Annual Report and Accounts 2012
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Europe’s leading
floorcovering
distributor
Headlam Group plc
Annual Report and Accounts 2012
About Us
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 aimed at providing its customers
with a comprehensive and up to
date range of competitively priced
floorcovering products supported
by a next day delivery service.
The implementation of this strategy
provides Headlam’s suppliers
with an opportunity to achieve
unparalleled market access backed
by cost effective distribution.
In order to provide this level of
service, Headlam has developed a
diverse and autonomous operating
structure which includes 52 businesses
across the UK and a further five in
continental Europe.
In this report
The autonomous operating
structure is a key contributor to the
group’s success since it provides
an opportunity for experienced
management teams to develop the
individual identity, market presence
and profitability of the business for
which they are responsible.
Each business is supported by the
group’s continuing commitment
to investment in people, product,
operating facilities and IT. This
commitment has underpinned the
group’s overall development and
enabled it to grow into Europe’s
leading floorcovering distributor.
Overview
IFC About us
01 Our Performance
02
12
Clear Business Model
and Strategy
Strongly Developing
our Marketplace
Governance
38
Board of Directors and
Senior Management Team
40
Corporate Governance
Report
46
Remuneration Report
Financial Statements
61
Independent Auditor’s Report
Shareholder Information
109 Notice of AGM
62
63
Consolidated Income
Statement
111 Explanatory Notes to the
Proposed Resolutions
Consolidated Statement of
Comprehensive Income
113 Explanatory Notes to the
Notice of Meeting
55 Other Statutory Disclosures
64
Statements of Financial Position
116 Shareholder Information
14 Our Market Presence
60
20
Chairman’s Statement
Statement of Directors’
Responsibilities in Respect
of the Annual Report and
Accounts and the Financial
Statements
Review of the Business
Chief Executive’s Review
22
26 Financial Review
28 Measuring our Performance
30 Managing our Risk
32 Managing Responsibility
65
66
Statement of Changes in Equity
– Group
Statement of Changes in Equity
– Company
118 Advisers
119 Financial Calendar
120 Shareholder Notes
67 Cash Flow Statements
68
Notes to the Financial
Statements
107 Principal Trading Subsidiaries
108 Financial Record
Overview
Review of
the Business
Governance
Financial
Statements
Shareholder
Information
Annual Report and Accounts 2012 01
Headlam Group plc
Our Performance
Financial highlights
Revenue £m
Operating Profit £m
544.7 557.3
533.8 535.7
569.8 586.0
46.0
41.7
Revenue £m
£586.0 2011: £569.8
24.8
26.1
28.1
29.3
2007 2008 2009 2010
2011 2012
2007 2008 2009 2010
2011 2012
Earnings Per Share p
Dividends p
37.1
34.5
23.10
19.70
24.6
25.8
21.5
19.1
14.15 14.85
12.40
11.00
2007 2008 2009 2010
2011 2012
2007 2008 2009 2010
2011 2012
Operational highlights
Further market share gains in the UK with like for like
revenues increase by 5.3%
Continental European markets more difficult and on
a like for like basis, revenues decline by 3.3%
Construction commenced on the enlargement of the
Coleshill distribution centre. The first phase will be ready
for handover in March 2013 and the total project will be
completed by January 2014
The group is investing in external training programmes to
further develop the management, motivation and selling
skills of its management teams and sales representatives
The sophistication of the customer relationship
management system used on the iPad continues to
evolve and improve and the enhancements introduced
during 2012 will be augmented by further features in 2013
Operating Profit £m
£29.3 2011: £28.1
Earnings Per Share p
25.8 2011: 24.6
Dividends p
14.85 2011: 14.15
For further detail on our business please visit:
www.headlam.com
02
Clear Business Model and Strategy
generating revenue for the long term
Headlam distributes a wide range of products, sourced from
a variety of floorcovering suppliers around the globe, to its
customer base who, in the main, are independent floorcovering
retailers and contractors. In fulfilling this role, Headlam forms
an essential link that enables suppliers of floorcovering products
to gain extensive access to a number of markets located in
Western Europe.
Headlam operates through a number of individual and diverse
businesses located in the UK, France, Switzerland and the
Netherlands. Each business has its own trading identity and is
operated on an autonomous basis by a local management team,
who are empowered with the responsibility for developing their
businesses’ market presence and profitability.
This decentralised approach,
set within a well developed and
consistently applied framework of
operational and financial control,
provides a broad access to
floorcovering markets allowing the
group to manage the risks inherent
in challenging trading environments
and react swiftly to emerging market
opportunities.
Each business is supported by the
group’s 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.
The group’s strategy remains
focused on the development of its
floorcovering distribution businesses
in the UK and continental Europe and
the continued improvement of the
services provided to independent
floorcovering retailers and contractors.
The group’s operations are based
upon a well defined operating
structure that delivers sustained
product development and marketing
and distribution services aimed
at supporting and enhancing its
customers’ market position.
The group’s structure, built upon
over many years, has allowed the
group to continually outperform
the floorcovering market through
various economic cycles, which has
been very evident in recent years
when conditions have proved to be
particularly challenging and during
which time the group has maintained
its ability to increase its market
share.
Supply chain (see page 22)…
Headlam Group plc Annual Report and Accounts 2012
03
Executed simply and effectively…
1
Ordering
2
Selection
3
Processing
4
Deliveries
Serving a large
number of
customers, the
majority of whom
are independent
retailers and
floorcovering
retailers.
Immediate order
processing,
comprehensive
product ranges and
high stock levels
allow us to respond
quickly to customer
demand.
Investment in
material processing
and handling
equipment enables
us to increase
efficiency and
reduce waste.
Orders, which
are received on
a daily basis,
are processed
immediately
and subject
to customers
requirements
delivered the
following day.
For more detail
see page 4
For more detail
see page 6
For more detail
see page 8
For more detail
see page 10
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
04
Clear Business Model and Strategy continued
1
Ordering
The group serves a large
number of customers
the majority of which are
independent retailers and
floorcovering contractors.
All of our sales force use
iPads with a bespoke CRM
system as an app.
Headlam Group plc Annual Report and Accounts 2012
05
Orders placed in the UK
3,973,351
2011: 3,877,835
Active customer accounts in the UK
44,086
2011: 43,347
Fast, efficient service
Each of the businesses utilise an internal sales team who form the initial
contact point for customers wanting to place their orders. The internal
sales team ensure that our customer’s requirements are properly recorded
for subsequent processing.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
06
Clear Business Model and Strategy continued
Reliable order
tracking
The distribution centres maintain substantial investment in products to
ensure that customers’ orders are swiftly processed and their delivery
expectations fully satisfied. At the end of 2012 our inventory was valued
at £115.3 million compared with £114.2 million for 2011.
Headlam Group plc Annual Report and Accounts 2012
07
2
Selection
The group has invested
in 18 distribution centres
across the UK and four
on the continent.
UK warehouse capacity
53.5 million ft3
2011: 52 million ft3
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
08
Clear Business Model and Strategy continued
Efficient materials
processing
Bar code labelling and scanning equipment enable us to use a system of
random location, which maximises the capacity of the distribution centres.
Headlam Group plc Annual Report and Accounts 2012
09
3
Processing
Whilst the scale of our inventory investment
enables us to support customers’ requirements,
we would not be able to achieve the high
levels of service if we did not employ reliable
and accurate tracking systems. These systems
facilitate the location and retrieval of individual
product lines on an efficient and consistent basis.
UK cut length processing per week
35,322
2011: 34,328
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
10
Clear Business Model and Strategy continued
4
Deliveries
Virtually all our deliveries
to customers are made
on group vehicles.
UK deliveries during 2012
1,170,219
2011: 1,143,860
Headlam Group plc Annual Report and Accounts 2012
11
Next day deliveries
The fleet is completely updated over a five year period in order
to maintain a constant improvement in operating efficiency and
reduced operating costs and vehicle emissions.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
12
Strongly Developing our Marketplace
New app
Our sales representatives’ efficiency through the
utilisation of iPads has been further enhanced by the
introduction of a bespoke Customer Relationship
Management app.
Headlam Group plc Annual Report and Accounts 2012
13
Our external sales
representatives are positioning
new product with customers
on a daily basis.
The bespoke Customer Relationship Management
app, (“CRM”), facilitates constant and immediate
access to customer data. Therefore,
the representatives’ objectives can be fully
prepared prior to making a customer visit and,
following the visit, they can record their
achievements and note topics requiring future
consideration. In addition, the CRM provides
instant communication to the representatives’
sales manager and internal sales support.
The iPad also allows representatives to view stock
and place orders on the mainstream operating
system at any time. Furthermore, the iPad contains
all the required marketing and point of sale material
for presentation to customers.
The iPad, incorporating the CRM, has streamlined
the representatives’ working practices, time
management and efficiency and has ultimately
enabled them to provide an improved service
to our customers.
Each of these features within the iPad is intended
to maximise the performance of our representatives
and allow them to achieve their daily and
monthly objectives.
New product launches
Customer visits
External sales people
3,501
3,109
2,855
475,901
488,660
515,339
366
383
399
2010
2011
2012
2010
2011
2012
2010
2011
2012
Number of
customer orders
Number of active
accounts
3,807,034
3,877,835
3,973,351
41,994
43,347
44,086
2010
2011
2012
2010
2011
2012
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
14
Our Market Presence
The UK operating structure is based on five business sectors
each aimed at maximising market 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, whereas 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
Headlam Group plc Annual Report and Accounts 2012 15
Regional Multi-product Distribution
These 21 businesses, operating in both the residential and commercial markets,
collectively provide a comprehensive national coverage.
1
Distribution Centre
Service Centre
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 16
Our Market Presence continued
National Multi-product Distribution
Operating principally under the Mercado trade brand, these businesses offer
a national service for residential and commercial floorcovering throughout
England, Wales and Northern Ireland.
2
Distribution Hub
Distribution Centre
Trans-shipping Location
Headlam Group plc Annual Report and Accounts 2012 17
Regional Commercial Distribution
Our Regional Commercial Distribution currently includes 23 operations based
in 5 distribution and 18 service centres.
3
Distribution Centre
Shared Distribution Centre
Service Centre
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 18
Our Market Presence continued
National Residential Specialist Products
These 14 businesses operate principally in the middle to premium quality
carpet market.
National Commercial Specialist Products
These two businesses operate throughout the commercial markets but have
a primary focus in the healthcare and education sectors.
4
National
commercial
specialist
products
National Residential
Specialist Products
Headlam Group plc Annual Report and Accounts 2012 19
European Multi-product Distribution
Our continental European operations incorporate five businesses. In the
Netherlands our three businesses are located in one distribution centre. In France
our single business operates from two distribution centres and 21 service centres
and our business in Switzerland operates from one distribution centre.
5
Netherlands
Switzerland
France
Distribution Centre
Service Centre
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 20
Chairman’s Statement
“We enter 2013 with the
confidence that the various
initiatives implemented across
our businesses will deliver
performance improvement”
I am pleased to report that
the group has achieved
another year of progress with
revenue and profit showing
improvement on 2011.
This was despite the very
challenging market conditions
that continued to persist
throughout the 12 months
and which, whilst difficult
in the UK, were far more
acute in some of the group’s
continental markets.
However, notwithstanding market constraint,
various indicators would suggest that we have
continued to achieve further gains in market share.
Overview
The fact that the group has continued to
outperform in these difficult markets suggests that
our long term operational strategy is delivering the
right results, albeit, at a slightly slower pace than
we anticipated.
The board remains convinced that our structure
and business diversity are still appropriate but
recognises, that during periods of severe market
constraint, it is difficult to achieve optimal
Dividend (p)
14.85
2011: 14.15
performance. However, when markets resume
growth, the group will be in a prime position
to capitalise and take advantage of the upturn
as a result of retaining its structure.
During the year we maintained our investment
activities in a number of areas across the business
to improve our quality and market position.
These include comprehensive marketing initiatives
such as Lifestyle Floors, the continuing optimisation
of our Customer Relationship Management system
to improve our customer service offering and the
extensive introduction of further training
programmes to elevate the knowledge and
professionalism of our managers and employees.
Each of these investments, in conjunction with
the extension of our geographical reach through
the opening of further service centres in the UK,
are all intended to maintain and extend the group’s
position as the leading floorcovering distributor
in Europe.
Headlam Group plc Annual Report and Accounts 2012 21
Earnings and dividend
Profit before tax increased by 3.2% from
£27.6 million to £28.5 million and earnings per
share improved by 4.9% from 24.6p to 25.8p.
The board is proposing to increase the final
dividend by 3.6% from 9.85p to 10.20p resulting
in a total dividend for the year of 14.85p, up 4.9%
on 2011. The final dividend, if approved by
shareholders at the Annual General Meeting
(“AGM”), will be paid on 1 July 2013 to
shareholders on the register at close of business
on 7 June 2013.
Employees
The board would like to thank all employees
for their efforts and contribution to the ongoing
success of the group. It is due to the endeavours
of our management teams and employees that we
manage to maintain our forward momentum.
Headlam’s business is based on lasting relationships
with customers and suppliers. It is a cornerstone of
the group’s business ethos, without which it would
be impossible to deliver progress. The hard work
and commitment from our teams around the group
are focused on strengthening these relationships
and building for the future.
Board and governance
Excellent governance has its foundation in an
effective board. At Headlam, we seek to foster
a culture of openness and transparency in an
environment which encourages participation and
contribution from all of the board members. Strong
governance creates high standards and in turn
creates confidence amongst our investors,
management, employees, suppliers and customers.
Outlook
Floorcovering markets remain very challenging
and the attendant uncertainty is reducing trading
visibility for the immediate future. However, we
enter 2013 with the confidence that the various
initiatives implemented across our businesses will
deliver performance improvements, particularly
when assisted by more buoyant markets, and the
group’s long term business strategy will ultimately
enable us to achieve further progress.
Graham Waldron
Chairman
8 March 2013
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 22
Chief Executive’s Review
“The collaborative effort that
exists between our senior and
individual management teams
and suppliers, is aimed at
ensuring that our businesses
remain at the forefront of all
new products introduced into
our particular markets.”
Strategy
Maintaining a clear focus on the continuing
development of our floorcovering business in
the UK and continental Europe is a fundamental
component of the group’s long term operating
strategy. It’s the board’s current intention that any
future investments or acquisitions will continue to
be for the purpose of enlarging and improving
our floorcovering distribution businesses.
Our business structure, particularly in the UK,
reaches a substantial proportion of the
floorcovering market and provides a distribution
channel for suppliers, whether UK, European or
worldwide, requiring the sales, marketing and
distribution of their products into the markets we
serve. This allows a wide range of appropriate
products to be available through a number of our
businesses into the retail and commercial sectors.
Operating our businesses on an autonomous basis,
and encouraging our managers to develop their
own individual style, has enabled the group to
be active in a significant proportion of the
floorcovering market and provided a degree of
protection against the downside risk arising from
particularly competitive markets. Furthermore, the
investment in our structure and development of our
businesses has enabled us to bring together the
benefits of market facing culture, delivering the
latest sales and marketing product initiatives with
a comprehensive and sophisticated logistics
operation.
This strategy has formed the foundation that has
permitted the group to outperform the overall
market during the challenging environment
of the last few years.
Market sectors
Following the acquisition of Flooring Accessories,
which is located in Cardiff and C.K. Davie, located
in Aberdeen and Dundee, the group now has
52 businesses in the UK. Each of the businesses,
depending on their product offering and
geographical presence, are positioned in one
of five market sectors, which are; regional
multi-product, national multi-product, regional
commercial, residential specialist and commercial
specialist.
These businesses are supported by 18 distribution
centres and 23 service centres, which provide a
comprehensive stockholding and logistics service
to their relevant customers.
Relationship and supply chain
A key ingredient of the group’s ongoing success is
its strong relationships with suppliers, which have
developed over many years, at both senior level
and within each of our operating businesses.
Domotex, the principal worldwide flooring
exhibition, which takes place in Germany during
January, represents an excellent opportunity and
venue for the management of Headlam’s
Headlam Group plc Annual Report and Accounts 2012 23
New product launches
2,855
2011: 3,501
businesses to meet with the majority of their
suppliers to review and order new products. It is
also an ideal time for the businesses to discuss their
business plans and objectives with suppliers for the
year ahead.
The collaborative effort that exists between our
senior and individual management teams and
suppliers, is aimed at ensuring that our businesses
remain at the forefront of all new products
introduced into our particular markets. This has
resulted in 2,855 new product launches during the
year, which were supported by 625,114 point of
sale items being positioned with our customers.
Despite particularly challenging market conditions,
these new products and point of sale items have
contributed to the revenue from our residential and
commercial product categories increasing against
the corresponding period in 2011. Overall, the mix
between residential and commercial flooring in the
UK has remained broadly the same compared with
2011 at respectively 69% and 31%.
Lifestyle Floors is now very much established as a
trade brand within the floorcovering industry and
has been important to the revenue growth through
our regional and national multi-product businesses.
We will continue to build on this market presence
and further strengthen our position. As part of this
initiative, we have invested in 16 merchandisers to
support the brand’s display stands within
independent flooring retailers.
Customers
Although markets remain challenging, our
customers continue to perform positively, as
reflected in the group’s overall increase in revenue.
Credit taken by UK customers at 41.3 days,
(2011: 40.9), demonstrates that they continue to
pay us to terms. The cost of bad debts decreased
compared with last year.
During the year, our sales representatives
collectively visited our customers 515,339 times,
(2011: 488,660), ensuring that we are able to cater
for our customers’ needs. This direct contact with
our customers is supported by the service provided
by our telesales people, a comprehensive
stockholding and a logistics service which allows
orders taken up until 16:00 to be delivered to the
customer’s premises the following working day.
During 2012, we received 3,973,351 orders
(2011: 3,877,835) and increased the number
of active accounts from 43,347 to 44,086.
Continental Europe
Our businesses in continental Europe have
experienced particularly difficult market conditions
again during 2012. Notwithstanding these
challenges, LMS in France and Lethem Vergeer in
the Netherlands achieved creditable results, whilst
Belcolor in Switzerland delivered a satisfactory
performance.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 24
Chief Executive’s Review continued
Coleshill total capacity
by January 2014
283,800sq. ft.
Management and employees
Of key importance to the ongoing success of
the group are the individual management teams
of the autonomous businesses. These teams
operate their business on a day-to-day basis and
have primary responsibility for maintaining their
relationships with suppliers and customers.
To further improve the effectiveness
of management teams, we are in the process
of undertaking external training programmes to
develop their management, motivation and selling
skills. This process is also intended to improve the
productivity and selling techniques of our sales
representatives. We believe this can be an on-going
investment, which will assist in developing the
careers of individuals to the benefit of the group
as a whole.
Investments
The group made two investments with the
acquisition of Flooring Accessories Limited in
August and the business and certain assets of
C.K. Davie in December, to enlarge our presence
in South Wales and the north east of Scotland
respectively.
The group announced on Friday 22 February, that
it had entered into an agreement to acquire the
business and certain assets of Hall’s Floorings
Limited, with completion anticipated to occur
on Thursday 28 March 2013. Hall’s Floorings,
a distributor of residential floorcovering based
in Edmonton, north London, is a supplier to
independent floorcovering retailers throughout
most of England.
We will continue to evaluate similar opportunities to
enlarge and complement the group’s geographical
or product coverage.
We have now completed the extension to the
Tamworth distribution centre. The entire 160,200
square feet site is now fully operational and will
allow our Residential and Commercial specialist
businesses to further develop their activities in
the middle to higher market sectors they serve.
Construction has commenced to significantly
enlarge the Coleshill distribution centre. The first
phase will be ready for handover in March 2013
and the total project will be completed by January
2014, giving Coleshill a total capacity of 283,800
square feet. The increased capacity will enable us
to extend our product offering.
The protracted discussions with regard to the
planned investment in Ipswich continue, where we
are still waiting for the current landowner and local
authority to conclude their negotiations.
During 2012, the group invested in additional
service centres in Middlesbrough, Liverpool,
Sheffield and Coventry and we have recently
concluded an agreement to open a service centre
in Trafford Park, Manchester. During 2013, it is our
intention to carefully increase the number of service
centres in strategic geographical locations, to
enlarge our commercial presence.
Headlam Group plc Annual Report and Accounts 2012 25
“The iPad, launched to our sales
teams in 2011, continues to
contribute to improved working
practices and enhanced
customer information.”
For further detail on
our business please visit:
www.headlam.com
Outlook
The continued challenging market conditions
combined with unfavourable weather has
culminated in a slightly disappointing start to 2013.
Notwithstanding this, the board are confident that
the operating strategy and group structure will
enable the business to continue to deliver progress
in its respective markets over the longer term.
Tony Brewer
Chief Executive
8 March 2013
Innovations
The iPad, launched to our sales teams in 2011,
continues to contribute to improved working
practices and enhanced customer information.
The device allows each of our sales people to be
fully prepared before making their visits and as
productive as possible whilst engaging with their
customer. The sophistication of the Customer
Relationship Management system used on the iPad
will continue to evolve and improve, with the
enhancements introduced during 2012 being
augmented by further features planned for 2013.
Another example how the group has taken
advantage of new technology is the utilisation
of the iPad within our distribution centres, where
it is used to improve the efficiency of the picking
process for palletised goods such as carpet tiles,
laminate and adhesives.
The group will continue to monitor developments
in technology to ensure that whenever appropriate,
investments will be made to keep us at the forefront
of sales and marketing techniques, along with
streamlined logistics.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 26
Financial Review
Revenue and operating profit
Group revenue increased during the year by 2.8%
from £569.8 million to £586.0 million. Underlying
like for like revenue in the UK increased by 5.3%,
whilst the collective like for like performance from
the continental European businesses declined
by 3.3%.
The group’s gross margin was lower during the
year compared with the previous year declining
to 30.0% compared with 30.8%. A change in
product mix and an increasingly intensive
competitive environment in the UK contributed
to this reduction.
Overheads reduced during the year by £1.3 million,
down to £146.4 million compared with £147.7
million in the previous year. As a percentage
of revenue, overheads were 25.0% compared
with 25.9%.
Operating profit margin improved to 5.0%
compared with 4.9% since the dilution in gross
margin was compensated for by the reduction in
overheads. Operating profit improved by 4.5%
on the previous year increasing from £28.1 million
to £29.3 million.
Looking forward, the group’s operating profit
margin should start to register further improvement
when floorcovering markets, particularly in the UK,
resume growth. Whilst the cost of retaining the
group’s existing structure has had a diluting impact
on profit margin, it has enabled the group to
increase its market share and will allow an
immediate response to any upturn in
market activity.
Net finance costs
Net finance costs increased during the year by
£0.4 million compared with 2011, the principal
contributors being net bank interest, £0.18 million
and £0.26 million attributable to the movement in
the cash flow and interest rate hedges.
Taxation
The effective rate of taxation reduced to 24.9%
during the year, reflecting the decrease in UK
headline corporation tax rate and also the further
future reduction already enacted, which impacts
upon deferred taxation. The anticipated effective
rate for 2013 is expected to reduce to 23.75% due
to further UK rate reductions which have been
announced but are not yet enacted.
Earnings per share
Basic earnings per share increased by 4.9%
from 24.6 pence to 25.8 pence and diluted
earnings increased by 5.3%, up from 24.4 pence
to 25.7 pence.
Dividends
Total dividends paid and proposed for 2012 have
increased by 4.9% from 14.15 pence to 14.85
pence. Dividend cover at 1.7 is broadly consistent
with where it has remained in recent years and
represents a cover ratio which the board anticipates
maintaining for the foreseeable future.
Cash flows
Net cash flow from operating activities
Net cash flow from operating activities increased
during the year by £15.9 million from £10.1 million
to £26.0 million.
Operating cash flows before changes in working
capital and other payables accounted for £1.3
million of the overall increase with the principal
contribution coming from the improvement in profit
before tax of £0.9 million.
The net investment in working capital reduced by
£2.2 million during the year compared with an
increase in net investment during the previous year
of £12.9 million. Inventory was broadly stable
during the year with further investment restricted
to £0.5 million and was the main cause behind the
modest cash outflow, £0.8 million, relating to trade
and other payables. Cash collection during the final
quarter of the year in connection with trade and
other receivables was particularly impressive
resulting in a cash inflow of £3.5 million.
The change in net working capital investment
during 2012 compared with 2011 was the main
reason for cash generated from operations
increasing from £20.9 million to £37.3 million.
The final components in the movement of net cash
flow from operating activities are cash payments
covering interest, tax and additional pension
liabilities. During the year these increased by
£0.5 million from £10.8 million to £11.3 million.
Headlam Group plc Annual Report and Accounts 2012 27
Net debt
At
1 January
2012
£000
Cash
flows
£000
Non-cash
movement
£000
Foreign
exchange
translation
£000
At
31 December
2012
£000
Cash at bank and in hand
41,494 8,476
–
(172)
49,798
Debt due within one year
(30,219)
–
30,000
Debt due after one year
(3,691)
213
(30,000)
7,584 8,689
–
6
107
(59)
(213)
(33,371)
16,214
Funding
Maturity date
Less than one year
Over one year and
less than five years
Over five and less
than seven years
Drawn
£000
212
Undrawn
£000
43,294
Total
facility
£000
43,506
30,636
10,000
40,636
2,736
33,584
–
53,294
2,736
86,878
Cash flows from investing and financing activities
The acquisition of property, plant and equipment
amounted to £8.0 million with work on the
Tamworth extension completed and work on the
development of the Coleshill extension initiated.
The acquisition of Flooring Accessories and C.K.
Davie gave rise to a further outflow of £0.8 million.
These investments were offset by cash received on
the sale of two properties of £1.5 million, and
interest received of £0.8 million.
Cash outflows from financing activities amounted
to £11.0 million compared with £12.1 million for the
previous year with the main differences being an
increase in dividends of £1.4 million, the absence of
share purchases in 2012, which in 2011 amounted
to £1.6 million, and the proceeds of £0.9 million
on the release of shares from treasury, which were
primarily used to support the SAYE awards
exercised during the year.
Net debt
Group net funds at the end of the year increased on
the previous year by £8.6 million from £7.6 million
to £16.2 million as detailed in the table above.
Funding
The group maintains sufficient banking facilities to
fund its operations and investments. As illustrated
above, at 31 December 2012, 61.3% of the group’s
facilities were not being utilised.
During March 2012, the group entered into
agreements with Barclays Bank and The Royal Bank
of Scotland whereby each bank provided a
£20.0 million facility with a four year term ending
March 2016. Both banks have now agreed to the
extension of these facilities for a further 12 months
to March 2017.
Employee benefits
As at 31 December 2012, the group’s net pension
liabilities totalled £17.4 million increasing by
£2.9 million on the previous year. The main factor
contributing to the increase in the deficit is the
0.5% per annum fall in the discount rate. However,
the full impact of the fall has been offset by a slight
reduction in expected inflation, better than
expected investment returns and the continued
payment of additional deficit reduction
contributions.
The company has continued to pay additional
contributions into the UK plan, as per its agreement
with the trustee. The additional deficit reduction
contributions amounted to £2.7 million during
the year and are expected to rise to £2.8 million
for 2013.
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 accounts.
Steve Wilson
Group Finance Director
8 March 2013
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 28
Measuring our Performance
The group uses the following indicators to assist in determining
if it is progressing towards its long term strategic objectives.
Like for Like Revenue Growth
Measurement
Like for like revenue growth
measures changes in revenue in
the current year compared with
the previous year. It excludes the
effects of acquisitions and the
movement in working days
and currency.
Why
The group targets an increase
in like for like revenue above
anticipated market growth with
the objective of maintaining
growth in market share.
Like-for-Like Revenue Growth
%
5.3
3.7
0.2
2010
2011
2012
Gross Profit Margin
Measurement
The ratio of gross profit to revenue.
Why
Gross profit margin is a primary
indicator of business performance
and market competitiveness. A
movement in gross margin generally
reflects a change in the business
product mix or market pricing
or a combination of both.
Gross Profit Margin
%
30.8
30.8
30.0
2010
2011
2012
Operating Profit
Measurement
Operating profit is determined by
adding back finance, income and
expense to profit before tax.
Why
The majority of the group’s
operating costs are fixed and the
group therefore obtains a
substantial benefit from operational
gearing as revenues increase.
Operating Profit
£m
26.1
28.1
29.3
2010
2011
2012
1
2
3
Headlam Group plc Annual Report and Accounts 2012 29
4
5
6
Earnings Per Share
Measurement
Earnings per share, (“EPS”) is
calculated by reference to post tax
profit divided by the weighted
average number of issued shares
during the year.
Why
EPS and EPS growth are widely
used measures of company
performance. EPS growth forms
the basis of the group’s current
dividend policy since the board
anticipates dividend growth to
be broadly in line with the growth
in EPS.
Earnings Per Share
p
24.6
25.8
21.5
2010
2011
2012
Return on Capital Employed
Measurement
Return on capital employed is
derived from operating profit
divided by the simple average of
the net assets plus average debt at
the start and end of the year.
Why
Return on capital employed
provides an indication of whether
the group’s performance is creating
value for its shareholders.
Return on Capital Employed
%
13.48
14.08
14.39
2010
2011
2012
Credit Taken by UK Customers and Bad Debt Percentage
Measurement
Credit taken is calculated by
reference to trade receivables net
of impairment provisions expressed
as a proportion of current and prior
months revenue inclusive of VAT.
Bad debts are calculated by
expressing the annual impairment
loss as a percentage of revenue.
Why
These two indicators provide
an accurate representation of
the independent customer’s
financial health.
UK Credit Taken
days
Bad Debt
%
42.0
40.9
41.3
0.46
0.40
0.34
2010
2011
2012
2010
2011
2012
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 30
Managing our Risk
The group’s business, results and financial condition are influenced by a range of risks and
uncertainties, a number of which remain beyond the control of the board. The board reviews key
risks and controls and, whilst the following highlights some of the key risks, it is not intended to
provide an exhaustive analysis of the risks affecting the business.
Area of Risk
Description
Potential Impact
Mitigation
Market demand
A significant proportion of the group’s
revenue is due to trade with
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
building projects.
Periods of recession that create
reduced consumer confidence or
contraction in the construction
industry and changes in trends and
preferences all have the potential to
affect market activity and demand for
products supplied by the group.
Competitor risk
The emergence of a competitor with
a strong business model could
undermine the group’s growth
objectives.
The group operates across four
geographical markets each of which
has similar trading characteristics.
Within each market, the group
competes directly with a variety of
regional and national distributors and
manufacturers selling directly to its
customer base and indirectly with
multiple retail chains.
Credit risk
The group trades with a substantial
number of its customers on open
credit terms and is, therefore,
exposed to an ever present risk of
certain customers failing to settle their
outstanding accounts.
A rise in the number and value of
customer defaults can undermine the
group’s ability to deliver an ongoing
improvement in earnings.
Market activity is monitored daily
in each individual business and
collectively at group. This visibility
allows prompt response to factors
adversely affecting trading.
Furthermore, since the group’s
principal activities are supply and
distribution, the group has the ability
to quickly react to market changes. In
addition, the development of a range
of regional, national and specialist
businesses provides the group with
broad market penetration and
protection against market
contractions.
The group seeks to sustain its
competitive position by maintaining
close relationships with its supplier
and customer base. Substantial and
continued investment in management
and facilities, an extensive product
offering, a knowledgeable selling
resource, stock availability, IT, efficient
material handling and logistics
enables the group to continue to
improve its market position.
The group has standardised credit
checking and debt collection
procedures in each individual
business and a well developed
intelligence network that seeks to
prevent the escalation of credit risk.
Accounts are subject to credit terms
and limits and the group’s businesses
are required to obtain central
approval for credit limits that
exceed a predefined threshold. The
procedures, combined with the local
knowledge of the credit control
teams, not only help contain
the risk of default, but also provide
opportunities for customers to trade
out of their default position.
Headlam Group plc Annual Report and Accounts 2012 31
Area of Risk
Description
Potential Impact
Mitigation
Technology
The software platform is a vital
component of the group’s operating
strategy underpinning the delivery of
operational objectives and providing
the framework for the maintenance of
financial control.
Given its importance, any prolonged
system failure has the potential to
adversely affect business
performance.
People
The group’s ability to deliver
continued success is very dependent
upon its people.
An inadequate pool of suitably
qualified and talented people can
disrupt business development and
undermine the group’s ability to
deliver sustainable growth.
Employee
benefits
There are ongoing risks that
could result in the costs associated
with funding the group’s defined
benefit plans increasing due to a
decline in investment returns,
movement in interest rates and
longer life expectancy.
An increasing deficit in the plans
could result in the group having to
increase financial support thereby
reducing its ability to fund operational
investment.
Each business has its own dedicated
hardware 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.
Recruitment, training and
development are aimed at ensuring
the group has suitably skilled and
qualified people to meet the current
and future operational needs of its
businesses. Furthermore, the group is
committed to creating opportunities
for individuals to progress their
careers.
As a result of the triennial actuarial
valuation of the UK plan undertaken
at 31 March 2011, the group agreed
to maintain its deficit reduction
contributions until December 2015,
at which point the plan deficit should
have been removed. The outcome
from future scheme valuations, the
next being 31 March 2014, could
result in the deficit reduction
contributions increasing or
decreasing.
Legislation
and regulation
The group’s operations are regulated
by a variety of laws and regulations,
the principal ones relating to health
and safety, the environment,
employment, commerce, corporate,
financial reporting and taxation.
Failure to comply could lead to
serious civil or criminal proceedings
causing disruption to the group’s
operations, financial loss and
reputational damage.
The group manages its obligations
through a framework of set policies
and procedures and, where
appropriate, engages the services
of competent third party advisers.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 32
Managing Responsibility
1
We are committed to
managing the business in
a socially responsible way
with the aim of consistently
improving the social,
environmental and economic
issues within our control or
influence throughout the
business and our supply
network. We also recognise
that the proper management
of such matters makes good
business sense and can result
in strategic, commercial and
reputational benefits.
Policy
Our policy towards Corporate Social Responsibility
(“CSR”) is subject to periodic review to ensure that
it continues to meet the needs of the markets and
communities in which we operate. In recognising
the importance of CSR issues, we seek to
encourage and facilitate positive management
behaviour in alignment with the group’s business
strategy. This includes the morale and welfare of
our employees, the satisfaction of our customers
and our impact on the environment.
Social and environmental factors are considered
by individual businesses and at a group level.
We manage relationships with stakeholders and
communicate with them through a variety of
channels. These include the AGM, annual and
interim reporting and announcements through
a regulatory news service for matters relating
to trading and the development of the business,
all of which are available on our website at
www.headlam.com. Additionally, in order to assist
with their understanding of the business and to
ensure that the board is aware of their views and
concerns, meetings are held with our major
institutional shareholders.
People
Equal opportunities
Our policy is that all employees should have access
to employment opportunities, irrespective of age,
gender, ethnic origin, religion or disability.
Consideration is given to applications for
employment, having due regard to the particular
aptitudes and abilities of the applicants and to our
responsibilities under the Disability Discrimination
Act. Where practicable, subject to the nature of our
activities, employees who develop a disability
during employment are given the opportunity to
retrain for alternative employment. Our recruitment,
training and development processes are designed
to ensure that we have suitably skilled and qualified
employees to meet the operational needs of the
business. We also participate in work experience
Headlam Group plc Annual Report and Accounts 2012 33
2
placement schemes. We are committed to
developing the potential of our people, offering
opportunities for employees to develop and grow
and periodically reviewing succession planning
processes. Employee turnover remains low resulting
in a stable employee base.
Communications
The continued success of our business relies
on good relations and communications with
employees and on the provision of a safe and
environmentally sound workplace, which complies
with applicable laws and regulations, so providing
an environment in which people can flourish and
succeed. Our employees’ wellbeing and
professional development is a key element 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. We expect
employees to respect confidential information,
company time and assets and believe in open and
honest communication, fair treatment and equal
opportunities, all of which support the fundamental
principles of good governance.
We encourage the involvement and participation
of employees in matters that affect their interests
through formal and informal meetings and value
their communication with management, both senior
and at the business unit. Employees continue to be
informed on matters affecting them and on the
various factors affecting the performance of the
group. Eligible employees are able to benefit from
the group’s performance through participation in
share schemes, including a savings related share
scheme. Considering it important for its employees
to make provision for their retirement, the group
offers opportunities for participation in retirement
plans, also providing death in service benefits
through a group life assurance scheme.
Training
Employees are encouraged to take advantage of
our training and development opportunities, which
is an important part of our strategy for success.
Training is delivered through internal resources, a
significant proportion of which is on a one to one
basis, and external providers. In 2013, we have
introduced a bespoke training programme for our
managers and sales representatives. Utilising the
services of an external trainer, continuing
professional competence training for commercial
vehicle drivers was undertaken during the year with
further training scheduled for 2013.
We require our employees to act ethically and
responsibly in accordance with the policies and
procedures within our employment handbook,
which covers our policies on ethics, bribery, fraud
and whistleblowing.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 34
Managing Responsibility continued
3
Health and safety
The health and safety of employees and individuals
likely to be affected by our business, including
contractors, customers, staff and members of the
public where appropriate is treated with the utmost
importance. We are committed to developing and
maintaining a positive and effective health and
safety culture. It is our policy to seek 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.
Our health and safety policy, which is endorsed
by the board, is tailored to each of our business
operations and the circumstances in which they
operate. It is amended to reflect changes in
procedures and processes and any modifications to
our control and inspection procedures. The board
receives a detailed presentation on health and
safety issues, covering each trading location, on an
annual basis, with interim updates as considered
necessary. These include comments on
improvements following inspections of the UK
businesses undertaken by our advisors. Each of
the UK businesses receives an updated bespoke
comprehensive health and safety manual for use
as a source of information, guidance and training
together with a set of compliance documentation
at least once a year. Each of our businesses
has a health and safety committee comprising
representatives from the various business
departments. These meet on a periodic basis and
are co-ordinated by the on site health and safety
manager. Management teams are encouraged to
create a supportive health and safety culture and
recognise the value of employee participation.
The report to the board includes our businesses
in Europe, which operate in accordance with the
health and safety legislation and inspection
practices in their respective countries.
Inspections undertaken by our third party adviser
form the basis on which we determine our
standards and are continually reviewed and
improved. Additional inspections are undertaken
where changes to operations have occurred or new
premises occupied. These are complemented by
annual inspections of racking systems carried out by
independent externally appointed assessors and in
the UK, risk inspections undertaken by our insurers
at several of our businesses.
Headlam Group plc Annual Report and Accounts 2012 35
4
Health and safety is an important part of employee
induction, at which time we ensure that all
employees are aware of our policies and of the
commitment that is expected of them towards
their safety. Managers, to whom the day to day
responsibility for health and safety is delegated and
who are best placed to monitor and control safety,
are guided and supported by our third party
advisors in risk assessment techniques. Job specific
training, including periodic refresher training, is
supported by good practice guides which set out
the important features associated with many
aspects of the roles and duties undertaken by
employees. Good practice guides are reviewed
annually to ensure they remain relevant to the
business, they include an awareness of impending
changes in relevant legislation and other specialist
subjects. The local business manager with
responsibility for health and safety has completed
the Institute of Occupational Safety and Health
Managing Safely Course.
Our businesses maintain good relationships with
health and safety and environmental health
regulators with positive and prompt responses to
any findings or observations following compliance
inspections. All reportable accidents are
investigated and in the minority of instances where
improvement is required, changes are implemented
in a timely manner. There were no prosecutions for
breaches of health and safety or enforcement
actions in the year.
Containment and inspection regimes in higher
risk areas such as fuel and lubrication stores,
compressors and fork lift truck battery charging
areas, are kept under review; fire risk protection
having been improved, training and awareness
increased and special containers sited at least
five metres from the main buildings for the
storage of flammable products.
Environmental
As a wholesale distributor of floorcoverings
operating from distribution facilities in the UK,
France, Switzerland and the Netherlands, we are
not a significant consumer of electricity, gas or
water. Electricity consumption is predominantly
in respect of fork lift truck battery charging, the
operation of specialist cutting tables used to cut
lengths from full and part rolls of broadloom
products, associated mechanical handling and
compressed air equipment, office and warehouse
lighting and office equipment. Gas is consumed
predominantly in respect of office heating and very
limited localised radiant heating above work
stations on the cutting tables located within the
distribution centre. Water consumption is limited to
employee welfare and commercial vehicle washing,
where some machines filter and recycle wash water.
The majority of our water charges are in respect of
fixed water rates relating to rain water discharge
from our business locations.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 36
Managing Responsibility continued
The actual cost of electricity, gas and water in 2012
amounted to 0.20% of revenue, which was very
much in line with the prior year.
Owing 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.
We seek to reduce charges by analysing invoices
received in respect of water through the installation
of water meters and by reducing consumption of
electricity, gas and water through repair, renewal
or installation of equipment to improve efficiency.
Modern and energy efficient construction
techniques and products are incorporated when we
invest in new facilities or undertake refurbishment
or repair works. During the year, we installed
intelligent lighting into two of our largest
distribution facilities, which is both more efficient
and movement sensitive, automatically switching
off during periods of inactivity. Future projects will
similarly incorporate intelligent lighting systems and
where practical, renewable energy solutions. During
2013 we will be installing automated meter reading
in respect of sites with non-half hourly electricity
meters, the benefit over time being improved
consumption management.
Headlam Group plc Annual Report and Accounts 2012 37
Commercial and motor vehicles are replaced
respectively on a five and three year basis, in doing
so improving operational efficiencies and reducing
operating costs and vehicle emissions. As a result,
all of our commercial vehicles comply with Euro 4
emission standards introduced in October 2006,
which reduced the levels of carbon monoxide,
hydrocarbon, nitrogen oxide and particulate
emissions. By the end of 2013 the commercial fleet
will be Euro 5 compliant, which will further reduce
levels of noxious emissions that cause harm to the
environment. We periodically review our fleet
requirements to ensure the optimum design to
maximise capacity and improve aerodynamics.
The waste arising from our operations is
predominantly protective plastic packaging,
cardboard poles and boxes and wooden pallets.
The cardboard poles from the centre of full rolls
part rolls and cut lengths of carpet and vinyl
delivered to our customers are later collected and
re-used until no longer fit for purpose. We continue
to increase the percentage that we recycle, baling
plastics and cardboard and stacking unwanted
pallets for dispatch to specialist re-processing
agents when it is economic to do so. This has
reduced the quantity of our waste going to landfill
sites. Guidance on waste management is issued
to the managers of the individual businesses to
increase awareness of the need to control and
reduce waste. Where possible, wrapping and
packing materials are sourced from manufacturers
where a high proportion of recycled materials
are used.
We are a member of Carpet Recycling UK, a not for
profit organisation formed with the aim of diverting
carpet material from landfill through developing an
end market for reprocessing and fibre recovery.
They report that the industry diversion from landfill
has increased from 2% to 10% in the last two years.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 38
Board of Directors and Senior Management Team
Mike O’Leary
Senior Independent Director
Mike was appointed a non-executive director of Headlam in
March 2006. He was joint COO at Misys plc between 1986
and 2000, running both their UK Insurance Division and US
Healthcare Division. He was CEO of Huon Corporation and
also Marlborough Stirling plc. He has undertaken a portfolio
of non-executive roles since 2005 and in addition to his role
at Headlam, is currently non-executive Chairman of both
EMIS Group plc and Digital Healthcare Limited.
Committees – Audit, Nominations (Chairman),
Remuneration (Chairman)
Andrew Eastgate
Non-executive Director
Andrew was appointed a non-executive director in May 2010.
He was formerly a Partner in Pinsents including being head of
Pinsents’ corporate practice in Birmingham. Andrew has broad
experience of advising quoted companies, particularly in
connection with transactions and compliance issues. He is a
non-executive director of Epwin Investment Holdings Limited.
Committees – Audit, Nominations, Remuneration
Directors
Graham Waldron
Chairman
Graham was appointed 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 60 years experience in the floorcovering
industry. He was the non-executive Chairman of Tandem Group plc
until his retirement from their board on 28 April 2010.
Committees – Charities, Nominations
Tony Brewer
Group Chief Executive
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 35 years experience in the floorcovering industry.
Committees – Nominations
Steve 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 and is a fellow
of the Institute of Chartered Accountants.
Dick Peters
Non-executive Director
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.
Committees – Audit (Chairman), Nominations, Remuneration
Headlam Group plc Annual Report and Accounts 2012 39
Company Secretary
Senior Executive Management
Geoff 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.
Gary Phillips
Finance Director, Operations
Gary joined the company in June 1992 and is the Finance
Director of operations. He is an associate of the Chartered
Institute of Management Accountants.
Tony Judge
Commercial Director, Coleshill and Tamworth businesses
Tony joined the company in May 1992 and is the Managing
Director of all businesses operating from the Coleshill and
Tamworth distribution centres and has operational responsibility
for the Thatcham and Stockport businesses. Tony has 32 years
experience in the floorcovering industry.
Keith 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 in Scotland.
Keith has 30 years experience in the floorcovering industry.
Mike McMaster
Commercial Director, selected UK Operations
Mike joined the company in July 1984 and was appointed to the
Senior Executive Management team in January 2009, with
operational responsibility for 15 of the UK businesses. Mike has
42 years experience in the floorcovering industry.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 40
Corporate Governance Report
This report sets out how the principles of the UK Corporate Governance Code (the “Code”) are applied, reports on the company’s
compliance with the Code’s provisions and provides 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.
The board considers that it has complied with the provisions of the Code, as applicable to the company, throughout the year ended
31 December 2012 and up to the date of this report.
The basis on which the group generates and preserves value over the longer term and the strategy for delivering the objectives
of the group are to be found in the Chairman’s Statement, Chief Executive’s Review and Financial review on pages 20 to 27.
Board of directors
The 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 effective controls which:
• enables risk to be assessed and managed;
• sets strategic aims;
• ensures that the necessary financial and human resources are in place to meet its objectives and review management performance;
• sets the group’s values and standards; and
• ensures that its obligations to its shareholders and others are understood and met.
During the year and as at 31 December 2012 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 and Andrew Eastgate.
The board considers 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 company considers that diversity in the boardroom is essential to good
business and measures are in place to ensure all appointments are made on merit.
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. 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 board maintains overall control of the group’s affairs through a schedule of matters reserved for its decision which were reviewed
in 2012. These include, but are not limited to:
• setting of 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;
• board composition;
• succession planning;
• health and safety;
• risk management;
• financial reporting and controls; and
• corporate governance.
Headlam Group plc Annual Report and Accounts 2012 41
The board is assisted by committees that it has established with written terms of reference, details of which are set out below.
During the year the board conducted an in house evaluation of its performance with no remedial actions arising. The board reviewed
the way in which it conducts its in house evaluation procedures during 2012.
The directors bring strong judgement to the board’s deliberations and the size, diversity and balance of skills and experience of the
board is considered appropriate for the requirements of the business. The board believes that all three non-executive directors are
independent of management and free from any business or other relationship 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, or could affect the director’s
judgement. Mike O’Leary, who served as the Senior Independent Director throughout the year, 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 non-executive directors do not participate in any bonus, share option or pension scheme
of the company. They 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
association 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 the forthcoming AGM are given to shareholders in the Notice of AGM and the biographical details
of the directors are shown on page 38.
Board information, induction, training and professional development
The board has a rolling agenda which is regularly updated in respect of specific topics that affect the group including:
• health, safety and environmental matters;
• finance and operational performance;
• risk management;
• business development initiatives;
• legal and regulatory developments; and
• governance and best practice guidelines.
The board reviews the key activities of the business, receiving papers and presentations from senior executive management generally
a week in advance of the meeting. The Company Secretary is responsible to the board in respect of board procedures and is available
to individual directors. In conjunction with the Chairman, the Company Secretary ensures that information distributed to the board is
sufficient, clear and accurate, circulated in a timely manner, and is appropriate to enable the board to discharge its duties. All directors
are equally accountable for the proper stewardship of the group’s affairs. However, the non-executive directors have a particular
responsibility to ensure that the strategies proposed by the executive directors are fully discussed and critically examined.
The induction of newly appointed directors includes background information about the group, directors’ responsibilities, board
meeting procedures, a number of other governance-related issues and procedures for dealing in company shares. A briefing on the
general group strategy, including visits to group businesses, is provided by the Group Chief Executive. Training and development in
the year took various forms, including visits to group businesses and attendance at courses run by professional bodies on various
commercial and regulatory matters. Directors receive regular updates appropriate to the business throughout the year aimed at
developing and refreshing their knowledge and capabilities. All directors are considered to be 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, a process is in place for the non-executive directors to obtain professional advice at the
company’s expense.
Board meetings and attendance
The board usually meets nine times a year at times that ensure the latest operating information is available for review and sufficient
focus can be given to matters under consideration. During the year there is ample opportunity 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
contact between meetings and, on occasions, visit trading locations in order to maintain contact with the group’s business. A record
of directors’ attendance at board meetings held during the year is set out overleaf and committee meeting attendance is given in the
relevant committee report.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 42
Corporate Governance Report continued
Board meeting attendance
Graham Waldron
9/9
Tony Brewer
Stephen Wilson
Dick Peters
Mike O’Leary
Andrew Eastgate
9/9
9/9
8/9
9/9
9/9
In addition to the nine principal board meetings held during 2012 there were two meetings which approved the 2012 Interim and
2011 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 of association. This provision extends to include the directors of Headlam Group Pension Trustees Limited, 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 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 Remuneration Report.
Directors’ conflicts of interest
Procedures are maintained by the board whereby potential conflicts of interests are reviewed regularly. These procedures have been
designed so 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 of association. The board has not had to deal with any conflict
during the period.
Board committees
The board has established Audit, Remuneration and Nomination Committees to oversee and debate important issues of policy and
assist in attending to its responsibilities, 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 or on the company’s website. The roles of the Audit,
Remuneration and Nomination Committees, whose membership is comprised of the three independent non-executive directors, with
the Group Chief Executive additionally serving on the Nomination Committee, are set out below.
Audit Committee
The Audit Committee is comprised of the three non-executive directors and was chaired during the year by Dick Peters. 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.
The Audit Committee is responsible for monitoring and reviewing:
• the group’s systems of internal control and the processes for monitoring and evaluating the risks facing the group on an ongoing
basis;
• updates from executive directors and senior executive management on key financial control matters;
• 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;
• the integrity of the interim and annual financial statements, including a review of the significant financial reporting judgements
contained therein;
• the potential impact on the financial statements of certain matters such as impairment of asset values and employee benefits;
• the effectiveness of the external audit process;
Headlam Group plc Annual Report and Accounts 2012
43
• 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;
• the external auditors’ plan for the audit of the group’s accounts, confirmation of auditor independence and of the individuals carrying
out the audit, confirmation of the proposed audit fee, approving the audit terms of engagement and management’s response to any
major external audit recommendations;
• reports from the external auditor on the group’s systems of internal control, including a summary of and commentary on the business
risks and internal control processes, and reporting to the board on the results of this review;
• non-audit services and fees;
• the appointment, re-appointment or dismissal of the external auditor;
• the appropriateness of an internal audit function;
• the group’s compliance with corporate governance principles; and
• arrangements by which staff may in confidence raise concerns about possible improprieties in matters of financial reporting
and other matters.
In addition, the fees and objectivity of the group’s auditor are considered by the committee. The committee recommends that
shareholders re-appoint KPMG Audit Plc as the group’s auditor, in accordance with resolution 5 set out in the Notice of AGM,
and authorises the directors to determine their remuneration, as set out in resolution 6.
The committee periodically reviews its terms of reference, most recently in 2012, and its effectiveness and recommends to the board
any changes required as a result of such review.
In accordance with the Code the committee has undertaken an assessment of the need for a group internal audit function. The
committee 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.
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, the three members each
attending all meetings, during which it discharged its responsibilities as set out in its terms of reference and schedule of business for
the year. Whilst only members of the committee are entitled to be present at meetings, the auditor, Chairman, Group Chief Executive
and Group Finance Director may attend meetings by invitation. 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.
The committee has independent access to the external auditor who has direct access to the Chairman of the committee outside
formal committee meetings and 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 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 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 staff rotation policies with the auditor. Whilst KPMG has been an external auditor to the group since
1992, there is a procedure in place for the audit partner to change after a period of five years, so maintaining objectivity and
independence without the need and expense of changing firm. The last such change took place during 2011. The external auditor
has processes in place to ensure its independence is maintained when providing non-audit services. It has written to the committee
confirming that, in its opinion, it is completely independent.
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 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. A breakdown of 2012 and 2011 audit and non-audit fees is provided in note 3
to the Financial Statements.
The committee has concluded, as a result of its work during the year, 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 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 is comprised of the three non-executive directors and was chaired during the year by Mike O’Leary.
It 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
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 44
Corporate Governance Report continued
in the Remuneration Report on pages 46 to 54 which should be read in conjunction with this report. The 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.
Nominations Committee
The Nominations Committee is comprised of the three non-executive directors and the Group Chief Executive and was chaired during
the year by Mike O’Leary.
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 when required and met once in the year, with all members in attendance. Only members of the committee
are entitled to be present at meetings but other directors may be invited by the committee to attend. The board has agreed the
procedures to be followed by the 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.
The committee ensures that newly appointed directors receive a full induction and, when considering the re-appointment of directors,
ensures 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 proposals to re-elect Graham Waldron and
Dick Peters under the retirement by rotation provisions.
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. When reporting to shareholders, the board aims
to present a balanced and understandable assessment of the group’s financial position and prospects, reporting four times a year
when its half year and full year results are announced, and an interim and annual report is issued to shareholders, and through interim
management statements typically released in May and November.
Further information regarding business developments is available to investors on the group’s website www.headlam.com.
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. Contact with the major shareholders is principally maintained by the
Group Chief Executive and Group Finance Director. During the year a number of meetings were held at certain of our businesses with
the aim of providing shareholders with increased exposure to our operations and management. 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. Whilst 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, they did not
attend any meetings with shareholders in the year.
Risk management and internal controls
The Code requires that the directors review the effectiveness of the group’s system of internal control. The board recognises that the
management of risk through the application of a consistent process is essential to ensuring a robust system of internal control, the
principle risks and uncertainties facing the company including some of those identified in the Managing our Risk report on page 30.
Headlam Group plc Annual Report and Accounts 2012 45
Directors are required by the Code to review and report annually to shareholders on the effectiveness of the company’s systems
of internal control, which includes financial, operational and compliance controls and risk management. The board has responsibility
for establishing and maintaining the group’s systems of internal control and for reviewing its effectiveness whilst management
is responsible for the implementation of internal control systems. The internal control provisions of the Code continue to be applied
by the board through a continuous process for identifying, evaluating and managing the significant risks the group faces.
The group’s risk management processes seek to ensure sustainable development throughout the conduct of its business
in a way which:
• satisfies its customers;
• maintains proper relationships with suppliers and contractors;
• provides a safe and healthy workplace;
• develops environmentally aware processes;
• minimises the cost and consumption of increasingly scarce resources; and
• maintains a positive relationship with the communities in which it operates.
The systems are designed to meet the group’s particular needs and to manage rather than eliminate risks, by their nature, providing
reasonable and not absolute assurance against material misstatement or loss. The measures taken, including physical controls,
segregation of duties and reviews by management, are considered by the board to provide sufficient and objective assurance.
The board maintained its process of hierarchical reporting and review during the year in order to evaluate the effectiveness of the
group’s systems of financial and non-financial controls. A comprehensive series of operating and financial control procedures applying
to all businesses have been developed and the group finance team perform monthly reviews to verify that the businesses are
complying with the prescribed operating and financial control procedures. Additionally, the board reviews risk management
arrangements and 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 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. The board has not identified any failings or
weaknesses, or been advised of any, which it has determined to be significant during the course of its review of the system of internal
control. There were in addition 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.
A comprehensive planning system includes detailed reviews at all business and formal reviews and approval of annual plans by the
board. Actual performance is measured on a monthly basis against plan and prior year, including a detailed explanation of significant
variances. Revenue, gross margin and cash flow, are reported on a daily basis against plan and prior year. The control procedures
operated by the group are designed to ensure complete and accurate accounting for financial transactions and to limit the potential
exposure to fraud. Guidelines for capital expenditure and investment appraisal include annual plans, detailed appraisal and review
procedures, authority levels and due diligence requirements when businesses are acquired, the acquisition or disposal of a business
requiring formal board approval.
These detailed reviews are an important aspect of management reporting in 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 careful management of risk considered to be a key 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 employment handbook, supported by the group’s anti bribery policy. The integrity and
competence of personnel is assessed during the recruitment process and monitored throughout employment.
The group promotes a high standard of health and safety management at all levels supported by training programmes at operating
businesses. Group health and safety rules are monitored and audited to promote a high level of awareness and commitment, with
individual businesses assessed on a periodic basis. Remedial solutions are implemented where necessary, action plans and progress
being monitored and reported.
The reports on Corporate Governance and of the Audit Committee contained within have been approved by the board and are
signed on its behalf by
Geoff Duggan
Company Secretary
8 March 2013
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
46
Remuneration Report
Message from the Chairman of the Remuneration Committee
Dear Shareholder
This report sets out the remuneration policy for Headlam’s directors and discloses their remuneration in respect of the year ended
31 December 2012. It has been prepared in accordance with the requirements of the Companies Act 2006, the principles of the UK
Corporate Governance Code (the “Code”) and best practice guidelines and is subject to an advisory shareholder vote. A resolution
to approve the report will be proposed at the AGM to be held on 24 May 2013, at which I will be available to answer any questions.
The last year has witnessed increasing scrutiny of executive pay and changes in its reporting are imminent. Headlam’s Remuneration
Committee has reviewed the changing reporting requirements and is committed to delivering greater clarity and transparency of
reporting whilst continuing its independent role, bringing logic and challenge to the process of setting remuneration.
Headlam’s remuneration policy has been designed to incentivise performance through effective and appropriate reward. Levels
of remuneration must allow the company to attract, retain and motivate high calibre executive managers and link their rewards
to business performance, thus aligning their interests with those of shareholders.
When reviewing the appropriateness of the remuneration framework for 2013, the committee considered the incentive arrangements
that had applied in 2012. Examination of current business strategy and current guidelines for executive remuneration led to the
conclusion that the existing framework remains appropriate.
Despite difficult trading conditions, the committee satisfied itself that progress has continued to be made in delivering against long
term operating strategy. Assessment of progress included review of the 2012 Financial Statements and took into account the reporting
of the auditors to the Audit Committee.
The committee will continue to monitor the effectiveness of its policy with regard to legislative change, market developments
and business strategy.
Mike O’Leary
Chairman of the Remuneration Committee
8 March 2013
Headlam Group plc Annual Report and Accounts 2012 47
The purpose of this report is to inform shareholders of the company’s policies on directors’ remuneration for the year ended
31 December 2012 and, so far as practicable, for subsequent years as well, and to provide details of the remuneration of individual
directors as determined by the Remuneration Committee (“the committee”).
It has been prepared by the committee on behalf of the board. 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 Friday 24 May 2013, at which the Chairman of the committee will be available to answer any
questions.
Commentary relating to the role of the committee, the remuneration policy, share options, co-investment plan awards and explanatory
notes relating to the share scheme do not require to be audited. However directors remuneration, share awards and options and
pension arrangements must be audited in accordance with the relevant statutory requirements. The company has complied in full
with this requirement.
Unaudited information
The role of the Remuneration Committee
The committee is responsible for setting the framework and policy for the remuneration of executive directors. These are reviewed
annually to ensure that they remain appropriate and relevant. The committee is committed to the principles of accountability and
transparency and to ensure that there is a clear link between reward and performance.
The committee has received delegated authority from the board to determine and agree the remuneration policy for executive
directors, and it oversees the policy in respect of senior executive management. When determining policy, the committee recognises
the importance of retaining capable individuals and the need to reward performance which contributes to the success of the company.
It is also responsible for determining the specific elements of the executive directors’ remuneration, performance targets, contractual
terms and compensation arrangements. Furthermore, it ensures that in the event of termination, contractual terms and payments are
fair, both to the company and to the individual. 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, approves the design of all share
incentive plans, and oversees any subsequent amendment. It reviews and recommends appropriate performance conditions and
targets for the variable element of remuneration and determines the extent to which the performance targets have been achieved.
Members of the committee regularly attend specialist seminars and events on the subject of remuneration 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. No payments were made in the last fiscal year to external consultants for advice or data.
In setting remuneration policy and levels for the executive directors, the committee takes into account the economic environment
and financial performance of the group, along with remuneration and employment conditions of the senior executive management
and other group employees.
The committee’s terms of reference are available from the company on request and are available on the company’s website,
www.headlam.com. They are reviewed periodically to take account of best practice and corporate governance requirements
and were last reviewed in 2012.
Composition of the Remuneration committee
The committee comprises Mike O’Leary (Chairman), Dick Peters and Andrew Eastgate, all of whom served throughout both 2012
and 2011. Other than as shareholders, the members of the committee have no personal financial interest 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.
In accordance with the committee’s terms of reference, no-one attending a committee meeting may participate in discussions relating
to their own terms and conditions of service or remuneration.
During the period, the committee met twice and all members were in attendance. Whilst only members of the committee are entitled
to be present at meetings, the Chairman, Group Chief Executive and Group Finance Director may attend meetings by invitation,
doing so in part on both occasions in the year.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 48
Remuneration Report continued
Remuneration policy
Following a review in October 2012, the committee concluded that the current remuneration policy remains appropriate
and the objectives continue to be:
• to ensure that the remuneration structure supports the strategy of the business;
• to ensure that the remuneration structure motivates the executive directors to succeed and rewards them appropriately for their
contribution to the attainment of the group’s strategic objectives;
• to maintain motivation for future achievement through reward schemes based on performance;
• to facilitate the building and retention of a high calibre and focused team;
• to align the executive directors’ interests with those of shareholders by offering participation in schemes which provide opportunity
to build meaningful shareholdings in the company; and
• to facilitate effective succession planning.
In order to encourage and reward enhanced business performance and shareholder returns, the committee considers that a
substantial proportion of the executive director’s remuneration should be variable and performance related. The committee is satisfied
that the incentive structure does not raise governance issues by inadvertently motivating or encouraging irresponsible or reckless
behaviour.
In deciding that the current remuneration strategy remains appropriate for 2013, the committee has taken into account the group’s
performance over the last year and the current economic environment. The remuneration policy will continue to be monitored and
reviewed by the committee 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 are and will continue to be reviewed annually by the
committee.
The committee considers that in making smaller but more frequent awards under the long term incentive schemes, each subject
to the attainment of specific performance targets over a three year period, it further aligns the interests of directors.
Remuneration components
The current components of executive remuneration and how they are aligned with the overall business strategy are summarised
in the table below:
Component
Base salaries
Purpose and link to business strategy
Policy for executive directors
– Reviewed annually
– Market competitive salaries help the group to recruit,
– Influenced by role and experience
– Movements determined by reference to workforce
retain and motivate the best talent
– Relative to the increase applicable to the wider
workforce
Annual performance bonus
– Based on achieving stretching group profit before tax
– Alignment with the group’s strategic priorities
targets
of increasing market share and improving profitability
– Maximum of 150% of base salary for significant
– Maximum bonuses are only available for the delivery
outperformance
of above target growth in earnings
2008 Co-Investment Plan
– Deferral of between 15% and 100% of annual bonus
– Involves personal financial commitment
– No bonus for performance below pre–determined
level
– Other funds can be invested under certain
– Encourages executives to increase their company
circumstances
shareholding
– Up to 2 for 1 matching subject to stretching
– Aligns executives’ interests with strategic objectives
EPS and TSR targets
Other benefits
– The group provides a company car, medical insurance
and life assurance cover to its executive directors and
senior executive management
– Performance conditions are based on
EPS and TSR
– Provision of market typical employee benefits assist
the group to recruit, retain and motivate
The group has not provided pension benefits to the executive directors in the year. Furthermore, it does not anticipate making future payment
or providing future benefits.
Headlam Group plc Annual Report and Accounts 2012 49
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, provided that there is no conflict of interest, 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. None of the executive directors held any other directorships outside of the group during the year.
Base salaries
Generally, the appropriate market rate for comparable positions and levels of responsibility and the individual executive’s experience,
performance and value to the business are reflected in the committee’s assessment of base salaries.
The committee reviews base salary annually with any change taking effect from 1 January. When reviewing base salaries, the
committee takes account of the current economic climate, challenges facing the business and pay environment for employees in
general. The committee has approved an inflationary increase of 2% for 2013 to base salaries for the group’s workforce, including
the executive directors. The exception to this will be where increases need to be granted to any employees whose base salary
considerably undervalues their worth to the business or to individuals who are promoted to a more senior role. This exception did not
apply to the executive directors.
Non salary benefits
The non-salary benefits for executive directors comprise a company car and fuel, non-contributory private medical insurance and life
assurance which are similar to those provided in comparable companies.
Non executive director fees and benefits
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 2013 increasing by 2% to £36,595, with an additional £5,225 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. Non-executive directors do not receive any form of benefits.
Annual cash bonus
The performance related reward is based on annual objectives and links individual performance with a business financial target.
The performance related bonus is calculated by reference to the group’s audited profit before tax compared with the financial target.
The committee establishes the financial target and reviews the annual performance related bonus each year to ensure that it remains
competitive and, whilst subject to a stretching target, continues to offer an incentive to the executive directors.
The basis for determining the performance related scheme for 2012 was the same as that for 2011, with the exception of an increase
in the financial target.
An annual performance bonus of 75% of base salary is attainable on achieving the financial target, with a maximum bonus of 150%
for over-achievement against the target. The maximum bonus payment of 150% can only be paid for achieving a performance of 28%
or more above the target. In the event that actual performance is 90% of the financial target, a bonus of 10% of base salary will be
awarded. A bonus is not awarded for a performance of below 90% of target. In adopting the performance parameters described
above, the committee decided that there would be no discretion to make bonus awards for further over or under performance.
The committee has decided to implement a similar arrangement for determining the annual performance bonus for 2013.
In 2012 the bonus was based on 75% of base salary on attainment of target plus a further 23.31% for attainment of above target
performance, such outperformance being calculated by reference to a predetermined matrix, subject to a maximum of 150%
of base salary.
Share incentive arrangements
In order to align their interests with the company’s shareholders, the committee is keen to encourage executive directors to increase
their shareholdings in the company. An executive director is required to have a beneficial, including family, interest, in the shares
of the company equivalent in value to their annual base salary. Newly appointed directors are expected to build their interest over
a five year period.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 50
Remuneration Report continued
Directors’ beneficial interests
Executive directors
Graham Waldron
Tony Brewer
Steve Wilson
Non-executive directors
Dick Peters
Mike O’Leary
Andrew Eastgate
Shareholdings at
8 March 2013
Shareholdings at
31 December 2012
Shareholdings at
31 December 2011
379,755
519,942
450,770
5,000
1,000
1,000
379,755
519,942
450,770
5,000
1,000
1,000
360,638
519,942
450,770
5,000
1,000
1,000
None of the shares detailed above are subject to deferral or performance conditions, all being owned outright.
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 also provide a key link between rewards to
executive directors and senior executive management and the achievement of a sustained improvement in long term financial
performance.
Shareholders have approved the following share-based incentive schemes :
• Headlam Group Sharesave Scheme 2012
• Headlam Group Approved Executive Share Option Scheme 2008
• Headlam Group Unapproved Executive Share Option Scheme 2008 (“ESOS”)
• Headlam Group Performance Share Plan 2008 (“PSP”)
• Headlam Group Co-Investment Plan 2008 (“CIP”)
The committee intend to use the CIP as the principal incentive vehicle for executive directors, with awards being made on an annual
basis. Whilst awards have been made under the CIP, as detailed below, the committee has not yet implemented either the PSP or the
ESOS and does not intend to do so during 2013. Details of the schemes will be disclosed in the event of an award being made under
these schemes or plans.
Headlam Group Sharesave Scheme 2012
Employee share ownership is encouraged. With the exception of non-executive directors, all employees are eligible to participate
in the scheme. Options granted under the scheme may not normally be exercisable until the option holder has completed their three
or five year savings contract, monthly savings being a minimum of £10 and a maximum of £250. Options may be granted at a price
which represents a discount to market price at the date of grant of up to 20%. On 11 May 2012, options were granted over 462,323
shares to 282 employees for savings terms of either three or five years at an option price of 238p per share, representing a 20%
discount to the average market price of the three days immediately preceding the award.
Headlam Group Co-Investment Plan 2008 (the “CIP”)
Participants may be invited, at the discretion of the committee, to take not less than 15% and up to 100% of their annual bonus in the
form of shares, the number of shares allocated being calculated by reference to the net value of the bonus after deduction of income
tax and employees’ national insurance. If an annual bonus award is not achieved in any year and therefore not available for investment
in the CIP, the committee may permit participants to invest alternative funds but subject to a maximum of 50% of any bonus paid in
the preceding year. In addition, instead of investing a bonus award or other funds, the participant may utilise shares already held and
previously acquired in the market, however this may only apply to awards up to an aggregate value equating to one times base salary.
Participants are granted awards in the form of matching shares. The maximum value of the matching share award is twice the value of
the shares that would have been acquired with the gross bonus award. 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 to the extent required.
Subject to the satisfaction in full or part of the relevant performance targets, an award will be exercisable between three and ten years
after the award date.
Performance targets are measured over a fixed period of three years, beginning not earlier than the year in which an award is made,
with 80% of the award determined by EPS growth targets and 20% by TSR targets as measured by reference to the FTSE SmallCap
Index, of which the company is a constituent member.
Headlam Group plc Annual Report and Accounts 2012 51
Matching share awards under the CIP were granted on 5 October 2012 to the executive directors which were subject to the TSR and
EPS performance targets described above. The awards were determined by reference to 25% of base salary and to the ordinary share
price over the preceding three months of 293.38 pence, with matching share awards of up to two for one. Vesting is dependent on
achievement of the performance targets set out below with straight line matching between median and upper quartile for the TSR
condition and between RPI +3%p.a. and RPI+6%p.a. for the EPS condition.
Matching
EPS
None
One for one matching
Two for one matching
Less than RPI +3% p.a.
RPI+3% p.a.
RPI+6% p.a.
TSR
Below median
Median
Upper quartile
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 2% of the issued share capital and in respect of grants under discretionary plans was 0.5% of issued capital. It is the committee’s
intention that options exercised under the SAYE scheme and the two executive share option schemes will be satisfied by shares held
in treasury. With regard to the CIP, the committee will instigate market purchases of shares, through a trust, taking account of the
likelihood of performance targets being met and also potential lapsing of awards because of leavers.
Further information on share-based payments is set out in note 21 to the Financial Statements.
Retirement benefits
The group has not provided pension benefits to the executive directors in the year. Furthermore, it does not anticipate making future
payments or providing future benefits.
The group provides an opportunity for its senior executive management to participate in occupational pension arrangements, detail
in respect of which is given on page 88.
Service contracts
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.
Contracts in respect of the Group Chief Executive Officer and the Group Finance Director are on a rolling 12 month basis. These were
entered into on 11 October 2005 and are terminable by either the director or the company subject to 12 months written notice.
Payments upon the termination of their contracts will be equal to base salary for the duration of the notice period. The contracts
contain neither a liquidated damages nor a change of control clause and it is the company’s policy that any payments made to a
director in the event of termination 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 executive directors’ contracts are available for inspection at the registered office of the company during normal business hours
on each business day.
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. At the end of
the initial period, the company discusses with the non-executive director whether they wish to renew their appointment and if 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 and subject to the same termination conditions. 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-appointments are subject
to approval by shareholders. Letters of appointment for non-executive directors are available on application to the Company Secretary.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 52
Remuneration Report continued
Most recent re-election dates
The table below shows the dates of appointment and the most recent re-election dates for directors.
Date of appointment
Date of last re-election at an AGM
Executive directors
Graham Waldron
Tony Brewer
Steve Wilson
Non-executive directors
Dick Peters
Mike O’Leary
Andrew Eastgate
Performance graph
June 1991
June 1991
December 1991
December 2005
March 2006
May 2010
June 2010
June 2011
June 2012
June 2010
June 2011
June 2012
The graph below has been produced in accordance with the requirements of Schedule 8 of the Large and Medium sized Companies
and Groups (Accounts Reports) Regulations 2008. It shows the return for an investment in the company’s shares for the period from
1 January 2008 to 31 December 2012 compared to an investment in the FTSE Small Cap index. The calculation of the return assumes
dividends are reinvested to purchase additional equity.
The FTSE SmallCap index has been selected as a comparator due to the company being a constituent member within the household
goods and textiles sector. This allows comparison of the company’s performance against the performance of the index as a whole.
Five-year Return Index for FTSE Small Cap as at 31 December 2012
120
100
80
60
40
20
0
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
FTSE SmallCap
Headlam Group plc
Source : Thomson Financial
Headlam Group plc Annual Report and Accounts 2012
53
Audited information
Directors’ remuneration
The remuneration of each director for the year ended 31 December 2012 compared to 2011 is shown below.
Executive directors
Tony Brewer
Steve Wilson
Graham Waldron
Non-executive directors
Andrew Eastgate
Mike O’Leary
Dick Peters
Salary and fees
Non salary
benefits
Performance
related pay
Pensions
Share-based
incentive
schemes
Total
2012
£000
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
533
385
118
36
41
41
1,154
520
376
115
35
40
40
1,126
29
32
22
–
–
–
83
24
31
21
–
–
–
76
524
378
–
–
–
–
902
518
374
–
–
–
–
892
–
–
–
–
–
–
–
33
–
–
–
–
–
33
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,086
795
140
36
41
41
2,139
1,095
781
136
35
40
40
2,127
Gains made by directors
The aggregate amount of gains made by executive directors on the exercise of share options was £2,256 (2011: £nil).
Directors’ interests in share option schemes
Details of executive directors’ interests in the SAYE scheme and executive share option schemes and CIP are set out below,
a description of which, together with relevant performance conditions, is given on pages 50 to 51:
Granted in the year
Exercised in the year
At 1
January
2012
Number
Option
price (p)
Lapsed
during the
year
Number
Market
price on
exercise
At 31
December
2012
Exercise
price (p)
Earliest
exercise
date
Latest
exercise
date
342,858
7,142
7,043
98,859
100,000
–
242,858
7,142
7,043
71,388
72,212
–
–
–
–
–
–
90,838
–
–
–
–
–
65,614
–
–
–
–
–
–
–
–
–
–
–
–
342,858
–
–
–
–
–
242,858
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
nil
7,142
7,043
98,859
100,000
90,838
nil
7,142
7,043
71,388
72,212
65,614
420.00 Aug 2008 Aug 2012
420.00 Aug 2008 Aug 2015
Jan 2015
Jul 2014
222.20
nil Oct 2013 Oct 2020
nil Aug 2014 Aug 2021
nil Oct 2015 Oct 2022
420.00 Aug 2008 Aug 2012
420.00 Aug 2008 Aug 2015
Jan 2015
Jul 2014
222.20
nil Oct 2013 Oct 2020
nil Aug 2014 Aug 2021
nil Oct 2015 Oct 2022
4,117
–
–
3,781
–
238.00
–
–
4,117
–
277.00
–
nil
3,781
222.20
238.00
Jul 2012
Jul 2015
Jan 2013
Jan 2016
Tony Brewer
1998 USOS (i)
1998 ESOS (ii)
Sharesave (iii)
CIP (v)
CIP (v)
CIP (v)
Steve Wilson
1998 USOS (i)
1998 ESOS (ii)
Sharesave (iii)
CIP (v)
CIP (v)
CIP (v)
Graham Waldron
Sharesave (iii)
Sharesave (iv)
(i) Headlam Group Unapproved Executive Share Option Scheme 1998 (1998 USOS)
(ii) Headlam Group Approved Executive Share Option Scheme 1998 (1998 ESOS)
(iii) Headlam Group Sharesave Scheme 2009 (Sharesave)
(iv) Headlam Group Sharesave Scheme 2012 (Sharesave)
(v) Headlam Group Co-Investment Plan 2008 (CIP)
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 54
Remuneration Report continued
Maximum value of awards granted to executive directors as at 31 December 2012
Details of executive directors’ share-based awards are set out below, a description of which, together with relevant performance
conditions, is given on pages 50 to 51:
Awards
granted
Maximum
award
Awards
vested
Awards
lapsed
Maximum
outstanding
awards at
31 Dec 2012
Option
price (p)
Market
price at
date of
grant (p)
Maximum
award
£
Earliest
vesting
date
Expiry
Tony Brewer
CIP (v)
CIP
CIP
1998 ESOS (i)
1998 ESOS (ii)
SAYE (iii)
Steve Wilson
CIP (v)
CIP
CIP
1998 ESOS (i)
1998 ESOS (ii)
SAYE (iii)
Graham Waldron
SAYE (iii)
SAYE (iv)
7 Oct 2010
23 Aug 2011
5 Oct 2012
22 Aug 2005
22 Aug 2005
11 May 2011
7 Oct 2010
23 Aug 2011
5 Oct 2012
22 Aug 2005
22 Aug 2005
11 May 2011
98,859
100,000
90,838
342,858
7,142
7,043
71,388
72,212
65,614
242,858
7,142
7,043
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
342,858
–
–
–
–
–
242,858
–
–
11 May 2011
11 May 2012
4,117
3,781
4,117
–
–
–
98,859
100,000
90,838
nil
7,142
7,045
71,388
72,212
65,614
nil
7,142
7,045
nil
3,781
nil
nil
nil
420
420
222.20
420
420
222.20
222.20
238
312
274
300
424
424
297
312
274
300
424
424
297
297
306
(i) Headlam Group Unapproved Executive Share Option Scheme 1998 (1998 USOS)
(ii) Headlam Group Approved Executive Share Option Scheme 1998 (1998 ESOS)
(iii) Headlam Group Sharesave Scheme 2009 (Sharesave)
(iv) Headlam Group Sharesave Scheme 2012 (Sharesave)
(v) Headlam Group Co-Investment Plan 2008 (CIP)
308,440 Oct 2013 Oct 2020
274,000 Aug 2014 Aug 2021
272,514 Oct 2015 Oct 2022
nil Aug 2008 Aug 2012
286 Aug 2008 Aug 2015
Jan 2015
Jul 2014
5,268
222,730 Oct 2013 Oct 2020
197,861 Aug 2014 Aug 2021
196,842 Oct 2015 Oct 2022
nil Aug 2008 Aug 2012
286 Aug 2008 Aug 2015
Jan 2015
Jul 2014
5,268
–
2,571
Jul 2012
Jul 2015
Jan 2013
Jan 2016
The mid market closing price of a Headlam Group plc ordinary share on 31 December 2012, the last trading day of the financial year,
was 330p and the price range during the year was 255p to 330p, with an average price of 294.31p. There were no changes in the
options held by the directors between 31 December 2012 and 8 March 2013. The company’s register of director’s interests, which
is open to inspection, contains full details of directors’ share interests.
This report has been approved by the board of directors and signed on its behalf by
Mike O’Leary
Chairman of the Remuneration Committee
8 March 2013
Headlam Group plc Annual Report and Accounts 2012 55
Other Statutory Disclosures
Directors’ report
The Annual Report includes the Directors’ report and the audited Financial Statements for the year ended 31 December 2012. Certain
information required to be disclosed in the Directors’ report is provided in other sections of this Annual Report. This includes the
Chairman’s Statement, the Chief Executive’s Review, the Financial Review, the Corporate Governance Report, the Remuneration
Report and specific elements of the Financial Statements noted below and , accordingly, these are incorporated into the Director’s
report by reference.
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 107. Further details of the group’s activities and future plans are set out in the Chief Executive’s Review and the Financial
Review on pages 22 to 27.
Dividends
An interim dividend of 4.65p per share (2011: 4.30p) was paid on 2 January 2013 to shareholders on the register at the close of
business on 7 December 2012. The directors propose a final dividend of 10.20p per ordinary share (2011: 9.85p), to be paid on
1 July 2013 to shareholders on the register of members at the close of business on 7 June 2013, the associated ex-dividend date
being 5 June 2013. This would bring the total dividend for the year to 14.85p per ordinary share (2011: 14.15p). The payment of
the final dividend is subject to shareholder approval at the AGM.
Directors
There were no changes to the board in the year and no other person has acted as a director of the company during the year.
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, Graham Waldron and Dick Peters, who both retire by rotation, and being eligible, offer
themselves for re-election at the forthcoming AGM. In proposing their re-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.
Directors’ and officers’ indemnity insurance
The articles entitle the directors of the company, to the extent permitted by the Companies Act 2006 and other applicable legislation
(together, the Companies Acts), to be indemnified out of the assets of the company in the event that they suffer any expenses in
connection with certain proceedings relating to the execution of their duties as directors of the company. In addition, and in common
with many other companies, the company has insurance in favour of its directors and officers in respect of certain losses or liabilities
to which they may be exposed due to their office.
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,
a position which was unchanged at 8 March 2013.
Appointment and replacement of directors
The directors shall be not less than three and not more than eight in number, although the company may by ordinary resolution vary
these numbers. Directors may be appointed by the company by ordinary resolution or by the board, a director appointed by the
board holding office only until the next AGM of the company after their appointment at which they are then eligible to stand for
election. The articles provide that at every AGM of the company, one-third of the directors, those longest in office since last election,
shall retire from office and may offer themselves for re-election, such number to exclude any director who was appointed by the board
and is standing for election. The company does not seek to comply with the provision in The UK Corporate Governance Code which
requires the annual re-election of directors.
The company may by ordinary resolution, but subject to special notice, remove any director before the expiry of the director’s period
of office. The office of a director shall be vacated if certain circumstances arise, as set out in the articles.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 56
Other Statutory Disclosures continued
Change of control
The company has entered into certain agreements that may take effect, alter or terminate upon a change of control of the company
following a takeover bid. The significant agreements in this respect are the group’s term loan and certain of its employee share
schemes. The group’s term loan facilities include a provision such that, in the event of a change of control, the relevant lender may
cancel all or any part of the relevant facility and/or declare that all amounts outstanding under the relevant facility are immediately
due and payable by the company.
Outstanding options granted under the SAYE scheme may be exercised within a period of six months from a change of control
of the company following a takeover bid taking place, or will lapse upon the expiry of such a period.
Matching share awards granted under the 2008 CIP and awards granted under the 2008 PSP may, proportionate to the performance
period, vest within a period of six months from a change of control of the company. At the end of such period, awards will lapse and
cease to be exercisable to the extent not exercised.
There are no agreements between the company and its directors providing for compensation for loss of office that occurs as a result
of a change of control.
Fixed assets
A consideration of the market value of the group’s tangible fixed assets is detailed in note 1 of 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 generally not based on any particular code or standard relating to
payment practice. The number of creditor days of the company at 31 December 2012 was 43.5 days (2011: 46.7 days).
Employees
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 and is committed to fair and equal treatment. It places considerable importance on communications with employees
which take place at many levels through the organisation and by a variety of means on both a formal and informal level.
Reward is linked to business plans and targets thereby giving employees the opportunity to share in the financial success of the group.
In keeping with the structure of the business, this policy is applied locally, and as a result, staff of all levels regularly benefit from
achieving local targets.
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 and promotion wherever appropriate and gives full and fair
consideration to applications for employment from disabled persons. Further details of arrangements relating to employees are
described in the Managing Responsibility report on pages 32 to 37 and the average number of employees and their remuneration are
shown in note 4 to the Financial Statements.
The company has communicated an internally operated whistle blowing policy and procedure 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 or harassment
and bullying 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.
Headlam Group plc Annual Report and Accounts 2012 57
Contributions for political and charitable purposes
The group’s Charities Committee considers requests for charitable donations within set criteria. During 2012, in addition to donations
made to overseas charities, the group supported Pennies from Heaven. This is a charitable payroll giving scheme where the group
matches the monthly contributions made by employees, inclusive of gift aid, £11,100 being donated to Great Ormond Street Hospital
Children’s Charity and MacMillan Cancer Support in the last 12 months. In addition, employees participated in a variety of fund raising
activities and supported charities local to their businesses. The group contributed charitable donations to UK charitable organisations,
principally to local organisations serving the communities in which it operates, of £35,192 (2011: £39,523).
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 (2011: £nil).
Share capital
As at 31 December 2012, the issued share capital of the company comprised a single class of ordinary shares of five pence each, with
85,363,743 shares in issue at that date. No shares were issued during the year and there were no additions to treasury shares. Of the
2,241,197 shares held in treasury at the start of the year, 413,403 were transferred of treasury in connection with the SAYE and
executive share option schemes leaving 1,827,794 at the year end representing 2.14% of the issued share capital. Proceeds received
in respect of the 413,403 shares were £916,000. Details of the company’s share capital are set out in note 22 of the Financial
Statements which should be treated as forming part of this report.
Subject to the provisions of the articles and the Companies Acts, shares may be issued with such rights or restrictions as the company
may by ordinary resolution determine or, if the company has not so determined, as the directors may decide. There are however no
restrictions on the transfer of securities in the company, except that certain restrictions may from time to time be imposed by law or
regulation, for example, insider trading laws, and pursuant to the Listing Rules of the Financial Services Authority (the Listing Rules),
whereby certain employees require the approval of the company to deal in the company’s shares.
The company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities
in the company.
AGM
This year’s AGM will be held at the group’s distribution facility in Tamworth on Friday 24 May 2013 at 10.00 a.m. The notice convening
this meeting is set out within this Annual Report and Accounts on page 109, along with explanatory notes regarding the resolutions
that will be proposed at the meeting on pages 113 to 115. The directors consider that each of the resolutions to be proposed 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.
Auditors
KPMG Audit plc have expressed their willingness to continue in office as Auditors and a resolution will be proposed to reappoint them
at the AGM. The auditor responsibilities are set out on page 61 and should be read in conjunction with those of the directors as set
out at the end of this report.
Authority to allot shares and disapply statutory pre-emption rights
Subject to certain limits, at the AGM on 15 June 2012, the directors were granted general authority to allot shares in the company
together with an authority to allot shares in the company in connection with a rights issue and in respect of cash without first offering
them to existing shareholders. Whilst no shares have been allotted by the company during the year, the directors will be seeking to
renew these authorities to allot unissued shares and to disapply statutory pre-emption rights at the forthcoming AGM. Further details
are set out in the notice of AGM.
Purchase of own shares
At the AGM on 15 June 2012, the company was given the authority to purchase shares in the company up to 10% of the issued share
capital. Whilst no shares have been purchased under the buyback authority by the company during the year, the directors will be
seeking to renew this authority for the company to purchase its ordinary shares at the forthcoming AGM. Further details are set out
in the notice of AGM.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 58
Other Statutory Disclosures continued
Rights under employees’ share schemes
As at 31 December 2012, Kleinwort Benson (Channel Islands) Limited (“Kleinwort Benson”), as trustee of the Headlam Group
Employee Trust Company Limited (“Trust”) which acts as the trustee of the Headlam Group Co-Investment Plan 2008 (“CIP”) and the
Headlam Group Performance Share Plan 2008 (“PSP”), which were approved by shareholders on 20 June 2008, held 600,000 shares,
approximately 0.7% of the issued share capital of the company, on trust for the benefit of the directors and certain senior managers of
the group. Kleinwort Benson waives the dividends payable in respect of these shares.
As at the same date, the Trust held 100,088 shares, approximately 0.1% of the issued share capital of the company, which may
be used to fulfil the exercise of SAYE options, the dividend payable in respect of these shares similarly being waived.
Substantial shareholdings
As at 31 December 2012, and unchanged at 28 February 2013, in accordance with rule 5.1 of the disclosure and transparency rules,
the company had been notified of the following interests in the ordinary share capital of the company.
Ordinary shares of five pence each
Shareholder
Franklin Templeton Institutional, LLC
The Capital Group Companies Inc
Tweedy, Browne Company LLC
Rathbone Brothers plc
JO Hambro Capital Management Limited
Threadneedle Investments
Schroders plc
Investmentaktiengesellschaft fuer
langfristige Investoren TGV
Heronbridge Investment Management LLP
Kames Capital
Nature of holding
Indirect
Indirect
Direct
Indirect
Direct
Indirect and Direct
Indirect
Direct
Direct
Indirect and Direct
Number
13,943,364
6,618,232
4,523,274
4,320,800
4,162,424
4,154,941
4,119,581
2,773,093
2,514,982
2,508,586
Per cent
16.69
7.92
5.41
5.17
4.98
4.97
4.93
3.32
3.01
3.00
Securities carrying special rights
There are no requirements for prior approval of any transfers and no person holds securities in the company carrying special rights with
regard to control of the company.
Voting
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. The company is not aware of any agreements between holders of securities that may result in
restrictions on voting rights. Further shareholder information is available on pages 116 to 117.
Powers of the directors
Subject to the articles, the Companies Acts and any directions given by the company by special resolution, the business of the
company will be managed by the board, which may exercise all the powers of the company.
Amendment of articles
The company’s articles may only be amended by a special resolution at a general meeting of shareholders.
Headlam Group plc Annual Report and Accounts 2012 59
UK Corporate Governance Code
The board reviews it’s work on the UK Corporate Governance Code in the Corporate Governance Report on pages 40 to 45.
The Code is available to view at www.frc.org.uk, the website of the Financial Reporting Council.
Disclosure of information to auditors
So far as each director is aware, there is no audit information relevant to the preparation of the Independent Auditors’ Report of which
the auditors are unaware, and each director has taken all the steps they ought to have taken as directors to make themselves aware of
any relevant audit information and to establish that the auditors are aware of that information.
This report was approved by the board on 8 March 2013 and signed on its behalf by
Geoff Duggan
Company Secretary
8 March 2013
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 60
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 parent company financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent 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 parent company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and
parent 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 parent company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent 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.
Responsibility statement of the directors in respect of the Annual Report and Accounts
We confirm that to the best of our knowledge:
• 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 or loss of the company and the undertakings 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 issuer
and the undertakings included in the consolidation 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
8 March 2013
Headlam Group plc Annual Report and Accounts 2012 61
Independent Auditor’s Report
to the members of Headlam Group plc
We have audited the financial statements of Headlam Group plc
for the year ended 31 December 2012 set out on pages 62 to 67.
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 parent 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 60, 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 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 Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state
of the group’s and of the parent company’s affairs as at
31 December 2012 and of the group’s profit for the year
then ended;
• the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
• the parent 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
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
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; 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
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 27, in relation
to going concern;
• the part of the Corporate Governance Statement on pages
32 to 37 relating to the company’s compliance with the nine
provisions of the UK Corporate Governance Code specified
for our review; and
• certain elements of the report to shareholders by the Board
on directors’ remuneration.
Graham Neale
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snowhill Queensway
Birmingham
B4 6HG
8 March 2013
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
62
Consolidated Income Statement
for the year ended 31 December 2012
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
2012
£000
585,984
(410,251)
175,733
(109,621)
(36,798)
29,314
4,476
(5,329)
(853)
28,461
(7,092)
21,369
2011
£000
569,795
(394,056)
175,739
(110,623)
(37,064)
28,052
4,520
(4,984)
(464)
27,588
(7,184)
20,404
22
14.15p
12.40p
9
9
25.8p
25.7p
24.6p
24.4p
Headlam Group plc Annual Report and Accounts 2012 63
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2012
Profit for the year attributable to the equity shareholders
Other comprehensive income:
Foreign exchange translation differences arising on translation of overseas operations
Actuarial losses and gains 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 (expense)/income for the year
Total comprehensive income attributable to the equity shareholders for the year
Note
20
Group
2012
£000
21,369
2011
£000
20,404
(389)
(5,595)
(383)
44
1,168
(5,155)
16,214
(234)
(7,839)
–
–
1,855
(6,218)
14,186
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 64
Statements of Financial Position
at 31 December 2012
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiary undertakings
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Income tax receivable
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
Current liabilities
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
Total equity
Group
Company
Note
2012
£000
2011
£000
2012
£000
2011
£000
10
11
12
13
14
15
8
16
17
18
19
20
8
18
20
22
22
96,182
13,210
–
2,376
111,768
115,332
108,070
–
49,798
212
273,412
385,180
(213)
(153,755)
(2,754)
(7,117)
(163,839)
(33,371)
(14,641)
(48,012)
(211,851)
173,329
4,268
53,512
(5,812)
121,361
173,329
94,201
13,210
–
962
108,373
114,196
111,656
–
41,494
362
267,708
376,081
(30,219)
(154,490)
(2,669)
(6,678)
(194,056)
(3,691)
(11,789)
(15,480)
(209,536)
166,545
4,268
53,512
(7,013)
115,778
166,545
79,672
–
88,136
1,294
169,102
–
15,121
28,763
212
44,096
213,198
–
(39,653)
(2,754)
(2,988)
(45,395)
(30,000)
(12,590)
(42,590)
(87,985)
125,213
4,268
53,512
8,998
58,435
125,213
76,551
–
87,341
381
164,273
–
14,951
221
23,921
362
39,455
203,728
(30,000)
(36,326)
(2,669)
–
(68,995)
–
(9,866)
(9,866)
(78,861)
124,867
4,268
53,512
7,408
59,679
124,867
These Financial Statements were approved by the board of directors on 8 March 2013 and were signed on its behalf by:
Tony Brewer
Director
Steve Wilson
Director
Company Number: 460129
Headlam Group plc Annual Report and Accounts 2012
Statement of Changes in Equity
for the year ended 31 December 2012
–
–
–
–
–
–
–
–
–
–
–
–
Capital
redemption
reserve
£000
Translation
reserve
£000
Cash flow
hedging
reserve
£000
Share
capital
£000
4,268
Share
premium
£000
53,512
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88
6,391
–
–
–
–
–
–
–
–
–
(234)
(234)
–
–
–
–
–
–
4,268
4,268
–
53,512
53,512
–
88
88
–
6,157
6,157
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(389)
–
(339)
(389)
(339)
–
–
–
–
–
–
–
–
Group
Balance at 1 January 2011
Profit for the year attributable
to the equity shareholders
Other comprehensive income
Total comprehensive income
for the year
Transactions with equity
shareholders, recorded directly
in equity
Share-based payments
Consideration for purchase
of own shares
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 2011
Balance at 1 January 2012
Profit for the year attributable
to the equity shareholders
Other comprehensive income
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 2012
65
Treasury
reserve
£000
Retained
earnings
£000
Total
equity
£000
(13,050)
112,529
163,738
–
–
–
–
20,404
(5,984)
20,404
(6,218)
14,420
14,186
871
871
(1,575)
–
(1,575)
1,367
–
–
(1,357)
(390)
(10,295)
10
(390)
(10,295)
(11,171)
(208)
(13,258)
115,778
(13,258) 115,778
(11,379)
166,545
166,545
–
–
–
–
21,369
(4,427)
21,369
(5,155)
16,942
16,214
1,183
1,183
1,929
–
–
(1,013)
134
(11,663)
916
134
(11,663)
–
4,268
–
53,512
–
88
–
5,768
–
(339)
1,929
(11,359)
(11,329) 121,361
(9,430)
173,329
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
66
Statement of Changes in Equity
for the year ended 31 December 2012
Company
Balance at 1 January 2011
Profit for the year attributable
to the equity shareholders
Other comprehensive income
Total comprehensive income
for the year
Transactions with equity
shareholders, recorded directly
in equity
Share-based payments
Consideration for purchase
of own shares
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 2011
Balance at 1 January 2012
Profit for the year attributable
to the equity shareholders
Other comprehensive income
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 2012
Share
capital
£000
4,268
Share
premium
£000
53,512
Capital
redemption
reserve
£000
88
Special
reserve
£000
20,578
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,268
4,268
–
53,512
53,512
–
88
88
–
20,578
20,578
Cash flow
hedging
reserve
£000
–
–
–
–
–
–
–
–
–
–
–
–
Treasury
reserve
£000
(13,050)
Retained
earnings
£000
Total
equity
£000
69,775
135,171
–
–
–
–
6,419
(5,577)
6,419
(5,577)
842
842
871
871
(1,575)
–
(1,575)
1,367
–
–
(1,357)
(157)
(10,295)
10
(157)
(10,295)
(208)
(13,258)
(13,258)
(10,938)
59,679
59,679
(11,146)
124,867
124,867
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(339)
(339)
–
–
–
–
–
–
–
–
14,705
(4,501)
14,705
(4,840)
10,204
9,865
1,183
1,183
1,929
–
–
(1,013)
45
(11,663)
916
45
(11,663)
–
4,268
–
53,512
–
88
–
20,578
–
(339)
1,929
(11,329)
(11,448)
58,435
(9,519)
125,213
Headlam Group plc Annual Report and Accounts 2012
Cash Flow Statements
for the year ended 31 December 2012
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation, amortisation and impairment
Net settlement loss on enhanced transfer value exercise
Finance income
Finance expense
Profit on sale of property, plant and equipment
Share-based payments
Operating cash flows 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
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Dividends received
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from the issue of treasury shares
Payment to acquire own shares
Repayment of borrowings
Dividends paid
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
67
Group
2012
£000
2011
£000
Company
2012
£000
2011
£000
Note
28,461
27,588
1,700
2,428
4,695
–
(4,476)
5,329
(185)
1,183
35,007
(491)
3,498
(819)
37,195
(1,682)
(6,766)
(2,839)
–
25,908
1,530
768
–
(771)
(7,999)
(6,472)
916
–
(213)
(11,663)
(10,960)
8,476
41,494
(172)
49,798
6
6
21
20
24
10
22
16
4,883
56
(4,520)
4,984
(86)
871
33,776
(8,700)
(9,764)
5,544
20,856
(1,342)
(3,380)
(2,781)
(3,302)
10,051
110
751
–
–
(2,035)
(1,174)
10
(1,575)
(228)
(10,295)
(12,088)
(3,211)
44,758
(53)
41,494
1,468
–
(4,261)
4,425
(133)
388
3,587
–
25
2,972
6,584
(897)
3,295
(2,839)
–
6,143
1,391
453
13,299
–
(5,697)
9,446
916
–
–
(11,663)
(10,747)
4,842
23,921
–
28,763
1,471
56
(4,370)
4,263
–
233
4,083
–
392
8,708
13,183
(614)
1,330
(2,781)
(3,302)
7,816
–
429
4,221
–
(54)
4,596
10
(1,575)
–
(10,295)
(11,860)
552
23,369
–
23,921
The company’s profit before tax excludes dividends received from subsidiaries.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 68
Notes to the Financial Statements
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 8 March 2013.
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 and pension scheme assets, both of 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 have been prepared on a going concern
basis. In determining the appropriate basis of preparation of
the financial statements the directors are required to consider
whether the group can continue in operational existence for
the foreseeable future.
The group’s business activities, together with the factors likely
to affect its future development, performance and position are
set out in the Chairman’s Statement and Chief Executive’s Review
on pages 20 to 25.
The financial position of the group, its cash flows, liquidity
position and borrowing facilities are described in the Financial
Review on pages 26 to 27. In addition, note 23 to the Financial
Statements include the group’s objectives, policies and processes
for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and
its exposures to credit risk and liquidity risk.
The group meets its day-to-day working capital requirements
through its banking facilities. On the 8 March 2012 the group
completed a refinancing of its existing facilities, which were due
for renewal in July 2012. The group’s new banking arrangements,
which run to March 2017 increased the level of committed
facilities from £30 million to £40 million, and maintain
uncommitted facilities at £35 million, which are renewable
on an annual basis.
The directors have a reasonable expectation that the group
has adequate resources to continue in operational existence
for the foreseeable future. Thus they continue to adopt the
going concern basis of accounting in preparing the annual
financial statements.
(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.
Headlam Group plc Annual Report and Accounts 2012 69
1 ACCOUNTING POLICIES continued
At the latest review, carried out at 31 December 2010, the 2012
carrying value of UK freehold and long leasehold land and
buildings would have exceeded market value (on an existing use
basis) by £10,987,000. 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 each
year. No impairment was considered necessary in 2012 or 2011.
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 2012.
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.
The assumptions include asset growth rates, pension and salary
increases, price inflation, discount rate used to measure actuarial
liabilities and mortality rates.
(c) Impact of newly adopted accounting standards
There have been no significant changes in accounting policies
or any material impact on the group financial statements arising
from the adoption of new accounting standards and
interpretations in 2012.
(d) IFRS not yet applied
The following amendment has been published and endorsed
by the EU, but have not yet been applied by the group in these
financial statements:
• Amendments to International Accounting Standard 1 relating
to the presentation of Items of Other Comprehensive Income
• International Financial Reporting Standard (IFRS) 10
“Consolidated Financial Statements”
• International Financial Reporting Standard (IFRS) 11
“Joint Arrangements”
• International Financial Reporting Standard (IFRS) 12
“Disclosure of interests in other entities”
• International Financial Reporting Standard (IFRS) 13
“Fair value measurement”
• Amendment to International Accounting Standard (IAS) 19
“Employee benefits”
• International Accounting Standard 27 “Separate Financial
Statements (2011)”
• International Accounting Standard 28 “Investments in
Associates and Joint Ventures (2011)”
• IFRIC 20 “Stripping Costs in the Production Phase of a Surface
Mine”
• Amendments to International Accounting Standard 32 and
International Financial Reporting Standard 7 relating to
Offsetting Financial Assets and Financial Liabilities
Except for the amendment to IAS 19, none of these standards
or amendments are expected to impact profit, earnings per share
and net assets in future periods.
The amendment to IAS 19 makes significant changes to the
recognition and measurement of the defined benefit pension
expense and termination benefits and disclosures relating to all
employee benefits. The amendment is effective for accounting
periods commencing on 1 January 2013 and it is anticipated that
the total pension cost relating to defined benefit schemes
recognised in the income statement in 2013 will be
approximately £2.1 million on a revised IAS 19 basis.
In 2013, comparative information for 2012 will be restated on
a revised IAS 19 basis, which will lead to an increase of £0.6 million
in the reported 2012 total pension cost to £2.1 million.
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 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 financial statements.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 70
Notes to the Financial Statements continued
1 ACCOUNTING POLICIES continued
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, expenses and cash flows 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.
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.
Derivative financial instruments
The group holds derivative financial instruments to hedge its
foreign currency and its 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 third party
valuations. 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. The annual rates applicable are:
Freehold and long leasehold properties – 2%
Short leasehold properties – period of lease
Motor vehicles – 25%
Office and computer equipment – 10%-33.3%
Warehouse and production equipment – 10%-20%
Land is not depreciated.
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.
Headlam Group plc Annual Report and Accounts 2012 71
1 ACCOUNTING POLICIES 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.
Following the requirements of IFRS 3 revised, transaction costs
associated with acquisitions and movements in contingent
consideration are recognised in the income statement.
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 one and 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
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.
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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 72
Notes to the Financial Statements continued
1 ACCOUNTING POLICIES 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.
Reversals of impairment
An impairment loss in respect of goodwill is not reversed.
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.
Trade payables
Trade payables are initially recognised at fair value and then
are stated at amortised cost.
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.
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.
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 UK defined benefit pension plan and
a defined benefit plan 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 savings related schemes.
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.
Headlam Group plc Annual Report and Accounts 2012 73
1 ACCOUNTING POLICIES continued
Further details of the share plans are given in the Remuneration
Report on pages 46 to 54.
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 market conditions such as 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
Interim and final dividends are recognised when they are paid
or when approved by the members in a general meeting. Final
dividends proposed by the board and unpaid at the end of
the year are not recognised in the financial statements.
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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 74
Notes to the Financial Statements continued
2 SEGMENT REPORTING
The group has 52 operating segments in the UK and five operating segments in continental Europe. Each segment represents an
individual trading operation, and each operation is wholly aligned to the sales, marketing, supply and distribution of floorcovering
products. The operating results of each operation 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
to assess performance and decide on resource allocation.
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 executive management team and forms the basis for the presentation of operating segment information given below.
Revenue
External revenues
UK
2012
£000
Continental Europe
Total
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
492,256
466,968
93,728
102,827
585,984
569,795
Reportable segment operating profit
28,275
25,696
2,036
2,830
30,311
28,526
Reportable segment assets
226,595
220,878
39,583
45,427
266,178
266,305
Reportable segment liabilities
(137,563)
(136,358)
(15,853)
(18,132)
(153,416)
(154,490)
During the year there are no inter-segment revenues for the reportable segments (2011: £nil).
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total profit for reportable segments
Unallocated expense
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit for the year
2012
£000
2011
£000
30,311
(997)
29,314
4,476
(5,329)
28,461
(7,092)
21,369
28,526
(474)
28,052
4,520
(4,984)
27,588
(7,184)
20,404
Headlam Group plc Annual Report and Accounts 2012 75
2012
£000
2011
£000
266,178
266,305
87,651
2,376
212
28,763
385,180
84,531
962
362
23,921
376,081
(153,416)
(154,490)
(17,395)
(33,584)
(7,117)
(339)
(211,851)
(14,458)
(33,910)
(6,678)
–
(209,536)
UK
£000
Continental
Europe
£000
Reportable
segment
total
£000
Unallocated
£000
Consolidated
total
£000
2,008
2,193
–
1,358
2,240
271
648
–
593
798
2,279
2,841
–
1,951
3,038
5,720
1,764
90
84
1,845
7,999
4,605
90
2,035
4,883
2 SEGMENT REPORTING continued
Assets
Total assets for reportable segments
Unallocated assets:
Properties, plant and equipment
Deferred tax assets
Assets held for sale
Cash and cash equivalents
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 2012
Capital expenditure
Depreciation
Amortisation
Other material items 2011
Capital expenditure
Depreciation
In the UK the group’s freehold properties are held within Headlam Group plc and a rent is charged to the operating segments for the
period of use. Therefore the operating reports reviewed by the Group Chief Executive show all the UK properties as unallocated and
the operating segments report a segment result that includes a property rent. This is reflected in the above disclosure.
Each segment is a continuing operation.
The Group Chief Executive, the board and the senior executive management team have access to information that provides details
on revenue by principal product group for the two reportable segments, as set out in the following table:
Revenue
Residential
Commercial
UK
2012
£000
Continental Europe
Total
2011
£000
2012
£000
2011
£000
2012
£000
2011
£000
337,569
154,687
492,256
320,290
146,678
466,968
43,959
49,769
93,728
50,047
52,780
102,827
381,528
204,456
585,984
370,337
199,458
569,795
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
76
Notes to the Financial Statements continued
3 PROFIT BEFORE TAX
The following are included in profit before tax:
Depreciation on property, plant and equipment
Amortisation of intangible 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 of the company
Other tax advisory services
All other services
2012
£000
4,605
90
(185)
9,821
1,814
2012
£000
68
155
3
14
240
2011
£000
4,883
–
(86)
9,421
1,628
2011
£000
64
152
38
7
261
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.
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 (note 20)
Number of employees
Group
2012
2011
2,098
9
2,107
1,947
160
2,107
£000
67,188
1,183
8,805
3,663
80,839
2,053
9
2,062
1,896
166
2,062
£000
66,755
871
8,965
3,472
80,063
Headlam Group plc Annual Report and Accounts 2012 77
5 EMOLUMENTS OF KEY MANAGEMENT PERSONNEL
Executive and non-executive directors are considered to be the key management personnel of the group.
Short term employee benefits
Equity settled share-based payment expense
2012
£000
2,137
312
2,449
2011
£000
2,094
199
2,293
Short term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
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
Other
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
2012
£000
2011
£000
783
–
3,693
657
49
3,814
4,476
4,520
(1,490)
(44)
(3,628)
(167)
(5,329)
(1,188)
–
(3,796)
–
(4,984)
2012
£000
6,959
253
7,212
377
(126)
(371)
(120)
7,092
2011
£000
6,026
(241)
5,785
1,707
(180)
(128)
1,399
7,184
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
78
Notes to the Financial Statements continued
7 TAXATION continued
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
2012
£000
2011
£000
8
–
134
(390)
1,082
78
1,302
1,855
–
1,465
The 2012 Budget on 21 March 2012 announced that the UK corporation tax rate will reduce to 22% by 2014, and the December 2012
Autumn Statement announced a planned further reduction to 21% by 2014.
A reduction in the rate from 26% to 25% (effective from 1 April 2012) was substantively enacted on 5 July 2011, and further reductions
to 24% (effective from 1 April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March 2012 and 3 July
2012 respectively. This will reduce the company’s future current tax charge accordingly. The deferred tax asset at 31 December 2012
has been calculated based on the rate of 23% substantively enacted at the balance sheet date.
It has not yet been possible to quantify the full anticipated effect of the announced further 2% rate reduction, although this will further
reduce the company’s future current tax charge and reduce the company’s deferred tax asset accordingly.
Reconciliation of effective tax rate
Profit before tax
Tax using the UK corporation tax rate
Effect of change in UK tax rate
Profit on sale of non-qualifying fixed assets
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Over provided in prior years
Total tax in income statement
2012
%
24.5
(0.4)
(0.2)
1.5
(0.1)
(0.4)
24.9
£000
28,461
6,972
(118)
(68)
427
(4)
(117)
7,092
2011
%
26.5
(0.5)
–
1.5
(0.1)
(1.4)
26.0
£000
27,588
7,309
(147)
–
419
(28)
(369)
7,184
Headlam Group plc Annual Report and Accounts 2012
79
8 CURRENT TAX LIABILITIES
The group’s current tax liability of £7,117,000 (2011: £6,678,000) 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 £2,988,000
(2011: £221,000 asset) represents the amount of income tax payable in respect of current and prior year periods which exceed
any amounts recoverable.
9 EARNINGS PER SHARE
Earnings
Earnings for the purposes of basic earnings per share being profit attributable to equity holders
of the parent
Number of shares
Issued ordinary shares at 31 December
Effect of shares held in treasury
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
2012
£000
2011
£000
21,369
20,404
2012
2011
85,363,743
85,363,743
(2,672,553)
(2,423,159)
82,691,190
82,940,584
82,691,190
82,940,584
446,420
596,479
83,137,610
83,537,063
At 31 December 2012, the company held 2,427,794 (2011: 2,841,197) shares which have been disclosed in the treasury reserve
and these are excluded from the calculation of earnings per share.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
80
Notes to the Financial Statements continued
10 PROPERTY, PLANT AND EQUIPMENT
Group
Cost
Balance at 1 January 2011
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2011
Balance at 1 January 2012
Acquisitions
Additions
Disposals
Effect of movements in foreign exchange
Transfer to use
Transfer to assets held for sale
Balance at 31 December 2012
Depreciation
Balance at 1 January 2011
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2011
Balance at 1 January 2012
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Transfer to assets held for sale
Balance at 31 December 2012
Net book value
At 1 January 2011
At 31 December 2011 and 1 January 2012
At 31 December 2012
Land &
buildings
£000
Plant &
equipment
£000
Under
construction
£000
100,454
31
–
(127)
100,358
100,358
4
212
(1,224)
(329)
1,003
(270)
99,754
14,106
1,811
–
(17)
15,900
15,900
1,744
(337)
(118)
(58)
17,131
86,348
84,458
82,623
27,464
1,950
(1,633)
(121)
27,660
27,660
51
2,138
(1,369)
(199)
–
–
28,281
16,655
3,072
(1,609)
(89)
18,029
18,029
2,861
(1,273)
(139)
–
19,478
10,809
9,631
8,803
Total
£000
127,976
2,035
(1,633)
(248)
58
54
–
–
112
128,130
112
–
5,649
(2)
–
(1,003)
–
128,130
55
7,999
(2,595)
(528)
–
(270)
4,756
132,791
–
–
–
–
–
–
–
–
–
–
–
58
112
4,756
30,761
4,883
(1,609)
(106)
33,929
33,929
4,605
(1,610)
(257)
(58)
36,609
97,215
94,201
96,182
At 31 December 2012 the cost less accumulated depreciation of long leasehold property held by the group was £8,332,000
(2011: £8,512,000).
Headlam Group plc Annual Report and Accounts 2012 81
Total
£000
88,072
54
(305)
87,821
87,821
5,697
(1,373)
–
(270)
91,875
10,104
1,471
(305)
11,270
11,270
1,468
(477)
(58)
12,203
77,968
76,551
79,672
Land &
buildings
£000
Plant &
equipment
£000
Under
construction
£000
87,418
–
–
87,418
87,418
1
(1,202)
1,003
(270)
86,950
9,605
1,432
–
11,037
11,037
1,426
(315)
(58)
12,090
77,813
76,381
74,860
596
–
(305)
291
291
47
(169)
–
–
169
499
39
(305)
233
233
42
(162)
–
113
97
58
56
58
54
–
112
112
5,649
(2)
(1,003)
–
4,756
–
–
–
–
–
–
–
–
–
58
112
4,756
10 PROPERTY, PLANT AND EQUIPMENT continued
Company
Cost
Balance at 1 January 2011
Additions
Disposals
Balance at 31 December 2011
Balance at 1 January 2012
Additions
Disposals
Transfer to use
Transfer to assets held for sale
Balance at 31 December 2012
Depreciation
Balance at 1 January 2011
Depreciation charge for the year
Disposals
Balance at 31 December 2011
Balance at 1 January 2012
Depreciation charge for the year
Disposals
Transfer to assets held for sale
Balance at 31 December 2012
Net book value
At 1 January 2011
At 31 December 2011 and 1 January 2012
At 31 December 2012
At 31 December 2012 the cost less accumulated depreciation of long leasehold property held by the company was £8,332,000
(2011: £8,512,000).
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 82
Notes to the Financial Statements continued
11 INTANGIBLE ASSETS – GROUP
Cost
Balance at 1 January 2011 and 31 December 2011
Balance at 1 January 2012
Additions (note 24)
Balance at 31 December 2012
Amortisation
Balance at 1 January 2011 and 31 December 2011
Balance at 1 January 2012
Charge for the year
Balance at 31 December 2012
Net book value
At 1 January 2011 and 31 December 2011
At 1 January 2012 and 31 December 2012
Goodwill
£000
Customer
lists
£000
13,210
13,210
–
13,210
–
–
–
–
4,142
4,142
90
4,232
4,142
4,142
90
4,232
Total
£000
17,352
17,352
90
17,442
4,142
4,142
90
4,232
13,210
13,210
–
–
13,210
13,210
Cumulative impairment losses recognised in relation to goodwill is £nil (2011: £nil).
Impairment tests for cash-generating units containing goodwill (“CGU”)
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 represent operating segments.
The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
Joseph, Hamilton & Seaton
Crucial Trading
Belcolor AG
LMS SA
Other
Reported
Segment
UK
UK
Continental Europe
Continental Europe
UK
2012
£000
4,348
1,369
3,342
3,197
954
13,210
2011
£000
4,348
1,369
3,342
3,197
954
13,210
Impairment
Each year, or whenever events or a change in the economic environment or performance indicates a risk of impairment, the group
reviews the value of goodwill balances allocated to its cash-generating units.
An impairment test is a comparison of the carrying value of the assets of a business or 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 2011, and applying the following key assumptions.
Headlam Group plc Annual Report and Accounts 2012 83
11 INTANGIBLE ASSETS – GROUP continued
Key assumptions
Cash flows were projected based on actual operating results, the approved 2013 business plan and management assessment of
planned performance in the period to 2017. For the purpose of impairment testing the cash flows were assumed to grow into
perpetuity at a rate of 2.5% beyond 2017.
The main assumptions within the operating cash flows used for 2013 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 CGUs. A pre tax
weighted average cost of capital of 12.3% (2011: 12.2%) has been used for impairment testing, adjusted to 14.1% (2011: 13.2%) for
continental Europe to reflect the differing risk profile of that segment. The pre tax discount rate has been applied to the pre tax
cash flows.
The CGUs 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 CGUs in continental Europe as having consistent risk profiles and therefore a single risk factor has
been applied. The CGUs 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 2017.
With the exception of the goodwill attributed to the LMS CGU, 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.
In respect of the goodwill attributed to the LMS CGU, a 0.5% increase in the discount rate or a 0.8% reduction in the growth rate into
perpetuity would result in an impairment. This sensitivity reflects the current difficult trading conditions in continental Europe.
12 INVESTMENTS IN SUBSIDIARIES
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2011
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2011
Balance at 1 January 2012
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2012
Carrying value
At 1 January 2011
At 31 December 2011
At 31 December 2012
£000
86,703
638
87,341
87,341
795
88,136
86,703
87,341
88,136
The principal trading subsidiaries are listed on page 107. There were no impairments recognised on the company’s investments
in subsidiaries at the year ended 31 December 2012.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 84
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
Hedging
Other items
Tax assets/(liabilities)
Set-off of tax
Assets
Liabilities
Net
2012
£000
–
–
4,680
78
488
5,246
(2,870)
2,376
2011
£000
–
–
3,793
–
573
4,366
(3,404)
962
2012
£000
(2,661)
(209)
–
–
–
(2,870)
2,870
–
2011
£000
(3,198)
(206)
–
–
–
(3,404)
3,404
–
2012
£000
(2,661)
(209)
4,680
78
488
2,376
–
2,376
2011
£000
(3,198)
(206)
3,793
–
573
962
–
962
Movement in deferred tax during the year
Property, plant and equipment
Intangible assets
Employee benefits
Hedging
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Intangible assets
Employee benefits
Other items
1 January
2012
£000
(3,198)
(206)
3,793
–
573
962
Recognised
income
£000
537
(3)
(329)
–
(85)
120
Recognised
in equity
£000
–
–
1,216
78
–
1,294
31 December
2012
£000
(2,661)
(209)
4,680
78
488
2,376
1 January
2011
£000
(3,683)
(223)
3,891
911
896
Recognised
in income
£000
485
17
(1,563)
(338)
(1,399)
Recognised
in equity
£000
–
–
1,465
–
1,465
31 December
2011
£000
(3,198)
(206)
3,793
573
962
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the group has unused capital losses of £10,055,000 (2011: £10,380,000) 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 2012 85
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
Hedging
Other items
Tax assets/(liabilities)
Set-off of tax
Assets
Liabilities
Net
2012
£000
–
3,621
78
166
3,865
(2,571)
1,294
2011
£000
–
3,086
–
257
3,343
(2,962)
381
2012
£000
(2,571)
–
–
–
(2,571)
2,571
–
2011
£000
(2,962)
–
–
–
(2,962)
2,962
–
2012
£000
(2,571)
3,621
78
166
1,294
–
1,294
2011
£000
(2,962)
3,086
–
257
381
–
381
Movement in deferred tax during the year
Property, plant and equipment
Employee benefits
Hedging
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
Other items
1 January
2012
£000
(2,962)
3,086
–
257
381
Recognised
in income
£000
391
(627)
–
(91)
(327)
Recognised
in equity
£000
–
1,162
78
–
1,240
31 December
2012
£000
(2,571)
3,621
78
166
1,294
1 January
2011
£000
(3,271)
3,217
267
213
Recognised
in income
£000
309
(1,694)
(10)
(1,395)
Recognised
in equity
£000
–
1,563
–
1,563
31 December
2011
£000
(2,962)
3,086
257
381
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the company has unused capital losses of £10,055,000 (2011: £10,380,000) 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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 86
Notes to the Financial Statements continued
14 INVENTORIES
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 economic hedging:
Other derivatives at fair value
Group
Company
2012
£000
115,332
2011
£000
114,196
2012
£000
–
Group
Company
2012
£000
407,223
3,028
410,251
2011
£000
391,345
2,711
394,056
2012
£000
–
–
–
Group
Company
2012
£000
85,378
3,425
19,267
–
2011
£000
87,848
4,089
19,569
–
–
108,070
150
111,656
2012
£000
–
47
177
14,897
–
15,121
2011
£000
–
2011
£000
–
–
–
2011
£000
–
59
180
14,712
–
14,951
£1,993,000 (2011:£2,635,000) was recognised as an impairment loss in the Consolidated Income Statement in respect of
trade receivables.
The impairment loss is attributable to the reportable segments as follows:
UK
Continental Europe
16 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
Cash and cash equivalents per Statement of Financial Position
17 ASSETS HELD FOR SALE
Assets classified as held for sale:
Property, plant and equipment
2012
£000
1,651
342
1,993
2011
£000
2,324
311
2,635
Group
Company
2012
£000
49,798
2011
£000
41,494
2012
£000
28,763
2011
£000
23,921
Group
Company
2012
£000
2011
£000
2012
£000
2011
£000
212
362
212
362
At the year end the company held a freehold property in the West Midlands, UK that was being actively marketed for sale and was
expected to be disposed of during 2013. The proposed property sale was as a result of the business relocating to a larger leasehold
property in close proximity.
At 31 December 2012 the West Midlands property formed 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.
At 31 December 2011 the company held a freehold property in Bishop Auckland, UK that was disposed of during early 2012.
Headlam Group plc Annual Report and Accounts 2012 87
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.
On 8 March 2012 the group refinanced the terms of its banking facilities. The refinancing increased the availability of committed
facilities from £30 million to £40 million, and extended the availability to four years. On 15 January 2013 an option was taken to extend
this by an additional year in line with the facility agreement and the renewal date is now March 2017. Uncommitted facilities were
maintained at £35 million, renewable on an annual basis.
For more information about the group’s and company’s exposure to interest rate and foreign currency risk, see note 23.
Current liabilities
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
Group
Company
2012
£000
213
213
33,371
33,371
2011
£000
2012
£000
2011
£000
30,219
30,219
3,691
3,691
–
–
30,000
30,000
30,000
30,000
–
–
Included within the interest-bearing loans is an amount directly attributable to borrowing costs of £nil (2011: £nil).
The group has undrawn borrowing facilities expiring in one year or less which, at 31 December 2012, amounted to £53,294,000
(2011: £43,521,000). 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
%
2.04
1.61
0.86
1.50
2012
£000
45,000
1,217
3,650
3,427
53,294
Interest
rate
%
1.94
2.39
1.30
1.40
2011
£000
35,000
1,253
3,759
3,509
43,521
All the borrowing facilities above bear interest at floating rates, however the group entered into two interest rate swaps on 11 June
2012 to fix £20 million of its sterling denominated borrowings. The swaps are due to mature on 8 March 2016. The Swiss facility may
be drawn as an overdraft or fixed rate loan with different rates depending on the term 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 economic hedging:
Derivatives used for hedging
Other derivatives at fair value
Group
Company
2012
£000
116,559
13,796
23,050
–
339
11
153,755
2011
£000
114,077
13,646
26,767
–
–
–
154,490
2012
£000
518
1,615
3,579
33,602
339
–
39,653
2011
£000
141
1,791
3,621
30,773
–
–
36,326
Included within non-trade payables and accrued expenses is an amount of £44,000 for accrued interest on unsecured bank loans
(2011: £37,000).
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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 88
Notes to the Financial Statements continued
20 EMPLOYEE BENEFITS
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 2011 using the attained
age method. The main annual rate assumptions used by the actuary were, increase in salaries 4.9%, increase of pensions in payment
3.4%, discount rate before retirement 6.4%, discount rate after retirement 4.65% and inflation 3.4%. 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 company 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 £2,117,000 (2011: £1,973,000).
Contributions amounting to £143,000 (2011: £133,000) in respect of December 2012 payroll were paid in January 2013.
The total group cost of operating the plans during the year was £3,663,000 (2011: £3,472,000) and, at 31 December 2012, there was
an amount of £286,000 (2011: £326,000) owed to the plans, being employer and employee contributions due for December 2012,
which was paid in January 2013.
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.
Present value of funded defined benefit obligations
Fair value of plan assets
Net obligations
Recognised liability for defined benefit obligations
Other long term employee benefits
Total employee benefits
Analysed as:
Current liabilities
Non-current liabilities
Total employee benefits
Group
Company
2012
£000
(93,499)
76,388
(17,111)
(17,111)
(284)
(17,395)
(2,754)
(14,641)
(17,395)
2011
£000
(84,923)
70,692
(14,231)
(14,231)
(227)
(14,458)
(2,669)
(11,789)
(14,458)
2012
£000
(82,735)
67,391
(15,344)
(15,344)
–
(15,344)
(2,754)
(12,590)
(15,344)
2011
£000
(74,737)
62,202
(12,535)
(12,535)
–
(12,535)
(2,669)
(9,866)
(12,535)
Following the actuarial valuation of the Headlam Group plc Staff Retirement Benefits Scheme as at 31 March 2008 and the latest
valuation as at 31 March 2011, 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 2012 of £2,662,000 which, in accordance with the
recovery plan, increase to £2,747,000 in 2013. It was agreed that recovery payments, which commenced on 1 January 2009 and will
cease on 31 December 2015, were to increase by 3.2% each year. The next actuarial valuation is due at 31 March 2014 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 £177,000 during 2012 (2011: £202,000).
During 2013, the group and company expect to pay regular ongoing contributions of approximately £3,932,000 to the UK defined
benefit plan of which £2,747,000 relates to the agreed recovery payments, the balance being estimated service costs.
Headlam Group plc Annual Report and Accounts 2012 89
2011
£000
71,713
1,067
3,542
7,278
(9,084)
221
–
74,737
2011
£000
60,382
3,524
(19)
1,151
2,579
202
3,246
–
221
(9,084)
–
62,202
Group
Company
2012
£000
84,923
1,546
3,628
6,155
(2,925)
412
(240)
93,499
2011
£000
80,889
1,499
3,796
7,998
(9,727)
436
32
84,923
2012
£000
74,737
1,040
3,404
6,023
(2,681)
212
–
82,735
Group
Company
2012
£000
70,692
3,693
560
1,297
2,662
177
–
19
412
(2,925)
(199)
76,388
2011
£000
68,451
3,814
159
1,505
2,579
202
3,246
–
436
(9,727)
27
70,692
2012
£000
62,202
3,502
327
971
2,662
177
–
19
212
(2,681)
–
67,391
20 EMPLOYEE BENEFITS continued
Movements in present value of defined benefit obligation
At 1 January
Current service cost
Interest cost
Actuarial losses
Benefits paid
Contributions by members
Effect of movements in foreign exchange
At 31 December
Movements in fair value of plan assets
At 1 January
Expected return on plan assets
Actuarial gains/(losses)
Contributions by employer:
Future service contributions
Past service deficit contributions
Additional past service deficit contributions
Contributions for enhanced transfer values
Employer augmentations
Contributions by members
Benefits paid
Effect of movements in foreign exchange
At 31 December
Expense recognised in the income statement relating to defined benefit obligation
(excluding transfer value exercise)
Current service cost
Interest on defined benefit plan obligation
Expected return on defined benefit plan assets
Total
Group
2012
£000
1,546
3,628
(3,693)
1,481
2011
£000
1,499
3,796
(3,814)
1,481
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
90
Notes to the Financial Statements continued
20 EMPLOYEE BENEFITS continued
The (income)/expense recognised in the following line items in the Consolidated Income Statement are:
Administrative expenses
Net financing income
Actuarial gains and losses in the Statement of Comprehensive Income:
Actuarial losses on defined benefit obligation
Actuarial gain on plan assets
Group
2012
£000
1,546
(65)
1,481
Group
2012
£000
(6,155)
560
(5,595)
2011
£000
1,499
(18)
1,481
2011
£000
(7,998)
159
(7,839)
Cumulative actuarial losses reported in the Statement of Comprehensive Income since 1 January 2004, the transition date to IFRS,
are £28,863,000 (2011: £23,268,000). Cumulative actuarial losses reported in the company’s Statement of Comprehensive Income
are £27,356,000 (2011: £21,660,000).
The fair value of the plan assets and the return on those assets were as follows:
Equities
Government debt
Corporate bonds
Annuities
Commodities
Hedge funds
Other
Actual return on plan assets
Group
Company
2012
£000
17,158
7,668
25,142
4,951
6,297
7,067
8,105
76,388
4,252
2011
£000
13,349
7,445
24,671
4,775
4,386
7,751
8,315
70,692
4,343
2012
£000
15,178
7,668
20,331
4,951
6,297
7,067
5,899
67,391
3,829
2011
£000
11,626
7,445
20,613
4,775
4,386
7,751
5,606
62,202
3,505
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.
Headlam Group plc Annual Report and Accounts 2012 91
2011
%
2.3
2.0
0.5
1.0
2.3
UK
Swiss
2012
%
4.1
4.5
3.0
3.0
5.6
2011
%
4.6
4.6
3.1
3.1
5.6
2012
%
1.8
2.0
0.5
1.0
1.8
AC00 (Ultimate)
table
94%(M)/100%(F)
of the S1PA tables
with future
improvements
from 2004 in line
with the CMI
mortality
projections
model CMI_2010
with a long term
rate of
improvement
of 1% per annum.
94%(M)/100%(F)
of the S1PA tables
with future
improvements
from 2004 in line
with the CMI
mortality
projections model
CMI_2010 with
a long term rate
of improvement of
1% per annum.
–
AC00 (Ultimate)
table
94%(M)/100%(F)
of the S1PA tables
with future
improvements
from 2004 in line
with the CMI
mortality
projections
model CMI_2010
with a long term
rate of
improvement
of 1% per annum.
94%(M)/100%(F)
of the S1PA tables
with future
improvements
from 2004 in line
with the CMI
mortality
projections model
CMI_2010 with
a long term rate
of improvement of
1% per annum.
–
BVG 2010
BVG 2010
20 EMPLOYEE BENEFITS continued
Principal actuarial assumptions 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
Swiss scheme
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
2012
23.6
22.2
25.5
24.0
2011
23.6
22.1
25.5
23.9
2012
23.6
22.2
25.5
24.0
2011
23.6
22.1
25.5
23.9
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
92
Notes to the Financial Statements continued
20 EMPLOYEE BENEFITS continued
Company
The principal actuarial assumptions for the company are the same as those disclosed for the UK above.
History of plans
The history of the plans for the current and prior periods is as follows:
Statement of Financial Position
Group
Present value of defined benefit obligation
Fair value of plan assets
Deficit
Company
Present value of defined benefit obligation
Fair value of plan assets
Deficit
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
2012
£000
(93,499)
76,388
(17,111)
2012
£000
(82,735)
67,391
(15,344)
2012
£000
(520)
560
(0.6%)
0.7%
2012
£000
19
327
0.0%
0.5%
2011
£000
(84,923)
70,692
(14,231)
2011
£000
(74,737)
62,202
(12,535)
2011
£000
1,289
159
1.5%
0.2%
2011
£000
1,404
(19)
1.9%
(0.0%)
2010
£000
(80,889)
68,451
(12,438)
2010
£000
(71,713)
60,382
(11,331)
2010
£000
(588)
3,195
(0.7%)
4.7%
2010
£000
(522)
3,274
(0.7%)
5.4%
2009
£000
(88,253)
65,803
(22,450)
2009
£000
(81,412)
59,583
(21,829)
2009
£000
(1,787)
6,083
(2.0%)
9.2%
2009
£000
(1,402)
5,559
(1.7%)
9.3%
2008
£000
(69,441)
55,139
(14,302)
2008
£000
(62,443)
49,534
(12,909)
2008
£000
83
(11,798)
0.1%
(21.4%)
2008
£000
(24)
(10,785)
(0.0%)
(21.8%)
During the year, the group operated an employment indemnity scheme in connection with a foreign subsidiary undertaking 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 2012 is £284,000 (2011: £227,000).
21 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 11 May 2012 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 46 and 54.
Headlam Group plc Annual Report and Accounts 2012
93
21 SHARE-BASED PAYMENTS 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
Approved 1998 scheme granted
to key management 14 April 2003
Unapproved 1998 scheme granted
to key management 22 August 2005
Approved 1998 scheme granted
to key management 22 August 2005
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*
Three-year sharesave scheme granted
to other employees 11 May 2011
Five-year sharesave scheme granted
to other employees 11 May 2011
Headlam Group Co-Investment
Plan 2008 granted to key management
23 August 2011*
Three-year sharesave scheme granted
to other employees 11 May 2012
Five-year sharesave scheme granted
to other employees 11 May 2012
Headlam Group Co-Investment
Plan 2008 granted to key management
5 October 2012*
2012
5,000
–
2011 Vesting conditions
40,404 Movement of the group’s basic earnings per
share exceeding RPI over the relevant period
1,242,864 Movement of the group’s basic earnings per
share exceeding RPI by 3% – 5% pa over the
relevant period
57,136
57,136 Movement of the group’s basic earnings per
share exceeding that of RPI by 3% pa over the
relevant period
–
–
40,499 Continuous service
54,808 Continuous service
36,168
42,608 Continuous service
164
381,457 Continuous service
344,666
374,246 Continuous service
48,715
53,486 Continuous service
61,327
63,928 Continuous service
468,828
468,828 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%
87,259
116,966 Continuous service
61,066
73,104 Continuous service
436,346
436,346 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%
364,855
– Continuous service
79,272
– Continuous service
440,968
– 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%
Contractual
life of options
14/04/06 –
14/04/13
22/08/08 –
22/08/12
22/08/08 –
22/08/15
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
01/07/14 –
01/01/15
01/07/16 –
01/01/17
23/08/14 –
23/08/21
01/07/15 –
01/01/16
01/07/17 –
01/01/18
06/10/15 –
06/10/22
Total share options
2,491,770
3,446,680
*Further details are provided on pages 50 and 51 of the Remuneration Report.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 94
Notes to the Financial Statements continued
21 SHARE-BASED PAYMENTS 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
2012
Number of
options
2012
245.0 3,446,680
221.6
(413,403)
903,291
121.8
401.8 (1,444,798)
113.4 2,491,770
62,300
403.0
Weighted
average
exercise price
2011
281.9
222.2
79.0
246.2
245.0
409.2
Number of
options
2011
2,895,667
(4,406)
642,588
(87,169)
3,446,680
1,435,711
The weighted average share price for options exercised during the year was 284.3p, (2011: 304.7p). The 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 2.1 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. In order to estimate the fair value of the services received the company uses an appropriate option pricing model, either
the Black-Scholes or the Monte Carlo 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 2012 are shown below:
2012
Number of options
Fair value at measurement date:
No performance conditions
Performance conditions
Share price at 31 December
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free rate of interest
EPS 80% &
TSR 20%
Three-year
Co-Investment
Plan 2008
440,968
Three-year
Sharesave
scheme
381,413
Three-year
Sharesave
scheme
80,910
–
68.5p
83.7p
252.6p
330.0p
–
33.6%pa
3 years
5.0%pa
0.3%pa
–
330.0p
238.0p
33.6%pa
3 years
4.9%pa
0.6%pa
–
330.0p
238.0p
40.2%pa
5 years
4.9%pa
1.1%pa
Headlam Group plc Annual Report and Accounts 2012 95
21 SHARE-BASED PAYMENTS continued
Details of share options granted during 2011 are shown below:
2011
Number of options
Fair value at measurement date:
No performance conditions
Performance conditions
Share price at 31 December
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free rate of interest
EPS 80% and
TSR 20%
Three-year
Co-Investment
Plan 2008
Three-year
Sharesave
scheme
Three-year
Sharesave
scheme
436,346
126,868
79,374
–
96.9p
109.7p
222.4p
255.0p
–
–
255.0p
246.0p
–
255.0p
246.0p
40.0%p.a.
47.8%p.a.
50.0%p.a.
3 years
3 years
5 years
4.5%p.a.
4.8%p.a.
4.8%p.a.
0.85%p.a.
1.5%p.a.
2.45%p.a.
The total expenses recognised for the year arising from share-based payments are as follows:
Share options granted in 2006 under
the SAYE five-year scheme
Share options granted in 2008 under
the SAYE three-year scheme
Share options granted in 2008 under
the SAYE five-year scheme
Share options granted in 2009 under
the SAYE three-year scheme
Share options granted in 2009 under
the SAYE five-year scheme
Share options granted in 2010 under
the SAYE three-year scheme
Share options granted in 2010 under
the SAYE five-year scheme
Headlam Group Co-Investment Plan 2008
(awarded 2010)
Share options granted in 2011 under
the SAYE three-year scheme
Share options granted in 2011 under
the SAYE five-year scheme
Headlam Group Co-Investment Plan 2008
(awarded 2011)
Share options granted in 2012 under
the SAYE three-year scheme
Share options granted in 2012 under
the SAYE five-year scheme
Headlam Group Co-Investment Plan 2008
(awarded 2012)
Total expense recognised
Group
Company
2012
£000
2011
£000
2012
£000
2011
£000
Subsidiaries
2012
£000
2011
£000
–
–
63
54
33
27
14
15
58
63
102
30
27
14
–
–
–
–
1
–
–
–
–
–
3
1
–
–
–
–
63
54
32
27
14
15
58
63
99
29
27
14
414
410
177
175
237
235
41
17
26
11
–
2
323
115
151
56
9
132
1,183
–
–
–
871
1
–
56
388
–
1
54
–
–
–
234
41
15
172
55
9
76
795
26
10
61
–
–
–
637
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 96
Notes to the Financial Statements continued
22 CAPITAL AND RESERVES
Share capital
Number of shares
On issue at 1 January and 31 December – authorised
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
2012
2011
107,840,000 107,840,000
85,363,743
85,363,743
2012
£000
2011
£000
4,268
4,268
–
4,268
4,268
4,268
4,268
–
4,268
4,268
At 31 December 2012, the company held 2,427,794 (2011: 2,841,197) shares which have been disclosed in the treasury reserve.
Dividends are not payable on these shares and they are excluded from the calculation of earnings per share. The shares held in
treasury represent 2.8% (2011: 3.3%) of the issued share capital with a nominal value of £121,390 (2011: £142,060).
In the period from 31 December 2012 to 8 March 2013 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 2011 of 4.30p paid 3 January 2012
Final dividend for 2011 of 9.85p paid 2 July 2012
Interim dividend for 2010 of 3.83p paid 4 January 2011
Final dividend for 2010 of 8.57p paid 1 July 2011
2012
£000
3,544
8,119
–
–
11,663
2011
£000
–
–
3,180
7,115
10,295
The final proposed dividend of 10.20p per share (2011: 9.85p per share) will not be provided for until authorised by shareholders
at the forthcoming AGM.
Interim dividends of 4.65p per share (2011: 4.30p per share) are provided for when the dividend is paid. The dividend was paid
on 2 January 2013 and totalled £3,850,000.
The total value of dividends proposed but not recognised at 31 December 2012 is £12,299,000 (2011: £11,663,000).
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.
Headlam Group plc Annual Report and Accounts 2012
97
22 CAPITAL AND RESERVES continued
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 central 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.
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 three 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 and hence,
the directors consider the credit quality of cash and cash equivalents to be robust.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 98
Notes to the Financial Statements continued
23 FINANCIAL INSTRUMENTS continued
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
Company
2012
£000
104,645
49,798
154,443
2011
£000
107,567
41,494
149,061
2012
£000
15,074
28,763
43,837
2011
£000
14,892
23,921
38,813
The fair values of the above financial assets at both 31 December 2012 and 2011, 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
The ageing of trade receivables at the Statement of Financial Position date was:
Group
Not past due
Past due 0-30 days
Past due 31-120 days
Group
Company
2012
£000
73,373
12,005
85,378
2011
£000
74,597
13,251
87,848
2012
£000
–
–
–
2011
£000
–
–
–
2012
2011
Gross
£000
80,531
4,334
3,167
88,032
Impairment
£000
–
(156)
(2,498)
(2,654)
Gross
£000
81,191
4,428
5,260
90,879
Impairment
£000
(230)
(306)
(2,495)
(3,031)
All other receivables and derivative financial assets are not past due (2011: not past due).
The company had trade receivables of £nil (2011: £nil).
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 January
Amounts provided
Amounts utilised
Effect of movements in foreign exchange
Balance at 31 December
Group
Company
2012
£000
3,031
1,993
(2,348)
(22)
2,654
2011
£000
2,927
2,635
(2,510)
(21)
3,031
2012
£000
–
–
–
–
–
2011
£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 0.34% (2011: 0.46%).
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 2012 cash and cash equivalents covered
the amounts of borrowings maturing in the next 12 months with a net positive liquidity of £49,585,000 (2011: £11,275,000).
Details of the total facilities that the group has access to are given in note 18.
Headlam Group plc Annual Report and Accounts 2012 99
23 FINANCIAL INSTRUMENTS continued
The following are the contractual maturities of financial liabilities:
31 December 2012
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
Forward exchange contracts used for hedging
31 December 2011
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
31 December 2012
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
31 December 2011
Company
Non-derivative financial liabilities
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
33,584
139,609
(37,296)
(139,609)
(1,079)
(139,609)
(1,075)
–
(32,534)
–
339
11
173,543
(339)
(11)
(177,255)
(129)
(11)
(140,827)
(122)
–
(1,197)
(88)
–
(32,622)
(2,608)
–
–
–
(2,608)
Carrying
amount
£000
Contractual
cash flows
£000
1 year or
less
£000
33,910
140,844
174,754
(34,924)
(140,844)
(175,768)
(30,571)
(140,844)
(171,415)
1–2
years
£000
(334)
–
(334)
2–5
years
£000
More than
5 years
£000
(962)
–
(962)
(3,057)
–
(3,057)
Carrying
amount
£000
Contractual
cash flows
£000
1 year or
less
£000
1–2 years
£000
2–5 years
£000
30,000
37,699
(33,335)
(37,699)
(800)
(37,699)
339
68,038
(339)
(71,373)
(129)
(38,628)
(800)
–
(122)
(922)
(31,734)
–
(88)
(31,822)
Carrying
amount
£000
Contractual
cash flows
£000
1 year or
less
£000
1–2 years
£000
2–5 years
£000
30,000
34,535
64,535
(30,230)
(34,535)
(64,765)
(30,230)
(34,535)
(64,765)
–
–
–
–
–
–
The value of the group’s and company’s financial liabilities as detailed above at 31 December 2012 and 2011 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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
100
Notes to the Financial Statements continued
23 FINANCIAL INSTRUMENTS continued
The table below sets out the group’s accounting classification of each class of financial assets and liabilities at 31 December 2012
and 2011.
31 December 2012
Cash and cash equivalents
Borrowings due within one year
Borrowings due after one year
Trade payables
Non–trade payables
Trade receivables
Other receivables
Derivative liabilities
31 December 2011
Cash and cash equivalents
Borrowings due within one year
Borrowings due after one year
Trade payables
Non-trade payables
Trade receivables
Other receivables
Derivative assets
Available
for sale
£000
49,798
–
–
–
–
–
–
–
49,798
Available
for sale
£000
41,494
–
–
–
–
–
–
–
41,494
Other
derivatives
at fair value
£000
–
–
–
–
–
–
–
(350)
(350)
Amortised
cost
£000
–
(213)
(33,371)
(116,559)
(23,050)
85,378
19,267
–
(68,548)
Total carrying
value
£000
49,798
(213)
(33,371)
(116,559)
(23,050)
85,378
19,267
(350)
(19,100)
Other
derivatives
at fair value
£000
–
–
–
–
–
–
–
150
150
Amortised cost
£000
–
(30,219)
(3,691)
(114,077)
(26,767)
87,848
19,569
–
(67,337)
Total carrying
value
£000
41,494
(30,219)
(3,691)
(114,077)
(26,767)
87,848
19,569
150
(25,693)
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.
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 2012 to fix £20 million of its sterling denominated borrowings. These interest rate swaps were designated as
a hedging instrument and accounted for as a cash flow hedge in accordance with the requirements of IAS 39. The cash flows will occur
over the period to 8 March 2016.
The fair value of these interest rate swaps are included in the Statement of Financial Position as a £339,000 derivative liability
(2011: £nil).
Headlam Group plc Annual Report and Accounts 2012
101
23 FINANCIAL INSTRUMENTS continued
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
2012
£000
2011
£000
Company
Carrying amount
2012
£000
2011
£000
49,798
(33,584)
16,214
41,494
(33,910)
7,584
28,763
(30,000)
(1,237)
23,921
(30,000)
(6,079)
There were no fixed rate instruments held by the group at 31 December 2012 (2011: £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 2011.
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 2012
Variable rate instruments
31 December 2011
Variable rate instruments
162
(162)
76
(76)
–
–
–
–
(12)
(61)
12
61
–
–
–
–
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, Swiss franc
and US dollar.
The group and company use 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
the functional currency of the acquiring company. 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 a liability as at 31 December 2012 amounted to £11,000
(2011: asset £150,000).
For the 12 month period to 31 December 2012, 6.9% (2011: 10.1%) of the group’s operating profit was derived from overseas
subsidiaries and at 31 December 2012, 21.0% (2011: 24.4%) of the group’s net operating assets related to overseas subsidiary
operations. 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.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 102
Notes to the Financial Statements continued
23 FINANCIAL INSTRUMENTS continued
The exposure to foreign currency risk was as follows:
2012
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2011
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£000
102
420
(1,175)
(653)
Euro
amount
£000
86
214
(1,165)
(865)
Group
Other
amount
£000
255
476
(1,219)
(488)
Group
Other
amount
£000
143
579
(1,412)
(690)
Total
£000
357
896
(2,394)
(1,141)
Total
£000
229
793
(2,577)
(1,555)
Euro
amount
£000
76
42
–
118
Euro
amount
£000
77
16
–
93
Company
Other
amount
£000
17
–
–
17
Company
Other
amount
£000
17
1
–
18
Total
£000
93
42
–
135
Total
£000
94
17
–
111
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 2011.
Euro
Other
Group
Company
2012
£000
(65)
(49)
2011
£000
(86)
(69)
2012
£000
12
2
2011
£000
9
2
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 has two interest rates swaps used for hedging which were fair valued in accordance with level 2 for the year ended
31 December 2012 (2011: not applicable) and forward currency contracts which were fair valued in accordance with level 2
(2011: level 2).
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.
Headlam Group plc Annual Report and Accounts 2012 103
23 FINANCIAL INSTRUMENTS continued
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.
Capital management
The group views its finance capital resources as primary 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. In the medium
term the group aims to maintain a dividend cover of 1.7 times.
The board encourages employees of the group to hold the company’s ordinary shares. The group operates a number of employee
share option schemes. In previous years the company has acquired a number of its own shares under a share buy-back programme,
and 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,
return capital to shareholders, issue new shares or sell assets to reduce debt.
On 8 March 2012, the group completed a refinancing of its banking facilities. The new facilities comprise £40 million committed facility
and £35 million uncommitted facility. This represents an increase in total available facilities of £10 million. The uncommitted facility,
coupled with cash generated from operations, is used to fund the group’s ongoing working capital requirements. The committed
facility is in place to support the group’s strategic investment plans.
No changes were made to the objectives, policies or processes during the years ended 31 December 2012 and 31 December 2011.
24 ACQUISITIONS
On 31 August 2012, a group subsidiary company acquired 100% of the issued share capital of Flooring Accessories Limited, a
distributor of residential and commercial floorcovering, principally in South Wales for a cash consideration of £627,000. The primary
reason for this acquisition is for the group to enhance its position in the south of Wales. Since its acquisition the business has
contributed revenue of £550,000 and a loss of £75,000 to the Consolidated Statement of Comprehensive Income for the year ended
31 December 2012. If the acquisition had occurred on 1 January 2012 group revenue would have been an estimated £588 million and
profit after tax would have been an estimated £21.3 million.
On 5 December 2012, a group subsidiary company acquired the trade and assets of C.K. Davie Limited, a distributor of residential and
commercial floorcovering, principally in the north of Scotland, for a cash consideration of £191,000. The primary reason for this
acquisition is for the group to enhance its position in the Scottish floorcovering market. Since its acquisition the business has
contributed revenue of £192,000 and a loss of £54,000 to the Consolidated Statement of Comprehensive Income for the year ended
31 December 2012. If the acquisition had occurred on 1 January 2012 group revenue would have been an estimated £589 million and
profit after tax would have been an estimated £21.3 million.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 104
Notes to the Financial Statements continued
24 ACQUISITIONS continued
Acquiree’s net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash at bank and in hand
Trade and other payables
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid
Satisfied by:
Cash
Analysis of cash flows:
On completion
Costs of acquisition
Acquiree’s
book value
£000
Fair value
adjustments
£000
Acquisition
amounts
£000
–
55
1,013
340
47
(727)
728
90
–
–
–
–
–
90
90
55
1,013
340
47
(727)
818
–
818
818
(818)
(57)
(875)
Professional fees of £57,000 were incurred on the acquisitions and have been expensed to the income statement within
administration expenses.
The book value of receivables given in the table above represent the gross contracted amounts receivable. At the acquisition date
the entire book value of receivables was expected to be collected.
No goodwill has arisen on the acquisition of Flooring Accessories Limited or the trade and assets of C.K. Davie Limited. The intangible
assets on acquisition were attributed to customer order books.
Following acquisition, it is the group’s normal practice to implement its operational and financial procedures and standard IT systems.
Furthermore, acquired businesses gain access to the group’s extensive product ranges and benefit from enhanced sales and
marketing investment. These changes typically enable acquired businesses to enhance the service provided to their customers and
ultimately, develop and grow.
Whilst acquired customer order books are a key component at the point of acquisition, this position quickly dissipates during the post
acquisition period. The dynamic and renewable nature of this class of asset is the reason the group elects to amortise it over a period
of one to 24 months, the precise period being dependent upon the size of the acquired business.
Headlam Group plc Annual Report and Accounts 2012 105
25 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
1,989
4,152
2,628
8,769
Land and
buildings
£000
77
105
1,933
2,115
2012
Plant and
machinery
£000
8,748
15,650
–
24,398
2012
Plant and
machinery
£000
7
10
–
17
Land and
buildings
£000
1,330
3,747
2,626
7,703
Land and
buildings
£000
26
105
1,959
2,090
2011
Plant and
machinery
£000
8,317
14,305
5
22,627
2011
Plant and
machinery
£000
7
16
–
23
Total
£000
10,737
19,802
2,628
33,167
Total
£000
84
115
1,933
2,132
Total
£000
9,647
18,052
2,631
30,330
Total
£000
33
121
1,959
2,113
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 2012, total operating lease expense of £11,635,000 was recognised in the Consolidated Income Statement
(2011: £11,049,000).
26 CAPITAL COMMITMENTS
Group
During the year ended 31 December 2012, the group entered into commitments to purchase property, plant and equipment
for £11,268,000 (2011: £709,000). These commitments are expected to be settled in the following financial year.
Company
During the year ended 31 December 2012, the company entered into commitments to purchase property, plant and equipment
for £10,902,000 (2011: £44,000). This commitment is expected to be settled in the following financial year.
27 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 management personnel
The group has re-evaluated its interpretation of key management personnel and consider that this relates to the executive
and non-executive directors of the group as identified on page 38.
As at 31 December 2012, directors of the company and their immediate relatives controlled 1.6% of the voting shares of the company
(2011:1.6%).
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 personnel in either the current or preceding
year. The cost charged to administrative expenses relating to share plans of key personnel amounted to £312,000 (2011: £199,000).
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
106
Notes to the Financial Statements continued
27 RELATED PARTIES continued
Company only
In addition to the transactions with key personnel the company has the following transactions:
Transactions with other group companies
Amounts due from subsidiaries
Amounts due to subsidiaries
Highest
during
the year
£000
Balance at
31 December
2012
£000
Highest
during
the year
£000
Balance at
31 December
2011
£000
16,579
14,897
25,829
14,712
(33,602)
(33,602)
(33,671)
(30,773)
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.
Related party transactions reported in the income statement
Rental income
Dividends received
Recharge of operating expenses
Interest income
Pension recharge
For year
ended
31 December
2012
£000
For year
ended
31 December
2011
£000
6,368
13,299
2,241
160
177
6,451
4,221
2,206
240
200
28 SUBSEQUENT EVENTS
Management 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, with the exception of the matters described below.
On 15 January, the company requested the extension of its committed facilities for an additional year in line with the facility agreement
dated 8 March 2012. This request was agreed by the two lending parties and has therefore extended the termination date to the date
falling five years after the date of the facility agreement.
On 22 February 2013, a subsidiary company of Headlam Group plc entered into an agreement to acquire the business and certain
assets of Hall’s Floorings Limited, with completion anticipated to occur on 28 March 2013. Hall’s Floorings, a distributor of residential
floorcovering based in Edmonton, north London, is a supplier to independent floorcovering retailers throughout most of England with
revenue for the year ended 31 December 2012 of approximately £8.2 million. On completion, initial consideration of approximately
£472,000, will be payable and a further £243,000 will be incurred on settling an outstanding debt. A further £150,000 will be payable
following verification of the fair value of assets acquired. The disclosures required by IFRS 3 have not been made as initial acquisition
accounting will remain incomplete until after formal completion of the acquisition.
Headlam Group plc Annual Report and Accounts 2012 107
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 their principal activities are wholly aligned to the sales, marketing, supply
and distribution of floorcovering and certain other ancillary 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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 108
Financial Record
Trading results
Revenue
Gross profit
Overheads
Operating profit
Profit before net financing costs
Net financing costs
Profit on ordinary activities before tax
Taxation
Profit on ordinary activities after taxation
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
Total assets
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
2012
£000
2011
£000
2010
£000
2009
£000
2008
£000
585,984
175,733
(146,419)
29,314
29,314
(853)
28,461
(7,092)
21,369
569,795
175,739
(147,687)
28,052
28,052
(464)
27,588
(7,184)
20,404
535,690
164,959
(138,893)
26,066
26,066
(1,060)
25,006
(7,127)
17,879
533,793
162,260
(137,502)
24,758
24,758
(2,694)
22,064
(6,168)
15,896
557,296
174,626
(132,904)
41,722
41,722
(1,602)
40,120
(11,433)
28,687
14.15p
14.85p
25.8p
12.40p
14.15p
24.6p
11.00p
12.40p
21.5p
19.70p
11.00p
19.1p
23.10p
19.70p
34.5p
96,182
13,210
2,376
111,768
115,332
108,070
49,798
212
273,412
385,180
–
(213)
(153,755)
(2,754)
(7,117)
(163,839)
(33,371)
(14,641)
(48,012)
(211,851)
173,329
94,201
13,210
962
108,373
114,196
111,656
41,494
362
267,708
376,081
–
(30,219)
(154,490)
(2,669)
(6,678)
(194,056)
(3,691)
(11,789)
(15,480)
(209,536)
166,545
97,215
13,210
896
111,321
105,694
102,240
44,758
362
253,054
364,375
–
(225)
(149,476)
(2,586)
(4,201)
(156,488)
(34,011)
(10,138)
(44,149)
(200,637)
163,738
96,530
13,210
4,731
114,471
99,637
101,149
45,737
2,275
248,798
363,269
(758)
(900)
(143,216)
(2,506)
(8,615)
(155,995)
(34,392)
(20,253)
(54,645)
(210,640)
152,629
99,741
13,210
1,516
114,467
107,597
105,942
35,193
–
248,732
363,199
–
(4,506)
(143,369)
(2,428)
(9,546)
(159,849)
(30,000)
(12,216)
(42,216)
(202,065)
161,134
Headlam Group plc Annual Report and Accounts 2012 109
Notice of AGM
Notice is hereby given that the 65th Annual General Meeting of Headlam Group plc will be held at the group’s distribution facility
located at Relay Park, Relay Drive, Tamworth, B77 5PR on Friday 24 May 2013 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 2012.
2. To declare a final dividend for the year ended 31 December 2012 of 10.20 pence per ordinary share.
3. To re-elect as a director Graham Waldron who is retiring by rotation in accordance with the company’s articles.
4. To re-elect as a director Dick Peters 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 Remuneration Report for the year ended 31 December 2012.
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 11 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 £620,000 for a period expiring (unless previously renewed, varied or revoked by the company
in general meeting) at the end of the 2014 AGM (or, if earlier, at the close of business on 30 June 2014), 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 2014 AGM if
passed (or, if earlier, at the close of business on 30 June 2014), 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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
110
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) t he allotment of equity securities for cash otherwise than pursuant to paragraph 9(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 2014 AGM or, if earlier, at the close of business
on 30 June 2014 (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 2014 or 30 June 2014, whichever is the earlier.
By order of the board
Geoff Duggan
Company Secretary
8 March 2013
Headlam Group plc
Registered No. 460129, England
Registered office:
Gorsey Lane, Coleshill
Birmingham, B46 1LW
Headlam Group plc Annual Report and Accounts 2012
111
Explanatory Notes to the Proposed Resolutions
This year’s AGM will be held at the group’s distribution facility at Relay Park, Relay Drive, Tamworth, B77 5PR on Friday 24 May 2013
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 11 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 2012. Shareholders are invited to vote to receive and adopt the Annual
Report and Accounts for the year ended 31 December 2012.
Resolution 2 – Declaration of dividend
The directors recommend the payment of a final dividend of 10.20p on each of the ordinary shares entitled thereto, which together
with the interim dividend of 4.65p, gives a total dividend of 14.85p for the year ended 31 December 2012. Subject to approval of the
declaration of the final dividend at the AGM, the final dividend will be paid on 1 July 2013 to the holders of ordinary shares whose
names are recorded on the register of members at the close of business on 7 June 2013.
Resolution 3 – Re-election of Graham Waldron as a director
Graham Waldron 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. Graham was appointed an executive director in June 1991 and
Chairman later that year, resigning as Chairman in 1999 but being re-appointed in 2006. The board believes that Graham should be
re-elected and makes such a recommendation to shareholders.
Resolution 4 – Re-election of Dick Peters as a director
Dick Peters 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. Dick was appointed a non-executive director in December 2005
at which time he joined the Nominations, Audit and Remuneration Committees, becoming Chairman of the Audit Committee.
The board believes that Dick Peters 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 – Remuneration Report
Shareholders are being asked to approve the 2012 Remuneration Report, which is set out on pages 46 to 54 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.
Special Business – Resolutions 8 to 11
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. With due regard to the ABI guidelines and to comments received from
shareholders, the proposed general authority, similar to last year, is to allot up to an aggregate nominal amount of £620,000
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 112
Explanatory Notes to the Proposed Resolutions continued
representing 12,400,000 ordinary shares (15% of the company’s ordinary share capital (excluding treasury shares) in issue at 8 March
2013 (the latest practical date prior to the publication of this report)). As at 8 March 2013, the company held 1,827,794 treasury shares,
which represented approximately 2.14% 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 2014, or, if earlier, on 30 June 2014. The directors consider that this
authority is desirable to allow the company to retain flexibility, although they 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 resolution allows the issue or sale of shares of
up to an aggregate nominal amount of £620,000 representing 12,400,000 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 8 March 2013). The authority will
lapse at the conclusion of the AGM to be held in 2014 or, if earlier, on 30 June 2014.
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”). 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 in 2011 and 2012. The authority is in respect of 10% of the company’s issued
ordinary share capital as at 8 March 2013 and will lapse at the conclusion of the AGM to be held in 2014 or, if earlier, on 30 June 2014.
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 21 and 22 to the Financial Statements.
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, the Shareholder Rights Directive requires 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 the AGM’s in 2011 and 2012, 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.
Headlam Group plc Annual Report and Accounts 2012 113
Explanatory Notes to the Notice of Meeting
Notes 1 to 17 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 664 0300 (calls
cost 10p per minute plus network charges). Lines are open 8.30 a.m.–5.30 p.m. 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 (available via www.euro-clear.com/CREST). 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.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 114
Explanatory Notes to the Notice of Meeting continued
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.
5. Entitlement to attend and vote
Pursuant to Regulation 41 of the Un-certificated 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 22 May 2012 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. Corporate representatives
Corporations may appoint one or more corporate representatives who, on its behalf, may exercise all of its powers as a member.
7. 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.
8. Issued share capital/voting rights
As at 8 March 2013 the company’s issued share capital, including treasury shares, consisted of 85,363,743 ordinary shares of 5p
(“shares”). Of these 1,822,794 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 83,540,949.
9. 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.
10. 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.
11. 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.
12. Access arrangements
Should any shareholder with special needs wish to attend the meeting, please contact the company so that appropriate arrangements
can be made.
Headlam Group plc Annual Report and Accounts 2012 115
13. 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, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
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 2012 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.
14. 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.
15. 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.
16. Website
A copy of this Notice, and other information required by section 311A of the Act, can be found at www.headlam.com.
17. 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 whom 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 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information
116
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, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU. email: ssd@capitaregistrars.com, telephone 0871 664 0300 (calls cost 10p plus network extras). Lines are
open 8.30 a.m.-5.30 p.m. 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,
write to Capita to request the accounts are consolidated.
Buying and selling shares in the UK
If you wish to trade in the company’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.
Headlam Group plc Annual Report and Accounts 2012 117
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
Warning to shareholders – boiler room scams
We have been made aware of our shareholders receiving unsolicited telephone calls from companies offering to buy Headlam shares
at a substantial premium to the prevailing market price for a large shareholder intending to make a takeover bid. These callers, who
can be extremely persuasive and persistent, are usually based overseas and are commonly known as “boiler room scams”.
Shareholders are advised to be wary of any unsolicited investment advice or approach to buy or sell shares… if it sounds too good
to be true, it probably is.
If you receive an unsolicited investment approach, you should:
• confirm the name of the person calling and the organisation they represent;
• check that they are registered with the Financial Services Authority (FSA) by calling 0845 606 1234 or by visiting www.fsa.gov.uk/
register/and contact the firm using the details on the register;
• report the matter to the FSA by calling 0845 606 1234 or by visiting www.fsa.gov.uk/pages/consumerinformation
Please note that if you deal with an unauthorised firm, you will not be eligible to receive payment under the Financial Services
Compensation Scheme. Further information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.
uk. If you have any queries, please contact the Company Secretary.
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 118
Advisers
Auditor
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
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Headlam Group plc Annual Report and Accounts 2012 Financial Calendar
Announcements
Interim Management Statement
Annual General Meeting
Interim results announced
Interim Management Statement
Full year results announced
Dividend dates
Final dividend for 2012, if approved, payable to qualifying
shareholders on the register as at 7 June 2013
Interim dividend for 2013 announced
Interim dividend for 2013 payable
119
17 May 2013
24 May 2013
23 August 2013
15 November 2013
March 2014
1 July 2013
23 August 2013
2 January 2014
Headlam Group plc Annual Report and Accounts 2012OverviewReview of the BusinessGovernanceFinancial StatementsShareholder Information 120
Shareholder Notes
Headlam Group plc Annual Report and Accounts 2012 This annual report is printed on Hello Silk. Both the paper mill and
printer involved in the production support the growth of responsible
forest management and are both accredited to ISO 14001 which
specifies a process for continuous environmental improvement and
both are FSC® certified. If you have finished reading this report and
no longer wish to retain it, please pass it on to other interested
readers or dispose of it in your recycled paper waste.
Designed and produced by Radley Yeldar www.ry.com
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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
For further detail on our business please visit:
www.headlam.com