times eligible earnings. The committee
felt that these performance conditions were appropriate at the time the
options were granted.
Headlam Group Sharesave Scheme 2002
Under the scheme, options may be granted at up to a 20% discount
to market price at the date of grant. Options may not normally be
exercisable until the option holder has completed their three or five
year savings contract. With the exception of non-executive directors,
all employees, including the executive directors, are eligible to
participate in the scheme. Awards were granted to UK eligible
employees, excluding executive directors, during the year.
Dilution
The committee is aware of, and supports, the ABI guidelines regarding
dilution and regularly monitors compliance with these requirements.
The committee included provisions which limit the number of newly
issued shares which can be granted in a 10 year period to 10% of
the issued share capital under all employee schemes and 5% under
the discretionary share plans.
As at the date of this report, the company’s usage of shares against
the limits detailed above in respect of the all employee schemes
was 4% of the issued share capital and in respect of grants under
discretionary plans was 2% of issued capital. It is the intention that
options exercised under the SAYE scheme and the two executive share
option schemes are satisfied by shares held in treasury. With regard to
the PSP and the CIP it is the committee’s intention is to make purchases
of shares through a trust, if required, taking into account the likelihood
of any performance targets being met and also potential lapsing of
awards when employees leave employment.
Further information on share-based payments is set out in note 20 to
the Financial Statements.
Other benefits
Executive directors receive taxable benefits comprising a company
car and fuel, lump sum life assurance for death-in-service cover and
non-contributory private medical insurance, which provides benefits
similar to those applicable in comparable companies.
Retirement benefits
Tony Brewer currently participates in the Headlam Group Staff Retirement
Benefits Scheme, the defined benefit plan operated by the group, on
a non-contributory basis. Details regarding participation in the defined
benefit pension plan are given on page 44 and 45.
Service contracts
The current policy is for executive directors’ service contract notice
periods to be normally no longer than twelve months. The service
contracts of the executive directors’ have no fixed term but provide
that either the director or the company may terminate the employment
by giving twelve months’ written notice and that the company may
pay compensation in lieu of notice. The company recognises however
that it may be necessary in the case of new executive appointments to
offer an initial longer notice period, which would subsequently reduce
to one year after the expiry of that period. All future appointments
to the board will comply with this requirement.
Service agreements contain neither a liquidated damages nor a
change of control clause. It is the company’s policy to ensure that any
payments made to a director in the event of the early termination of
a service agreement reflect the circumstances giving rise to termination
and, where considered appropriate, the obligation of the outgoing
director to mitigate his loss. Accordingly, consideration is given to
making compensation payments in instalments and is conditional on
the leaver’s employment and earnings status. The service agreements
of the executive directors who served during the financial period were
entered into on 11 October 2005.
The Chairman does not hold a service contract and does not
participate in the company’s executive share schemes, incentive plans
or pension schemes. Additionally, he is not a member of the various
committees of the board.
The service agreements of the continuing directors are available for
inspection at the registered office of the company during normal
business hours on each business day.
Details of individual director’s remuneration and share incentives are
set out on pages 44 to 46.
Headlam Group plc Annual Report and Accounts 2010
41
Remuneration Report
continued
External appointments of executive directors
The board believes that experience of other companies’ practices
and challenges is valuable both for the personal development of its
executive directors and for the company. It is therefore the company’s
policy to allow each executive director to accept one non-executive
directorship of another company, although the board retains the
discretion to vary this policy. Fees received by executive directors
in respect of external non-executive appointments are retained by
the individual director. Graham Waldron retired as non-executive
Chairman of Tandem Group plc on 21 June 2010 and Steve
Wilson retired as non-executive Chairman of Synergy Health PLC
on 22 September 2010, their fees in the year being £58,333
and £48,879 respectively.
Non-executive directors
The non-executive directors do not have service agreements but
instead are appointed for an initial period of three years by letter of
appointment which is terminable by either party subject to one month’s
notice, for which no compensation is payable. Letters of appointment
of the non-executive directors are available on application to the
Company Secretary. At the end of the initial period, the company
discusses with the non-executive director whether they wish to renew
their appointment and whether it is in the best interests of the company
for their appointment to be renewed. Such renewal would normally be
for a further period of three years, subject to termination as aforesaid.
Non-executive directors are typically expected to serve two three-year
terms, although the board may invite them to serve for an additional
period. All appointments and subsequent re-appointment is subject to
approval by shareholders.
Non-executive directors’ fees are reviewed by the board annually by
reference to prevailing market conditions and at a level which will
attract individuals with the necessary experience and ability to make
a positive contribution to the group’s affairs. The annual fees were
reviewed with effect from 1 January and remained unchanged at
£35,000, with an additional £5,000 being paid to the respective
chairmen of the Audit and Remuneration committees. Non-executive
directors are not involved in any discussion or decision about their
own remuneration nor do they participate in any of the company’s
share schemes, incentive plans or pension schemes. The aggregate
limit for fees paid to non-executive directors is laid down in the
articles. Mike O’Leary has been designated Senior Independent
Director for which he receives no additional fees.
Most recent re-election dates
The table below shows the dates of appointment and the most recent
re-election dates for directors.
Name of director
Executive Directors
Graham Waldron
Tony Brewer
Steve Wilson
Date of
appointment
Date of last
re-election
at an AGM
June 1991
June 1991
December 1991
June 2010
June 2008
June 2009
Non-executive Directors
Dick Peters
Mike O’Leary
Andrew Eastgate
December 2005
March 2006
May 2010
June 2010
June 2009
–
Directors’ share interests
It is the company’s policy that executive directors are required to hold
shares in the company equivalent in value to once time’s base salary,
newly appointed directors being expected to build their holding over
a five year period. The executive directors each hold shares that
significantly exceed this minimum requirement.
In accordance with Listing Rule 9.8.6R, the beneficial interests of
directors and their connected persons, as required by Section 822
of the Companies Act 2006, who held office at the end of the year
in the ordinary shares of the company, were:
Shareholdings at
31 December 2010 31 December 2009
Shareholdings at
Executive Directors
Graham Waldron
Tony Brewer
Steve Wilson
360,638
519,942
400,770
Non-executive Directors
Dick Peters
Mike O’Leary
Andrew Eastgate
5,000
–
–
360,638
519,942
400,770
5,000
–
–
There were no changes in the beneficial interests of the directors in the
company’s shares between 31 December 2010 and 11 March 2011.
42
Headlam Group plc Annual Report and Accounts 2010
Accounts
Remuneration Report
continued
Performance graph
The following graph shows the group’s performance on a holding of £100 in the company’s shares for the five year period to 31 December 2010
measured by total shareholder return (“TSR”), compared with the performance of the FTSE SmallCap index also measured by TSR, which is defined
as share price growth, plus re-invested dividends.
The FTSE SmallCap index has been chosen because it provides a basis for comparison against companies in a relevant broad based equity
index in which the group is a constituent member. The other points plotted are the values at intervening financial year ends.
Total shareholder return
5 Year Return Index for FTSE Small Cap as at 31 December 2010
Headlam Group plc
FTSE Small Cap
160
140
120
100
80
60
40
20
0
31 December
2006
31 December
2007
31 December
2008
31 December
2009
31 December
2010
Source: Thomson Financial
Audited information
The Remuneration Report from page 36 to page 43 up to this statement has not been audited. From this point until the end of the report on page 46
the disclosures have been audited by the company’s auditor, KPMG Audit Plc.
160
140
120
100
80
60
40
20
0
Headlam Group plc Annual Report and Accounts 2010
43
Remuneration Report
continued
Directors’ remuneration
The following section provides details of the remuneration, pension and share interests of the directors for their services as directors of the group
for the year ended 31 December 2010.
Salary and fees
Benefits
Performance
related pay
2010
£000
2009
£000
2010
£000
2009
£000
2010
£000
2009
£000
Executive directors
Tony Brewer
Steve Wilson
Graham Waldron
Non-executive directors
Andrew Eastgate (ii)
David Grove (i)
Mike O’Leary
Dick Peters
520
376
115
22
8
40
40
520
376
115
–
35
40
40
1,121
1,126
(i) David Grove resigned from the board on 17 March 2010
(ii) Andrew Eastgate was appointed on 17 May 2010
35
31
19
–
–
–
–
85
35
28
26
–
–
–
–
504
364
–
–
–
–
–
392
291
–
–
–
–
–
Total
2009
£000
947
695
141
–
35
40
40
2010
£000
1,059
771
134
22
8
40
40
89
868
683
2,074
1,898
Benefits are in respect of all taxable benefits arising from employment by the company including the provision of a company car and fuel, life
assurance cover and private medical insurance. Pension benefits and gains made by executive directors in respect of share options are excluded
from the table above.
Pension benefits
Tony Brewer participates in the group’s defined benefit pension scheme which provides benefits at a normal retirement age of fifty five based
upon pensionable service. The maximum pension payable under the scheme is equivalent to an amount that would not result in any additional
tax charge being payable under HMRC rules. There are lump sum death-in-service benefits and pension provisions for members’ dependents.
Benefit accrual in respect of Steve Wilson ceased on 20 August 2009 on reaching normal retirement age.
Details of executive directors’ pension benefits for the year ended 31 December 2010 are shown below:
Increase in
accrued pension
during the year
£000
Transfer value
of increase
£000
Accumulated
accrued pension
at 31 December
2010
£000pa
Change in
accrued pension
over the year
£000pa
Accumulated
accrued pension
at 31 December
2009
£000pa
Tony Brewer
Steve Wilson*
6
–
133
–
74
–
6
–
68
81
*Steve Wilson transferred his benefits out of the scheme on 14 October 2010 and as such had no benefit in the scheme on 31 December 2010.
44
Headlam Group plc Annual Report and Accounts 2010
Accounts
Remuneration Report
continued
The increase in the accrued pension during the year excludes any increase due to inflation of the accumulated accrued pension at the start of the
year. The change in accrued pension over the year includes any increase due to inflation of the accumulated accrued pension at the start of the
year. As the Section 52a Order for 2010 reflects there being no inflation over the year, the increase in accrued pension and change in accrued
pension values are equal.
Tony Brewer
Steve Wilson
Transfer value of
accrued pension at
31 December 2010
£000
Change in
Transfer value of
transfer value
accrued pension at
over the year 31 December 2009
£000
£000pa
1,624
–
244
–
1,380
2,204
Directors’ interests in share option schemes
Matching share awards under the CIP were granted for nil consideration on 7 October 2010 when the price of an ordinary share was 312
pence. The awards are subject to the performance conditions as outlined in the policy section with an exercise price of an aggregate £1 for
all the matching award shares.
Details of executive directors’ interests in the SAYE scheme, executive share option schemes and CIP are set out below, a description of which
is given on pages 39 to 41:
Options
held at
1 January
2010
342,858
7,142
7,043
–
242,858
7,142
7,043
–
Options
granted
during
the year
–
–
–
98,859
–
–
–
71,388
Tony Brewer
1998 USOS (i)
1998 ESOS (ii)
Sharesave (iii)
CIP (iv)
Steve Wilson
1998 USOS (i)
1998 ESOS (ii)
Sharesave (iii)
CIP (iv)
Graham Waldron
Sharesave (iii)
4,117
–
Options
cancelled
during
the year
Options
exercised
during
the year
Options
held at 31
December
2010
Exercise
price
(pence)
Date from
which
exercisable
Expiry date
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
342,858
7,142
7,043
98,859
242,858
7,142
7,043
71,388
420.00
420.00
222.20
nil
Aug 2008
Aug 2008
Jul 2014
Oct 2013
Aug 2012
Aug 2015
Jan 2015
Oct 2020
420.00
420.00
222.20
nil
Aug 2008
Aug 2008
Jul 2014
Oct 2013
Aug 2012
Aug 2015
Jan 2015
Oct 2020
4,117
222.20
Jul 2012
Jan 2013
(i) Headlam Group Unapproved Executive Share Option Scheme 1998 (1998 USOS)
Details of the operation of the scheme including the performance conditions attaching to options are provided on page 40.
(ii) Headlam Group Approved Executive Share Option Scheme 1998 (1998 ESOS)
Details of the operation of the scheme including the performance conditions attaching to options are provided on page 40.
(iii) Headlam Group Sharesave Scheme 2002 (Sharesave)
Details of the operation of the scheme are provided on page 41.
(iv) Headlam Group Co-Investment Plan 2008 (CIP)
Details of the operation of the scheme including the performance conditions attaching to options are provided on pages 39 and 40.
The mid market closing price of a Headlam Group plc ordinary share on 31 December 2010, the last trading day of the financial year,
was 313.50p and the price range during the year was 225.00p to 345.00p, with an average price of 283.65p.
Headlam Group plc Annual Report and Accounts 2010
45
Remuneration Report
continued
Gains made by directors
The aggregate amount of gains made by executive directors on the exercise of share options was £nil (2009: £nil).
Register of directors interests
The register of interests, which is open to inspection, contains full details of directors’ shareholdings and options. There were no changes
in the options held by the directors between 31 December 2010 and 11 March 2011.
Savings related share options scheme
The company operates an Inland Revenue approved all employee savings related share option scheme in the UK. The scheme is designed to
provide a long-term savings and investment opportunity for employees and is described on page 41. On 21 May 2010, the company granted
options under its savings related share option scheme for terms of between three and five years at an option price of 251.00p per share,
representing a 20% discount to market price. A total of 118 employees were granted options over a total number of 158,908 shares.
This report has been approved by the board and signed on its behalf by
Mike O’Leary
Chairman of the Remuneration Committee
11 March 2011
46
Headlam Group plc Annual Report and Accounts 2010
Accounts
Corporate and Social Responsibility
The company has a duty to our shareholders to consider social and
environmental issues that could affect our business. We are committed
to managing our business in a socially responsible manner and
our aim is to continually improve our management of the social,
environmental and economic issues within our control or influence
throughout the business and our supply network.
Our programme is designed to address the importance of corporate
social responsibility (“CSR”) issues that we face, to encourage and
facilitate appropriate management behaviour and be aligned with
the group’s business strategy taking proper account of the morale
and welfare of our employees, the satisfaction of our customers and
our impact on the environment. The proper management of CSR also
makes good business sense resulting in strategic, commercial and
reputational benefits.
Like many businesses, our stakeholders are many and diverse,
including our shareholders, employees, customers, suppliers, the
local community, government and non-governmental organisations.
Communication with our stakeholders is considered to be an essential
part of our business and we aim to be open and transparent in all that
we do.
The group has reviewed its ongoing CSR policy to ensure that it
meets the needs of the markets and communities in which it operates.
We communicate our results and prospects to our shareholders in an
accurate and timely manner using a variety of channels. In addition to
the AGM, we communicate through our Annual Report and Accounts,
Interim report, Interim Management Statements and trading updates.
All of these documents are available on our website at www.headlam.
com. Significant matters relating to trading and the development of the
business are disseminated to the market by way of announcements via
a regulatory information service and those announcements appear as
soon as practicable on our website. In addition face to face meetings
are held with our major institutional shareholders to both assist them
with their understanding of the announcements but also to ensure that
the board is aware of their views and concerns.
Our commitment to CSR is communicated to employees through
our employee handbook and through our group procedures manual.
These both include the requirement for employees to undertake to
act ethically and responsibly in all of our business dealings with
stakeholders and include our ethics, fraud and whistle blowing
policies, which are communicated to employees. We do not
permit bribery, anti-competition or corrupt practices in any dealings.
We are committed to continuous improvements in all aspects of CSR
– our policies, our systems, our performance and our reporting.
Our management structure allows the consideration of social and
environmental factors by individual businesses within the group and
at a group level. We continue to foster our relationships with our
external stakeholders. We aim to manage our relationships with
our stakeholders and communicate with them professionally and
responsibly. Our approach towards charitable donations and our
support in local communities is set out in the Director’s Report.
We have continued to make positive moves in our use of natural
resources, waste and energy management, health and safety and staff
development and welfare.
Health and safety
Health and safety is at the heart of our corporate responsibility.
Protecting our employees, contractors and visitors from injury is a
fundamental part of our business. We are committed to developing
and maintaining a positive health and safety culture in which statutory
requirements are viewed as a minimum and continually strive for
improvement. The group has developed its health and safety policy
over a number of years, applying it to the specific circumstances
appertaining to our individual businesses and amending it as changes
are considered appropriate.
The policy is endorsed by the board which receives an annual
presentation on health and safety matters with updates on a more
frequent basis where considered necessary. The annual update
includes a detailed review on health and safety issues at each trading
location and the progress made in improving our performance where
recommendations regarding improvements have been received
following annual, or where changes to operations have occurred,
more frequent inspections. These reports also outline planned health
and safety initiatives intended to improve standards and comment
on potential future legislative and best practice developments
and challenges.
The policy seeks to ensure that the group’s operations are carried out
at all times in compliance with the relevant health and safety guidance
in the jurisdictions in which we operate and to ensure the health and
safety at work of employees and all persons likely to be affected,
including contractors, customers, staff and members of the public
where appropriate.
All businesses undergo health and safety audits by an external body
and the measures by which we judge satisfactory outcome are
continually reviewed and the standards raised. Each business in
the UK, receives a comprehensive (bespoke to the location) health
and safety manual for use as a source of information, guidance and
training together with a set of compliance documentation which is
reviewed, and updated as necessary, on not less than an annual
basis.
In the UK, relevant health and safety information and guidance
forms part of our induction process and managers are guided and
supported in risk assessment techniques. Good practice guides setting
out the important Do’s and Don’ts associated with many of the roles
and duties undertaken by employees, in conjunction with one to one
training, support the job specific training undertaken with employees,
including periodic refresher training. During the year employee
training packs have been reviewed and their scope expanded.
Health and safety committees are promoted at all sites with
representation from the various business departments, meeting on
a periodic basis and co-ordinated by the health and safety manager
on site.
Headlam Group plc Annual Report and Accounts 2010
47
Corporate and Social Responsibility
continued
The value of employee participation in delivering this commitment
is recognised and management teams are encouraged to create a
supportive culture. To achieve this we endeavour to ensure that we:
• continue to improve health and safety systems, procedures
and guidance
• make personnel aware of this policy
• maintain high standards of health and safety
• maintain a consistent reporting structure
• provide adequate resources
Training in health and safety includes an awareness of impending
changes in relevant legislation and other specialist subjects. The
consistent approach taken throughout the group, with the group policy
being tailored and introduced into recently acquired businesses,
improves our governance. Courses provided by external assessors
complement in house forklift truck training undertaken on a one to
one basis. During the year, local management responsible for health
and safety successfully completed the Institute of Safety and Health
Managing Safely Course.
Our commercial drivers attended a day’s training in compliance with
the continuing professional competence scheme (“CPC”), which was
introduced in 2010 and supervised by an external training provider.
The scheme introduced a requirement for five days CPC training in a
five year period, which the group has chosen to undertake on a one
day a year basis. The subject matter in 2010 included an update
on tachograph regulations, daily vehicle checks, manual handling,
including the use of equipment provided, and what to do in the event
of an accident. CPC training in 2011 will include drivers working
time and associated tachograph usage, defensive driving and fuel
efficient techniques.
Good relationships are maintained with Health and Safety and
Environmental Health regulators in the areas in which we operate with
positive and prompt responses to any findings and/or observations
following compliance inspections.
The continual development of our policies and procedures has
resulted in some minor modifications to our control and inspection
procedures. Whilst we continue to aim for lower levels, the current
low frequency of accidents experienced reflects the success of our
health and safety policies. In 2010 there were eighteen reportable
accidents made to the Health and Safety Executive, none of which
resulted in serious injury, with no prosecutions for breaches of health
and safety or enforcement actions in the year. We investigate
all reportable accidents and in the minority of instances where
improvement is required, changes are implemented in a timely
manner.
48
Headlam Group plc Annual Report and Accounts 2010
Whilst management is committed to providing a safe working
environment with the appropriate working practices and training, this
can only be achieved if employees equally give their commitment to a
rigorous health and safety culture. We continue to undertake periodic
refresher training to ensure that this is kept at the forefront. Investment
in automated dispatch sortation equipment has significantly reduced
manual handling where they have been installed.
Audit, inspection and accident report findings are reviewed with
action plans produced as necessary to ensure continual improvement
in our management of health and safety.
Our people
Good relations and communications with employees are essential
to the continued success of our business and we seek to provide
an environment in which our people can flourish and succeed. Our
employees’ wellbeing and professional development is central to
recruiting and retaining high performing individuals. Our people seek
to deliver their best for the business, which combined with a fair and
responsible way of doing business, generates a common ambition to
add value.
The group remains committed to providing a workplace that is safe
and environmentally sound and which complies with applicable laws
and regulations. The group expects employees to respect confidential
information, company time and assets and believes in open and
honest communication, fair treatment and equal opportunities. The
group supports the fundamental principles of good governance.
The board values two-way communication between the business unit
management and employees on all matters affecting the welfare of the
business including regular senior management visits to operating units.
The group’s Annual Report and Accounts is available to staff which
provides employees with a greater awareness of the group’s
performance as well as the financial and economic factors that affect
it. In addition, those employees who are eligible are also able to
benefit from the group’s performance through participation in share
schemes, including a savings related share scheme.
It is the group’s policy that employment opportunities, training, career
development and promotion should be available to all, irrespective of
age, gender, ethnic origin, religion or disability. Due consideration is
given to applications for employment, having regard to the particular
aptitudes and abilities of the applicants. We treat our responsibilities
under the Disability Discrimination Act seriously. Any employee who
develops a disability during employment is given the opportunity to
retrain for alternative employment where practicable, given the nature
of the group’s activities.
The group places considerable value on the involvement of its
employees and has continued to keep them informed on matters
affecting them and on the various factors affecting the performance
of the group. It is the group’s continued practice to maintain employee
participation and involvement in matters which affect their interests
through formal and informal meetings.
Accounts
Corporate and Social Responsibility
continued
Recruitment, training and development is designed to ensure the group
has suitably skilled and qualified employees to meet the operational
needs of the business and offer the opportunity for employees to
develop and grow. The group is firmly committed to developing the
potential of its people and regularly reviews its succession planning
processes. Training is delivered primarily through internal resources
with assistance from external providers as and when required.
Employee turnover remains low resulting in a stable employee base.
We participate in work experience placement schemes.
The group considers it important that its employees provide for
their retirement and accordingly provides opportunities for them
to participate in retirement plans. A group life assurance scheme
provides death in service benefits.
Environmental
We continue to reduce each of CO2 emissions, fuel consumption
and vehicle emissions, the amount of waste sent to landfill, the
amount of packaging and water consumption. We have continued to
improve recycling rates and encourage the use of pollution prevention
initiatives.
As a wholesale distributor of floorcoverings and associated products,
we operate a number of distribution facilities in the UK, France,
Switzerland and the Netherlands. Whilst we operate specialist
tables for the cutting of up to five metre broadloom carpets, we
process rather than manufacture. We are therefore not a significant
consumer of electricity, gas or water, the consumption of which
we seek to reduce through the introduction on repair, renewal or
installation of energy or water efficient techniques and equipment.
Our electrical requirement is predominantly in respect of fork lift truck
battery charging, the operation of the cutting tables and associated
mechanical handling and compressed air equipment, office and
warehouse lighting and office equipment. Our requirement for gas is
predominantly in respect of office heating and limited localised radiant
heating within the warehouse. Water consumption is predominantly
is respect of employee welfare and commercial vehicle washing.
The majority of our water charges are in respect of fixed water
rates relating to water discharge from business locations. Actual
cost of electricity, gas and water charges in 2010 amounted to
0.22% of revenue. Group electricity consumption, where supplied
through half hourly meters, required registration under the carbon
reduction commitment scheme that came into effect in 2010, but not
compliance. The introduction of automated meter reading is being
considered in respect of sites with non-half hourly water meters.
When we invest in new facilities, we incorporate modern energy
efficient construction techniques and products. It is expected that future
projects will incorporate renewable energy solutions and intelligent
lighting systems. Due to the nature of our business and with our
proactive approach when planning and developing new facilities,
we believe that our activities generally have a low impact on the
environment, with no environmental legal or compliance issues arising
during the year.
The group has a policy to replace the commercial and motor
vehicles it operates every five and three years respectively, so
improving operational efficiencies and reducing operating costs
and vehicle emissions. In line with European Emissions Directives,
Euro 4 emission standards for commercial vehicles were introduced
in October 2006. This aims to improve the levels of Carbon
Monoxide, Hydrocarbon, Nitrogen Oxide and particulate emissions
that cause harm to the environment. As a result of the five yearly
replacement cycle, all of our commercial vehicles comply with
Euro 4 emissions standards. Our fleet requirements are evaluated
on a continual basis so as to ensure the optimum design of transport
to maximise capacity and improve aerodynamics. In relation to
company cars, a number of our businesses have either completed
or have committed to completing smarter driving courses with the
aim of improving energy efficient driving.
Our operations predominantly create waste materials in the form
of protective plastic wrapping, cardboard and wooden pallets.
We continue to sort the plastic and cardboard in discreet types
and, with the use of baler units that we have invested in over the last
few years, dispatch these to specialist re-processing agents. This has
allowed us to significantly reduce the amount of our waste going to
landfill and the number of vehicles on the road to collect our waste.
Wooden pallets are recycled where possible or sent to specialist
re-processors. In addition we recycle the cardboard poles that are
used in the centre of rolls of carpet and vinyl until they are no longer
capable of being re-used. In these ways we have further reduced
the amount of waste that is sent to landfill sites. Guidance on waste
management is issued to the managers of the individual businesses
to increase awareness of the need to control waste.
Where appropriate, wrapping and packing materials are sourced
from manufacturers where a high proportion of recycled materials
are used.
We have reviewed containment and inspection regimes in higher
risk areas such as fuel and lubrication stores, compressors and fork
lift truck battery charging areas, following which fire risk protection
was improved through increased training and awareness and the
installation of special containers remote from the main buildings
for the storage of flammable products.
We seek to maintain good relationships with national and local
regulatory organisations such as the Environment Agency and
Environmental Health Departments in the UK. We regularly review
regulatory issues and processes are in place to keep up to date. Staff
training in health, safety and environmental matters, the frequency and
cost associated with which is growing, is important and is reviewed
annually as part of normal appraisal processes.
The group continues to use paper recycling and shredding initiatives
and has introduced recycling bins for the segregation of aluminium
cans, plastics and general waste, having a beneficial impact on the
amount recycled.
Headlam Group plc Annual Report and Accounts 2010
49
Corporate and Social Responsibility
continued
Achieving sustained growth and profitability
There are a number of key areas whilst seeking to achieve the group’s
goal of sustained growth and profitability in future years, which will
assist in attaining the financial objectives at the same time as meeting
our corporate social responsibility obligations.
Through improving our understanding and control of our supply chain,
we continue to investigate the benefits from using green specification
guides and modify our strategy accordingly. We continue to work with
suppliers to ensure products are supplied from renewable sources,
including recycled products, and that their manufacturing processes
fairly reward employees and do not seek to exploit. Representatives
from our businesses visit supplier premises on a periodic basis to view
manufacturing conditions to ensure as far as possible that adequate
standards are operated.
We place great importance on effectively managing our operations
to minimise the likelihood of adverse impact. We proactively manage
our facilities to minimise energy consumption utilising energy efficient
lighting and heating. Our new sites are subjected to an environmental
assessment prior to any construction taking place. This allows solutions
to any identified environmental issues to be incorporated into the
planning process, the most recent proposals including the application
of underground heat pumps, rain water attenuation and the potential
of solar power. Recognising that development can be potentially
damaging, we seek to minimise energy consumption during the
construction of new premises and the effects on the environment.
Wherever possible, subject to the operating constraints of the
business, existing trees and vegetation are retained and augmented
as necessary. Existing sites are maintained in a tidy condition
to minimise ecological impact.
We recognise that our business operations will be around for many
years, having an impact on future generations, and to this end we
work with local authorities to design new facilities which not only
comply with guidelines but seek to blend in with their surroundings
through the careful use of quality materials, landscaping and design
features. We support the desire to see development take place
in sustainable locations and we work with transport consultants to
formulate green travel plans incorporating car sharing schemes and
provision for bicycles when designing new facilities.
50
Headlam Group plc Annual Report and Accounts 2010
Accounts
Independent Auditors Report
to the members of Headlam Group plc
We have audited the Financial Statements of Headlam Group plc for
the year ended 31 December 2010. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the
EU and, as regards the company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members, as
a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set
out on page 28, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit, and express an opinion
on, the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical
Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided
on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
• information given in the Corporate Governance Statement set
out on pages 29 to 35 with respect to internal control and risk
management systems in relation to financial reporting processes
and about share capital structures is consistent with the Financial
Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the company,
or returns adequate for our audit have not been received from
branches not visited by us; or
• the company Financial Statements and the part of the directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we
require for our audit; or
• a Corporate Governance Statement has not been prepared by the
company.
Under the Listing Rules we are required to review:
Opinion on Financial Statements
In our opinion:
• the directors’ statement, set out on page 21, in relation to going
concern;
• the Financial Statements give a true and fair view of the state of the
group’s and of the company’s affairs as at 31 December 2010 and
of the group’s profit for the year then ended;
• the part of the Corporate Governance Statement on pages 29 to
35 relating to the company’s compliance with the nine provisions
of the June 2008 Combined Code specified for our review and
• the Financial Statements have been properly prepared in
• certain elements of the report to shareholders by the board on
accordance with IFRSs as adopted by the EU;
directors’ remuneration.
• the company Financial Statements have been properly prepared
in accordance with IFRSs as adopted by the EU and as applied in
accordance with the provisions of the Companies Act 2006; and
• the 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.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006;
• the information given in the Directors’ Report for the financial year
for which the Financial Statements are prepared is consistent with
the Financial Statements; and
D Turner
Senior Statutory Auditor
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants,
One Snowhill,
Snow Hill Queensway,
Birmingham
B4 6GH
11 March 2011
Headlam Group plc Annual Report and Accounts 2010
51
Consolidated Income Statement
for the year ended 31 December 2010
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Operating profit
Finance income
Finance expenses
Net finance costs
Profit before tax
Taxation
Profit for the year attributable to the equity shareholders
Dividend paid per share
Earnings per share
Basic
Diluted
All group operations during the financial years were continuing operations.
Note
2
2
6
6
3
7
2010
£000
2009
£000
535,690
(370,731)
533,793
(371,533)
164,959
162,260
(102,016)
(36,877)
(100,698)
(36,804)
26,066
24,758
4,637
(5,697)
3,764
(6,458)
(1,060)
(2,694)
25,006
(7,127)
22,064
(6,168)
17,879
15,896
22
11.00p
19.70p
9
9
21.5p
19.1p
21.5p
19.1p
52
Headlam Group plc Annual Report and Accounts 2010
Accounts
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2010
Profit for the year attributable to the equity shareholders
Other comprehensive income:
Foreign exchange translation differences arising on translation of overseas operations
Actuarial gains and losses on defined benefit plans
Effective portion of changes in fair value of cash flow hedges
Transfers to profit or loss on cash flow hedges
Income tax on other comprehensive income
Other comprehensive income/(expense) for the year
Note
20
Group
2010
£000
2009
£000
17,879
15,896
1,094
356
(1)
225
9
(1,808)
(10,042)
(157)
781
2,854
1,683
(8,372)
Total comprehensive income attributable to the equity shareholders for the year
19,562
7,524
Headlam Group plc Annual Report and Accounts 2010
53
Statements of Financial Position
at 31 December 2010
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiary undertakings
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
Current liabilities
Bank overdraft
Other interest-bearing loans and borrowings
Trade and other payables
Employee benefits
Income tax payable
Non-current liabilities
Other interest-bearing loans and borrowings
Employee benefits
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium
Other reserves
Retained earnings
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
Note
10
11
12
13
14
15
16
17
97,215
13,210
–
896
96,530
13,210
–
4,731
77,968
–
86,703
213
75,082
–
86,392
3,769
111,321
114,471
164,884
165,243
105,694
102,240
44,758
362
99,637
101,149
45,737
2,275
–
27,924
23,369
362
–
27,153
27,473
1,387
253,054
248,798
51,655
56,013
364,375
363,269
216,539
221,256
16
18
19
20
8
–
(225)
(149,476)
(2,586)
(4,201)
(758)
(900)
(143,216)
(2,506)
(8,615)
–
–
(38,552)
(2,586)
(1,485)
–
–
(41,405)
(2,506)
(2,982)
(156,488)
(155,995)
(42,623)
(46,893)
18
20
(34,011)
(10,138)
(34,392)
(20,253)
(30,000)
(8,745)
(30,000)
(19,323)
(44,149)
(54,645)
(38,745)
(49,323)
(200,637)
(210,640)
(81,368)
(96,216)
163,738
152,629
135,171
125,040
22
22
4,268
53,512
(6,571)
112,529
4,268
53,512
(7,896)
102,745
4,268
53,512
7,616
69,775
4,268
53,512
7,385
59,875
Total equity
163,738
152,629
135,171
125,040
These financial statements were approved by the board of directors on 11 March 2011 and were signed on its behalf by:
Tony Brewer
Director
Steve Wilson
Director
Company Number: 460129
54
Headlam Group plc Annual Report and Accounts 2010
Accounts
Statement of Changes in Equity
for the year ended 31 December 2010
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Translation
reserve
£000
Cash flow
hedging
reserve
£000
Treasury
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance at
31 December 2009 4,268
53,512
88
5,297
(224)
(13,057)
102,745
152,629
4,268
53,512
88
–
5,297
1,094
(224)
(13,057)
102,745
152,629
224
–
18,244
19,562
Group
Balance at
1 January 2009
Total comprehensive
income for the year
Transactions with
equity shareholders,
recorded directly
in equity
Share-based payments
Deferred tax on
share options
Dividends to equity holders
Total contributions by and
distributions to equity
shareholders
4,268
53,512
–
–
–
–
–
–
–
–
–
–
Balance at
1 January 2010
Total comprehensive
income for the year
Transactions with equity
shareholders, recorded
directly in equity
Share-based payments
Share options exercised
by employees
Deferred tax on
share options
Dividends to equity holders
Total contributions by and
distributions to equity
shareholders
–
–
–
–
–
–
–
–
–
–
–
–
Balance at
31 December 2010
4,268
53,512
88
6,391
88
–
–
–
–
–
7,105
(848)
(13,057)
110,066
161,134
(1,808)
624
–
8,708
7,524
–
–
–
–
–
–
–
–
–
–
–
316
316
9
(16,354)
9
(16,354)
–
(16,029)
(16,029)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
–
448
–
448
7
224
(9,132)
224
(9,132)
7
(8,460)
(8,453)
(13,050)
112,529
163,738
Headlam Group plc Annual Report and Accounts 2010
55
Statement of Changes in Equity
for the year ended 31 December 2010
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Cash flow
hedging
reserve
£000
Treasury
reserve
£000
Retained
earnings
£000
Total
equity
£000
4,268
53,512
88
20,578
(848)
(13,057)
81,803
146,344
–
–
–
–
–
–
–
–
–
–
–
–
–
624
–
(5,890)
(5,266)
–
–
–
–
–
–
–
–
316
(16,354)
316
(16,354)
–
(16,038)
(16,038)
Company
Balance at
1 January 2009
Total comprehensive
income for the year
Transactions with
equity shareholders,
recorded directly
in equity
Share-based payments
Dividends to equity holders
Total contributions by and
distributions to equity
shareholders
Balance at
31 December 2009 4,268
53,512
88
20,578
(224)
(13,057)
59,875
125,040
4,268
53,512
20,578
(224)
(13,057)
59,875
125,040
–
–
–
–
–
224
–
18,584
18,808
–
–
–
–
–
–
7
–
7
448
448
–
(9,132)
7
(9,132)
(8,684)
(8,677)
(13,050)
69,775
135,171
Balance at
1 January 2010
Total comprehensive
income for the year
Transactions with equity
shareholders, recorded
directly in equity
Share-based payments
Share options exercised
by employees
Dividends to equity holders
Total contributions by and
distributions to equity
shareholders
–
–
–
–
–
–
–
–
–
–
88
–
–
–
–
–
Balance at
31 December 2010
4,268
53,512
88
20,578
56
Headlam Group plc Annual Report and Accounts 2010
Accounts
Cash Flow Statements
for the year ended 31 December 2010
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
Note
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation, amortisation and impairment
Net settlement gain on enhanced transfer value exercise
Finance income
Finance expense
Profit on sale of property, plant and equipment
Share-based payments
6
6
20
Operating profit before changes in working capital and other payables
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Cash generated from the operations
Interest paid
Tax (paid)/received
Additional contributions to defined benefit plan
Enhanced transfer value exercise payments
25,006
22,064
4,534
218
5,519
(176)
(4,637)
5,697
(314)
448
31,543
(5,770)
(1,405)
6,947
31,315
(1,344)
(7,506)
(2,706)
(7,488)
6,524
–
(3,764)
6,458
(102)
316
31,496
6,618
3,028
2,511
43,653
(2,272)
(7,425)
(2,607)
–
1,936
(176)
(4,402)
5,062
(222)
47
6,779
–
(437)
(2,664)
3,678
(731)
890
(2,706)
(7,488)
1,783
–
(3,850)
5,656
(71)
3
3,739
–
(148)
530
4,121
(1,458)
(1,568)
(2,407)
–
Net cash flow from operating activities
12,271
31,349
(6,357)
(1,312)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Dividends received
Acquisition of property, plant and equipment
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from the issue of treasury shares
Proceeds from borrowings
Repayment of borrowings
Dividends paid
3,167
834
–
(6,995)
664
846
–
(7,313)
2,142
427
14,526
(5,717)
508
613
1,375
(3,405)
(2,994)
(5,803)
11,378
(909)
7
–
(866)
(9,132)
–
1,152
–
(16,354)
7
–
–
(9,132)
–
–
–
(16,354)
10
22
Net cash flow from financing activities
(9,991)
(15,202)
(9,125)
(16,354)
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
(714)
44,979
493
10,344
35,193
(558)
(4,104)
27,473
–
(18,575)
46,048
–
Cash and cash equivalents at 31 December
16
44,758
44,979
23,369
27,473
The company’s profit before tax excludes dividends received from subsidiaries.
Headlam Group plc Annual Report and Accounts 2010
57
Notes to the Financial Statements
continued
1 ACCOUNTING POLICIES
Reporting entity
Headlam Group plc (the “company”) is a company incorporated
and domiciled in the UK.
Statement of compliance
Both the company’s Financial Statements and the group’s Financial
Statements have been prepared and approved by the directors in
accordance with International Financial Reporting Standards as
adopted by the EU (“adopted IFRS”). On publishing the company’s
Financial Statements here together with the group Financial
Statements, the company is taking advantage of the exemption
in s408 of the Companies Act 2006 not to present its individual
income statement and related notes that form a part of these
approved Financial Statements.
The company and group Financial Statements were authorised
for issuance on 11 March 2011.
Basis of preparation
The principal accounting policies applied in the preparation of the
Financial Statements of the company and the Financial Statements
of the group are set out below. These policies have been applied
consistently to all years presented, unless otherwise stated.
Judgements made by the directors, in the application of these
accounting policies that have significant effect on the Financial
Statements and estimates with a significant risk of material adjustment
in the next year are discussed below.
(a) Measurement convention
These Financial Statements are presented in pounds sterling, which
is the group’s functional currency. All financial information presented
in pounds sterling has been rounded to the nearest thousand.
The company and group Financial Statements are prepared on
the historical cost basis with the exception of derivative financial
instruments which are stated at fair value. Non-current assets held
for sale are stated at the lower of previous carrying amount and fair
value less costs to sell.
The Financial Statements are prepared on a going concern basis
as described in the Financial Review on page 21.
(b) Use of accounting estimates and judgements
The preparation of financial statements in conformity with adopted
IFRSs requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting year. Although these estimates are based on
management’s best knowledge of the amount, events or actions,
actual results ultimately may differ from those estimates.
The 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 if the revision affects
only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
The key sources of estimation uncertainty at the Statement of Financial
Position date that may give rise to a material adjustment to the carrying
value of assets and liabilities within the next financial year are as follows:
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment losses.
The group is committed to investing in new facilities where existing
facilities fail to provide satisfactory customer service in a cost effective
manner. When construction on a new facility commences, the existing
facility is marketed for sale and this action can on occasions give rise
to an adverse difference between carrying value and market value.
At the Statement of Financial Position date, the assets have been
reported at their carrying value. Market values are formally assessed
for all properties on a triennial basis and compared with the carrying
values.
At the latest review, carried out at 31 December 2010, the carrying
value of UK freehold and long leasehold land and buildings exceeded
market value (on an existing use basis) by £11,300,000. The directors
consider that the carrying value of the UK freehold and long leasehold
land and buildings is supported by their ongoing value in use within the
business. An impairment review has been undertaken on the portfolio
and with the exception of one property, which has been impaired
by £466,000, no further impairment was considered necessary.
Goodwill impairment
The outcome of the group’s annual impairment test for goodwill
is dependent on the forecast cash flows of each cash-generating
unit together with key management assumptions including profit
growth and discount rates. No impairment resulted from the annual
impairment test for 2010.
Deferred tax assets
Deferred tax assets are recognised at the Statement of Financial Position
date based on the assumption that there is a high expectation that
the asset will be realised in due course. This assumption is dependent
on the group’s ability to generate sufficient future taxable profits.
Employee benefits
The deficit relating to the group’s defined benefit plans is assessed
annually in accordance with IAS 19 and after taking independent
actuarial advice. The principle assumptions are set out in note 20.
The amount of the deficit is dependent on plan asset and liability
values and the actuarial assumptions used to determine the deficit.
58
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
The assumptions include asset growth rates, pension and salary
increases, price inflation, discount rate used to measure actuarial
liabilities and mortality rates.
In addition to the above amendments to a number of standards
and interpretations under the 2010 annual improvement project
will become mandatory for the year ending 31 December 2011.
(c) Impact of newly adopted accounting standards
In the current year, the group has adopted the following new
standards and interpretations:
• IFRS 3 (revised 2008), ‘Business combinations’ and consequential
amendments to IAS 27, ‘Consolidated and separate financial
statements’, IAS 28 ‘Investments in associates’ and IAS 31 ‘Interests
in Joint Ventures’.
The following new standards, amendments to standards or
interpretations are mandatory for the first time for the year ending
31 December 2010 but are not currently relevant for the group.
• Amendments to IFRS 2 – Group cash-settled Share-based
Payment Transactions
• Amendments to IAS 39 – Eligible Hedged Items
• Amendments to IFRIC 9 and IAS 39 – Embedded Derivatives
• IFRIC 15 – Agreements for the Construction of Real Estate
• IFRIC 16 – Hedges of a Net Investment in a Foreign Operation
• IFRIC 17 – Distribution of Non-Cash Assets to Owners
• IFRIC 18 – Transfers of Assets from Customers
In addition to the above, amendments to a number of standards under
the 2009 annual improvement project to IFRS, which are mandatory
for the year ended 31 December 2010, have been adopted in the
year. None of these amendments have had a material impact on the
group’s Financial Statements.
(d) IFRS not yet applied
The following standards and interpretations have been endorsed but
are not yet effective and therefore have not yet been applied by the
group in these Financial Statements:
• Amendments to IAS 32 ‘Classification of Rights Issues’ – requires
that rights, options or warrants to acquire a fixed number of the
entity’s own equity instruments for a fixed amount of any currency
are equity instruments if the entity offers the rights options or
warrants pro-rata to all of its existing owners of the same class
of its own non-derivative equity instruments.
• IFRIC 19 ‘Extinguishing Financial Liabilities with Equity Instruments’
– deals with how entities should measure equity instruments issued
in a debt for equity swap. It addresses the accounting for such
a transaction by the debtor only.
• Amendment to IFRIC 14 ‘Prepayments of a Minimum Funding
Requirement’.
• AS 24 ‘Related parties’ – effective for periods commencing on or
after 1 January 2011 – provides an exemption to all government
related entities which is not applicable to the group, however the
revised standard also amends the definition of a related party,
which will be applicable.
The group has considered the impact of these new standards and
interpretations in future periods on profit, earnings per share and net
assets. None of the above standards or interpretations are expected
to have a material impact.
Basis of consolidation
The group Financial Statements consolidate those of the company
and its subsidiaries which together are referred to as the “group”.
The company’s Financial Statements present information about the
company as a separate entity and not about its group.
Subsidiaries are entities controlled by the group. Control exists when
the group has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that are currently
exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the group’s
Consolidated Financial Statements from the date that control
commences until the date that control ceases.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the group.
Inter-company transactions, balances and unrealised gains and
losses on transactions between group companies are eliminated
in the group’s Consolidated Financial Statements.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the Statement of
Financial Position date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on translation
are recognised in the income statement. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of
the transaction.
Financial statements of foreign operations
The assets and liabilities of foreign subsidiaries, are translated at foreign
exchange rates ruling at the Statement of Financial Position date.
The revenues and expenses of foreign subsidiaries are translated at an
average rate for the period where this rate approximates to the foreign
exchange rates ruling at the dates of the transactions.
Headlam Group plc Annual Report and Accounts 2010
59
Notes to the Financial Statements
continued
Exchange differences arising from this translation of foreign
subsidiaries are taken directly to the translation reserve and reflected
as a movement in the Statement of Comprehensive Income.
In respect of all foreign operations, any differences that have arisen
after 1 January 2004, the date of transition to IFRS, are presented
as a separate component of equity.
Foreign currency exposure
Note 23 contains information about the foreign currency exposure
of the group and risks in relation to foreign exchange movements.
Classification of financial instruments issued by the group
Financial instruments issued by the group are treated as equity, i.e.
forming part of shareholders’ funds, only to the extent that they meet
the following two conditions:
(a) they include no contractual obligations upon the company, or
group as the case may be, to deliver cash or other financial
assets or to exchange financial assets or financial liabilities with
another party under conditions that are potentially unfavourable
to the company or group; and
(b) where the instrument will or may be settled in the company’s
own equity instruments, it is either a non-derivative that includes
no obligation to deliver a variable number of the company’s
own equity instruments or is a derivative that will be settled
by the company exchanging a fixed amount of cash or other
financial assets for a fixed number or its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified
takes the legal form of the company’s own shares, the amounts presented
in these Financial Statements for called up share capital and share
premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as
part of financial expenses. Finance payments associated with financial
instruments that are classified in equity are dividends and are recorded
directly in equity.
Derivative financial instruments
The group holds derivative financial instruments to hedge its foreign
currency and interest rate risk exposures. Derivatives are recognised
initially at fair value; attributable transaction costs are recognised in
the income statement when incurred. Subsequent to initial recognition,
derivatives are measured at fair value, and changes therein are
accounted for as described below.
Cash flow hedges
Changes in the fair value of the derivative hedging instrument
designated as a cash flow hedge are recognised directly in equity
to the extent that the hedge is effective. To the extent that the hedge
is ineffective, changes in fair value are recognised in the income
statement. If the hedging instrument no longer meets the criteria for
hedge accounting, expires or is sold, terminated or exercised, then
hedge accounting is discontinued prospectively. The cumulative gain
or loss previously recognised in equity remains there until the forecast
transaction occurs. When the hedged item is a non-financial asset,
the amount recognised in equity is transferred to the carrying
amount of the asset when it is recognised. In other cases the amount
recognised in equity is transferred to the income statement in the same
period that the hedged item affects profit or loss.
The fair value of interest rate swaps is based on broker quotes.
Those quotes are tested for reasonableness by discounting estimated
future cash flows based on the terms and maturity of each contract
and using market interest rates for a similar instrument at the
measurement date.
The fair value of forward exchange contracts is their quoted market
price at the Statement of Financial Position date, being the present
value of the quoted forward price. The gain or loss on remeasurement
to fair value of forward exchange contracts is recognised immediately
in the income statement.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses. The cost of self-constructed
assets includes the cost of materials, direct labour and any other
costs directly attributable to bringing the asset to a working condition
for its 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 is charged to the income statement on a straight-line
basis over their estimated useful lives. Land is not depreciated.
The annual rates applicable are:
Freehold and long leasehold properties
Short leasehold properties
Motor vehicles
Office and computer equipment
Warehouse and production equipment
– 2%
– period of lease
– 25%
– 10% - 33.3%
– 10% - 20%
Gains and losses on disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal
with the carrying amount of property, plant and equipment and are
recognised in the income statement.
60
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
Goodwill and other intangible assets
Goodwill
All business combinations are accounted for by applying the purchase
method. Goodwill represents amounts arising on acquisition of
subsidiaries. In respect of business acquisitions that have occurred
since 1 January 2004, goodwill represents the difference between
the cost of the acquisition and the fair value of the identifiable assets,
liabilities and contingent liabilities acquired.
Goodwill is stated at cost less any accumulated impairment losses.
Goodwill is allocated to cash-generating units and is not amortised
but, tested annually for impairment, or more frequently when there
is an indicator that the unit may be impaired.
In respect of acquisitions prior to 1 January 2004, goodwill is
included on the basis of its deemed cost, which represents the
amount recorded under UK GAAP which was broadly comparable
save that only separable intangibles were recognised and goodwill
was amortised. This is in accordance with IFRS 1.
Other intangibles
Other intangible assets that are acquired by the group are stated at
cost less accumulated amortisation and impairment losses. Intangible
assets recognised as a result of a business combination are stated
at fair value at the date of acquisition less cumulative amortisation
and impairment losses.
Amortisation
Amortisation is charged to the income statement on a straight-line
basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Intangible assets with an indefinite useful life and
goodwill are systematically tested for impairment at each Statement of
Financial Position date. Other intangible assets are amortised from the
date they are available for use. The estimated useful lives of customer
lists are deemed to be between 1-24 months.
Non-current assets held for sale
A non-current asset is classified as held for sale if its carrying amount
will be recovered principally through sale rather than through continuing
use, it is available for immediate sale and sale is highly probable within
one year.
On initial classification as held for sale, non-current assets and
disposal groups are measured at the lower of previous carrying
amount and fair value less costs to sell with any adjustments taken
to the income statement. The same applies to gains and losses on
subsequent remeasurement.
Trade and other receivables
Trade and other receivables are initially stated at fair value and
subsequently at amortised cost less impairment losses. Debts are
provided for, the credit loss allowance, on specific receivables in
full as soon as they are known to be ‘bad’ or it becomes apparent
that payment is ‘doubtful’.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost is based on the first-in first-out principle and includes expenditure
incurred in acquiring the inventories and bringing them to their existing
location and condition. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be
incurred in marketing, selling and distribution.
Allowances for inventory losses are determined by reference to each
individual product and are calculated by assessing the age, condition
and quantity of each individual product.
Cash and cash equivalents
Cash and cash equivalents are carried in the Statement of Financial
Position at amortised cost.
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand and form
an integral part of cash management of both the company and group
are included as a component of cash and cash equivalents for the
purpose only of the Cash Flow Statement.
Trade payables
Trade payables are initially recognised at fair value and then are
stated at amortised cost.
Impairment
The carrying amounts of the group’s assets other than inventories
and deferred tax assets, are reviewed at each Statement of
Financial Position date to determine whether there is any indication
of impairment. If any such indication exists, the assets recoverable
amount is estimated.
The recoverable amount for goodwill is estimated at each Statement of
Financial Position date.
For the purposes of impairment testing assets are grouped together
into the smallest group of assets that generates cash flows from
continuing use that are largely independent of the cash inflows from
other groups of assets.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable amount.
Impairment losses are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated
to cash-generating units and then to reduce the carrying amount of the
other assets in the unit on a pro-rata basis.
Headlam Group plc Annual Report and Accounts 2010
61
Notes to the Financial Statements
continued
Calculation of recoverable amount
The recoverable amount of assets, with the exception of the group’s
receivables, is the greater of their fair value less cost to sell and value
in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-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.
The recoverable amount of the group’s receivables carried at
amortised cost is calculated as the present value of estimated future
cash flows, discounted at the original effective interest rate, i.e., the
effective interest rate computed at initial recognition of these financial
assets. Receivables with a short duration are not discounted.
Defined benefit plans
The group’s net obligation in respect of defined benefit pension plans
is calculated by estimating the amount of future benefit that employees
have earned in return for their service in the current and prior periods.
That benefit is discounted to determine its present value, and the fair
value of any plan assets is deducted. The liability discount rate is
the yield at the Statement of Financial Position date using AA rated
corporate bonds that have maturity dates approximating to the terms
of the group’s obligations. The calculation is performed by a qualified
actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the
increased benefit relating to past service by employees is recognised
as an expense in the income statement on a straight-line basis over
the average period until the benefits become vested.
Reversals of impairment
An impairment loss in respect of goodwill is not reversed.
To the extent that the benefits vest immediately, the expense
is recognised immediately in the income statement.
All actuarial gains and losses that arise in calculating the group’s
obligation in respect of a scheme are recognised immediately in
reserves and reported in the Statement of Comprehensive Income.
Where the calculation results in a benefit to the group, the asset
recognised is limited to the present value of any future refunds
from the plan or reductions in future contributions to the plan.
The group operates a defined benefit pension plan in the UK and in
Switzerland. In the UK as there is no contractual agreement or stated
group policy for allocating the net defined benefit liability between
the participating subsidiaries and as such the full deficit is recognised
by the company, which is the sponsoring employer. The participating
subsidiary companies have recognised a cost equal to contributions
payable for the period as advised by a professionally qualified
actuary.
Share-based payment transactions
The company and group operate various equity settled share option
schemes under the approved and unapproved executive schemes and
a savings related scheme.
For executive share option schemes, the option price may not be less
than the mid market value of the group’s shares at the time when the
options were granted or the nominal value.
Further details of the share plans are given in the Remuneration Report
on pages 38 to 41.
The performance is assessed by reference to the group’s published results.
In respect of other assets, an impairment loss is reversed when
there is an indication that the impairment loss may no longer exist
and there had been a change in the estimates used to determine
the recoverable amount.
An impairment loss is reversed only to the extent that the assets
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value
less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised
in the income statement over the period of the borrowings on an
effective interest basis.
Borrowing costs
Borrowing costs are capitalised where the group constructs qualifying
assets. All other borrowing costs are written off to the income
statement as incurred.
Borrowing costs are charged to the income statement using the
effective interest rate method.
Employee benefits
The company and the group operate both defined benefit and defined
contribution plans, the assets of which are held in independent trustee
administered funds. The pension cost is assessed in accordance with
the advice of a qualified actuary.
Defined contribution plans
Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement as incurred.
62
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
The fair value of options granted is recognised as an employee
expense with a corresponding increase in equity over the period
that the employees unconditionally become entitled to the award.
The fair value is measured at grant date and spread over the period
during which the employees become unconditionally entitled to the
options. The fair value of the options granted is measured using an
option valuation model, taking into account the terms and conditions
upon which the options were granted. The amount recognised as an
expense is adjusted to reflect the actual number of share options that
vest except where forfeiture is due only to share prices not achieving
the threshold for vesting.
When options are granted to employees of subsidiaries of the
company, the fair value of options granted is recognised as an
employee expense in the financial statements of the subsidiary
undertaking together with the capital contribution received.
In the financial statements of the company, the options granted
are recognised as an investment in subsidiary undertakings with
a corresponding increase in equity.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount
of the consideration paid, net of any tax effects is recognised as a
deduction from equity. Repurchased shares are classified as treasury
shares and are presented as a deduction from total equity. When
treasury shares are sold or reissued subsequently, the amount received
is recognised as an increase in equity, and the resulting surplus or
deficit on the transaction is transferred to or from retained earnings.
Revenue
Revenue from the sale of goods is measured at the fair value of the
consideration, net of trade discounts and excludes intra-group sales
and value added and similar taxes. Revenue from the sale of goods
is recognised when the significant risks and rewards of ownership
of the goods are transferred to the buyer (which is the date on which
goods are received by the customer), the amount of revenue can
be reliably measured and it is probable that the economic benefits
associated with the transaction will flow to the group.
Lease payments
Leases are classified as finance leases whenever the lease transfers
substantially all the risks and rewards of ownership to the group.
All other leases are treated as operating leases.
Assets held under finance leases are included in property, plant and
equipment at the lower of fair value at the date of acquisition or the
present value of the minimum lease payments. The capital element
of outstanding finance leases is included in financial liabilities. The
finance charge element of rentals is charged to the income statement
at a constant period rate of charge on the outstanding obligations.
Payments made under operating leases are recognised in the
income statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement
as an integral part of the total lease expense.
Net financing costs
Net financing costs comprise interest payable, finance charges
on shares classified as liabilities, finance leases, interest receivable
on funds invested, foreign exchange gains and losses and gains
and losses on hedging instruments as outlined in the accounting
policy relating to derivative financial instruments and hedging
described above.
Interest income and interest payable is recognised in the income
statement as it accrues, using the effective interest method. Dividend
income is recognised in the income statement on the date the entity’s
right to receive payments is established.
The expected return on assets of funded defined benefits pension
plans, less administration expenses of pension plans are recognised
in financial income. The interest accruing on defined benefit pension
plan liabilities are recognised in financial expenses.
Dividends
Final dividends proposed by the board and unpaid at the end of the
year are not recognised in the Financial Statements. Interim and final
dividends are recognised when they are paid.
Taxation
Income tax 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 is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted
at the Statement of Financial Position date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax
is not recognised for the following temporary differences: the initial
recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit,
and differences relating to investments in subsidiaries to the extent
that it is probable that they will not reverse in the foreseeable future.
In addition, deferred tax is not recognised for taxable temporary
differences arising on the initial recognition of goodwill.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted
at the Statement of Financial Position date.
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 utilised.
Headlam Group plc Annual Report and Accounts 2010
63
Notes to the Financial Statements
continued
2 SEGMENT REPORTING
The group has 54 operating segments which represent the individual trading operations throughout the UK (49 segments) and Continental Europe
(5 segments). Each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering products. The operating results
of each are regularly reviewed by the Chief Operating Decision Maker, which is deemed to be the Group Chief Executive. Discrete financial
information is available for each segment and used by the Group Chief Executive for decisions on resource allocation and to assess performance.
The operating segments have been aggregated to the extent that they have similar economic characteristics, with relevance to products and
services, type and class of customer, methods of sale and distribution and the regulatory environment in which they operate. The group’s internal
management structure and financial reporting systems differentiate the operating segments on the basis of the differing economic characteristics
in the UK and Continental Europe and accordingly present these as two separate reportable segments. This distinction is embedded in the
construction of operating reports reviewed by the Group Chief Executive, the board and the senior executive management and forms the basis
for the presentation of operating segment information given below.
Revenue
External revenues
Depreciation
UK
2010
£000
2009
£000
Continental Europe
2010
£000
2009
£000
Total
2010
£000
2009
£000
432,815
429,646
102,875
104,147
535,690
533,793
2,503
2,834
747
733
3,250
3,567
Reportable segment result
24,662
23,106
2,553
2,487
27,215
25,593
Reportable segment assets
226,518
223,044
50,267
49,636
276,785
272,680
Capital expenditure
784
926
553
2,197
1,337
3,123
Reportable segment liabilities
(129,365)
(123,088)
(20,111)
(20,662)
(149,476)
(143,750)
During the year there are no inter-segment revenues for the reportable segments (2009: £nil).
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total profit for reportable segments
Impairment of assets
Unallocated (expense)/income
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit for the year
64
Headlam Group plc Annual Report and Accounts 2010
2010
£000
2009
£000
27,215
(466)
(683)
25,593
(1,211)
376
26,066
24,758
4,637
(5,697)
3,764
(6,458)
25,006
(7,127)
22,064
(6,168)
17,879
15,896
Notes to the Financial Statements
continued
2 SEGMENT REPORTING continued
Assets
Total assets for reportable segments
Unallocated assets:
Properties, plant and equipment
Deferred tax assets
Assets held for sale
Total assets
Liabilities
Total liabilities for reportable segments
Unallocated liabilities:
Employee benefits
Other interest-bearing loans and borrowings
Income tax payable
Derivative liabilities
Total liabilities
Other material items 2010
Capital expenditure
Depreciation
Impairment of assets
Other material items 2009
Capital expenditure
Depreciation
Impairment of assets
Each segment is a continuing operation.
Accounts
2010
£000
2009
£000
276,785
272,680
86,332
896
362
83,583
4,731
2,275
364,375
363,269
(149,476)
(143,750)
(12,724)
(34,236)
(4,201)
–
(22,759)
(35,292)
(8,615)
(224)
(200,637)
(210,640)
Reportable
segment
totals
£000
Group Consolidated
totals
£000
items
£000
1,337
3,250
–
5,658
1,803
466
6,995
5,053
466
4,587
7,927
12,514
3,123
3,567
–
4,190
1,746
1,211
7,313
5,313
1,211
6,690
7,147
13,837
Headlam Group plc Annual Report and Accounts 2010
65
Notes to the Financial Statements
continued
2 SEGMENT REPORTING continued
The Group Chief Executive, the board and the executive management team has access to information that provides details on revenue by
principal product group and geographic origin for the two reportable segments, as set out in the following table:
UK
2010
£000
2009
£000
Continental Europe
2010
£000
2009
£000
Total
2010
£000
2009
£000
297,606
135,209
295,960
133,686
51,992
50,883
53,617
50,530
349,598
186,092
349,577
184,216
432,815
429,646
102,875
104,147
535,690
533,793
Revenue
Residential
Commercial
3 PROFIT BEFORE TAX
The following are included in profit before tax:
Depreciation on property, plant and equipment
Impairment of assets
Profit on sale of property, plant and equipment
Operating lease rentals
Plant and machinery
Land and buildings
Auditor’s remuneration:
Audit of these Financial Statements
Amounts received by the auditors and their associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
All other services
2010
£000
5,053
466
314
8,994
1,708
2010
£000
62
145
21
228
2009
£000
5,313
1,211
102
9,001
1,951
2009
£000
60
156
2
218
Amounts paid to the company’s auditor in respect of services to the company, other than the audit of the company’s Financial Statements, have
not been disclosed as the information is required instead to be disclosed on a consolidated basis.
66
Headlam Group plc Annual Report and Accounts 2010
Notes to the Financial Statements
continued
4 STAFF NUMBERS AND COSTS
The average number of people employed, including directors, during the year, analysed by category, was as follows:
By sector:
Floorcoverings
Central operations
By function:
Sales and distribution
Administration
The aggregate payroll costs were as follows:
Wages and salaries
Equity settled share based payment expense
Social security costs
Pension costs
5 DIRECTORS’ EMOLUMENTS
Directors emoluments
Equity settled share based payment expense
Accounts
Number of
employees
Group
2010
2009
2,011
9
2,023
9
2,020
2,032
1,859
161
1,865
167
2,020
2,032
£000
£000
62,734
448
8,160
3,438
63,012
316
8,375
2,817
74,780
74,520
2010
£000
2,074
39
2009
£000
1,898
2
Further details of directors’ emoluments, share options and pension entitlement are given in the Remuneration Report on pages 36 to 46.
Headlam Group plc Annual Report and Accounts 2010
67
Notes to the Financial Statements
continued
6 FINANCE INCOME AND EXPENSE
Interest income:
Bank interest
Other
Return on defined benefit plan assets
Finance income
Interest expense:
Bank loans, overdrafts and other financial expenses
Net change in fair value of cash flow hedges transferred from equity
Interest on defined benefit plan obligation
Finance expenses
7 TAXATION
Recognised in the income statement
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expense:
Origination and reversal of temporary differences
Effect of change in UK tax rate
Adjustments for prior years
Total tax in income statement
Tax relating to items credited/(charged) to equity
Current tax on:
Income and expenses recognised directly in equity
Deferred tax on:
Share options
Deferred tax on other comprehensive income:
Defined benefit plans
Cash flow hedge
Total tax reported directly in reserves
68
Headlam Group plc Annual Report and Accounts 2010
2010
£000
642
179
3,816
2009
£000
641
62
3,061
4,637
3,764
(1,122)
(125)
(4,450)
(1,376)
(880)
(4,202)
(5,697)
(6,458)
2010
£000
2009
£000
3,756
(697)
7,121
(601)
3,059
6,520
3,762
40
266
4,068
(360)
–
8
(352)
7,127
6,168
2010
£000
2009
£000
–
224
72
(63)
–
9
2,791
63
233
2,863
Accounts
Notes to the Financial Statements
continued
7 TAXATION continued
The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of four years
from 2011. The first reduction in the UK corporation tax rate from 28% to 27% was substantively enacted on 20 July 2010 and will be effective
from 1 April 2011. As such, the deferred tax balances outstanding at the Statement of Financial Position date are stated at 27%. It has not yet
been possible to quantify the full anticipated effect of the announced further 3% rate reduction, although this will further reduce the group’s future
current tax charge and reduce the group’s deferred tax assets and liabilities accordingly.
Reconciliation of effective tax rate
Profit before tax
Tax using the UK corporation tax rate
Effect of change in UK tax rate
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Over provided in prior years
2010
2009
%
£000
%
£000
25,006
7,001
40
635
(118)
(431)
28.0
0.2
2.5
(0.5)
(1.7)
22,064
6,178
–
658
(75)
(593)
28.0
–
3.0
(0.3)
(2.7)
Total tax in income statement
28.5
7,127
28.0
6,168
8 CURRENT TAX LIABILITIES
The group’s current tax liability of £4,201,000 (2009: £8,615,000) represents the amount of income tax payable in respect of current and
prior year periods which exceed any amounts recoverable. The company’s current tax liability of £1,485,000 (2009: £2,982,000) represents
the amount of income tax payable in respect of current and prior year periods which exceed any amounts recoverable.
9 EARNINGS PER SHARE
2010
£000
2009
£000
Earnings
Earnings for the purposes of basic earnings per share being profit attributable to equity holders of the parent
17,879
15,896
Number of shares
Issued ordinary shares at 1 January
Effect of shares held in treasury
2010
2009
85,363,743 85,363,743
(2,246,489)
(2,248,647)
Weighted average number of ordinary shares for the purposes of basic earnings per share
83,117,254 83,115,096
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
83,117,254 83,115,096
94,622
113,570
Weighted average number of ordinary shares for the purposes of diluted earnings per share
83,230,824 83,209,718
At 31 December 2010, the company held 2,245,603 shares in treasury and these are excluded from the calculation of earnings per share.
Headlam Group plc Annual Report and Accounts 2010
69
Notes to the Financial Statements
continued
10 PROPERTY, PLANT AND EQUIPMENT
Group
Cost
Balance at 1 January 2009
Additions
Disposals
Effect of movements in foreign exchange
Transfer to use
Transfer to assets held for sale
Land &
buildings
£000
Plant &
equipment
£000
Under
construction
£000
Total
£000
91,775
4,126
(536)
(778)
4,816
(3,961)
26,128
3,187
(1,816)
(563)
–
–
5,236
–
–
(420)
(4,816)
–
123,139
7,313
(2,352)
(1,761)
–
(3,961)
Balance at 31 December 2009
95,442
26,936
–
122,378
Balance at 1 January 2010
Additions
Disposals
Effect of movements in foreign exchange
Transfer to assets held for sale
Balance at 31 December 2010
Depreciation
Balance at 1 January 2009
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Transfer to assets held for sale
Balance at 31 December 2009
Balance at 1 January 2010
Depreciation charge for the year
Asset impairment
Disposals
Effect of movements in foreign exchange
Transfer to assets held for sale
Balance at 31 December 2010
Net book value
At 1 January 2009
At 31 December 2009 and 1 January 2010
At 31 December 2010
95,442
5,653
(755)
605
(491)
26,936
1,284
(829)
73
–
100,454
27,464
10,789
1,736
(104)
(321)
(315)
12,609
3,577
(1,686)
(437)
–
11,785
14,063
11,785
1,794
466
(224)
414
(129)
14,063
3,259
–
(718)
51
–
14,106
16,655
–
58
–
–
–
58
–
–
–
–
–
–
–
–
–
–
–
–
–
122,378
6,995
(1,584)
678
(491)
127,976
23,398
5,313
(1,790)
(758)
(315)
25,848
25,848
5,053
466
(942)
465
(129)
30,761
80,986
13,519
5,236
99,741
83,657
12,873
86,348
10,809
–
58
96,530
97,215
At 31 December 2010 the cost less accumulated depreciation of long leasehold property held by the group was £8,693,000
(2009: £8,873,000).
70
Headlam Group plc Annual Report and Accounts 2010
Land &
buildings
£000
Plant &
equipment
£000
Under
construction
£000
Notes to the Financial Statements
continued
10 PROPERTY, PLANT AND EQUIPMENT continued
Company
Cost
Balance at 1 January 2009
Additions
Disposals
Transfer to group company
Transfer to assets held for sale
Balance at 31 December 2009
Balance at 1 January 2010
Additions
Disposals
Transfer to assets held for sale
Balance at 31 December 2010
Depreciation
Balance at 1 January 2009
Depreciation charge for the year
Disposals
Transfer to group company
Transfer to assets held for sale
Balance at 31 December 2009
Balance at 1 January 2010
Depreciation charge for the year
Asset impairment
Disposals
Transfer to assets held for sale
Balance at 31 December 2010
Net book value
At 1 January 2009
At 31 December 2009 and 1 January 2010
At 31 December 2010
82,127
3,290
(516)
–
(1,890)
83,011
83,011
5,653
(755)
(491)
87,418
6,915
1,392
(88)
–
(158)
8,061
8,061
1,431
466
(224)
(129)
9,605
75,212
74,950
77,813
594
115
(64)
(44)
–
601
601
6
(11)
–
596
528
38
(61)
(36)
–
469
469
39
–
(9)
–
499
66
132
97
Accounts
Total
£000
82,721
3,405
(580)
(44)
(1,890)
83,612
83,612
5,717
(766)
(491)
88,072
7,443
1,430
(149)
(36)
(158)
8,530
8,530
1,470
466
(233)
(129)
10,104
75,278
75,082
–
–
–
–
–
–
–
58
–
–
58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58
77,968
At 31 December 2010 the cost less accumulated depreciation of long leasehold property held by the company was £8,693,000
(2009: £8,873,000).
Headlam Group plc Annual Report and Accounts 2010
71
Notes to the Financial Statements
continued
11 INTANGIBLE ASSETS – GROUP
Cost
Balance at 1 January 2009 and 31 December 2009
Goodwill
£000
Customer
lists
£000
Total
£000
13,210
4,142
17,352
Balance at 1 January 2010 and 31 December 2010
13,210
4,142
17,352
Amortisation
Balance at 1 January 2009 and 31 December 2009
Balance at 1 January 2010 and 31 December 2010
Net book value
At 1 January 2009 and 31 December 2009
At 1 January 2010 and 31 December 2010
–
–
4,142
4,142
4,142
4,142
13,210
13,210
–
–
13,210
13,210
Cumulative impairment losses recognised in relation to goodwill is £nil (2009: £nil).
Impairment tests for cash-generating units containing goodwill
Goodwill is attributed to the businesses identified below for the purpose of testing impairment. These businesses are the lowest level at which
goodwill is monitored and are a sub-classification of the group’s operating segments.
The aggregate carrying amounts of goodwill allocated to each unit are as follows:
Joseph, Hamilton & Seaton
Crucial Trading
Belcolor AG
LMS SA
Other
Reported
Segment
UK
UK
Continental Europe
Continental Europe
UK
2010
£000
4,348
1,369
3,342
3,197
954
2009
£000
4,348
1,369
3,342
3,197
954
13,210
13,210
72
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
11 INTANGIBLE ASSETS – GROUP continued
Impairment
Each year, or whenever events or a change in the economic environment indicates a risk of impairment, the group reviews the value of
goodwill balances allocated to its cash generating units. In the absence of any identified impairment risks, tests are performed based on internal
valuations of each cash generating unit.
An impairment test is a comparison of the carrying value of the assets of a business or cash generating unit (“CGU”) to their recoverable amount.
The recoverable amount represents the higher of the CGU’s fair value less the cost to sell and value in use. Where the recoverable amount is
less than the carrying value, an impairment results. During the year, all goodwill was tested for impairment, with no impairment charge resulting.
Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU on a basis consistent with
2009, and applying the following key assumptions.
Key assumptions
Cash flows were projected based on past experience, actual operating results and the approved 2011 business plan. For the purpose of
impairment testing the cash flows were assumed to grow into perpetuity at a rate of 2.5% beyond the 2011 business plan.
The main assumptions within the operating cash flows used for 2011 include the achievement of future sales volumes and prices for all key
product lines, control of purchase prices, achievement of budgeted operating costs and no significant adverse foreign exchange rate
movements. These assumptions have been reviewed in light of the current economic environment.
The directors have estimated the discount rate by reference to an industry average weighted average cost of capital. This has been adjusted to
include an appropriate risk factor to reflect current economic circumstances and the risk profile of the CGU’s. A post tax weighted average cost
of capital of 9.5% (2009: 9.5%) has been used for impairment testing, adjusted to 10.5% (2009: 10.5%) for Continental Europe to reflect the
differing risk profile of that segment. The post tax discount rate has been applied to the post tax cash flows.
The CGU’s in the UK have similar characteristics, and risk profiles, and therefore a single discount rate has been applied to each UK CGU.
Similarly, the directors view the CGU’s in Continental Europe as having consistent risk profiles and therefore a single risk factor has been
applied. The CGU’s in Continental Europe operate under a different regulatory environment and this is therefore reflected in the risk factor used
to determine the discount rates in the UK and Continental Europe.
Sensitivity analysis
The two key assumptions made by the directors are the discount rate used and the growth rate beyond the business plan. Sensitivity analysis
has been carried out by reference to both of these assumptions and neither a 1% increase in the discount rate or a 1% reduction in the growth
rate would result in any impairment, with the exception of the goodwill attributable to the LMS SA CGU.
The recoverable amount of the LMS SA CGU has been determined as £9,440,000, which exceeds the carrying value by £382,000.
A 0.32% increase in the discount rate or a 0.37% decrease in the growth rate, with all other assumptions remaining constant and after
incorporating any consequential effects of that change on the other variables used to measure the recoverable amount, would result in the
recoverable amount of the CGU equating to its carrying value. The directors consider that the assumptions used in determining the recoverable
amount are appropriate and, at this time, support the carrying value of the CGU.
Other than disclosed above, any other reasonable change to the key assumptions would be unlikely to generate a different impairment test
outcome to the one that is included in these Financial Statements.
Headlam Group plc Annual Report and Accounts 2010
73
Notes to the Financial Statements
continued
12 INVESTMENTS IN SUBSIDIARIES
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2009
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2009
Balance at 1 January 2010
Disposals during the year
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2010
Impairment
Balance at 1 January 2009 and 31 December 2009
Balance at 1 January 2010
Disposals during the year
Balance at 31 December 2010
Carrying value
At 1 January 2009
At 31 December 2009
At 31 December 2010
Disposals during the year ended 31 December 2010 relate to the striking-off and liquidation of non-trading subsidiaries.
The principal trading subsidiaries are listed on page 103.
£000
88,239
313
88,552
88,552
(2,250)
401
86,703
2,160
2,160
(2,160)
–
86,079
86,392
86,703
74
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
13 DEFERRED TAX ASSETS AND LIABILITIES – GROUP
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Intangible assets
Employee benefits
Other items
Tax assets/(liabilities)
Set-off of tax
Movement in deferred tax during the year
Property, plant and equipment
Intangible assets
Employee benefits
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Intangible assets
Employee benefits
Other items
Assets
Liabilities
Net
2010
£000
–
–
3,891
911
2009
£000
–
52
6,350
2,546
4,802
(3,906)
8,948
(4,217)
2010
£000
(3,683)
(223)
–
–
(3,906)
3,906
2009
£000
(3,976)
(241)
–
–
(4,217)
4,217
896
4,731
–
–
2010
£000
(3,683)
(223)
3,891
911
896
–
896
2009
£000
(3,976)
(189)
6,350
2,546
4,731
–
4,731
1 January
2010
£000
Recognised
in income
£000
Recognised 31 December
2010
£000
in equity
£000
(3,976)
(189)
6,350
2,546
293
(34)
(2,531)
(1,796)
4,731
(4,068)
–
72
161
233
(3,683)
(223)
3,891
911
896
1 January
2009
£000
Recognised
in income
£000
Recognised 31 December
2009
£000
in equity
£000
(3,698)
(158)
4,009
1,363
(278)
(31)
(450)
1,111
–
–
2,791
72
(3,976)
(189)
6,350
2,546
1,516
352
2,863
4,731
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the group has unused capital losses of £10,379,000 (2009: £9,266,000) available for offset
against future chargeable gains. No deferred tax asset has been recognised in respect of this amount as the directors do not anticipate incurring
significant chargeable gains in the foreseeable future.
Headlam Group plc Annual Report and Accounts 2010
75
Notes to the Financial Statements
continued
13 DEFERRED TAX ASSETS AND LIABILITIES – COMPANY
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Employee benefits
Cash flow hedge
Other items
Tax assets/(liabilities)
Set-off of tax
Movement in deferred tax during the year
Property, plant and equipment
Employee benefits
Cash flow hedge
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
Cash flow hedge
Other items
Assets
Liabilities
Net
2010
£000
–
3,217
–
267
2009
£000
–
6,067
63
987
3,484
(3,271)
7,117
(3,348)
2010
£000
(3,271)
–
–
–
(3,271)
3,271
2009
£000
(3,348)
–
–
–
(3,348)
3,348
213
3,769
–
–
2010
£000
(3,271)
3,217
–
267
213
–
213
2009
£000
(3,348)
6,067
63
987
3,769
–
3,769
1 January
2010
£000
Recognised
in income
£000
Recognised 31 December
2010
£000
in equity
£000
(3,348)
6,067
63
987
77
(2,788)
–
(720)
–
(62)
(63)
–
(3,271)
3,217
–
267
3,769
(3,431)
(125)
213
1 January
2009
£000
Recognised
in income
£000
Recognised 31 December
2009
£000
in equity
£000
(2,865)
3,594
–
712
(483)
(540)
–
275
–
3,013
63
–
(3,348)
6,067
63
987
1,441
(748)
3,076
3,769
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the company has unused capital losses of £10,379,000 (2009: £9,266,000) available for offset
against future chargeable gains. No deferred tax asset has been recognised in respect of this amount as the directors do not anticipate
incurring significant chargeable gains in the foreseeable future.
76
Headlam Group plc Annual Report and Accounts 2010
Notes to the Financial Statements
continued
14 INVENTORIES
Finished goods and goods held for resale
105,694
99,637
Group
2010
£000
2009
£000
Accounts
Company
2010
£000
–
2009
£000
–
Cost of sales consists of the following:
Material cost
Processing cost
15 TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
Derivative assets used for hedging:
Other derivatives at fair value
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
366,782
3,949
366,761
4,772
370,731
371,533
–
–
–
–
–
–
Group
Company
2010
£000
78,878
4,132
19,119
–
2009
£000
79,104
3,869
18,176
–
2010
£000
–
30
612
27,282
2009
£000
–
66
267
26,820
111
–
–
–
102,240
101,149
27,924
27,153
£2,160,000 (2009: £2,493,000) was recognised as an impairment loss in the Consolidated Income Statement in respect of trade receivables.
The impairment loss is attributable to the geographical segments as follows:
UK
Continental Europe
2010
£000
1,859
301
2009
£000
2,107
386
2,160
2,493
Headlam Group plc Annual Report and Accounts 2010
77
Notes to the Financial Statements
continued
16 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
Cash and cash equivalents per Statement of Financial Position
Bank overdrafts
44,758
–
45,737
(758)
23,369
–
27,473
–
Cash and cash equivalents per cash flow statements
44,758
44,979
23,369
27,473
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
17 ASSETS HELD FOR SALE
Assets classified as held for sale:
Property, plant and equipment
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
362
2,275
362
1,387
At the year end the company held a freehold property in Bishop Auckland, UK that is being actively marketed for sale, is available for
immediate disposal and is expected to be disposed of during 2011.
At the year ended 31 December 2009, the group held freehold properties in Leeds, UK, and Zutphen, the Netherlands, that were being
actively marketed for sale and these were subsequently disposed of during 2010. These properties became surplus to the group’s requirements
following the relocation of the occupying businesses to new purpose built facilities in 2008 and 2009 respectively. The properties were
disposed of for their revised carrying value following an impairment review in 2009.
The Bishop Auckland property forms part of the properties, plant and equipment reported under unallocated assets in note 2 as it is primarily
a group activity to hold and maintain the properties.
18 OTHER INTEREST-BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the group’s and company’s interest-bearing loans and borrowings. For more
information about the group’s and company’s exposure to interest rate and foreign currency risk, see note 23.
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
225
225
900
900
–
–
–
–
34,011
34,392
30,000
30,000
34,011
34,392
30,000
30,000
Current liabilities
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
78
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
18 OTHER INTEREST-BEARING LOANS AND BORROWINGS continued
Included within the interest-bearing loans is an amount directly attributable to borrowing costs of £nil (2009: £113,000).
The group has undrawn borrowing facilities expiring in one year or less which, at 31 December 2010, amounted to £45,418,000
(2009: £44,465,000). The facility conditions for drawdown had been met during the period. The borrowing is unsecured and there is a
cross guarantee in place between the company and its UK subsidiaries. There is a downstream guarantee from the company in relation to its
borrowing facility in the Netherlands.
The undrawn borrowing facilities are as follows:
UK
Netherlands
France
Switzerland
Interest
rate
%
2.28
2.11
1.72
1.40
2010
£000
35,000
1,285
5,570
3,563
45,418
Interest
rate
%
2.48
1.78
1.31
1.70
2009
£000
35,000
1,333
5,017
3,115
44,465
All the borrowing facilities above bear interest at floating rates. The Swiss facility may be drawn as an overdraft or fixed rate loan with different
terms depending on length of time and amount.
19 TRADE AND OTHER PAYABLES
Trade payables
Taxation and social security
Non-trade payables and accrued expenses
Amounts due to subsidiary undertakings
Derivative liabilities used for hedging:
Other derivatives at fair value
Designated hedges
Group
2010
£000
2009
£000
114,225
11,111
24,140
–
106,494
10,717
25,761
–
–
–
20
224
Company
2010
£000
104
1,825
3,565
33,058
–
–
2009
£000
52
1,718
6,008
33,403
–
224
149,476
143,216
38,552
41,405
Included within non-trade payables and accrued expenses is an amount of £31,000 for accrued interest on unsecured bank loans
(2009: £131,000).
The group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 23.
Headlam Group plc Annual Report and Accounts 2010
79
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS
Pension plans
During the year, the group operated a UK and Swiss defined benefit plan and defined contribution plans in the UK, France and the
Netherlands. The Headlam Group plc Staff Retirement Benefits Scheme is the principal defined benefit plan which provides benefits to UK
employees that have been admitted into the scheme. The scheme is self-administered and its assets are held independently of the company’s
finances. The scheme is funded partly by contributions from members and partly by contributions from the company at rates advised by
professionally qualified actuaries. The latest actuarial valuation was carried out as at 31 March 2008 using the projected unit method. The
main annual rate assumptions used by the actuary were, increase in salaries 4.7%, increase of pensions in payment 3.2%, discount rate
before retirement 6.5%, discount rate after retirement 4.75% and inflation 3.2%. Assets were taken at their audited market value at the valuation
date. This valuation also used revised mortality assumptions. These revised assumptions have been derived to take account of the characteristics
of plan members and include a greater allowance for future increases in longevity compared with the assumptions previously adopted.
During 2010, the UK Government announced a move to adopting Consumer Price Inflation (“CPI”) rather than Retail Price Inflation (“RPI”) as the
basis for inflation assumptions underpinning retirement benefit obligations. The directors have considered this change and associated guidance.
Having taken advice, the group has determined that RPI remains the appropriate basis for measuring its obligations, such that the change
announced has had no impact on the group’s retirement benefit obligations.
Included within the total staff costs as disclosed in note 4 are costs relating to the group’s defined contribution plans. The pension cost for the
year represents contributions payable by the group to the plans and amounted to £1,848,000 (2009: £1,524,000). Contributions amounting
to £125,000 (2009: £118,000) in respect of December 2010 payroll were paid in January 2011.
The total group cost of operating the plans during the year was £3,438,000 (2009: £2,817,000) and, at 31 December 2010, there was
an amount of £366,000 (2009: £336,000) owed to the plans, being employer and employee contributions due for December 2010, which
was paid in January 2011.
In the UK there is no contractual agreement or stated group policy for allocating the net defined benefit liability between the participating
subsidiaries and as such the full deficit is recognised by the company, which is the sponsoring employer. The participating subsidiary companies
have recognised a cost equal to contributions payable for the period as advised by a professionally qualified actuary. The company recognises
a cost equal to its contributions payable for the period net of amounts recharged in relation to the group deficit to the participating subsidiary
companies.
During the year, the group initiated and completed an enhanced transfer value exercise for deferred members as part of its ongoing strategy to
reduce the Headlam Group plc Staff Retirement Benefits Scheme liability. The amounts recognised in the Financial Statements in respect of this
exercise are set out below:
Consolidated
Income
Statement
£000
Cash flow
Statement
£000
–
2,959
(4,529)
4,705
4,529
–
176
7,488
Enhanced transfer value contribution made to UK scheme
Enhanced transfer value lump sum payments made direct to members
(including associated tax and social security costs)
IAS 19 Settlement gain
Effect of enhanced transfer value exercise
80
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Pension plans continued
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
Present value of funded defined benefit obligations
Fair value of plan assets
(80,889)
68,451
(88,253)
65,803
(71,713)
60,382
(81,412)
59,583
Net obligations
(12,438)
(22,450)
(11,331)
(21,829)
Recognised liability for defined benefit obligations
Other long-term employee benefits (note 21)
Total employee benefits
Analysed as:
Current liabilities
Non-current liabilities
Total employee benefits
(12,438)
(286)
(22,450)
(309)
(11,331)
–
(21,829)
–
(12,724)
(22,759)
(11,331)
(21,829)
(2,586)
(10,138)
(2,506)
(20,253)
(2,586)
(8,745)
(2,506)
(19,323)
(12,724)
(22,759)
(11,331)
(21,829)
Following the actuarial valuation of the Headlam Group plc Staff Retirement Benefits Scheme as at 31 March 2008, a recovery plan was
agreed between the Trustees of the scheme and the company to fund the deficit. In accordance with the recovery plan, payments were made
to the scheme during 2010 of £2,499,000 which, in accordance with the recovery plan, increase to £2,586,000 in 2011. It was agreed
that recovery payments, which commenced on 1 January 2009 and will cease on 31 March 2018, were to increase by 3.2% each year.
The next actuarial valuation is due at 31 March 2011 and the opportunity will be used to reassess the recovery plan.
In addition to the recovery payments, company contributions as at the date of the last valuation have been fixed at 24.7% of pensionable
salaries at that date, with no allowance made in respect of subsequent leavers. This represented an additional contribution amounting to
£207,000 during 2010 (2009: £188,000).
During 2011, the group and company expect to pay regular ongoing contributions of approximately £4,122,000 to the UK defined benefit
plan of which £2,586,000 relates to the agreed recovery payments, the balance being estimated service costs.
Headlam Group plc Annual Report and Accounts 2010
81
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Pension plans continued
Movements in present value of defined benefit obligation
At 1 January
Current service cost
Interest cost
Actuarial losses
Benefits paid
Contributions by members
Past service costs
Settlements
Effect of movements in foreign exchange
Group
Company
2010
£000
88,253
1,579
4,450
2,839
(13,009)
401
11
(4,705)
1,070
2009
£000
69,441
1,268
4,202
16,125
(2,457)
357
25
–
(708)
2010
£000
81,412
1,277
4,235
2,467
(13,202)
218
11
(4,705)
–
2009
£000
62,443
868
4,013
16,320
(2,480)
223
25
–
–
At 31 December
80,889
88,253
71,713
81,412
Movements in fair value of plan assets
At 1 January
Expected return on plan assets
Actuarial gains
Contributions by employer:
Future service contributions
Past service deficit contributions
Additional past service deficit contributions
Contributions for enhanced transfer values
Contributions by members
Benefits paid
Effect of movements in foreign exchange
Group
Company
2010
£000
65,803
3,816
3,195
1,595
2,499
207
2,959
401
(13,009)
985
2009
£000
55,139
3,061
6,083
1,471
2,419
188
–
357
(2,457)
(458)
2010
£000
59,583
3,556
3,274
1,288
2,499
207
2,959
218
(13,202)
–
2009
£000
49,534
2,859
5,559
1,281
2,419
188
–
223
(2,480)
–
At 31 December
68,451
65,803
60,382
59,583
82
Headlam Group plc Annual Report and Accounts 2010
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Pension plans continued
Expense recognised in the income statement relating to defined benefit obligation (excluding transfer value exercise)
Current service cost
Past service cost
Interest on defined benefit plan obligation
Expected return on defined benefit plan assets
Total
The (income)/expense recognised in the following line items in the Consolidated Income Statement are:
Administrative (income)/expenses
Net financing costs
Actuarial gains and losses in the Statement of Comprehensive Income:
Actuarial losses on defined benefit obligation
Actuarial gain on plan assets
Accounts
Group
2010
£000
1,579
11
4,450
(3,816)
2009
£000
1,268
25
4,202
(3,061)
2,224
2,434
Group
2010
£000
(3,115)
634
2009
£000
1,293
1,141
(2,481)
2,434
Group
2010
£000
2009
£000
(2,839)
3,195
(16,125)
6,083
356
(10,042)
Cumulative actuarial gains and losses reported in the Statement of Comprehensive Income since 1 January 2004, the transition date to IFRS,
are £15,429,000 (2009: £15,785,000). Cumulative actuarial gains and losses reported in the company’s Statement of Comprehensive
Income are £14,363,000 (2009: £15,170,000).
Headlam Group plc Annual Report and Accounts 2010
83
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Pension plans continued
The fair value of the plan assets and the return on those assets were as follows:
Equities
Government debt
Corporate bonds
Annuities
Other
Group
Company
2010
£000
36,517
17,449
6,998
4,587
2,900
2009
£000
36,107
15,995
7,171
4,371
2,159
2010
£000
34,879
17,449
3,141
4,587
326
2009
£000
34,844
15,995
4,198
4,371
175
68,451
65,803
60,382
59,583
Actual return on plan assets
7,665
9,144
6,830
8,418
The expected rates of return on plan assets are determined by reference to relevant indices. The overall expected rate of return is calculated
by weighting the individual rates in accordance with the anticipated balance in the plan’s investment portfolio.
Principal actuarial assumptions, expressed as weighted averages, are as follows:
Discount rate
Future salary increases
Future pension increases
Inflation rate
Expected rate of return on plan assets
Mortality table assumptions:
UK pre-retirement
UK post-retirement –
future pensioners
UK post-retirement –
current pensioners
Group
Company
2010
%
5.1
4.7
3.2
3.3
5.7
2009
%
5.6
5.0
3.5
3.6
6.1
2010
%
5.4
5.1
3.6
3.6
6.0
2009
%
5.8
5.3
3.8
3.8
6.3
AC00 (Ultimate)
table
AC00 (Ultimate)
table
AC00 (Ultimate)
table
AC00 (Ultimate)
table
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
103%(M)/110%(F)
of the PCA00
tables with
medium cohort
projections
Swiss scheme
EVK 2000
EVK 2000
–
–
84
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Pension plans continued
The mortality assumption implies the expected future lifetime from age 65 is as follows:
Non-pensioner male
Pensioner male
Non-pensioner female
Pensioner female
Group
Company
2010
£000
23.4
21.5
25.3
23.4
2009
£000
23.3
21.3
25.2
23.3
2010
£000
23.4
21.5
25.3
23.4
2009
£000
23.3
21.3
25.2
23.3
History of plans
The history of the plans for the current and prior periods is as follows:
Statement of Financial Position
Group
2010
£000
2009
£000
2008
£000
2007
£000
2006
£000
Present value of defined benefit obligation
Fair value of plan assets
(80,889)
68,451
(88,253)
65,803
(69,441)
55,139
(71,350)
60,308
(73,160)
56,220
Deficit
Company
(12,438)
(22,450)
(14,302)
(11,042)
(16,940)
2010
£000
2009
£000
2008
£000
2007
£000
2006
£000
Present value of defined benefit obligation
Fair value of plan assets
(71,713)
60,382
(81,412)
59,583
(62,443)
49,534
(66,953)
56,098
(69,736)
52,704
Deficit
(11,331)
(21,829)
(12,909)
(10,855)
(17,032)
Experience adjustments
Group
On plan liabilities
On plan assets
As a percentage of plan liabilities
As a percentage of plan assets
Company
On plan liabilities
On plan assets
As a percentage of plan liabilities
As a percentage of plan assets
2010
£000
(588)
3,195
(0.7%)
4.7%
2010
£000
(522)
3,274
(0.7%)
5.4%
2009
£000
(1,787)
6,083
(2.0%)
9.2%
2009
£000
(1,402)
5,559
(1.7%)
9.3%
2008
£000
83
(11,798)
0.1%
(21.4%)
2008
£000
(24)
(10,785)
(0.0%)
(21.8%)
2007
£000
482
507
0.7%
0.8%
2007
£000
(14)
313
(0.0%)
0.6%
2006
£000
(618)
1,518
(0.8%)
2.7%
2006
£000
(642)
1,403
(0.9%)
2.7%
Headlam Group plc Annual Report and Accounts 2010
85
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Share-based payments – Group and company
Executive directors and executive management currently participate in executive share option schemes. The option price may not be less than
the greater of the mid-market value of the group’s shares at the time when the options were granted or the nominal value. Options granted under
the 1998 Inland Revenue approved scheme are normally exercisable between the third and tenth anniversaries of their date of grant, subject
to the movement of the group’s basic earnings per share exceeding RPI over the relevant period.
Options granted under the 1998 unapproved scheme are normally exercisable between the third and seventh anniversaries of their date of
grant. Awards are subject to the movement of the group’s basic earnings per share exceeding RPI between 3% and 5% per annum respectively
over the relevant period.
Additionally, the group operates a savings related share option scheme (“sharesave scheme”) which is open to employees subject to eligibility
criteria determined by the directors prior to each option grant. The most recent grant was on 21 May 2010 when employees with over one
month’s service were invited to participate.
The group also operates a 2008 HMRC approved scheme, a 2008 unapproved scheme, the Headlam Group Performance Share Plan 2008
and the Headlam Group Co-Investment Plan 2008. Further details of these schemes and plans are given in the Remuneration Report on pages
39 and 40.
86
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Share-based payments – Group and company continued
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares:
Number of
instruments
Grant date/employees entitled
2010
2009
Vesting conditions
Approved 1998 scheme granted
to key management 14 April 2003
40,404
46,404
Unapproved 1998 scheme granted
to key management 14 April 2003
–
2,596
Movement of the group’s basic
earnings per share exceeding
RPI over the relevant period
Movement of the group’s basic
earnings per share exceeding
RPI over the relevant period
Contractual
life of options
14/04/06 –
14/04/13
14/04/06 –
14/04/10
Unapproved 1998 scheme granted
to key management 22 August 2005
1,242,864
1,242,864
Approved 1998 scheme granted
to key management 22 August 2005
57,136
57,136
Movement of the group’s basic
earnings per share exceeding RPI by
3%-5% pa over the relevant period
22/08/08 –
22/08/12
Movement of the group’s basic
earnings per share exceeding that of
RPI by 3% pa over the relevant period
22/08/08 –
22/08/15
Five year sharesave scheme granted
to other employees 25 May 2006
Three year sharesave scheme granted
to other employees 8 May 2008
Five year sharesave scheme granted
to other employees 8 May 2008
Three year sharesave scheme granted
to other employees 19 May 2009
Five year sharesave scheme granted
to other employees 19 May 2009
Three year sharesave scheme granted
to other employees 21 May 2010
Five year sharesave scheme granted
to other employees 21 May 2010
Headlam Group Co-investment
Plan 2008 granted to key management
8 October 2010*
40,980
45,152
Continuous service
57,784
73,098
Continuous service
50,121
57,740
Continuous service
409,119
481,635
Continuous service
384,105
400,441
Continuous service
77,920
66,406
468,828
–
–
–
Continuous service
Continuous service
If the real earnings per share growth
is over 3%pa – 50% vesting, over
6%-100% vesting. TSR – if company
is ranked at median or above
– 50%, upper quartile –100%
01/07/11 –
01/01/12
01/07/11 –
01/01/12
01/07/13 –
01/01/14
01/07/12 –
01/01/13
01/07/14 –
01/01/15
01/07/13 –
01/01/14
01/07/15 –
01/01/16
08/10/13 –
08/10/20
Total share options
2,895,667
2,407,066
*Further details on pages 39 and 40 of the Remuneration Report.
Headlam Group plc Annual Report and Accounts 2010
87
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Share-based payments – Group and company continued
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted
average
exercise
price
2010
Weighted
average
exercise
price
2009
Number of
options
2010
Number of
options
2009
336.6
222.2
63.5
244.0
2,407,066
(3,044)
627,736
(136,091)
379.5
–
222.2
320.1
2,115,855
–
895,909
(604,698)
281.9
2,895,667
336.6
2,407,066
413.8
1,340,404
411.4
1,357,234
The weighted average share price for options exercised during the year was 281.2p, there were no options exercised during 2009.
Share options outstanding at the year end have an exercise price in the range of 215.0p to 420.0p and a weighted average contractual life
of 3.7 years.
The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted.
The estimate of the fair value of the services received is measured using the Black-Scholes option pricing model.
It is expected that the options will be exercised as soon as they reach maturity.
The expected volatility is based on historic volatility calculated over the weighted average remaining life of the share options.
Details of share options granted during 2010 are shown below:
2010
Number of options
Fair value at measurement date
Share price at 31 December
Exercise price
Expected volatility (expressed as weighted average volatility
used in the modelling under the Black-Scholes model)
Option life (expressed as weighted average life used in the
modelling under the Black-Scholes model)
Expected dividends
Risk-free interest rate (based on UK Gilts)
3 year
Co-investment
plan 2008
3 year
Sharesave
options
5 year
Sharesave
options
468,828
279.6p
313.5p
–
86,307
93.1p
313.5p
251p
72,601
96.9p
313.5p
251p
45.7%
45.7%
43.5%
3 years
3.7%
0.9%
3 years
5.1%
1.3%
5 years
5.1%
2.3%
88
Headlam Group plc Annual Report and Accounts 2010
Notes to the Financial Statements
continued
20 EMPLOYEE BENEFITS continued
Share-based payments – Group and company continued
Details of share options granted during 2009 are shown below:
2009
Number of options
Fair value at measurement date
Share price at 31 December
Exercise price
Expected volatility (expressed as weighted average volatility used
in the modelling under the Black-Scholes model)
Option life (expressed as weighted average life used in the
modelling under the Black-Scholes model)
Expected dividends
Risk-free interest rate (based on UK Gilts)
The total expenses recognised for the year arising from share based payments are as follows:
Accounts
3 year
Sharesave
options
5 year
Sharesave
options
495,468
76.2p
300.3p
222.2p
400,441
67.4p
300.3p
222.2p
48.6%
42.2%
3 years
7.6%
2.1%
5 years
7.6%
2.8%
Share options granted in 2006 under
the SAYE 3 year scheme
Share options granted in 2006 under
the SAYE 5 year scheme
Share options granted in 2008 under
the SAYE 3 year scheme
Share options granted in 2008 under
the SAYE 5 year scheme
Share options granted in 2009 under
the SAYE 3 year scheme
Share options granted in 2009 under
the SAYE 5 year scheme
Share options granted in 2010 under
the SAYE 3 year scheme
Share options granted in 2010 under
the SAYE 5 year scheme
Shares granted in 2010 under the
Co-investment Plan 2008
Total expense recognised
Group
2010
£000
2009
£000
Company
Subsidiaries
2010
£000
2009
£000
2010
£000
2009
£000
–
35
93
63
102
30
16
9
100
448
30
36
101
67
63
19
–
–
–
316
–
–
–
–
3
1
–
–
43
47
1
–
–
–
1
1
–
–
3
–
35
93
63
99
29
16
9
57
29
36
101
67
62
18
–
–
–
401
313
21 OTHER LONG TERM EMPLOYEE BENEFITS – GROUP
During the year, the group operated an employment indemnity scheme in connection with a foreign subsidiary to provide for lump sum cash
payments due to employees retiring on their normal retirement date. The present value of the retirement indemnity obligation at 31 December
2010 is £286,000 (2009: £309,000).
Headlam Group plc Annual Report and Accounts 2010
89
Notes to the Financial Statements
continued
22 CAPITAL AND RESERVES
Share capital
Number of shares
On issue at 1 January and 31 December – fully paid
Allotted, called up and fully paid
Ordinary shares of 5p each
Shares classified as liabilities
Shares classified in shareholders funds
Ordinary shares
2010
2009
85,363,743 85,363,743
2010
£000
2009
£000
4,268
4,268
4,268
4,268
–
4,268
–
4,268
4,268
4,268
At 31 December 2010, there were 2,245,603 (2009: 2,248,647) shares held in treasury. Dividends are not payable on these shares and they
are excluded from the calculation of earnings per share. The shares held in treasury represent 2.6% of the issued share capital with a nominal
value of £112,000.
In the period from 31 December 2010 to 11 March 2011 no shares have been purchased by the company.
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings
of the company.
Dividends
Interim dividend for 2009 of 3.70p paid 2 January 2010
Final dividend for 2009 of 7.30p paid 1 July 2010
Interim dividend for 2008 of 5.60p paid 2 January 2009
Final dividend for 2008 of 14.10p paid 1 July 2009
2010
£000
3,072
6,060
–
–
2009
£000
–
–
4,649
11,705
9,132
16,354
The final proposed dividend of 8.57p per share (2009:7.30p per share) will not be provided for until authorised by shareholders at the
forthcoming AGM.
Interim dividends of 3.83p per share (2009: 3.70p per share) are provided for when the dividend is paid.
The total value of dividends proposed but not recognised at 31 December 2010 is £10,294,000 (2009: £9,132,000).
90
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
22 CAPITAL AND RESERVES continued
Reserves
Other reserves
Other reserves as disclosed on the Statement of Financial Position comprise the capital redemption reserve, translation reserve, cash flow
hedging reserve and treasury reserve. For the company this also includes a special reserve.
Capital redemption reserve
The capital redemption reserve represents the nominal value of shares repurchased and cancelled during 2007.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign subsidiaries.
Cash flow hedging reserve
The cash flow hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
relating to hedged transactions that have not yet occurred.
Treasury reserve
The treasury reserve compromises the cost of the company’s shares held by the group.
Special reserve
The special reserve arose on the issuance of shares in connection with acquisitions made by the company in earlier years.
23 FINANCIAL INSTRUMENTS
The main financial risks arising in the normal course of the group’s business are credit risk, liquidity risk, and market risks arising from interest rate
risk and foreign currency risk. This note presents information about the group’s exposure to each of the above risks, the group’s objectives, policies
and processes for measuring and managing risks and the group’s management of capital. Further quantitative disclosures are included throughout
these Financial Statements.
Credit risk and credit quality
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 trade receivables.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset and as at the Statement of Financial Position
date, in the directors’ opinion there were no significant concentrations of credit risk likely to cause financial loss to the group.
The group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on
all new customers requiring credit and these are frequently reviewed by management to limit exposure. Businesses must obtain approval from
executive directors or senior executive management for credit limits in excess of £10,000. The group does not require collateral in respect of
financial assets.
Headlam Group plc Annual Report and Accounts 2010
91
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Credit risk and credit quality continued
The credit control procedures described above, coupled with the diversified nature of the group’s trade receivables, lead the directors to believe
that there is limited credit risk exposure and that the credit quality of these assets is robust.
Other receivables comprise amounts due to the group which historically have been received within 3 months of the year end. The directors
have considered the inherent risk profile of other receivables at the year end and are of the view that this historical experience will prevail
for the foreseeable future and accordingly consider the credit quality of these assets to be robust.
Cash and cash equivalents represent deposits with reputable financial institutions in the UK and Continental Europe. Notwithstanding the
deteriorating economic circumstances during 2008 and 2009 and the consequential impact on the financial services sector, the directors
consider the credit quality of cash and cash equivalents to be robust.
The carrying amount of financial assets at the Statement of Financial Position date was:
Trade and other receivables (note 15)
Cash and cash equivalents (note 16)
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
102,240
44,758
101,149
45,737
27,924
23,369
27,153
27,473
146,998
146,886
51,293
54,626
The fair values of the above financial assets at both 31 December 2010 and 2009, are deemed to approximate to carrying value due to the
short term maturity of the instruments.
The maximum exposure to credit risk for trade receivables at the Statement of Financial Position date by geographic region was:
UK
Continental Europe
Group
2010
£000
2009
£000
Company
2010
£000
2009
£000
64,944
13,934
63,231
15,873
78,878
79,104
–
–
–
–
–
–
92
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Credit risk and credit quality continued
The ageing of trade receivables at the Statement of Financial Position date was:
Not past due
Past due 0 - 30 days
Past due 31 - 120 days
2010
Gross
£000
Impairment
£000
2009
Gross
£000
Impairment
£000
74,808
3,313
3,684
–
(554)
(2,373)
74,760
3,718
3,427
–
(505)
(2,296)
81,805
(2,927)
81,905
(2,801)
The company had trade receivables of £nil (2009:£nil).
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 January
Impairment loss
Amounts utilised
Effect of movements in foreign exchange
Balance at 31 December
Group
2010
£000
2,801
2,160
(2,031)
(3)
2009
£000
3,078
2,493
(2,690)
(80)
2,927
2,801
Company
2010
£000
2009
£000
–
–
–
–
–
–
–
–
–
–
Based on historic default rates, the group believes that no general impairment allowance is necessary in respect of trade receivables, however,
the group provides fully for specific debts when required. During the year the group’s impairment loss as a percentage of revenue amounted
to 0.40% (2009: 0.47%).
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 is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, with sufficient headroom to
cope with abnormal market conditions. As at 31 December 2010 cash and cash equivalents covered the amounts of borrowings maturing in
the next twelve months with a net positive liquidity of £44,533,000 (2009: £44,079,000). Details of the total facilities that the group has
access to are given in note 18.
Headlam Group plc Annual Report and Accounts 2010
93
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Liquidity risk continued
The following are the contractual maturities of financial liabilities:
31 December 2010
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
31 December 2009
Group
Non-derivative financial liabilities
Bank overdraft
Unsecured bank loans
Trade and other payables
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1-2
years
£000
2-5
years
£000
More than
5 years
£000
34,236
138,365
(35,623)
(138,365)
(729)
(138,365)
(30,527)
–
(1,256)
–
(3,111)
–
172,601
(173,988)
(139,094)
(30,527)
(1,256)
(3,111)
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1-2
years
£000
2-5
years
£000
More than
5 years
£000
758
35,292
132,255
(768)
(37,166)
(132,255)
(768)
(1,404)
(132,255)
–
(714)
–
–
(31,588)
–
–
(3,460)
–
Derivative financial liabilities
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
224
20
(224)
(20)
(224)
(20)
–
–
–
–
–
–
168,549
(170,433)
(134,671)
(714)
(31,588)
(3,460)
94
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Liquidity risk continued
31 December 2010
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
31 December 2009
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1-2
years
£000
2-5
years
£000
30,000
38,552
(30,587)
(38,552)
(391)
(38,552)
(30,196)
–
68,552
(69,139)
(38,943)
(30,196)
–
–
–
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1-2
years
£000
2-5
years
£000
30,000
41,181
(30,913)
(41,181)
(365)
(41,181)
(365)
–
(30,182)
–
224
(224)
(224)
–
–
71,405
(72,318)
(41,770)
(365)
(30,182)
The value of the group’s financial liabilities as detailed above at 31 December 2010 and 2009 were not materially different to the carrying
value. Fair values were calculated using market rates, where available. Where market values are not available, fair values have been estimated
by discounting expected future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued at the
exchange rate prevailing at the Statement of Financial Position date.
Headlam Group plc Annual Report and Accounts 2010
95
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Liquidity risk continued
The table below sets out the group’s accounting classification of each class of financial assets and liabilities at 31 December 2010 and 2009.
31 December 2010
Cash and cash equivalents
Borrowings due within one year
Borrowings due after one year
Trade payables
Trade receivables
Derivative assets
31 December 2009
Cash and cash equivalents
Bank overdrafts
Borrowings due within one year
Borrowings due after one year
Trade payables
Trade receivables
Derivative liabilities
Available
for sale
£000
Designated
hedges
£000
44,758
–
–
–
–
–
44,758
–
–
–
–
–
–
–
Available
for sale
£000
Designated
hedges
£000
45,737
–
–
–
–
–
–
45,737
–
–
–
–
–
–
(224)
(224)
Other
derivatives
at fair
value
£000
–
–
–
–
–
111
Amortised
cost
£000
–
(225)
(34,011)
(114,225)
78,878
–
Total
carrying
value
£000
44,758
(225)
(34,011)
(114,225)
78,878
111
111
(69,583)
(24,714)
Other
derivatives
at fair
value
£000
–
–
–
–
–
–
(20)
Amortised
cost
£000
–
(758)
(900)
(34,392)
(106,494)
79,104
–
Total
carrying
value
£000
45,737
(758)
(900)
(34,392)
(106,494)
79,104
(244)
(20)
(63,440)
(17,947)
Under IAS 39, all derivative financial instruments not in a hedge relationship are derivatives at fair value through the income statement. The
group does not use derivatives for speculative purposes. All transactions in derivative financial instruments are undertaken to manage the risks
arising from underlying business activities.
96
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Interest rate risk
The company and group are exposed to interest rate fluctuations on their borrowings and cash deposits. Borrowings are principally held in
sterling and euros at both fixed and floating rates, deposits are in sterling, euros and Swiss francs at floating rates.
Floating rate borrowings are linked to the London Interbank Offered Rate and Euribor Over Night Index Average. The group adopts a policy of
reviewing its floating rate exposure to ensure that if interest rates rise the effect on the group’s income statement is manageable. In accordance with
this policy, and in order to manage it’s exposure to UK interest rates, the group entered into two interest rate swaps in 2008 to fix £30 million of its
sterling denominated borrowings. The first interest rate swap matured in October 2009 and the second matured in April 2010. These interest rate
swaps have been designated as a hedging instrument and accounted for as a cash flow hedge in accordance with the requirements of IAS 39.
The fair values of these interest rate swaps are included in the Statement of Financial Position as a derivative liability of £nil (2009:£224,000).
At the reporting date the interest rate profile of the group’s interest-bearing financial instruments was:
Variable rate instruments
Financial assets
Financial liabilities
Group
Carrying amount
2010
£000
2009
£000
Company
Carrying amount
2010
£000
2009
£000
44,758
(34,236)
45,737
(36,050)
23,369
(30,000)
27,473
(30,000)
10,522
9,687
(6,631)
(2,527)
There were no fixed rate instruments held by the group at 31 December 2010 (2009: £nil).
Sensitivity analysis
A change of 100 basis points in the interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the
amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is
performed on the same basis for 2009.
Group
Company
Profit or loss
Equity
Profit or loss
Equity
100bp
increase
£000
100bp
decrease
£000
100bp
increase
£000
100bp
decrease
£000
100bp
increase
£000
100bp
decrease
£000
100bp
increase
£000
100bp
decrease
£000
31 December 2010
Variable rate instruments
105
(105)
31 December 2009
Variable rate instruments 197
(197)
–
–
–
–
(66)
66
75
(75)
–
–
–
–
Headlam Group plc Annual Report and Accounts 2010
97
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Foreign currency risk
The group and company are exposed to movements in currency exchange rates arising from transaction currency cash flows and the translation
of the results and net assets of overseas subsidiaries. The currencies giving rise to this risk are primarily the euro and Swiss franc.
The group and company uses forward exchange contracts to hedge their foreign currency transactional risk. A future foreign currency contract
would be entered into where there was a known requirement for the currency due to planned imports that are not invoiced in sterling. These
forward exchange contracts would have a maturity of less than one year after the Statement of Financial Position date. The group also enters
into foreign currency contracts at spot rate where the amounts are not frequent or material. Gains and losses on currency contracts recognised
as an asset as at 31 December 2010 amounted to £111,000 (2009: liability £20,000).
For the twelve month period to 31 December 2010, 9.8% (2009: 10.0%) of the group’s operating profit was derived from overseas
subsidiaries and at 31 December 2010, 23.7% (2009: 22.5%) of the group’s operating net assets related to overseas subsidiaries. Hedge
accounting, following the adoption of IFRS, has not been applied to these operations.
The group and company do not use derivatives other than as described above.
The group’s exposure to foreign currency risk was as follows:
2010
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2009
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£000
178
635
(1,340)
Group
Other
amount
£000
180
662
(889)
Total
£000
358
1,297
(2,229)
Euro
amount
£000
82
85
–
(527)
(47)
(574)
167
Euro
amount
£000
279
319
(1,064)
(466)
Group
Other
amount
£000
144
387
(666)
(135)
Total
£000
423
706
(1,730)
(601)
Euro
amount
£000
56
234
–
290
Company
Other
amount
£000
17
1
–
18
Company
Other
amount
£000
12
1
–
13
Total
£000
99
86
–
185
Total
£000
68
235
–
303
98
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Sensitivity analysis
A 10% weakening of sterling against the following currencies at 31 December would have increased/(decreased) profit or loss by
the amounts shown below, there is no equity effect. This analysis assumes that all other variables, in particular interest rates, remain constant.
The analysis is performed on the same basis for 2009.
Euro
Other
Group
Company
2010
£000
(53)
(5)
2009
£000
(47)
(14)
2010
£000
17
2
2009
£000
29
1
A 10% strengthening of sterling against the above currencies at 31 December would have had the equal but opposite effect on the above
currencies to the amounts shown above, on the basis that all other variables remain constant.
Fair values hierarchy
The financial instruments carried at fair value are categorised according to their valuation method. The different levels have been defined below:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly, as prices or
indirectly, derived from prices.
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The group had no interest rate swaps used for hedging at the Statement of Financial Position date (2009: fair valued in accordance with level 2).
Forward currency contracts were fair valued in accordance with level 2 (2009: level 3).
Fair values
The carrying amounts shown in the Statement of Financial Position for financial instruments are a reasonable approximation to fair value.
Trade receivables, trade payables and cash and cash equivalents – Fair values are assumed to approximate to cost due to the short term maturity
of the instrument.
Borrowings, other financial assets and other financial liabilities – Where available, market values have been used to determine fair values.
Where market values are not available, fair values have been estimated by discounting expected future cash flows using prevailing interest
rate curves. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the Statement of Financial Position date.
Headlam Group plc Annual Report and Accounts 2010
99
Notes to the Financial Statements
continued
23 FINANCIAL INSTRUMENTS continued
Capital management
The group views its finance capital resources as primarily comprising share capital, bank loans and operating cash flow.
The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. The board closely monitors its shareholder base, dividend yield and earnings per share.
The board encourages employees of the group to hold the company’s ordinary shares and operates a number of employee share option
schemes. The company has acquired a number of its own shares under a share buy-back programme, which at the present time, it does not
intend to do in the foreseeable future, some of these shares have been used for issuing shares under the group’s various share option incentive
schemes.
Certain of the company’s subsidiaries are required to maintain issued share capital at levels to support capital adequacy requirements prevailing
in the legislative environment in which they operate.
In order to maintain or adjust the capital structure, the group may adjust the amount of dividends made payable to shareholders, as it has this
year, return capital to shareholders, issue new shares or sell assets to reduce debt.
No changes were made to the capital management objectives, policies or processes during the years ended 31 December 2010 and
31 December 2009.
24 OPERATING LEASES
The aggregate payments, for which there are commitments under non-cancellable operating leases as at the end of the year, fall due as follows:
Group
Less than one year
Between one and five years
More than five years
Company
Less than one year
Between one and five years
More than five years
Land and
buildings
£000
748
1,994
2,313
2010
Plant and
machinery
£000
6,407
9,932
26
Total
£000
7,155
11,926
2,339
Land and
buildings
£000
423
2,738
3,406
2009
Plant and
machinery
£000
1,153
16,546
17
Total
£000
1,576
19,284
3,423
5,055
16,365
21,420
6,567
17,716
24,283
Land and
buildings
£000
2010
Plant and
machinery
£000
18
74
1,396
1,488
6
–
–
6
Total
£000
24
74
1,396
Land and
buildings
£000
18
74
1,414
2009
Plant and
machinery
£000
7
6
–
Total
£000
25
80
1,414
1,494
1,506
13
1,519
The group leases the majority of its motor and commercial vehicles on terms that range between three and five years, and during the year ended
31 December 2010, total operating lease expense of £10,702,000 was recognised in the Consolidated Income Statement (2009: £10,952,000).
100
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notes to the Financial Statements
continued
25 CAPITAL COMMITMENTS
Group
During the year ended 31 December 2010, the group entered into contracts to purchase property, plant and equipment for £421,000
(2009: £225,000). These commitments are expected to be settled in the following financial year.
Company
During the year ended 31 December 2010, the company entered into contracts to purchase property, plant and equipment for £nil (2009: £nil).
26 RELATED PARTIES
Group and Company
Identity of related parties
The group has a related party relationship with its subsidiaries and with its directors and executive officers.
Transactions with key personnel
The group’s key personnel are the executive and non-executive directors and senior executive management as identified on page 22.
As at 31 December 2010, directors of the company and their immediate relatives controlled 1.5% of the voting shares of the company
(2009:1.6%).
Non-executive directors receive a fee for their services to the board.
Other than disclosed in the Remuneration Report, there were no other transactions with key management personnel in either the current
or preceding year. The cost charged to administrative expenses relating to share plans of key personnel amounted to £39,000 (2009: £2,000).
Company only
In addition to the transactions with key personnel the company has the following transactions:
Transactions with other group companies
Highest
Balance at
during 31 December
2010
£000
the year
£000
Highest
Balance at
during 31 December
2009
£000
the year
£000
Amounts due from subsidiaries
Amounts due to subsidiaries
27,282
27,282
26,820
26,820
(33,058)
(33,058)
(33,403)
(33,403)
The disclosure of the year end balance and the highest balance during the year is considered to provide a meaningful representation of
transactions between the company and its subsidiaries in the year. The highest balance is generally at the start or close of the financial year since
this is the time when the company levies its recharge of its operating expenses.
Headlam Group plc Annual Report and Accounts 2010 101
Notes to the Financial Statements
continued
26 RELATED PARTIES continued
Related party transactions reported in the income statement
For year
ended
For year
ended
31 December 31 December
2009
£000
2010
£000
Rental income
Dividends received
Recharge of operating expenses
Interest income
Pension recharge
27 SUBSEQUENT EVENTS
6,291
14,526
2,294
242
239
5,942
1,375
1,659
259
236
The directors have given due consideration to any events occurring in the period from the reporting date to the date these Financial Statements were
authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these Financial Statements.
102
Headlam Group plc Annual Report and Accounts 2010
Accounts
Principal Trading Subsidiaries
• HFD Limited
• MCD Group Limited
Headlam BV
LMS SA
• Belcolor AG
Place of
incorporation
Great Britain
Great Britain
Netherlands
France
Switzerland
All of these subsidiaries are wholly owned and are principally engaged as a distributor of floorcoverings and associated products.
• These subsidiaries are owned directly by Headlam Group plc. The investment in subsidiaries comprises ordinary share capital.
Headlam Group plc Annual Report and Accounts 2010 103
Financial Record
Trading results
Revenue
Operating profit
Profit before net financing costs
Net financing costs
Profit on ordinary activities before tax
Taxation
2006
£000
2007
£000
2008
£000
2009
£000
2010
£000
509,899
544,718
557,296
533,793
535,690
43,941
46,013
41,722
24,758
26,066
3,941
(383)
46,013
(841)
41,722
(1,602)
43,558
(13,067)
45,172
(13,534)
40,120
(11,433)
24,758
(2,694)
22,064
(6,168)
26,066
(1,060)
25,006
(7,127)
Profit on ordinary activities after taxation
30,491
31,638
28,687
15,896
17,879
Shareholder value
Paid dividend per share
Proposed dividend per share
Earnings per share
Net assets
Non-current assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
18.00p
20.15p
35.1p
20.15p
23.10p
37.1p
23.10p
19.70p
34.5p
19.70p
11.00p
19.1p
11.00p
12.40p
21.5p
85,032
13,210
5,517
92,097
13,210
2,106
99,741
13,210
1,516
96,530
13,210
4,731
97,215
13,210
896
103,759
107,413
114,467
114,471
111,321
94,217
91,284
41,861
–
101,491
100,830
16,805
–
107,597
105,942
35,193
–
99,637
101,149
45,737
2,275
105,694
102,240
44,758
362
227,362
219,126
248,732
248,798
253,054
Total assets
331,121
326,539
363,199
363,269
364,375
Current liabilities
Bank overdraft
Other interest-bearing loans and borrowings
Trade and other payables
Employee benefits
Income tax payable
Non-current liabilities
Other interest-bearing loans and borrowings
Employee benefits
Total liabilities
Net assets
104
Headlam Group plc Annual Report and Accounts 2010
(1,010)
(267)
(149,422)
(1,102)
(10,184)
(103)
–
(154,320)
(1,491)
(10,747)
–
(4,506)
(143,369)
(2,428)
(9,546)
(758)
(900)
(143,216)
(2,506)
(8,615)
–
(225)
(149,476)
(2,586)
(4,201)
(161,985)
(166,661)
(159,849)
(155,995)
(156,488)
–
(16,124)
(16,124)
–
(9,837)
(9,837)
(30,000)
(12,216)
(42,216)
(34,392)
(20,253)
(54,645)
(34,011)
(10,138)
(44,149)
(178,109)
(176,498)
(202,065)
(210,640)
(200,637)
153,012
150,041
161,134
152,629
163,738
Accounts
Notice of AGM
Notice is hereby given that the sixty third Annual General Meeting of Headlam Group plc will be held at the group’s distribution facility located
at Gorsey Lane, Coleshill, Birmingham, B46 1LW on Friday 17 June 2011 at 10.00 a.m. for the following purposes.
As ordinary business
1. To receive, consider and adopt the Annual Report and Accounts, the Directors’ Report and the Independent Auditor’s Report for the year
ended 31 December 2010.
2. To declare a final dividend for the year ended 31 December 2010 of 8.57 pence per ordinary share.
3. To elect as a director Andrew Eastgate who was appointed since the date of the last Notice of AGM (“Notice”) and who is retiring
in accordance with the company’s articles.
4. To re-elect as a director Tony Brewer who is retiring by rotation in accordance with the company’s articles.
5. To re-appoint KPMG Audit Plc as Independent Auditor of the company from the conclusion of the meeting until the conclusion of the next
general meeting at which accounts are laid before the shareholders.
6. To authorise the directors to determine the Independent Auditor’s remuneration.
7. To approve the director’s Remuneration Report for the year ended 31 December 2010.
As special business
To consider and, if thought fit, pass the following resolutions of which resolution 8 will be proposed as an ordinary resolution and resolutions
9 to 12 will be proposed as special resolutions:
8. Authority to allot shares
(a)
that the directors be generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”)
to allot shares in the company, and to grant rights to subscribe for or to convert any security into shares in the company, up to an
aggregate nominal amount of £1,122,500 for a period expiring (unless previously renewed, varied or revoked by the company in
general meeting) at the end of the 2012 AGM (or, if earlier, at the close of business on 30 June 2012), and save that the company
may before such expiry make an offer or agreement which would or might require shares to be allotted, or rights to subscribe for
or convert any security into shares to be granted, after expiry of this authority and the directors may allot shares and grant rights
in pursuance of any such offer or agreement as if this authority had not expired;
(b)
that, subject to paragraph (c), all existing authorities given to the directors pursuant to section 551 of the Act be revoked by this
resolution; and
(c)
that paragraph (b) shall be without prejudice to the continuing authority of the directors to allot shares or grant rights to subscribe for or
convert any security into shares pursuant to an offer or agreement made by the company before the expiry of the authority pursuant to
which such offer or agreement was made.
9. Dis-application of pre-emption rights
that, subject to the passing of resolution 8 in this Notice and in place of all existing powers to allot securities given to the directors, the
directors be generally empowered pursuant to section 570 and section 573 of the Act to allot equity securities (as defined in section 560
of the Act) for cash, pursuant to the authority conferred by resolution 8 in this Notice, as if section 561 of the Act did not apply to the
allotment. This power:
(a)
expires (unless previously renewed, varied or revoked by the company in general meeting) at the end of the 2012 AGM if passed
(or, if earlier, at the close of business on 30 June 2012), save that the company may, before such expiry, make an offer or agreement
which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance
of any such offer or agreement as if this power had not expired; and
Headlam Group plc Annual Report and Accounts 2010 105
Notice of AGM
continued
(b) shall be limited to:
(i)
the allotment of equity securities in connection with an issue to holders of ordinary shares of 5 pence in the capital of the company
in proportion (as nearly as may be practicable) to their existing holdings and to people who hold other equity securities, if this is
required by the rights of those securities or, if the directors consider it necessary, as permitted by the rights of those securities and
so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate
to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of,
any territory or any other matter; and
(ii) the allotment of equity securities for cash otherwise than pursuant to paragraph 12(b)(i) up to an aggregate nominal amount of £213,000.
This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of section 560(3) of the Act as if,
in the first paragraph of this resolution, the words “pursuant to the authority conferred by resolution 8 in this Notice” were omitted.
10. Authority to purchase own shares
that the company be and is hereby generally and unconditionally authorised for the purposes of section 701 of the Act to make market purchases
(within the meaning of section 693(4) of the Act) of ordinary shares of 5 pence in the capital of the company, subject to the following conditions:
(a)
the maximum number of ordinary shares which may be purchased is 8,536,000;
(b ) the minimum price (exclusive of expenses) which may be paid for an ordinary share is 5 pence;
(c)
the maximum price (exclusive of expenses) which may be paid for each ordinary share is the higher of: (i) an amount equal to 105%
of the average of the middle market quotations of an ordinary share of the company as derived from the London Stock Exchange
Daily Official List for the five business days immediately preceding the day on which the share is contracted to be purchased; and (ii)
an amount equal to the higher of the price of the last independent trade of an ordinary share and the highest current independent bid
for an ordinary share as derived from the London Stock Exchange Trading System; and
(d)
the authority conferred by this resolution shall expire at the conclusion of the 2012 AGM or, if earlier, at the close of business on
30 June 2012 (except in relation to the purchase of shares the contract for which was made before the expiry of this authority and
which might be concluded wholly or partly after such expiry).
11. Shareholder rights directive
that the company be and is hereby generally and unconditionally authorised to hold general meetings (other than annual general meetings)
on 14 days’ clear notice from the date of the passing of this resolution, provided that the authority shall expire at the conclusion of the AGM
of the company to be held in 2012 or 30 June 2012, whichever is the earlier.
12. Headlam Group Co-Investment Plan 2008
that the Remuneration committee be and it is hereby authorised to adopt the amendments to the Headlam Group Co-Investment Plan 2008
(the “Co-Investment Plan”) shown in the version of the Co-Investment Plan rules which have been produced to the meeting and initialled by
the Chairman (for the purposes of identification) and a summary of the main provisions of which amendments is set out in the explanatory
notes on page 112 and to do all such acts and things as may be necessary or expedient to give effect to the same.
By order of the board
Geoff Duggan
Company Secretary
11 March 2011
Headlam Group plc
Registered No. 460129, England
Registered office:
Gorsey Lane
Coleshill
Birmingham
B46 1LW
106
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notice of AGM
continued
Explanatory Notes to the Notice of AGM
Notes 1 to 16 below give further explanation as to the proxy, voting and attendance procedures at the AGM.
1. Entitlement to appoint proxies.
A member entitled to attend and vote at the meeting is also entitled to appoint a proxy or proxies to attend, speak and vote instead of him.
A member may appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attached
to a different share or shares held by that member. A proxy need not be a member of the company. Appointment of a proxy will not preclude
a member from attending and voting in person at the meeting. To appoint more than one proxy, a member must complete a photocopy of the
enclosed proxy card or obtain additional forms from Capita Registrars, telephone 0871 6640300 (calls cost 10p per minute plus network
charges). Lines are open 8.30am – 5.30pm Monday to Friday. Please also indicate by ticking the relevant box if the proxy appointment is one
of multiple appointments being made. Multiple proxy appointments should be returned together in the same envelope. Enter in the box provided
the number of shares in relation to which your proxy is authorised or leave the box blank to authorise your proxy to act in relation to your full
voting entitlement.
2. Appointing proxies
To be effective, the instrument appointing a proxy and any power of attorney or other authority under which it is executed (or a notarially
certified copy of such power or authority) must reach Capita Registrars, Proxies Department, The Registry, 34 Beckenham Road, Beckenham,
Kent, BR3 4TU not less than 48 hours before the time for holding the meeting. A form of proxy is enclosed with this Notice.
3. Electronic proxy appointment through Crest
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the
procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members
who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take
the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (“Euroclear UK & Ireland”) specifications and
must contain the information required for such instructions, as described in the CREST manual. The message, regardless of whether it constitutes
the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted
so as to be received by the issuer’s agent (ID RA10) by the latest time for the receipt of proxy appointments specified in note 2 above. For this
purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by CREST application host)
from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change
of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK and Ireland does
not make available special procedures in CREST for any particular message. Normal system timing and limitations will, therefore, apply in
relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a
CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular,
to those sections of the CREST manual concerning practical limitations of the CREST systems and timing.
The company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertified Securities
Regulations 2001.
4. Joint holders
In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders. For this purpose seniority is determined by the order in which the names of the holders stand in the register
of members in respect of the joint holding.
Headlam Group plc Annual Report and Accounts 2010 107
Notice of AGM
continued
5. Entitlement to attend and vote
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered on the register of
members in order to have the right to attend and vote at the AGM is 6.00 p.m. on 15 June 2011 or, if the meeting is adjourned, 6.00 p.m.
on the date two days before the date for the adjourned meeting. Changes to entries on the register of members after that time will be disregarded
in determining the right of any person to attend or vote at the meeting.
6. Nominated person
If you are a person who has been nominated under section 146 of the Companies Act 2006 to enjoy nomination rights (a “Nominated Person”)
you may, under an agreement between you and the member of the company who has nominated you, have a right to be appointed (or have
someone else appointed) as a proxy for the meeting. If you do not have such a proxy appointment right, or you do but do not wish to exercise
it, you may have a right to give instructions to the member who has appointed you as to the exercise of voting rights. If you are a Nominated
Person, the statement of the rights of members in relation to the appointment of proxies above does not apply. Such rights can only be exercised
by a registered member of the company.
7. Issued share capital
As at 11 March 2011 the company’s issued share capital, including treasury shares, consisted of 85,363,743 ordinary shares of 5p (“shares”).
Of these 2,243,572 shares were held in treasury, the voting rights and entitlement to dividend of which were automatically suspended.
Accordingly the total number of voting rights in the company as at that date was 83,120,171.
8. Right to ask questions
A shareholder attending the meeting has the right to ask questions relating to the business being dealt with at the meeting in accordance with
section 319A of the Act. In certain circumstances prescribed by section 319A of the Act, the company need not answer a question.
9. Shareholder requests under section 527 of the Act
Under section 527 Companies Act 2006, members of the company representing at least 5% of the total voting rights of the company or at
least 100 members who have a right to vote and hold shares in the company on which there has been paid up an average sum per member
of at least £100, may require the company to publish on its website a statement setting out any matter relating to the audit of the company’s
accounts or any circumstances connected with KPMG Audit Plc ceasing to hold office since the last AGM that the members propose to raise
at the meeting. Where the company is required to publish such a statement on its website, it may not require the members making the request
to pay its expenses in complying with the request. The company must forward the statement to the company’s auditor not later than the time
when it makes the statement available on its website. The business of the meeting includes any such statement that the company has been
required to publish on its website.
10. Non-shareholder attendance
Persons who are not shareholders in the company will not be admitted to the meeting unless prior arrangements are made with the company.
11. Access arrangements
Should any shareholder with special needs wish to attend the meeting, please contact the company so that appropriate arrangements can
be made.
12. Communicating with the company in relation to the AGM
Except as provided above, members who wish to communicate with the company in relation to the AGM should do so using the following means:
(a) by writing to the Company Secretary at the company’s registered office address at Gorsey Lane, Coleshill, Birmingham, B46 1LW;
or
(b) by writing to : Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield, HD8 0LA.
No other methods of communication will be accepted. In particular, you may not use any electronic address provided either in this Notice or
in any related documents (including, without limitation, the Annual Report and Accounts 2010 and the form(s) of proxy) to communicate with
the company for any purpose other than those expressly stated in this Notice or in such other related documents.
108
Headlam Group plc Annual Report and Accounts 2010
Accounts
Notice of AGM
continued
13. Inspection of documents
Copies of the directors’ service contracts and, where appropriate, letters of appointment, a summary of the directors’ transactions in the
company’s shares during the year and the written terms of reference for each of the Remuneration, Audit and Nomination committees will be
available for inspection at the registered office of the company during normal business hours on any weekday (Saturday, Sundays and public
holidays excluded) from the date of this Notice until the close of business on the business day preceding the AGM and will also be available
for inspection for at least 15 minutes prior to the meeting and throughout the meeting. There are no service agreements between any director
and any subsidiary of the company.
14. Voting results
The results of the voting at the AGM will be announced through a Regulatory Information Service and will appear on our website www.headlam.com.
15. Website
A copy of this Notice, and other information required by section 311A of the Act, can be found at www.headlam.com.
16. Data protection statement
Your personal data includes all data provided by you, or on your behalf, which relates to you as a shareholder, including your name and
contact details, the votes you cast and your Reference Number (attributed to you by the company). The company determines the purposes for
which and the manner in which your personal data is to be processed. The company and any third party to which it discloses the data (including
the company’s Registrars) may process your personal data for the purposes of compiling and updating the company’s records, fulfilling its legal
obligations and processing the shareholder rights you exercise.
Headlam Group plc Annual Report and Accounts 2010 109
Explanatory Notes
This year’s AGM will be held at the group’s distribution facility in Coleshill, Birmingham on Friday 17 June 2011 at 10.00 a.m.
A description of the resolutions that will be proposed at the meeting is set out below.
Resolutions 1 to 8 (inclusive) are proposed as ordinary resolutions which means that for each of these resolutions to be passed, more than
half the votes cast must be cast in favour of the resolution. Resolutions 9 to 12 (inclusive) are proposed as special resolutions which means
that for each of those resolutions to be passed, at least three quarters of the votes cast must be cast in favour of the resolution.
Resolution 1 – Annual Report and Accounts
The company is required by law to present to shareholders at the AGM its audited accounts and the directors and independent auditors’
reports for the financial year ended 31 December 2010. Shareholders are invited to vote to receive and adopt the Annual Report and
Accounts for the year ended 31 December 2010.
Resolution 2 – Declaration of dividend
The directors recommend the payment of a final dividend of 8.57p on each of the ordinary shares entitled thereto, which together with the
interim dividend of 3.83p, gives a total dividend of 12.40p for the year ended 31 December 2010. Subject to approval of the declaration
of the final dividend at the AGM, the final dividend will be paid on 1 July 2011 to the holders of ordinary shares whose names are recorded
on the register of members at the close of business on 3 June 2011.
Resolution 3 – Election of Andrew Eastgate as a director
Andrew Eastgate was appointed to the board on 17 May 2010, before the 2010 AGM but after the Notice of the 2010 AGM had
been sent to shareholders and, in accordance with the company’s articles, offers himself for election at the forthcoming AGM. Andrew was
formerly a partner in Pinsent Masons and head of the corporate practice in Birmingham. Andrew has a broad experience of advising quoted
companies, particularly in connection with transactions and compliance issues. In accordance with the recommendations of the combined
code relating to non-executive directors, the board believes that Andrew Eastgate should be elected and makes such a recommendation to
shareholders.
Resolution 4 – Re-election of Tony Brewer as a director
Tony Brewer is retiring by rotation in accordance with the company’s articles and is offering himself for re-election by shareholders. Under the
articles, directors are required to retire every three years. Tony was appointed an executive director in June 1991 becoming Managing Director
of the Floorcoverings Division in 1992 and Group Chief Executive in November 2000. The board believes that Tony Brewer should be re-elected
and makes such a recommendation to shareholders.
Resolution 5 – Re-appointment of Auditor
The company is required to appoint an auditor at each general meeting at which accounts are laid before the company, to hold office until the
end of the next such meeting. This resolution proposes the appointment of an auditor. KPMG has expressed its willingness to continue in office.
Resolution 6 – Agreement of Auditor remuneration
In addition to the company’s requirement to appoint an auditor, shareholder authority is sought for the directors to determine the remuneration
to be paid to the auditor for the period of appointment.
Resolution 7 – Directors’ Remuneration Report
Shareholders are being asked to approve the 2010 director’s Remuneration Report, which is set out on pages 36 to 46 of the company’s Annual
Report and Accounts. Whilst the payment of remuneration to the directors is not dependent on the passing of the resolution, the board will take
the vote into account when considering the future development and operation of the company’s remuneration policy and practice.
110
Headlam Group plc Annual Report and Accounts 2010
Accounts
Explanatory Notes
continued
Special Business – Resolutions 8 to 12
Resolution 8 – Authority to allot shares
Shareholders are being asked to pass the necessary resolution to grant to the directors a general authority, for the purpose of section 551 of the
Companies Act 2006, to allot relevant securities. On this occasion the proposed general authority is to allot up to an aggregate nominal amount
of £1,122,500 representing 22,450,000 ordinary shares (27% of the company’s ordinary share capital (excluding treasury shares) in issue at
11 March 2011 (the latest practical date prior to the publication of this report)). As at 11 March 2011, the company held 2,243,572 treasury
shares, which represented approximately 2.70% of the company’s issued share capital (excluding treasury shares), which the company can
cancel or hold for sale or use to meet the obligations under the company’s employee share schemes.
This authority will lapse at the conclusion of the AGM to be held in 2012, or, if earlier, on 30 June 2012. Your directors have no current
intention of exercising this authority except in connection with the company’s employee share schemes.
Resolution 9 – Dis-application of pre-emption rights
Shareholders are being asked to pass a resolution to empower the directors to allot equity securities, or sell treasury shares, for cash as if section
561 of the Companies Act 2006 (which gives shareholders certain pre-emption rights on the issue of shares or rights to subscribe for or convert
securities into shares) did not apply to any such allotment. The authority allows the issue or sale of shares of up to an aggregate nominal amount
of £1,122,500 representing 22,450,000 ordinary shares in respect of rights issues and other issues pro-rata to existing entitlements, and also
allows issues or sales for cash (other than in relation to a rights issue) limited to shares having an aggregate nominal amount of £213,000
(5% of the company’s ordinary share capital in issue at 11 March 2011). The authority will lapse at the conclusion of the AGM to be held
in 2012 or, if earlier, on 30 June 2012.
The directors confirm that they have no present intention of exercising this authority.
In accordance with The Pre-Emption Group’s Statement of Principles available at www.pre-emptiongroup.org.uk, the directors also confirm their
intention that no more than 7.5% of the issued share capital of the company (excluding treasury shares) will be issued for cash on a non-pre-
emptive basis during any rolling three-year period.
Resolution 10 – Purchase of own shares
The directors believe that it is in the interests of the company and its members to continue to have the flexibility to purchase its own shares
and this resolution seeks authority from members to do so. The directors intend only to exercise this authority where, after considering market
conditions prevailing at the time, they believe that the effect of such exercise would be to increase the earnings per share and be in the best
interests of shareholders generally. The effect of such purchases would either be to cancel the number of shares in issue or the directors may
elect to hold them in treasury pursuant to the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the “Regulations”),
which came into force on 1 December 2003. The Regulations enable certain listed companies to hold shares in treasury, as an alternative
to cancelling them, following a purchase of own shares by a company in accordance with the Companies Act 2006. Shares held in treasury
may subsequently be cancelled, sold for cash or used to satisfy share options and share awards under a company’s employee share scheme.
Once held in treasury, a company is not entitled to exercise any rights, including the right to attend and vote at meetings in respect of the
shares. Further, no dividend or other distribution of the company’s assets may be made to the company in respect of the treasury shares.
This resolution renews the authority given at the AGM held on 25 June 2010. The authority is in respect of 10% of the company’s issued
ordinary share capital as at 11 March 2011 and will lapse at the conclusion of the AGM to be held in 2012 or, if earlier, on 30 June 2012.
The resolution specifies the maximum and minimum prices at which the shares may be bought. If the company buys any of its shares under
the authority proposed by resolution 10, the board will decide at the time whether to cancel them immediately or hold them in treasury.
The purchase of shares will be dependent on market conditions and will also take into account the cash generated in the business and
other investment opportunities that may arise over time. During the year the company made no purchases of its own shares.
Details of share options outstanding and treasury share movements including details of own shares acquired by the company are shown
respectively in notes 20 and 22 to the Financial Statements.
Headlam Group plc Annual Report and Accounts 2010 111
Explanatory Notes
continued
Resolution 11 – Shareholder rights directive
This will be proposed as a special resolution to approve the holding of general meetings, other than AGMs, on 14 days’ notice. Although
the company’s articles currently permit this, regulations came into force on 3 August 2009 to implement the Shareholder Rights Directive in the
UK. These regulations require a shareholder resolution to be passed to authorise general meetings to be held on 14 days’ notice. Without the
passing of resolution 11, the minimum notice period under the regulations would be 21 days. If resolution 11 is passed by the shareholders, the
regulations would only allow the company to call a general meeting on 14 days’ notice if it were to make a system of electronic voting available
to its shareholders in respect of the meeting in question. The directors consider it to be in the best interest of shareholders to pass resolution 11,
which is a repeat of the same resolution passed at last year’s AGM, in order to prevent being constrained by the regulations implementing the
directive. It will be necessary for a similar resolution to be put to shareholders at each subsequent AGM. It is intended that this flexibility will
only be used for non-routine business and where merited in the interests of shareholders as a whole.
Resolution 12 – Headlam Group Co-Investment Plan 2008
The Headlam Group Co-Investment Plan 2008 (the “Co-Investment Plan”) was approved by the company’s shareholders at the AGM on
20 June 2008 at which time it was envisaged that at the date of the first award in 2008, existing shareholdings up to a maximum of one times
base salary, could be used for the purposes of matching. As no awards were made in 2008, certain amendments were sought and approved
at the 25 June 2010 AGM such that this authority to use existing shareholdings up to a value of one times base salary could be applied in
respect of the first award made under the Co-Investment Plan. Whilst the first awards were made in 2010, these were for 25% of base salary.
Approval is sought to amend the Plan rules such that existing shareholdings may be used in subsequent awards for matching purposes subject to
an aggregate of one times base salary.
The directors believe that the decision to scale back the first year opportunity and the proposed amendment to the rules of the Co-Investment Plan
are in the best interests of the company and its shareholders for the following reasons:
• the cost of the award in 2010 is reduced to 25% of base salary.
• the proposals do not increase the overall level of awards to executive directors and other participants in the form of matching shares.
• the Co-Investment Plan is currently the company’s only long-term incentive vehicle.
• the committee has not yet implemented the 2008 Performance Share Plan nor does it intend to do so in 2011 and it has not granted any
option awards under the 2008 Option Schemes.
• executive directors are required to commit shares to the Co-Investment Plan in order to receive matching awards of shares. This commitment
is greater than established UK market practice for executive directors to be eligible for long-term incentive awards without the need to commit
any of their own shares or funds.
The rules of the Plan marked to show the proposed amendment will be available for inspection at the registered office of the company from the
date of this Notice until the close of business on the business day preceding the AGM and will also be available for inspection at the place of
the AGM for at least 15 minutes prior to the meeting and throughout the meeting.
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Accounts
Shareholder Information
Shareholder helpline
The company’s shareholder register is maintained by Capita Registrars (“Capita”), who are responsible for making dividend payments and
updating the register, including details of changes to shareholders’ addresses and purchases or sales of company shares. If you have a question
about your shareholding in the company you should contact: Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield,
HD8 0LA. email: ssd@capitaregistrars.com, telephone 0871 664 0300 (calls cost 10p plus network extras). Lines are open 8.30am – 5.30pm
Monday to Friday.
Frequent shareholder enquiries
If you change your address
Please notify Capita in writing. If shares are held in joint names, the notification must be signed by all named shareholders.
If you change your name
Please notify Capita in writing and enclose a copy of any marriage certificate or change of name deed as evidence.
Lost share certificates
If your share certificate is lost or stolen, you should call Capita immediately. A letter of indemnity will be sent to you to sign. Capita will charge
for this service.
Duplicate shareholder accounts
If you receive more than one copy of the company’s communications you may have your shares registered inadvertently in at least two accounts.
This happens when the registration details of separate transactions differ slightly. If you wish to consolidate such multiple accounts, call Capita to
request the accounts are consolidated.
Buying and selling shares in the UK
If you wish to trade in the comapny’s shares, you can do so at Capita’s website, www.capitadeal.com or alternatively use a stockbroker or high
street bank which trades on the London Stock Exchange. There are many telephone and online services available. If you are selling, you will
need to present your share certificate at the time of sale.
Transferring shares
Transferring shares to someone else requires the completion of a stock transfer form. This form, and details of the procedure you need to follow,
is available from Capita’s website www.capitaregistrars.com. Stamp duty is not normally payable if the transfer is to a relative or if there is no
money being paid in exchange for the shares.
Share prices information
Shareholders can find share prices listed in most national newspapers. Ceefax and Teletext pages also display share prices that are updated
regularly throughout the trading day. For a real-time buying or selling price, you should contact a stockbroker. Additionally there is a link to the
London Stock Exchange on the company’s website.
The company’s website
The company’s website at www.headlam.com provides news, details of activities, and information on the share price. The investor information
section of the website contains up to date information for shareholders including the company’s latest results and key dates such as dividend
payment dates.
ShareGift
ShareGift, the charity share donation scheme, is a free service for shareholders wishing to give shares to charitable causes. It may be especially
useful for those who wish to dispose of a small parcel of shares which would cost more to sell than they are worth. There are no capital gains
tax implications (i.e. no gain or loss) on gifts of shares to charity and it is also possible to obtain income tax relief. Further information can be
obtained at www.sharegift.org.
The Unclaimed Assets Register
The Unclaimed Assets Register is a unique search service that helps individuals to find their lost assets and re-establish contact with financial
institutions. It has a database of unclaimed life policies, pensions, unit trust holdings, and share dividends drawn from many companies and can
search for lost assets and entitlements. The Unclaimed Assets Register charges a small fixed fee for each search, 10% of which goes to charity.
For further information, visit www.uar.co.uk.
Headlam Group plc Annual Report and Accounts 2010 113
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Headlam Group plc Annual Report and Accounts 2010
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Registered office
Headlam Group plc
PO Box 1
Gorsey Lane
Coleshill
Birmingham
B46 1LW
Tel: 01675 433000
Fax: 01675 433030
Website
www.headlam.com
E-mail
headlamgroup@headlam.com
Registration
Registered in England and Wales
Number 460129