Europe’s leading
floorcovering
distributor
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Annual Report and Accounts 2013
About Us
Headlam is engaged in the marketing, supply and distribution of an extensive range of
floorcovering products. The group’s activities and facilities are located throughout the
UK, France, Switzerland and the Netherlands.
Our Purpose
The group’s operations are aimed at providing its customers, principally independent
floorcovering retailers and contractors, with a comprehensive and up to date range of
competitively priced floorcovering products supported by next day delivery.
This approach presents Headlam’s suppliers with an opportunity to achieve an
unparalleled market access backed by cost effective distribution.
In order to provide this level of service to its customers and suppliers, Headlam has
developed a diverse and autonomous operating structure that includes 52 businesses
across the UK and a further five in continental Europe.
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 Headlam to establish itself as Europe’s
leading floorcovering distributor.
For further detail on
our business please visit:
www.headlam.com
Strategic Report
Governance
Financial Statements
Shareholder Information
Inside This Report
Strategic Report
IFC About Us/Our Purpose
2 Our Performance
3 Chairman’s Statement
4 Business Model and Strategy
6
Continuing Commitment to Investment in the
Group’s Infrastructure
8 Product
10 People and Training
12 Technologies
14 Our Marketplace
20 Operating Review
26 Measuring our Performance
28 Managing our Risk
30 Managing Responsibility
Governance
34 Board of Directors and Senior Management Team
36 Corporate Governance Report
44 Audit Committee Report
50 Directors’ Remuneration Report
67 Other Statutory Disclosures
72
Statement of Directors’ Responsibilities in Respect of the
Annual Report and Accounts and the Financial Statements
Independent Auditor’s Report
Financial Statements
73
76 Consolidated Income Statement
77 Consolidated Statement of Comprehensive Income
78 Statements of Financial Position
79 Statement of Changes in Equity – Group
80 Statement of Changes in Equity – Company
81 Cash Flow Statements
82 Notes to the Financial Statements
129 Principal Trading Subsidiaries
130 Financial Record
Shareholder Information
131 Notice of AGM
133 Explanatory Notes to the Proposed Resolutions
135 Explanatory Notes to the Notice of Meeting
138 Shareholder Information
140 Advisers
IBC Financial Calendar
Headlam Group plc
Annual Report and Accounts 2013
1
Our Performance
Financial highlights
Revenue £m
603.1
2012: 586.0
+2.9%
2009
2010
2011
2012
2013
533.8
535.7
569.8
586.0
603.1
Underlying Operating Profit £m
27.7*
2012: 29.3
-5.4%
2009
2010
2011
2012
2013
Operating Profit £m
21.1
2012: 29.3
-28%
2009
2010
2011
2012
2013
24.8
26.1
28.1
29.3
27.7
24.8
26.1
28.1
29.3
21.1
Underlying Earnings Per Share p
24.5*
2012: 25.3
-3.2%
2009
2010
2011
2012
2013
19.1
21.5
24.6
25.3
24.5
Earnings Per Share p
18.0
2012: 25.3**
-28.9%
2009
2010
2011
2012
2013
19.1
21.5
18.0
24.6
25.3
Dividends Paid and Proposed p
15.30
2012: 14.85
+3%
2009
2010
2011
2012
2013
11.00
12.40
14.15
14.85
15.30
* Underlying numbers have been used in order to provide a better understanding
of the business performance.
The non-underlying items relate to the impairment of intangible and tangible fixed
assets, totalling £5.4 million, the details of which can be found in note 4 to the
financial statements.
** 2012 earnings per share has been restated to reflect the changes for revised
IAS 19.
2
Operational highlights
Further gains in UK market share, with
like for like revenues increasing by 1.5%
despite the difficult start to the year.
Our businesses in France and the
Netherlands continue to face challenging
markets and depressed profitability.
As a consequence, an impairment of
£5.4 million relating to intangible and
tangible fixed assets has been recognised
during the year.
Construction of the Coleshill distribution
centre completed and fully operational
from January 2014.
The group expands its UK presence
with the acquisition of Hall’s Flooring and
Fells Carpets and the establishment of
service centres in Coventry, Manchester
and Sheffield.
The introduction of an integrated transport
solution for the group’s businesses located
in Scotland enhances the efficiency and
effectiveness of our customer service in
the north east of the country.
The group continues to invest in external
training programmes aimed at providing
ongoing development for managers and
sales representatives and introduces further
enhancements to the customer relationship
management, (“CRM”), app used on
the iPad.
For further detail on
our business please visit:
www.headlam.com
Headlam Group plc Annual Report and Accounts 2013 Chairman’s Statement
“The board is proposing an increase to the final dividend by 4.4%
from 10.20p to 10.65p.”
It is particularly pleasing for me, in my first statement as Chairman,
to be able to report on a year in which we achieved further progress
with group revenue rising to a record level. This result was achieved
despite the trading challenges and uncertainty encountered during
the first half of 2013.
Governance and board
Excellent governance has its foundation in an effective
board. Headlam seeks 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.
2013 was the year in which our previous Chairman, Graham
Waldron, decided to retire from the board. Graham served
as a director of Headlam for 22 years and, during that time,
made a major contribution to the development and success
of the group. We thank Graham for his dedicated service and
wish him and his family well for the future.
Employees
The board would like to thank all our employees for
their contribution to the continued success of the group,
particularly during a year which has required unrelenting
determination and focus. Our businesses flourish as a result
of their positive attitude.
Dick Peters
Chairman, 7 March 2014
Overview
2013 has been a story of continued improvement in
operating performance set against a background of
uncertainty, variable trading patterns and a continuing
competitive environment.
The first half of the year was particularly difficult with trading
undermined by unfavourable weather across certain parts of
the UK and the Netherlands. At the time, this only served to
exacerbate the fragile nature of the market and was the key
cause of revenues contracting during the first six months.
However, a much stronger second half, particularly during
the important months of August, November and December,
enabled the group to recover the first half revenue deficit
and end the year with a positive performance for the year
as a whole.
The result for the year provides further confirmation that
the decision to maintain our strategy, structure and range
of businesses has placed the group in an advantageous
position and allowed it to respond positively to
improvements in the market.
The board remains committed to investing in those areas of
our business that will enable us to drive future growth and
enhance market position.
Earnings and dividend
Underlying profit before tax for the year, amounting to
£26.4 million, was down by 5.1% on the previous year’s result
of £27.9 million and underlying earnings per share declined
by 3.2% from 25.3p to 24.5p. The board is proposing to
increase the final dividend by 4.4% from 10.20p to 10.65p
resulting in a total dividend for the year of 15.30p, up 3.0%
on 2012. The final dividend, if approved by shareholders
at the Annual General Meeting (“AGM”), will be paid
on 1 July 2014 to shareholders on the register at close
of business on 6 June 2014.
3
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Business Model and Strategy
Generating value for the long term
Headlam distributes a wide range of products, sourced from a variety of floorcovering
suppliers located 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 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 local management teams. The autonomous
operations are a key contributor to the group’s success providing opportunity for
experienced management teams to develop the individual identity, market presence and
profitability of the business for which they are responsible.
This structure permits broad access to floorcovering markets, allows the group to react
swiftly to emerging opportunities and assists with managing downside risks when
trading environments are challenging. Whilst each business is encouraged to adopt an
entrepreneurial style, they are operated within a well developed and consistently applied
framework of operational and financial control.
Headlam’s collection of businesses, assembled over many years, has allowed the group
to continually outperform the floorcovering market through various economic cycles.
This has been very evident in recent years when conditions have proved to be particularly
demanding and during which time the group has consistently maintained its ability to
achieve an increased market share.
The group’s strategy remains focused on developing its floorcovering distribution
businesses in the UK and continental Europe and the continued improvement of the
services provided to its customers. The group’s size and structure provide it with a
unique competitive advantage that enables it to deliver the benefits of product diversity,
sustained product development and marketing and distribution services, all of which are
aimed at supporting and enhancing its customers’ market position.
Each business is supported by the group’s commitment to continued investment in
people, product, facilities and IT, the commitment providing the foundation underpinning
growth and performance and, ultimately, the establishment of the group as Europe’s
leading floorcovering distributor.
4
Headlam Group plc Annual Report and Accounts 2013 How we generate income
Essential to 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.
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 3,016 new product launches during
the year, which were supported by 638,679 point
of sale items being positioned with our customers.
1
Deliveries
Ordering
4
Supply chain
management
2
Processing
Selection
3
1
Ordering
2
Selection
3
Processing
4
Deliveries
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 customers’ requirements are properly recorded
for subsequent processing.
4,331,886
orders placed in 2013
The distribution centres maintain substantial investment in products to
ensure that customers’ orders are swiftly processed and their delivery
expectations fully satisfied.
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.
Virtually all our deliveries to customers are made on group vehicles.
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.
57.3 million ft2
warehouse capacity
36,088
UK cut length
processing per week
1,247,051
UK deliveries in 2013
5
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
Continuing Commitment
to Investment in the
Group’s Infrastructure
Investment in modern and efficient distribution centres has been a hallmark of the group’s
operational strategy since the mid 1990s. The most recent addition to the group’s portfolio,
the enlarged facility in Coleshill, which has been extended from 158,073 square feet to
300,373 square feet, will enable the group to broaden its product range cost effectively and
improve the group’s service capability.
More recently, the group has added a service centre network to widen its service offering to
customers. During the year, we added additional centres in Coventry, Sheffield and Trafford Park,
Manchester, and intend to add further centres during 2014 in locations which will help consolidate
our service offering.
The combination of delivery from our distribution and service centres and the ability for our
customers to collect from 40 trade counters located in our distribution and service centres across
the UK and 21 in France provides the group with an unparalleled access to its core markets.
6
Headlam Group plc
Annual Report and Accounts 2013
Strategic Report
Governance
Financial Statements
Shareholder Information
Headlam Group plc
Annual Report and Accounts 2013
7
Product
During 2013, we launched 3,016 new products and
638,679 point of sale items.
We continue to support and assist with the ongoing development and launch of new products into
the market. The partnership between our management teams and suppliers forms a vital component
of the group’s ability to provide its customers with immediate access to new product ranges as they
become available.
Lifestyle Floors continues to gain further traction in the UK market through ongoing investment.
During 2013, we invested an additional £1.1 million in point of sale material.
New products launched
in the UK
2011
2012
2013
2,855
3,501
3,016
Number of UK
external sales people
2011
2012
2013
383
399
416
Number of customer visits
in the UK
2011
2012
2013
515,339
520,434
488,660
Number of orders
from UK customers
2011
2012
2013
3,877,835
3,973,351
4,331,886
Number of active customer
accounts in the UK
2011
2012
2013
43,347
44,086
45,720
8
Headlam Group plc
Annual Report and Accounts 2013
Strategic Report
Governance
Financial Statements
Shareholder Information
Headlam Group plc
Annual Report and Accounts 2013
9
People and Training
An important element essential to the group’s ongoing success are the individual management
teams that are responsible for running our autonomous businesses. The teams operate their
individual businesses on a day-to-day basis and have primary responsibility for developing and
maintaining the group’s relationships with suppliers and customers. These relationships are one
of the foundations of the group’s business ethos and it is the hard work and commitment from
our teams around the group that enable them to flourish and perpetuate.
In order to help advance the effectiveness of management teams, the group has continued to invest
in the use of external training programmes to develop management, motivation and selling skills.
We have also included our sales representatives in the training programme with the emphasis on
improving their preparation, productivity and selling techniques.
In a wider context, the ongoing training across all the group’s disciplines not only assists in allowing
our people to develop and grow their careers but also ensures we have a suitable base of skilled
and qualified individuals who able to contribute to the operational needs of our businesses.
10
Headlam Group plc
Annual Report and Accounts 2013
Headlam Group plc
Annual Report and Accounts 2013
11
Strategic ReportGovernanceFinancial StatementsShareholder Information Technologies
The iPad, launched to our sales teams in 2011, continues to contribute to improved working
practices and enhanced customer information. The device allows us to run our bespoke CRM app
and enables our sales people to be fully prepared prior to making their visits and as productive as
possible whilst engaged with their customer. Given the competitive edge the CRM brings to our
our sales teams and the improvements it has brought to customer service, we intend to maintain
its future development with further investment.
The utilisation of the iPad is now firmly established 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.
Business-to-Business Websites
We are currently improving our business-to-business
websites, originally launched in 2000, to allow
independent flooring retailers and contractors
access to our stock files and to place orders 24 hours
a day seven days a week. The enhanced sites will
create a bespoke business-to-business solution, each
one reflecting the individual identity of our operating
businesses and will provide our customers with
superior sales and marketing visuals and improved
navigation options.
12
Headlam Group plc
Annual Report and Accounts 2013
Strategic Report
Governance
Financial Statements
Shareholder Information
Headlam Group plc
Annual Report and Accounts 2013
13
Our Marketplace
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.
14
Headlam Group plc Annual Report and Accounts 2013 1 Regional Multi-product Distribution
These 23 businesses, operating in both the residential and commercial markets,
collectively provide a comprehensive national coverage.
Distribution Centre
Service Centre
15
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Our Marketplace continued
2 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.
Distribution Centre
Distribution Hub
Trans-shipping Location
16
Headlam Group plc Annual Report and Accounts 2013 3 Regional Commercial Distribution
Our Regional Commercial Distribution currently includes 23 operations based in five
distribution and 17 service centres.
Distribution Centre
Service Centre
Shared Distribution Centre
17
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Our Marketplace continued
4 National Residential Specialist Products
These 12 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.
Distribution Centre
National
Commercial
Specialist Products
National
Residential
Specialist Products
18
Headlam Group plc Annual Report and Accounts 2013 5 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.
Distribution Centre
Service Centre
Netherlands
France
Switzerland
19
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Operating Review
Maintaining investment for future growth and service enhancement
The emphasis this year has been directed at developing and completing
a range of investments and initiatives aimed at improving the group’s
ability to enhance customer service and respond to opportunities for
future growth.
“ There are indications of a slight
improvement in market conditions
in the UK and a more stable market
in continental Europe.”
Overview
Against a backdrop of continued market challenge, the
group responded well as the year progressed, recovering
from a difficult start and finishing with a strong performance.
Notwithstanding the uncertainties that surrounded markets
during 2013, we completed a number of investments
aimed at improving product offering and market reach
with the objective of improving the level of service we offer
our customers.
Investments
The construction project extending our Coleshill distribution
hub was substantially completed on schedule by the end
of the year and was fully operational from January 2014.
The enlarged 300,073 square foot facility will allow us to
enhance our supply chain and inventory management.
We have extended the number of service centres with the
establishment of new locations in Coventry, Sheffield and
Trafford Park, Manchester. Our network of service centres
and trade counters, that now numbers 40 locations across
the UK, allows us to support the large number of customers
who prefer to collect their product needs rather than using
our delivery service. Notwithstanding our existing coverage,
we have a number of geographical voids and are currently
exploring several locations across the UK which would
complement our existing network and provide further
opportunity to increase our market presence.
As reported previously, we completed the acquisition of
the business and certain assets of Hall’s Floorings Limited
on 28 March 2013. Following the acquisition, the logistics
operation of Hall’s Floorings was immediately moved to
Coleshill, whilst a base was retained in north London to
enable the business to retain its autonomous identity and
from which to develop its sales and marketing activity to
independent flooring retailers throughout most of England.
20
Headlam Group plc Annual Report and Accounts 2013 On 29 November 2013, we then completed the acquisition
of the business and certain assets of Roger Fell Limited,
which trades as Fells Carpets. The business is a distributor
of residential floorcovering, supplying independent
floorcovering retailers throughout the north of England.
Following completion, the sales, marketing and logistics
activities were transferred from their former location in
Whitley Bridge, Yorkshire to the group’s existing facility in
Gildersome, Leeds, without disturbing the autonomous
identity of the Fells business.
We are also in the process of establishing a trans-shipping
facility in north London. The facility, which should be fully
operational from May 2014, will provide a base for Hall’s
Floorings, allow us to extend our collection service by
creating a trade counter and enable our specialist Residential
businesses to improve their service across the south-east
of England.
Customers
Whilst markets continue to present our customers with
challenges, they have managed to maintain an improving
trading trend as evidenced by the group’s increase in
revenue. Credit taken at 40.1 days (2012: 41.3), combined
with a continued reduction in the incidence and cost of
bad debts, points to a sector that remains financially robust
and resourceful.
Contact with our customers is a vital aspect of our business
and, during the year, our sales representatives collectively
made 520,434 (2012: 515,339) customer visits. We also
managed to increase the number of active accounts
from 44,086 to 45,720 and, in return, our customers placed
4,331,886 (2012: 3,973,351) orders on our businesses across
the UK.
Marketing
Lifestyle Floors is now firmly established as the most
comprehensive display and marketing concept within UK
independent floorcovering retailers. The extensive product
portfolio of carpet, vinyl, wood, laminate and luxury vinyl
tile displayed within the various point of sale modules will
be enhanced further during the spring of 2014, with the
launch of additional products. This is another area where the
group’s investment continues to develop our relationship
with independent floorcovering retailers and ultimately
contributes to our mutual gains in market share.
During the autumn of 2013, we combined the sales and
marketing activities of Kingsmead Carpets and Georgian
Carpets in order to significantly increase the retail presence
of their complementary product portfolio of wool and
polypropylene carpets. During 2014, further investment
in sales resource, display and marketing will elevate the
combined business to be one of the most prominent carpet
suppliers to independent retailers in the UK.
Continental Europe
Our continental European businesses are also contending
with challenging markets but, on a positive note, there
appear to be tentative signs that the rate of decline in these
markets may be slowing based on recent performance.
As reported previously, we have implemented limited
restructuring in our Dutch businesses in order to improve
efficiency and reduce the downside risk on declining
performance arising from further market contraction.
With LMS, our business based in France, we continue to
evaluate the revenue benefits that could arise as a result
of training initiatives and the introduction of a CRM system
based on the UK platform.
Belcolor continues to achieve a satisfactory performance but,
as with our other businesses on the continent, is having to
contend with a difficult market.
Our continental businesses are managed by experienced
teams. As with the UK, the performance of their businesses
would be elevated if markets resumed growth.
21
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Operating Review continued
Revenue and operating profit
Group revenue increased during the year by 2.9% from
£586.0 million to £603.1 million. UK like for like revenue
increased by 1.5% from £491.5 million to £498.9 million and,
on the continent, collective like for like performance declined
by 3.7%. The revenue from acquisitions during the year
amounted to £10.4 million compared with £0.7 million in the
previous year.
The group’s gross margin edged up during the year to 30.1%
compared with 30.0% for the previous year. Achieving an
increase in gross margin is one of the performance indicators
targeted for improvement. Whilst gains were evident earlier
in the year, they were substantially eroded due to shifts in
product mix and sustained pricing pressure from the market.
We will continue with our efforts and initiatives to maintain
further progress in this area of the business.
Underlying overhead cost increased by 4.9% during the
year to £153.6 million compared with £146.4 million in the
previous year. As a percentage of revenue, underlying
overhead cost increased to 25.5% compared with 25.0%
for the previous year. The two key areas contributing to the
movement were the incremental overhead costs arising
from the businesses acquired during the year amounting
to £3.3 million and the general cost of living increase for
employees, implemented from 1 January 2013, amounting
to 2.0%.
As mentioned above, the group continues to invest in
the Lifestyle Floors concept. During the year, a further
£1.1 million was incurred on providing additional marketing
and point of sale material to support the ongoing
development of the brand.
The group’s underlying operating profit declined by
£1.6 million from £29.3 million for the previous year to
£27.7 million because the growth in underlying overhead
costs outpaced the improvement in gross profit.
Whilst additional overhead cost increases are anticipated
for 2014, principally due to the continued investment in the
group’s distribution capability and Lifestyle Floors, growth in
employment cost will be substantially less than 2013 and the
contribution from the acquisitions completed during 2012
and 2013 should move from earnings diluting to enhancing.
22
Non-underlying items
As a consequence of the ongoing challenges associated with
the floorcovering markets in France and the Netherlands,
our businesses in these two countries have continued to
experience a decline in profitability. The impairment test
conducted during the year for these entities has revealed a
shortfall in their recoverable value when compared with their
carrying value. This has resulted in the goodwill attaching
to the French business, amounting to £3.2 million, being
written down in full and the freehold distribution centre
in the Netherlands being impaired by £2.2 million.
The non-underlying items are non-cash items and have
been excluded from the group’s underlying profit and
earnings measures.
IAS 19
Following the introduction of the amendment to IAS 19,
notably relating to the measurement of the expected
return on assets, we have restated the result for the 2012
12-month period. In the Consolidated Income Statement,
the restatement relates to net finance cost and taxation.
The net adjustment to the Consolidated Income Statement
is matched by an equal and opposite adjustment relating
to the re-measurement of defined benefit plans in the
Consolidated Statement of Comprehensive Income.
As a result of these changes, basic earnings per share
for 2012 reduced from 25.8p to 25.3p.
The net effect to comprehensive income attributable
to the equity shareholders for the period was nil.
Headlam Group plc Annual Report and Accounts 2013 Net finance costs
Net finance costs reduced during the year by £0.3 million
from £1.5 million to £1.2 million. There was a gain on
net bank interest with cost reducing by £292,000 and an
increased cost of £70,000 attributable to the net movement
in cash flow and interest rate hedges and the defined benefit
plan obligation.
Taxation
The effective underlying rate of taxation reduced to 23.25%
during the year, reflecting the decrease in UK headline
corporation tax rate and also the further future reductions,
already enacted, that impact upon deferred taxation.
The anticipated effective underlying rate for 2014 is expected
to reduce to 21.5% due to further UK rate reductions which
have now been enacted.
Earnings per share
Underlying basic earnings per share declined by 3.2% during
the year from 25.3p to 24.5p. The underlying diluted earnings
per share declined by 3.6% from 25.2p to 24.3p.
Dividends
Total dividends paid and proposed for 2013 have increased
by 3.0% from 14.85p to 15.30p. Dividend cover reduced
to 1.3 times but, when measured against underlying basic
earnings per share, dividend cover is 1.6 times. This is a small
reduction compared with the sustained position over the
last few years, but a ratio the board feels comfortable with
maintaining in the future.
Cash flows
Net cash flow from operating activities
Net cash flow from operating activities decreased during
the year by £1.9 million from £25.9 million to £24.0 million.
The two key items contributing to the decline are profit
before tax, which reduced by £6.8 million year on year,
and the adjustments for depreciation, amortisation and
impairment which increased by £5.5 million with the common
cause for the two large movements being the inclusion of
the non-underlying items. Adjusting for the total underlying
amount of £5.4 million gives a decline of £1.4 million for
profit before tax which, net of the reduction in depreciation,
£0.1 million, gives rise to a movement of £1.3 million.
The remainder of the annual movement is principally
attributable to a reduction in share-based payments,
£0.9 million, which, when netted with the decrease in interest
and tax paid, totalling £0.5 million, gives a movement of
£0.4 million.
The net reduction in working capital of £2.2 million was
broadly in line with last year. The year-on-year movements
for each individual component of working capital were a
reduction of £2.5 million for inventory, an increase in trade
and other receivables of £12.6 million and an increase
in trade and other payables of £10.2 million, with the
movements in all three elements related to the increasingly
buoyant trading during the final quarter of the year.
23
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Operating Review continued
Cash flows from investing and financing activities
The net cash movement for the year in relation to property,
plant and equipment was a £12.8 million cash outflow.
This compares with a net cash outflow for the previous year
of £6.5 million. The additional outflow during the current
year occurred because of the extension to the Coleshill
distribution centre.
The acquisition of Hall’s Floorings and Fells Carpets
amounting to £2.0 million exceeded the £0.8 million
invested during the previous year for Flooring Accessories
and C K Davie.
Cash outflows from financing activities increased by
£1.3 million due to a smaller release of treasury shares as
a result of a reduction in the exercise of SAYE options and
a modest increase in dividends paid during the year.
Net debt
Group net funds at the end of the year reduced by
£2.2 million compared with the previous year, from
£16.2 million to £14.0 million, as detailed in the table below.
Cash at bank
and in hand
Debt due
within one year
Debt due
after one year
At
1 January
2013
£000
Cash
flows
£000
Foreign
exchange
translation
£000
At
31 December
2013
£000
49,798
(2,402)
81
47,477
(213)
–
(5)
(218)
(33,371)
223
(91)
(33,239)
16,214
(2,179)
(15) 14,020
Funding and going concern
The group maintains sufficient banking facilities to fund
its operations and investments and, as illustrated below,
at 31 December 2013, 61.5% of the group’s facilities
were undrawn.
Barclays Bank and The Royal Bank of Scotland have each
provided the group with a £20.0 million facility which will fall
due for renewal during March 2017. As at 31 December 2013,
the utilisation of the group’s total facilities was as follows.
Less than one year
Over one year
and less than five years
Over five and
less than seven years
Drawn
£000
Undrawn
£000
Total facility
£000
–
43,386
43,386
31,092
10,000
41,092
2,366
–
2,366
33,458
53,386
86,844
Having reviewed the group’s resources and a range of
likely out-turns, the directors believe there are reasonable
grounds for stating that the group has adequate resources to
continue in operational existence for the foreseeable future
and it is appropriate to adopt the going concern basis in
preparing the group’s financial accounts.
24
Headlam Group plc Annual Report and Accounts 2013 Employee benefits
As at 31 December 2013, the group’s net pension liabilities
totalled £15.6 million, representing a decrease of £1.8 million
on the previous year. The reduction in the deficit is due to
the growth in plan assets during the year outpacing the rise
in the value of the plan obligations. The value of the plan
obligations has been affected by an adverse movement in
the inflation rate assumption, but this has been partly offset
by an increase in the discount rate assumption.
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 remain at
£2.8 million for 2014. However a triennial review of the UK
defined benefit plan as at 31 March 2014 may have a bearing
on the amount due for 2014 and future periods.
Outlook
The final months of 2013 showed progressive improvement
and this momentum has carried forward into the first two
months of 2014. Whilst January and February are relatively
lower trading months and compared against weaker
comparatives from 2013, both months have produced a
positive result. Furthermore, there are indications of a slight
improvement in market conditions in the UK and a more
stable market in continental Europe.
This trading improvement has coincided with the increased
investment across the various group initiatives aimed at
providing our customers with an ever improving overall
service proposition and the group with a strong platform
for future growth.
Therefore, we enter the typically stronger spring selling
period in a good position. Whilst the first two months are
a welcome improvement, we believe that given a normal
seasonal cycle and a maintained focus on the continued
development of the quality of our businesses, we can look
forward with cautious optimism to a resumption of profitable
growth from the group in 2014.
25
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Measuring our Performance
The group uses the following indicators when assessing annual progress
towards its long term strategic objectives.
1 Like For Like Revenue Growth
Measurement
Why
Like For Like Revenue Growth %
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.
The group targets an increase in like for
like revenue above anticipated market
growth with the objective of maintaining
growth in market share.
0.7
2009 -6.8
2010
2011
2012
2013
2012: 3.7
0.2
0.7
5.3
3.7
2 Gross Profit Margin
Measurement
Why
Gross Profit Margin %
The ratio of gross profit to revenue.
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.
30.1
2009
2010
2011
2012
2013
2012: 30.0
30.4
30.8
30.8
30.0
30.1
3 Underlying Operating Profit
Measurement
Why
Underlying Operating Profit £m
Underlying operating profit is determined
by adding back finance, income and
expense and non underlying items to
profit before tax.
The majority of the group’s operating costs
are fixed and the group therefore obtains
a substantial benefit from operational
gearing as revenues increase.
27.7
2009
2010
2011
2012
2013
2012: 29.3
-5.4%
24.8
26.1
28.1
29.3
27.7
26
Headlam Group plc Annual Report and Accounts 2013 4 Underlying Earnings Per Share
r
Measurement
Why
Underlying Earnings Per Share p
Earnings per share (“EPS”) is calculated by
reference to post tax profit divided by the
weighted average number of issued shares
during the year.
Underlying EPS is calculated by adjusting
for non-underlying items.
r
We use this measure as one of the key
components of executive remuneration
– see table on pages 52-54.
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.
24.5
2009
2010
2011
2012
2013
2012: 25.3
-3.2%
19.1
21.5
24.6
25.3
24.5
5 Return on Capital Employed
Measurement
Why
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.
Return on capital employed provides
an indication of whether the group’s
performance is creating value for
its shareholders.
Return on Capital Employed %
13.25
2012: 14.39
2009
2010
2011
2012
2013
12.91
13.48
14.08
14.39
13.25
6 Credit Taken by UK Customers and Bad Debt Percentage
Measurement
UK Credit Taken days
Bad Debt %
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
40.1
2012: 41.3
-2.9%
0.25
2009
2010
2011
2012
2013
44.3
42.0
40.9
41.3
40.1
2009
2010
2011
2012
2013
2012: 0.34
-26.5%
0.40
0.47
0.46
0.34
0.25
These two indicators provide an accurate representation
of the independent customer’s financial health.
27
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information 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 that may affect or influence the conduct
of the business.
Area of risk
Description
Potential impact
Mitigation
Market demand
A significant proportion of the
group’s revenue arises from 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.
Market activity is monitored daily
in each individual business and
collectively at group level. 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.
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.
Each business has its own
dedicated hardware and failure
in one will not interrupt another.
Furthermore, the group operates
well defined backup procedures
and has contingency plans in place
to enable swift recovery from a
failure of this nature.
28
Headlam Group plc Annual Report and Accounts 2013 Area of risk
Description
Potential impact
Mitigation
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.
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.
29
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Managing Responsibility
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 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,
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.
30
Headlam Group plc Annual Report and Accounts 2013 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 2014 we
have continued the bespoke training programme for our
managers and sales representatives, further detail of which
has been provided earlier in this Annual Report.
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.
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 2014.
Our externally sourced driver training team continues to
deliver the driver Certificate of Professional Competence
(CPC) to all of our commercial drivers. It is on schedule for
meeting the statutory requirement of 35 hours’ CPC training
for every driver by September 2014 with a total of 472 drivers
each receiving seven hours’ training in 2013. Training is
facilitated using our distribution facilities with course material
including safe and fuel-efficient driving, health and safety,
customer care and drivers’ EU working hours. The 2014
training programme is following a similar approach to that in
2013 albeit with different subject matter. We continue to offer
the opportunity for class 2 driver training to drivers where
changes in business need require a heavy goods vehicle
to be used.
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 advisers.
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 coordinated 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.
31
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Managing Responsibility continued
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 advisers 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.
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 water,
electricity or gas.
Water
Water consumption arises predominantly in respect
of employee welfare and commercial vehicle washing.
The majority of our water charges are in respect of water
supplied and used. We encourage our drivers to keep
the commercial vehicles clean and tidy. To assist them, we
have a combination of jet wash machines and, at four of
the distribution facilities from which a significant number
of commercial vehicles operate, specialist truck washes.
Each truck wash utilises 100% recycled water, helping
with conservation.
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. In 2013 there were 18 reportable
incidents, compared to 14 in 2012, none of which had
resulted in a serious injury or fatality. 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 has been improved, training
and awareness increased and special containers sited at
least five metres from the main buildings for the storage of
flammable products. Bespoke provision for such aspects of
the business are incorporated within the design of the new
distribution facilities.
We seek to reduce charges by analysing invoices received
in respect of water, through the installation of water meters
and by reducing consumption through repair, renewal or
installation of equipment to improve efficiency.
Our water consumption in cubic metres has been fairly
consistent, 32,660 in 2013, 31,731 in 2012, the increase in
2013 on prior year being due in the main to the extension
to the Coleshill distribution facility but also to the C K Davie
premises and service centres acquired during the year.
Electricity
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.
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 a further distribution
facility, which is both more efficient than that which it is
replacing and movement sensitive, automatically switching
off during periods of inactivity. This lighting was also installed
in the Coleshill extension and, by way of replacement, in the
original Coleshill distribution premises. Photovoltaic panels
are soon to be installed on the roof of the Coleshill facility,
32
Headlam Group plc Annual Report and Accounts 2013 the capacity of which is designed to match the electricity
requirements of the site. Consideration will be given to
further similar installations following a period of evaluation.
Future construction projects will similarly incorporate
intelligent lighting systems and, where practical, renewable
energy solutions. During 2013 we completed the installation
of automated meter reading in respect of sites with non-
half-hourly electricity meters, the benefit over time being
improved consumption management.
The increases have been incurred in respect of volume-
related factors.
In late 2013, a trans-shipping facility in north London became
operational facilitating improved efficiency in deliveries to
the south-east. A similar change has been made in Scotland
through trans-shipping. Both of these changes have
resulted in reduced fuel costs and as a consequence, lower
CO2 emissions.
The actual cost of electricity and gas in 2013 amounted to
0.2% of revenue, which is the same as in the prior year.
These changes are estimated to save over 452 CO2/tonnes
on an annualised basis.
Gas
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. It is expected that the installation of a sophisticated
heating control system in the newly constructed Coleshill
facility will result in lower consumption. Consideration will be
given to installing such control systems in other premises if
considered viable.
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.
Carbon reporting
We are required to report on all the measured emissions
sources under The Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013. Data has been
collected in accordance with the Carbon Reduction
Commitment Energy Efficiency Scheme. Conversion factors
for electricity, gas and fuel are those published by the Carbon
Trust and Defra in 2013.
Fuel type
Electricity and gas
Commercial vehicle and car fuel
Total
Tonnes per £1 million turnover
2013
CO2/tonnes
2012
CO2/tonnes
5,710
28,205
33,915
56
5,640
25,886
31,526
53
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, with effect from the end of
2013, all of our commercial vehicles comply with Euro 5
emission standards which further reduced the levels of
carbon monoxide, hydrocarbon, nitrogen oxide and
particulate emissions. We periodically review our fleet
requirements to ensure the optimum design to maximise
capacity and improve aerodynamics.
Waste
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.
33
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
Board of Directors and Senior Management Team
M K 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)
A K 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 a
broad experience of advising quoted companies, particularly
in connection with transactions and compliance issues.
He is a non-executive director of Pentwin Limited, a private
investment company. He was appointed Chairman of the
Audit Committee on 1 September 2013 following the
resignation of Dick Peters.
Committees – Audit (Chairman), Nominations, Remuneration
Directors
R W Peters
Non-executive Chairman
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. He was appointed Chairman on 1 September 2013
following the resignation of Graham Waldron, at which time
he resigned as Chairman of the Audit Committee, to be
succeeded by Andrew Eastgate.
Committees – Audit, Nominations, Remuneration
A J 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 36 years’ experience in the
floorcovering industry.
Committees – Nominations
S G Wilson
Group Finance Director
Steve was appointed Group Finance Director in
December 1991. He was the non-executive Chairman of
Synergy Health plc until his retirement from their board
on 22 September 2010 and is a fellow of the Institute of
Chartered Accountants. With effect from 31 January 2014,
Steve was appointed a non-executive director of Conviviality
Retail Plc.
34
Headlam Group plc Annual Report and Accounts 2013 Company Secretary
Senior Executive Management
G M Duggan
Geoff was appointed Company Secretary in April 1998.
He is a fellow of the Institute of Chartered Secretaries and
Administrators and a fellow of the Chartered Institute of
Management Accountants.
G B 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.
A R Judge
Commercial Director,
Coleshill and Tamworth businesses
Tony joined the company in May 1992, 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 33 years’ experience in the floorcovering industry.
K R Yates
Managing Director, Mercado
Keith joined Mercado in April 1983 and was subsequently
appointed its Managing Director in 1996. In addition he has
operational responsibility for the businesses in Scotland.
Keith has 31 years’ experience in the floorcovering industry.
M W McMaster
Commercial Director, selected UK Operations
Mike joined the company in July 1984 and was appointed
to the Senior Executive Management in January 2009 with
operational responsibility for 17 of the UK businesses.
Mike has 43 years’ experience in the floorcovering industry.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Corporate Governance Report
Chairman’s message on corporate governance
On behalf of the board, we are pleased to present the Corporate
Governance Report for the year ended 31 December 2013.
The board of directors is responsible for both the stewardship and governance of your company. As part of this, it sets the
company’s strategic aims and values and oversees the executive management who carry out the operational running of the
business. The board is also charged with reporting to shareholders on the company’s performance in compliance with the
revised requirements of the UK Corporate Governance Code (the “Code”) to make the Annual Report fair, balanced and
understandable. The company is also required to comply with corporate governance rules contained in the FCA Disclosure
and Transparency Rules as well as certain related provisions in the Companies Act 2006.
We continue to believe that our board has the diversity and mix of skills, experience, independence and knowledge of the
company to enable it to discharge its responsibilities successfully.
In presenting this report, we seek to explain how your company is directed and controlled, by describing the membership
and work of the board and its committees, the approach to ensuring board members have an appropriate understanding
of the business and how the board considers its effectiveness. The report also explains the executive direction and control
and our corporate governance structures and procedures. While the directors believe that the group’s corporate governance
policies continue to be robust, changes have been and will continue to be made in light of the rules that are in place at any
point in time.
This report sets out how the principles of 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 2013 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 Strategic Report on pages 2 to 33.
During the year, the company announced my appointment as Chairman following the resignation of Graham Waldron on
31 August 2013. On my appointment, I was succeeded as Chairman of the Audit Committee by Andrew Eastgate.
Dick Peters
Chairman, 7 March 2014
36
Headlam Group plc Annual Report and Accounts 2013 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 control which:
• enables risks to be assessed and managed;
• sets strategic aims;
• ensures that the necessary financial and human resources are in place to meet its objectives and reviews
management performance;
• sets the group’s values and standards; and
• ensures that its obligations to its shareholders and others are understood and met.
As at 31 December 2013 the board consisted of two executive directors, Tony Brewer, Group Chief Executive, and Steve
Wilson, Group Finance Director, and three independent non-executive directors, Dick Peters, Chairman, Mike O’Leary and
Andrew Eastgate.
The board is supported in its role by the Audit, Nominations and Remuneration Committees, all of which have written terms
of reference, the details of which are set out below.
The directors’ roles and membership of the committees are as set out on pages 34 and 35 in the directors’ and Senior
Executive Management team biographies. The biographies also document each director’s significant other commitments
and any changes to these commitments that occurred during the year.
Directors’ attendance during the year at board meetings, meetings of the Audit, Nominations and Remuneration
Committees and at the Annual General Meeting (AGM) was as set out in the table on page 39.
The board considers that it is beneficial for the executive directors to hold an external directorship to broaden their
experience and normally this would be limited to one company. With effect from 31 January 2014, Steve Wilson was
appointed a non-executive director of Conviviality Retail Plc.
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 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.
Through the Nominations Committee, the board ensures that plans are in place for the succession of the executive and
non-executive directors.
37
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Corporate Governance Report continued
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 group strategy;
• corporate governance;
• risk management;
• board composition;
• succession planning;
• committee terms of reference;
• changes to capital structure and dividend policy;
• approval of the business objectives and annual plan;
• financial reporting and controls;
• acquisitions and disposals;
• authority limits for capital and other expenditure;
• material treasury matters; and
• health and safety.
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.
In order to fulfil their duties, procedures are in place for directors to seek both independent advice and the advice
and services of the Company Secretary who is responsible for advising the board, through the Chairman, on all
governance matters.
The non-executive directors periodically meet without the Chairman present, and also meet with the Chairman without
management present.
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.
38
Headlam Group plc Annual Report and Accounts 2013 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:
• governance and best practice guidelines;
• risk management;
• finance and operational performance;
• business development initiatives;
• health, safety and environmental matters; and
• legal and regulatory developments.
The board reviews the key activities of the business, receiving papers and presentations from executives and senior
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.
This enables the directors to promote the success of the company for the benefit of its shareholders as a whole, while
having regard to, among other matters, the interests of employees, the fostering of business relationships with customers,
suppliers and others, and the impact of the company’s operations on the communities and environment in which the
business operates.
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 below and
committee meeting attendance is given in the relevant committee report.
Graham Waldron
Tony Brewer
Stephen Wilson
Dick Peters
Mike O’Leary
Andrew Eastgate
4/6
9/9
9/9
8/9
9/9
9/9
In addition to the nine principal board meetings held during 2013 there were two meetings which approved the 2013 Interim
and 2012 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.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Corporate Governance Report continued
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 Directors’ 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.
Induction and training
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.
Performance evaluation
During the year, an evaluation of the board’s effectiveness, including the effectiveness of the board committees, was
undertaken internally. This included consideration on how well the board measured against boardroom best practice,
enhancing the effectiveness of the board, an evaluation of the performance of the board throughout the year and how the
board perceived it had performed. It also included risk management and succession planning. In respect of the committees,
the questionnaire considered the performance of the respective committees throughout the year, whether agendas covered
the remits of the committees and the appropriateness of the respective committees remit. It concluded that the board and its
committees continued to operate effectively, meeting the requirements and spirit of the Code. The Nominations Committee
has access to the performance evaluation process and the Chairman has confirmed that Tony Brewer and Andrew Eastgate,
the two directors standing for re-election at this year’s AGM, continue to perform effectively and demonstrate commitment
to their roles. The board will to continue to review its performance and that of its committees and individual directors on an
annual basis and for 2014 the process will include externally facilitated evaluation.
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, 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.
40
Headlam Group plc Annual Report and Accounts 2013 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.
Board committees
The board has established Audit, Nominations and Remuneration 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 established Audit, Nominations and Remuneration Committees, whose membership is comprised of
the three independent non-executive directors, with the Group Chief Executive additionally serving on the Nominations
Committee, are set out below.
Audit Committee
The Audit Committee is comprised of the three non-executive directors and was chaired by Dick Peters until 1 September 2013
when he was succeeded by Andrew Eastgate. The Company Secretary acts as secretary to the committee. Dick Peters
continues as a member of the Audit Committee, is a chartered accountant with considerable financial and audit experience
and, for the purposes of the Code, is considered by the board to be independent and have recent and relevant
financial experience.
Further information on the activities of the committee is given in the Audit Committee Report on pages 44 to 49 which should
be read in conjunction with this report.
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, approves specific arrangements for the Chairman and the executive
directors, and reviews and comments upon the proposed arrangements for senior management so as to ensure consistency
within the overall remuneration policy and group strategy. Further information on the activities of the committee is given in the
Directors’ Remuneration Report on pages 50 to 66 which should be read in conjunction with this report.
The Directors’ Remuneration Report also describes how the principles of the Code are applied in respect of remuneration
matters and includes a statement on the company’s policy on directors’ and senior managers’ remuneration, benefits, share
scheme entitlements and pension arrangements. 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. The Chief Executive may, by
invitation, attend Remuneration Committee meetings, except when his own remuneration is discussed. 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 Directors’ 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 and 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, experience and independence of the non-executive directors, and makes recommendations to the board with
regard to any changes.
The committee meets when required and met twice 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.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Corporate Governance Report continued
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 re-appointment or re-election.
New directors are appointed by the board and, in accordance with the company’s articles of association, they must be
elected at the next AGM to continue in office. Existing directors retire by rotation in accordance with article 89 of the articles
of association which requires them to retire from office, and if eligible for re-appointment, at the third AGM at which they
were appointed or last re-appointed.
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 Tony Brewer and Andrew Eastgate under the retirement by rotation provisions. It also
considered proposals relating to the appointment of Dick Peters who succeeded Graham Waldron as Chairman on his
resignation as a director on 31 August 2013, on the appointment of Andrew Eastgate as Chairman of the Audit Committee
on 1 September 2013 in succession to Dick Peters and an external appointment in respect of Steve Wilson as a non-executive
director of Conviviality Retail Plc with effect from 31 January 2014.
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 was one change to the directors’ external
commitments during the year, as detailed above. Appointments to the committee are made by the board.
Risk management and internal controls
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 have been identified in the
Managing our Risk Report on pages 28 and 29.
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.
42
Headlam Group plc Annual Report and Accounts 2013 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 and 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, 7 March 2014
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Audit Committee Report
Composition
The committee is comprised of the three non-executive directors and was chaired by Dick Peters until 1 September 2013
when he was succeeded by Andrew Eastgate. The Company Secretary acts as secretary to the committee.
Committee meetings
The committee has an agenda linked to events in the group’s financial calendar, normally meeting at least twice a year before
the annual and interim results announcements. The committee met three times in the year, the three members attending
all meetings, during which it discharged its responsibilities as set out in the terms of reference and schedule of business for
the year. Whilst only members of the committee are entitled to be present at meetings, the external auditor, Group Chief
Executive and Group Finance Director may attend by invitation. The committee has authority to investigate any matters
within its terms of reference, access resources, call for information and obtain external professional advice at the cost of
the company.
Role of the committee
The committee is responsible for monitoring and reviewing:
• the effectiveness of the group’s systems of internal control and risk management and control over financial reporting;
• 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 effectiveness of the external audit process;
• the external auditors’ plan for the audit of the group’s accounts, confirmation of the external auditors’ 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;
• the company’s relationship with the external auditor and management’s response to any major external
audit recommendations;
• the appointment, reappointment or dismissal of the external auditor;
• non-audit services and fees;
• 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 appropriateness of an internal audit function; and
• the group’s overall approach to securing compliance with laws, regulations, governance and company policies in areas
of risk arrangements by which staff may in confidence raise concerns about possible improprieties in matters of financial
reporting and other matters including the group’s policies and practices concerning business conduct and ethics.
The committee periodically reviews its terms of reference and its effectiveness and recommends to the board any changes
required as a result of its review.
44
Headlam Group plc Annual Report and Accounts 2013 Key activities of the committee during the year
The committee works to specific agendas for each meeting, developed from its terms of reference, with items that the
committee considers at each meeting in addition to any specific matters arising and topical items on which the committee
has chosen to focus.
The work of the committee during the year principally fell under three main areas and is summarised in the table below.
Internal controls and risk
External auditors
Accounting, tax
and financial reporting
Considered reports from the external
auditors on their assessment of the
control environment.
Considered and approved the audit
approach and scope of the audit work
to be undertaken by the external
auditors and the fees for the same.
Reviewed the half year and annual
financial statements and the significant
financial reporting judgements.
Assessed the effectiveness of the
group’s internal control environment.
Reviewed reports on audit findings.
Assessed the need for a group
internal audit function.
Reviewed matters reported to the
whistleblowing hotline.
Considered the independence of the
external auditor and their effectiveness,
taking into account:
• non-audit work undertaken by the
external auditors and compliance
with the policy;
• feedback from management; and
• the committee’s own assessment.
Considered the recommendations in
the UK Corporate Governance Code
regarding the tender of the external
audit contract.
Considered and approved letters
of representation issued to the
external auditors.
Met privately with the external auditors
to discuss their audit findings and the
nature of the audit relationship.
Considered the liquidity risk and the
basis for preparing the group half
yearly and full year accounts on a
going concern basis and reviewed
the related disclosures in the Annual
Report and Accounts.
Reviewed disclosures in the Annual
Report and Accounts in relation to
internal controls, risk management,
principal risks and uncertainties and
the work of the committee.
Reviewed the Annual Report and
considered whether the Annual Report
and Accounts, taken as a whole, are
fair, balanced and understandable,
and provide the information necessary
for shareholders to assess the
company’s performance, business
model and strategy.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Audit Committee Report continued
Significant issues considered by the committee
After discussion with both management and the external auditor, the committee determined that the key risks of
misstatement of the group’s financial statements related to:
• impairment of goodwill;
• impairment of property;
• inventory valuation; and
• valuation of employee benefit liabilities.
These issues were discussed with management during the year and with the external auditor at the time the
committee reviewed and agreed the external auditors’ group audit plan and also at the conclusion of the audit of the
financial statements.
Impairment of goodwill
As more fully explained in note 1 to the financial statements, the group’s principal non-financial assets are grouped into cash-
generating units (“CGUs”) for the purpose of assessing the recoverable amount.
The group’s CGUs represent individual operating businesses, either in the UK or in continental Europe. As set out in note 12
to the financial statements, all CGUs to which goodwill is allocated, in accordance with the requirements of IFRS, are tested
for impairment on an annual basis.
This year, the outcome of the impairment review concluded that the carrying value of the assets of the LMS CGU were less
than their recoverable amount by £3.2 million, equivalent to the goodwill attributed to the CGU. This is a reflection of the
ongoing challenging market conditions in France. As a consequence, a £3.2 million impairment loss has been recognised in
the income statement during the year and disclosed as a non-underlying item. The impairment reviews for the other CGUs to
which goodwill is allocated did not result in an impairment loss.
In performing their impairment tests, management determined the recoverable amount of each CGU and compared this
to the carrying amount. Management reported to the committee the results of its impairment assessment, noting to the
committee that future cash flows for each CGU had been estimated based on the most up to date business forecasts or
actual financial results and discounted using discount rates that reflected current market assessments of the time value of
money and risks specific to the assets. Management highlighted to the committee how they arrived at the key assumptions
to estimate future cash flows for the CGUs, specifically future growth rates and discount rates.
Management also brought to the attention of the committee the sensitivity analysis to be disclosed in note 12 to the financial
statements with regard to the recoverable amount of the CGUs’ goodwill that had not been impaired.
The committee interrogated management’s key assumptions to understand their impact on the CGUs recoverable amounts.
The committee was satisfied that the significant assumptions used for determining the recoverable amount of CGUs to which
goodwill is allocated had been appropriately scrutinised, challenged and were sufficiently robust. The committee was further
satisfied with the impairment disclosures set out in note 12 to the financial statements, and the disclosure of the loss as a non-
underlying item.
The external auditor explained their audit procedures to test management’s impairment assessment and considered the
group’s disclosures on the subject. On the basis of their audit work, the external auditor has not identified any additional
impairments to the carrying value, at 31 December 2013, of the CGUs to which goodwill is allocated that were material
in the context of the financial statements as a whole.
Impairment of property
As set out in note 11 to the financial statements, the carrying value of freehold and long leasehold property in the group’s
statement of financial position as at 31 December 2013 amounted to £79.3 million.
As set out in note 1 to the financial statements, the group has a policy of formally assessing the market value, using
independent, external valuation experts, of the UK property portfolio every three years. The valuation performed in 2013
indicated that the carrying value of the entire portfolio exceeded the market value, by £14.7 million. Market value equates to
fair value as defined by the Valuation – Professional Standards 2014 published by The Royal Institute of Chartered Surveyors.
46
Headlam Group plc Annual Report and Accounts 2013 Across the portfolio there were circumstances where the market values of individual properties were higher or lower than
the carrying value, dependent on the condition and location of each individual property. Where the carrying value of a
property exceeded the market value, management considered this to represent an indicator of impairment and accordingly
performed an impairment review for each CGU to which those properties belonged. The outcome of the impairment
reviews indicated that the carrying value of those CGUs were supported by their ongoing value in use, and accordingly,
no impairment adjustment was required.
In the Netherlands, management obtain an annual market value of the property for local rates purposes. The latest valuation
obtained indicated that the carrying value of the property exceeded its market value. As with the UK properties, management
considered this to represent an indicator of impairment and therefore performed an impairment review for the Dutch CGU.
The outcome of the impairment review concluded that the carrying value of the assets of the Dutch CGU were less than their
recoverable amount by £2.2 million which was not less than the amount by which the market value of the property exceeded
its carrying value. This is a reflection of the ongoing challenging market conditions in the Netherlands. As a consequence,
a £2.2 million impairment loss has been recognised in the income statement during the year and disclosed as a non-
underlying item.
The properties in France and Switzerland are attributable to CGUs which also contain goodwill and accordingly had been
tested for impairment as part of the annual goodwill impairment review as noted above.
In performing their impairment tests, management determined the recoverable amount of each CGU and compared this to
the carrying amount. Management reported the results of its impairment assessment to the committee, noting that future
cash flows for each CGU had been estimated based on the most up to date business forecasts or actual financial results and
discounted using discount rates that reflected current market assessments of the time value of money and risks specific to the
assets. Management highlighted to the committee how they arrived at the key assumptions to estimate future cash flows for
the CGUs, specifically future growth rates and discount rates.
The committee interrogated management’s key assumptions to understand their impact on the CGUs’ recoverable amounts.
The committee was satisfied that the significant assumptions used for determining the recoverable amount of the relevant
CGUs had been appropriately scrutinised, challenged and were sufficiently robust. The committee was further satisfied
with the impairment disclosures set out in note 4 to the financial statements and the disclosure of the impairment of the
Netherlands property as a non-underlying item.
The external auditor explained their audit procedures to test management’s impairment assessment and considered the
group’s disclosures on the subject. On the basis of their audit work, the external auditor has not identified any additional
impairments to the carrying value at 31 December 2013, of the relevant CGUs that were material in the context of the financial
statements as a whole.
Inventory valuation
As set out in the statement of financial position, inventory amounts to £115.7 million and represents the group’s second
largest asset class. Inventory is held across a broad and diverse product range which is subject to a risk that changes in
consumer tastes and demand result in some inventory lines becoming slow moving or obsolete, such that the recoverable
amount is less than the carrying value.
The committee discussed the group’s management of its inventory position and gave careful consideration to the
gross carrying value and related provisions. Management explained to the committee that the process of determining
the appropriate valuation of inventory entailed close monitoring of inventory levels, review of the ageing profile and
consideration of inventory sold for less than its carrying value. These three measures are reported to senior management
on a monthly basis by individual businesses. Management use this information to determine the provisions to be made
against inventory.
The committee reviewed the valuation basis and challenged management’s assumptions. The committee also discussed the
valuation basis with the external auditor, who reported that they had not identified any additional provision requirements that
were material in the context of the financial statements taken as a whole.
Valuation of employee benefit liabilities
In the UK, the group operates a defined benefit pension plan, further details of which are set out in note 21 to the financial
statements. At 31 December 2013, the scheme had assets of £73.7 million and liabilities, measured on an IAS 19 basis, of
£87.1 million, with a net deficit of £13.4 million.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Audit Committee Report continued
As set out in note 1 to the financial statements, the plan liabilities are calculated by estimating the amount of benefit that
employees have earned for their service in current and future periods. This estimation requires making certain assumptions
notably in relation to inflation rates, mortality rates and the discount rate to apply to determine present value. The selection
of these assumptions is subjective and small changes in these assumptions can materially impact the net IAS 19 deficit
reported in the statement of financial position. The assumptions adopted by management are set out in note 21 to the
financial statements.
In selecting the assumptions, management took advice from the group’s external actuary and considered the
appropriateness of this advice in light of the specific circumstances of the UK plan. Management highlighted to the
committee how they arrived at the key assumptions.
The committee reviewed management’s assumptions and were satisfied that they had been appropriately scrutinised,
challenged and were robust. The committee also reviewed the sensitivity analysis set out in note 21 to the financial
statements and consider it to be appropriate.
The committee also considered the views and procedures of the external auditor, which entailed a benchmarking of
management’s assumptions with the external auditor’s own expectations. The external auditor considered that they had not
identified any assumptions adopted by management that were inappropriate for the UK plan in the context of the financial
statements taken as a whole.
Misstatements
Management reported to the committee that they were not aware of any material misstatements or immaterial
misstatements made intentionally to achieve a particular presentation. The external auditors reported to the committee
the misstatements that they had found in the course of their work and no material amounts remain unadjusted.
The committee confirmed that it was satisfied that the external auditors had fulfilled their responsibilities with diligence and
professional scepticism.
After reviewing the presentations and reports from management and consulting, were necessary, with the external
auditors, the committee was satisfied that the financial statements appropriately addressed the critical judgements and key
estimates, both in respect to the amounts reported and the disclosures. The committee was also satisfied that the significant
assumptions used for determining the value of assets and liabilities had been appropriately scrutinised, challenged and were
sufficiently robust.
Internal audit
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 group’s control systems and associated procedures are adequate for the business and
therefore does not currently propose to introduce a group internal audit function. The committee will continue to keep the
matter under review.
External audit
The committee reviews annually the appointment of the external auditor and, based on the committee’s recommendation,
the board agreed to recommend to shareholders at the AGM in 2013, the re-appointment of the external auditor for a period
of one year. The current overall tenure of the external auditor dates from 1992. Any decision to open the external audit to
tender is taken on the recommendation of the committee. There are no contractual obligations that restrict the company’s
current choice of external auditor.
Following a review of KPMG’s performance and independence in 2013, including compliance with rules on non-audit services,
the committee was satisfied with the external auditor’s effectiveness and independence and has recommended to the board
that KPMG be re-appointed as the company’s external auditor for the year ending 31 December 2014. The committee
will continue to review the performance of the external auditors on an annual basis and consider their independence and
objectivity taking into account all appropriate guidelines.
The committee assessed the ongoing effectiveness of the external auditor and audit process on the basis of meetings with
executive directors. In reviewing the independence of the external auditor, the committee considered a number of factors
which included the standing, experience and tenure of the external audit partner, the nature and level of services provided by
the external auditor and confirmation from the external auditor that it had complied with relevant regulatory requirements.
48
Headlam Group plc Annual Report and Accounts 2013 The committee has the specific task of keeping the nature and extent of non-audit services provided by the external auditor
under review in order to ensure that objectivity and independence are maintained. The external auditor has processes
in place to ensure independence is maintained when providing non-audit services and has written to the committee
confirming that, in its opinion, they remain independent within the meaning of the regulation on this matter and their
professional standards.
In addition, the fees and objectivity of the external auditor were considered by the committee. The committee recognises
that there are occasions when it is advantageous to use the external auditor to undertake non-audit services, where they are
best placed to do so. The policy states that non-audit fees paid to the 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 audit and non-audit fees is provided in note 3 to the financial statements.
The committee has independent access to the external auditor and the external auditor has direct access to the Chairman
of the committee outside formal committee meetings. At each meeting, there is an opportunity for the external auditor to
discuss matters with the committee without executive management being present.
Audit tender
The committee has reviewed the changes to the Code introduced by the FRC in September 2012 in respect of the Guidance
to Audit Committees that encourages the external audit contract to be tendered for at least every ten years.
Based on internal assessments of the efficiency and effectiveness of the audit, the committee is satisfied with the quality of
the work undertaken by the external auditor and to date, has considered a tender process unnecessary.
Furthermore, the committee seeks to balance the benefits of audit personnel continuity with the need to maintain
independence by agreeing staff rotation policies with the auditor. Whilst KPMG has been an external auditor to the group
since 1992, audit partner rotation every five years maintains objectivity and independence without the need and expense
arising from a tender process. The last audit partner rotation occurred during 2011.
KPMG Audit Plc informed the company that they wished to formally change the entity which conducts the company’s audit
from KPMG Audit Plc to KPMG LLP. KPMG Audit Plc has indicated therefore that it will not stand for re-appointment at the
company’s 2014 AGM. However, KPMG LLP will seek election at this meeting. The committee recommends that shareholders
appoint KPMG LLP as the group’s external 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.
Summary
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 fulfilled its responsibilities. The Chairman of the committee will be available at the AGM to answer any questions on the
work of the committee.
Andrew Eastgate
Chairman of the Audit Committee, 7 March 2014
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report
The Chairman’s annual statement
Dear Shareholder
On behalf of the board, I am pleased to present the Directors’ Remuneration Report, which sets out the remuneration policy
for Headlam’s directors and the amounts earned in respect of 2013.
The last few years have witnessed increased scrutiny of executive pay and this has led to changes in the reporting
requirements brought about by the Regulations.
The Remuneration Committee (“committee”) has prepared an annual report on remuneration which will be subject to an
advisory shareholder vote at the proposed AGM to be held on 21 May 2014, and a policy report taking effect from the
conclusion of the AGM, which will be subject to a binding shareholder vote at the AGM.
The committee 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 and, as its Chairman, I will be present at the AGM
to answer any questions.
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, aligning their interests with those of shareholders.
When reviewing the appropriateness of the remuneration framework for 2014, the committee considered the incentive
arrangements that had applied in 2013. Examination of current business strategy and guidelines for executive remuneration
led to the conclusion that the existing framework remains appropriate. We have, though, reduced the maximum awards
in respect of both the annual performance related bonus scheme and the long term incentive scheme. The maximum
performance related bonus has reduced from 150% to 125% of base salary, the relative outperformance required remaining
the same. The maximum long term incentive award has reduced from 200% to 75% of base salary.
There have been no increases in directors’ base salary for 2014 and the committee is not proposing any changes in respect of
the annual bonus or other benefits for 2014.
Despite the continuation of difficult trading conditions, the committee remains satisfied that overall progress has continued in
the delivery of the medium term operating strategy. Assessment of progress included review of the 2013 Financial Statements
and took into account the reporting of the auditors to the audit committee.
The committee will continue to monitor the appropriateness and effectiveness of its policy with particular regard to legislative
changes, market developments and business strategy and performance.
Mike O’Leary
Chairman of the Remuneration Committee, 7 March 2014
50
Headlam Group plc Annual Report and Accounts 2013 The information provided in this part of the Directors’ Remuneration Report is not subject to audit.
Introduction
This report is on the activities of the committee for the year ended 31 December 2013. It sets out the companies’
remuneration policy and remuneration details for the executive and non-executive directors. It has been prepared in
accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations
2008 as amended in August 2013 (“Regulations”).
The report is split into three main areas, these being:
• the statement by the Chairman of the Committee;
• the policy report; and
• the annual report on remuneration.
The policy report will be subject to a binding shareholder vote at the 2014 AGM and the policy will take effect from the
conclusion of the AGM. The annual report on remuneration provides details on remuneration in the year and includes other
information required by the Regulations. It will be subject to an advisory shareholder vote at the 2014 AGM.
The Companies Act 2006 requires auditors to report to the shareholders on certain parts of the Directors’ Remuneration
Report and to state if, in their opinion, those parts of the report have been properly prepared in accordance with the
Regulations. The parts of the annual report on remuneration that are subject to audit are identified as such. The statement
by the Chairman of the committee and the policy report are not subject to audit.
Policy report
This part of the report sets out the company’s policies on directors’ remuneration which will be subject to a binding vote at
the 2014 AGM and take effect from the conclusion of the AGM. It will be subject to approval by shareholders by an ordinary
resolution every three years, or sooner where the policy is revised.
The remuneration policy applied in the current year is the same as the policy to be approved under the new requirements
and then adhered to for the next three years, the objectives of which continue to be:
• to ensure that the business strategy is supported by the remuneration structure;
• 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 directors’ 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 2014, 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. When reviewing base salaries, the committee takes account of the current economic climate, challenges facing
the business and pay environment for employees in general.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
The committee is committed to open dialogue and receives periodic feedback from major shareholders and shareholder
representatives which is considered as part of its annual review of remuneration policy and, if any material changes to the
remuneration policy are contemplated, the committee would seek the views of major shareholders about these in advance.
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
with those of shareholders. During the year the committee did not consult with shareholders.
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 strategy
Core fixed remuneration
reflecting the
responsibility and scope
of the role.
Competitive salaries
help the group to recruit,
retain and motivate the
best talent.
Operation
Opportunity
Movements determined
by reference to cost of
living increases to the
workforce, prevailing
market conditions, similar
roles in companies
of a comparable size,
complexity and risk and
increases in individual’s
responsibility.
Reviewed annually
and usually fixed for
12 months commencing
1 January, although
there is no entitlement to
an increase.
Influenced by role,
experience, individual’s
contribution, overall
performance and value
to the business.
Employees are not
consulted when setting
directors’ remuneration.
Performance metrics,
purpose and link to
business strategy
Any increase is only
implemented after
careful consideration
of individual contribution
and performance.
Annual
performance
bonus
Rewards performance
against stretching annual
group profit before
tax target which is
aligned with the group’s
strategic objectives.
Target is set annually and
any payout is determined
by the committee after
the period end based on
relative performance.
Maximum bonus
opportunity is 125%
of base salary.
No bonus award for
performance below
90% of target.
Bonus award of 10%
of base salary if actual
performance is 90% of
the target.
Bonus of 75% of base
salary is attainable on
achieving target.
Maximum of 125% of
base salary for achieving
a performance of 18% or
more above the target.
No discretion to
make bonus awards
for further over or
under performance.
52
Headlam Group plc Annual Report and Accounts 2013 Operation
Opportunity
Component
Share related
benefits –
2008 Co-
Investment
Plan (“CIP”)
Purpose and link
to strategy
Incentivises delivery
against company
strategy over the
medium term and aligns
executives’ interests with
strategic objectives.
Medium term
performance targets
and share-based
remuneration support
the creation of
sustainable shareholder
value and growth.
Other benefits Ensure the overall
package is competitive.
Assist the group
to recruit, retain
and motivate.
The committee intends to
make any future long term
incentive awards through
the CIP.
Under the CIP, nil
cost option awards
may be made with
vesting dependent on
the achievement of
performance conditions,
normally over a
three-year period.
Awards may vest early
on a change of control
or other relevant event
subject to satisfaction
of the performance
conditions and pro-rating
for time and may also vest
early in “good leaver”
circumstances, although
the committee has
discretion to increase the
extent of vesting having
due regard to performance
over the period.
The group provides
a company car, medical
insurance and life
assurance cover to its
executive directors.
Save as You
Earn scheme
Participation in the Save
as You Earn option
scheme (SAYE) promotes
a sense of ownership
and aligns interests with
the group.
The SAYE is a HMRC-
approved monthly
savings scheme
facilitating the purchase
of shares at a discount by
eligible employees.
Maximum award
of 75% of annual
bonus in respect of
any financial year
with up to two for
one matching.
Set at a level that the
committee considers
appropriate against
the market and
provides a sufficient
level of benefit
based on individual
circumstances.
SAYE contribution
as permitted in
accordance with
relevant tax legislation.
Performance metrics,
purpose and link to
business strategy
Vesting is dependent
on achievement of the
performance targets with
straight line matching
between median (30%)
and upper quartile
(100%) for the TSR
condition and between
RPI +3%p.a. (30%) and
RPI+6%p.a. (100%) for
the EPS condition.
80% of the award is
subject to the EPS
target and 20% to
the TSR target.
The committee reviews
the performance
conditions prior to
making an award
to ensure they are
aligned to the group’s
strategy, remain
challenging and are
reflective of commercial
expectations.
Not applicable.
Not applicable.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
Operation
Opportunity
Performance
metrics, purpose
and link to
business strategy
Not applicable.
Not applicable.
In line with best practice,
there are formal share
ownership guidelines
for executive directors.
By the fifth anniversary
of their appointment
to the board, executive
directors are required
to have a holding
of Headlam shares
equivalent to not less
than 100% of the value
of their base salary.
Not applicable.
Not applicable.
Component
Shareholding
guideline
Purpose and link
to strategy
Provides alignment
of executive
directors’ interests
with shareholders
and promotes
share ownership.
Retirement
benefits
The group has not
provided pension
benefits to the executive
directors in the year.
The group will not
be making any
future payments.
The following table provides a summary of the key components of the remuneration package for non-executive directors.
Component
Fees
Purpose and link
to strategy
Sole element of
non-executive directors’
remuneration.
Performance
metrics, purpose
and link to
business strategy
Not applicable.
Operation
Opportunity
Reviewed by the
board annually.
Non-executive
directors are not involved
in any discussion or
decision about their
own remuneration.
Non-executive directors
do not participate in any
of the company’s share
schemes, incentive plans
or pension schemes.
Non-executive directors
do not receive any
other benefits.
Reviewed 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.
Consideration is given to
the level of fees paid to
non-executive directors
serving on boards of similar
sized UK listed companies
and the time commitment
and contribution expected
for the role.
Non-executive directors
receive a basic fee and an
additional fee for further
duties such as chairmanship
of committees.
54
Headlam Group plc Annual Report and Accounts 2013 Illustration of application of remuneration policy
The charts below show the relative split of remuneration between fixed pay, comprising base salary and benefits, and
variable pay, comprising annual bonus and CIP awards, for each executive director on the basis of minimum remuneration,
remuneration receivable for performance in line with the company’s expectations, and maximum remuneration, not allowing
for any share price appreciation.
Chief Executive Officer
Group Finance Director
MINIMUM
100% £581
MINIMUM
100% £426
IN LINE WITH
EXPECTATION
MAXIMUM
52%
37% 11% £1,111
53%
36% 11% £809
IN LINE WITH
EXPECTATION
MAXIMUM
35%
41%
24% £1,669
35%
41%
24% £1,212
£200
£400
£600
£800
£1,000
£1,200
£1,400
£1,600
£1,800
£200
£400
£600
£800
£1,000
£1,200
£1,400
£1,600
Fixed
Annual variable
Long term incentive
Fixed
Annual variable
Long term incentive
In illustrating the potential award, the following assumptions have been made.
Fixed pay
Annual bonus
CIP
Minimum performance
Performance in line
with expectations
Maximum performance
Fixed elements of
remuneration are base salary
and benefits.
Base salary is the latest
known salary effective from
1 January 2014 and the
value of benefits has been
assumed to be equivalent
to that included in the single
figure calculation on page 57.
Base salary is the latest
known salary effective from
1 January 2014 and the
value of benefits has been
assumed to be equivalent
to that included in the single
figure calculation.
No bonus.
No CIP vesting.
75% of base salary
awarded for achieving
target performance.
30% of maximum award
vesting for achieving
threshold performance.
125% of salary awarded
for delivering at or above
the highest performance in
respect of target.
100% of award vesting
delivered for achieving
the most stretching level
of performance measures
attached to the CIP awards.
Awards under the CIP are stated by reference to the share price at the 2013 year end.
No assumption as to share price growth is made in either the on target or the maximum scenarios.
Approach to recruitment remuneration
The principles which the company would apply when agreeing the various components of a remuneration package for
the appointment of a new director, would typically be to use the policy detailed in the table above to determine the
executive directors’ ongoing remuneration package. In determining appropriate remuneration, the committee will take into
consideration all relevant factors including the quantum and nature of remuneration to ensure the arrangements are in the
best interests of the company and its shareholders.
55
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
Service contracts and policy on payment for loss of office
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.
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. All appointments and
subsequent re-appointments are subject to approval by shareholders.
The executive directors’ contracts and non-executive directors’ letters of appointment are available for inspection at the
registered office of the company during normal business hours on each business day.
The principles on which the determination of benefits on loss of office will be approached are summarised below.
Provision
Treatment on loss of office
Payment in
lieu of notice
Payments to executive directors upon termination of their contracts will be equal to base salary plus the
value of core benefits for the duration of the notional notice period. Benefits may include but are not
limited to legal fees.
Annual bonus Payments to current executive directors upon the company terminating their contracts, other than in bad
leaver cases such as gross misconduct, dishonesty, bankruptcy, failure to perform duties, will be equal to
the average performance related bonus calculated by reference to the two immediately preceding financial
years. The committee will, though, take note of the circumstances of their departure and their contribution
to the business during the period in question. Any bonus amounts paid, as estimated by the committee,
will typically be pro-rated for time in service to termination and will, subject to performance, be paid at the
usual time. Contracts for future appointees will not include bonus within the termination provisions.
CIP
Change
of control
Mitigation
Any award under the CIP would be determined based on the leaver provisions contained within the CIP
rules. For good leavers, CIP awards will usually vest at the ordinary vesting point, be subject to performance
conditions and pro-rated for time. Good leavers are participants who leave as a result of fatality, ill health,
injury or disability. In other circumstances CIP awards will lapse upon the cessation of employment.
The committee retains the discretion to accelerate vesting and to waive pro-rating for time.
Upon a change of control, incentive awards will usually vest and be subject to performance conditions and
pro-rated for time. The committee reserves the discretion to waive pro-rating for time.
Payments upon the termination of executive directors’ contracts will be equal to base salary and other
benefits for the duration of the notice period together with the average performance related bonus
calculated by reference to the immediately preceding financial years. 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. Full compensation, due to being a long-standing employee
of the company, may however be merited in the event of unilateral termination of employment.
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, however Steve Wilson was appointed as a non-executive director of Conviviality Retail Plc with
effect from 31 January 2014.
56
Headlam Group plc Annual Report and Accounts 2013 Annual report on remuneration
The remuneration policy is designed to ensure that executive directors are aligned to pursuing the company’s medium term
strategic objectives.
Certain information provided in this part of the Directors’ Remuneration Report is subject to audit. This is annotated as
audited. Any information not annotated as audited is unaudited.
Single total figure of remuneration for each director
The table below reports the total remuneration receivable in respect of qualifying services by each of the executive directors
for the years 2013 and 2012.
Executive directors’ remuneration as a single figure – 2013 (audited)
Executive directors
Tony Brewer
Steve Wilson
Graham Waldron1
Base salary
and fees
2013
£000
Non-salary
benefits
2013
£000
Annual
performance
bonus
2013
£000
Share-based
incentive
schemes
2013
£000
Pension
related
benefits
2013
£000
544
393
80
1,017
35
33
15
83
348
251
–
599
–
–
–
–
–
–
–
–
Executive directors’ remuneration as a single figure – 2012 (audited)
Executive directors
Tony Brewer
Steve Wilson
Graham Waldron1
Base salary
and fees
2012
£000
Non-salary
benefits
2012
£000
Annual
performance
bonus
2012
£000
Share-based
incentive
schemes
2012
£000
Pension
related
benefits
2012
£000
533
385
118
1,036
29
32
22
83
524
378
–
902
261
188
–
449
–
–
–
–
1 Graham Waldron resigned as a director on 31 August 2013 following which he was succeeded as Chairman by Dick Peters.
Total
2013
£000
927
677
95
1,699
Total
2012
£000
1,347
983
140
2,470
57
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
The table below reports the total remuneration receivable in respect of qualifying services by each of the non-executive
directors for the years 2013 and 2012.
Non-executive directors’ remuneration as a single figure – 2013 (audited)
Non-executive directors
Andrew Eastgate
Mike O’Leary
Dick Peters
Base
salary and fees
2013
£000
Non-salary
benefits
2013
£000
Annual
performance
bonus
2013
£000
Share-based
incentive
schemes
2013
£000
Pension
related
benefits
2013
£000
38
42
49
129
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Non-executive directors’ remuneration as a single figure – 2012 (audited)
Non-executive directors
Andrew Eastgate
Mike O’Leary
Dick Peters
Base
salary and fees
2012
£000
Non-salary
benefits
2012
£000
Annual
performance
bonus
2012
£000
Share-based
incentive
schemes
2012
£000
Pension
related
benefits
2012
£000
36
41
41
118
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
2013
£000
38
42
49
129
Total
2012
£000
36
41
41
118
The figures in the single figure table are derived from the following.
Base salary and fees
The amount of salary/fees received in the period.
Non-salary benefits
The taxable value of benefits received in the period. These are car benefit, car fuel benefit
and private medical insurance.
Performance related pay
The amount of performance related bonus received in the period.
Pension related benefits
There was no provision.
Share-based incentive schemes
The value of CIP awards that vest in respect of the financial period and the value of SAYE
options granted in the financial period. CIP awards granted in 2010 were calculated to be
part vested, however no options or awards were granted in the year.
58
Headlam Group plc Annual Report and Accounts 2013 Individual elements of remuneration
Base salaries and fees
Base salaries for individual executive directors are reviewed annually by the committee and are set with reference to individual
performance, experience and responsibilities as well as with reference to similar roles in comparable companies. For 2013,
executive directors received a 2% increase in base salaries which was in line with the average salary increase across the group.
For 2014, there is no increase, which is in line with the average salary increase across the group.
The base salaries for 2013 and 2014 are set out as below.
Tony Brewer
Steve Wilson
2013
£000
544
393
2014
£000
544
393
Increase
%
–
–
Non-executive directors’ fees are reviewed annually and reflect the responsibilities and duties placed on them whilst also
having regard to market practice. The increases in 2013 reflected a 2% increase in fees and a change in responsibilities and
duties. There is no increase in respect of 2014. The non-executive directors do not participate in any of the group’s share
incentive plans nor do they receive any benefits or pension contributions.
Basic fee
Additional fee for
Chairmanship of the company
Chairmanship of the Remuneration Committee
Chairmanship of the Audit Committee
Senior Independent Director
2013
£000
35
28
7
7
–
2014
£000
35
28
7
7
–
Increase
%
–
–
–
–
–
Performance related pay
Payments are calculated based upon achievement or exceeding a pre-set target for group profit before tax. For 2013,
executive directors could earn a bonus equivalent to 75% of base salary on attainment of on target performance which
increased on a broadly linear basis up to a maximum of 150% of base salary for achieving a performance of 28% or more
above the target. If actual performance is 90% of the financial target, a bonus of 10% of base salary will be awarded, however
a bonus is not awarded for performance below 90% of target.
A change is proposed in respect of the annual bonus scheme for 2014 whereby the maximum award under the annual bonus
will be reduced to 125% of base salary for achieving a performance of 18% or more above target, on the same broadly
linear basis that has applied in previous years, with 75% earned for on target performance. Performance targets are set
at the challenging levels of previous years with performance based upon group profit. The committee considers that the
performance targets are commercially sensitive and should therefore remain confidential to the company.
59
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
Share-based incentive schemes
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, the committee has not yet implemented either the PSP or
the ESOS and does not intend to do so during 2014. 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 and, 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 currently being a minimum of £10 and a
maximum of £250, although the maximum is to increase to £500 effective from April 2014. Options may be granted at a
price which represents a discount to market price at the date of grant of up to 20%. On 10 May 2013, options were granted
over 216,531 shares to 221 employees for savings terms of either three or five years at an option price of 274p 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 37.5% 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.
60
Headlam Group plc Annual Report and Accounts 2013 No share-based awards were made to the executive or non-executive directors in the year.
CIP awards granted in October 2010 were subject to growth in performance conditions over a three-year period, 80% in
respect of EPS and 20% in respect of TSR. Awards vest on a sliding scale. If EPS growth is less than 3%, none of the EPS
tranche shall vest, with 30% becoming exercisable if EPS growth over the three-year period is equal to 3% and for 100%
of an award to vest, EPS growth must be equal to or exceed 6%, with straight line vesting between 30% and 100%.
With respect to TSR, vesting is determined by reference to the company’s position in the FTSE Small Cap indices. None of
the TSR tranche shall vest if the company is ranked below the median level, with 30% vesting if the company is ranked at
or immediately above the median level and 100% vesting if the company is ranked within the top quartile, with straight line
vesting between 30% and 100%.
EPS growth over the three-year performance period ending 31 December 2013 exceeded 6% resulting in 80% of the CIP
awards granted in October 2010 vesting. The company’s total shareholder return, when compared to the FTSE SmallCap
Index was below median over the three-year performance period ending 31 December 2013 resulting in the 20% of the CIP
awards granted in October 2010 subject to TSR lapsing.
The extent to which the CIP awards granted in August 2011 and October 2012 will vest will not be determined by the
committee until October 2015.
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
ten-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 0.7% 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 22 to the financial statements.
Pension related benefits
No executive director has received any pension benefit during the current or prior year.
Payments to past directors
No payments were made to past directors in the current or prior year.
Payments for loss of office
No payments were made to directors in the current or prior year.
61
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
Statement of directors’ shareholding and share interests (audited)
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, excluding matching share awards granted in respect of the CIP, equivalent in value to their
annual base salary. Newly appointed directors are expected to build their interest over a five-year period. Executive directors’
shareholdings throughout the year complied with the shareholding requirement holding in excess of 100% of base salary.
Details of executive directors’ share interests are set out below, a description of which, together with relevant performance
conditions, is given on pages 60 to 61:
Granted in the year
Exercised in the year
At 1 Jan
2013
Number
Option
price (p)
Lapsed
during
the year
Number
Market
price on
exercise
At 31 Dec
2013
Exercise
price pence
Earliest
exercise
date
Latest
exercise
date
Tony Brewer
Owned
Owned outright
Vested but not
exercised
1998 ESOS (i)
CIP (v)
Options not yet
vested
Sharesave (ii)
CIP (v)
CIP (v)
Steve Wilson
Owned
Owned outright
Vested but not
exercised
1998 ESOS (ii)
CIP (v)
Options not yet
vested
Sharesave (iii)
CIP (v)
CIP (v)
Graham Waldron (i)
Owned
Owned outright
Options not yet
vested
Sharesave (iv)
519,942
7,142
98,859
7,043
100,000
90,838
823,824
450,770
7,142
71,388
7,043
72,212
65,614
674,169
379,755
3,781
383,356
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,772)
–
– (100,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
(119,772)
–
–
(14,278)
–
(72,212)
–
(86,490)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
519,942
–
–
–
–
–
7,142
420.00 Aug 2008 Aug 2015
79,087
nil Oct 2013 Oct 2020
7,043
222.20 Jul 2014 Jan 2015
0
nil Aug 2014 Aug 2021
90,838
nil Oct 2015 Oct 2022
– 704,052
– 450,770
–
–
–
–
–
7,142
420.00 Aug 2008 Aug 2015
57,110
nil Oct 2013 Oct 2020
7,043
222.20 Jul 2014 Jan 2015
0
nil Aug 2014 Aug 2021
65,614
nil Oct 2015 Oct 2022
– 587,679
– 379,755
–
3,781
238.00 Jul 2015 Jan 2016
– 383,356
(i) Graham Waldron resigned as a director on 31 August 2013.
(ii) Headlam Group Approved Executive Share Option Scheme 1998 (1998 ESOS), subject to performance conditions.
(iii) Headlam Group Sharesave Scheme 2009 (Sharesave), not subject to performance conditions.
(iv) Headlam Group Sharesave Scheme 2012 (Sharesave), not subject to performance conditions.
(v) Headlam Group Co-Investment Plan 2008 (CIP), subject to performance conditions.
62
Headlam Group plc Annual Report and Accounts 2013 The mid-market closing price of a Headlam Group plc ordinary share on 31 December 2013, the last trading day of
the financial year, was 405.50p and the price range during the year was 320p to 415p, with an average price of 367.58p.
There were no changes in the shareholdings or share options held by the directors between 31 December 2013 and
7 March 2014. The company’s register of directors’ interests, which is open to inspection, contains full details of directors’
share interests.
The text and table below comprise information required by the UKLA listing Rules 9.8.6 and 9.8.8 that is not found elsewhere
in the remuneration report.
Details of executive directors’ share-based awards which represent the maximum aggregate number of shares to which an
individual could become entitled together with individual interests under the SAYE scheme are set out below (audited).
Awards granted
Maximum
award
Awards
vested
Awards
lapsed
Maximum
outstanding
awards at
31 Dec
2013
Market
price at date
of grant
(p)
Option
price (p)
Maximum
award
£
Earliest
vesting
date
Expiry
Tony Brewer
CIP (v)
CIP
CIP
Steve Wilson
CIP (v)
CIP
CIP
7 Oct 2010
98,859
(79,087)
(19,772)
23 Aug 2011 100,000
– (100,000)
–
–
5 Oct 2012
90,838
1998 ESOS (ii)
22 Aug 2005
SAYE (iv)
11 May 2009
7,142
7,043
–
–
–
–
–
–
90,838
7,142
7,045
7 Oct 2010
71,388
(57,110)
(14,278)
23 Aug 2011
72,212
5 Oct 2012
65,614
–
–
(72,212)
–
65,614
nil
nil
nil
420
222.2
nil
nil
nil
312
274
– Oct 2013 Oct 2020
– Aug 2014 Aug 2021
300
272,514 Oct 2015 Oct 2022
424
297
312
274
286 Aug 2008 Aug 2015
5,268 Jul 2014 Jan 2015
– Oct 2013 Oct 2020
– Aug 2014 Aug 2021
300 196,842 Oct 2015 Oct 2022
1998 ESOS (ii)
22 Aug 2005
SAYE (iii)
11 May 2009
7,142
7,043
Graham Waldron
SAYE (iv)
11 May 2012
3,781
(i) Graham Waldron resigned as a director on 31 August 2013.
–
–
–
7,142
7,045
420
222.2
424
297
286 Aug 2008 Aug 2015
5,268 Jul 2014 Jan 2015
3,781
238
306
2,571 Jul 2015 Jan 2016
(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).
Gains made by directors (audited)
The aggregate amount of gains made by executive directors on the exercise of share options was £nil (2012: £2,256).
The information provided in this part of the Directors’ Remuneration Report is not subject to audit.
63
–
–
–
–
–
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
Directors’ Remuneration Report continued
Performance graph
The graph below shows value at 31 December 2013 of £100 invested in the company on 1 January 2008 compared to the
value of £100 invested in the FTSE Small Cap index, making the assumption that dividends are reinvested to purchase
additional equity.
The FTSE Small Cap 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 2013
300
250
200
150
100
50
0
64
31 December
2009
31 December
2010
31 December
2011
31 December
2012
31 December
2013
Headlam Group PLC
FTSE Small Cap
Source: Thomson Financial
Headlam Group plc Annual Report and Accounts 2013 Chief Executive Officer remuneration table (audited)
The table below sets out the remuneration of the chief executive officer for the previous five years.
Year
2009
2010
2011
2012
2013
CEO single figure of total
remuneration
£000
Annual bonus
(% of maximum opportunity)
%
Long term incentive vesting rates
against maximum opportunity
%
1,027
1,179
1,095
1,347
927
77.0
97.0
99.7
98.3
64.0
n/a
n/a
n/a
n/a
n/a
Percentage change in Chief Executive Officer remuneration (audited)
The table below shows the percentage change in the chief executive officers remuneration and the company’s employees as
a whole between the year 2013 and 2012.
Percentage increase in remuneration
in 2013 compared with 2012
Salary and fees
All taxable benefits
Annual bonuses
CEO
2%
21%
-34%
Total employees
2%
–
-5%
Car allowances were unchanged year on year and the related taxable benefits were amended in accordance with
HM Revenue & Customs guidance. Private medical insurance premiums decreased marginally for all eligible members
of the scheme including the CEO. The average percentage change in taxable benefits does not produce a
meaningful comparison.
Relative importance of spend on pay
The graph below sets out the percentage change in dividends and the overall expenditure on pay as a whole across
the group.
Dividends
Overall expenditure on pay
2013
£000
12,300
82,701
2012
£000
11,663
80,839
% change
5.5
2.3
Statement of implementation of remuneration policy in the following financial year
As this is the first year the group is preparing the Directors’ Remuneration Report in accordance with the amended
Regulations there is nothing yet to report. The remuneration policy that will be applied in practice in the current year is the
same as the policy to be approved under the new requirements that will be adhered to for the next three years.
65
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Directors’ Remuneration Report continued
Consideration by the directors of matters relating to directors’ remuneration
The committee comprises the three independent non-executive directors and met three times during the year, with all
three members present at each meeting. By invitation, the Group Chief Executive and Group Finance Director may attend
meetings. No one attending a committee meeting may participate in discussions relating to their own terms and conditions
of service or remuneration.
The committee is responsible for selecting the framework and policy for executive directors’ remuneration and determining
the remuneration packages for the executive directors and Chairman. In doing so, it takes note of any major changes in
employee benefit structures throughout the group and ensures that executive director remuneration practice is consistent
with any such changes. It is also responsible for monitoring the level and structure of remuneration for senior executive
management and approving bonus payments.
Committee members 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.
The Company Secretary acts as secretary to the committee.
Statement of voting at the last AGM
The following table sets out actual voting outcome in respect of the advisory resolution to approve the Directors’
Remuneration Report at the company’s AGM held on Friday 24 May 2013.
Of issued share capital
Of votes cast
Number of votes cast
For
%
82.14
99.70
Number
68,623,042
Against
%
0.25
0.30
Number
204,782
Withheld
%
5.67
0.00
Number
3,900,457
The issued share capital on the date of the AGM was 85,363,743.
At the proposed AGM on Wednesday 21 May 2014, shareholders are asked to vote on the Directors’ Remuneration Report,
on an advisory basis, and on a binding resolution to approve the directors’ remuneration policy.
Approval
This report has been approved by the board of directors and signed on its behalf by
Mike O’Leary
Chairman of the Remuneration Committee, 7 March 2014
66
Headlam Group plc Annual Report and Accounts 2013 Other Statutory Disclosures
The requirements of the Strategic Report are covered in pages 2 to 33.
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 129. Further details of the group’s activities and future plans are set out in the Operating
Review on pages 20 to 25.
Results and dividends
The results for the year and financial position at 31 December 2013 are shown in the Consolidated Income Statement on
page 76 and Statements of Financial Position on page 78.
An interim dividend of 4.65p per share (2012: 4.65p) was paid on 2 January 2014 to shareholders on the register at the close
of business on 6 December 2013. The directors propose a final dividend of 10.65p per ordinary share (2012: 10.20p), to be
paid on 1 July 2014 to shareholders on the register of members at the close of business on 6 June 2014, the associated
ex-dividend date being 4 June 2014.
This would bring the total dividend for the year to 15.30p per ordinary share (2012: 14.85p). The payment of the final dividend
is subject to shareholder approval at the Annual General Meeting (“AGM”).
Directors and officers indemnity insurance
The articles entitle the directors of the company, to the extent permitted by the Companies Act 2006, 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 7 March 2014.
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.
There was one change to the board in the year, being the resignation of Graham Waldron on 31 August 2013. 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, Tony Brewer and Andrew Eastgate, 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. The company does not seek to comply with the provision in the UK Corporate Governance Code
which requires the annual re-election of all 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.
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
Executive directors
Tony Brewer
Steve Wilson
Non-executive directors
Dick Peters
Mike O’Leary
Andrew Eastgate
June 1991
December 1991
December 2005
March 2006
May 2010
June 2011
June 2012
June 2013
June 2012
June 2011
67
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
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 lender may cancel all or any part of the facility and/or declare that all amounts outstanding under the 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 taking place.
Matching share awards granted under the 2008 CIP 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.
Details regarding directors’ service agreements are included within the Directors’ Remuneration Report.
Fixed assets
A consideration of the market value of the group’s tangible fixed assets is detailed in note 1 of the financial statements.
Acquisitions
Details of acquisitions made in the year are set out in note 25.
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 Managing Responsibility on pages 30 to 33, and the average number of employees
and their remuneration are shown in note 5 to the Financial Statements.
The company has communicated an internally operated whistleblowing 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.
The company considers that diversity, including gender diversity, is essential to good business and measures are in place to
ensure all appointments are made on merit. Currently there are no female directors out of a total of five board members.
Without seeking to set a specific goal for female representation on the board, the company is committed to maintain
diversity, including gender diversity, appropriate to and reflecting the nature and strategic aims of the company. This similarly
applies to women in leadership positions in the company.
As at 31 December 2013 we had 2,211 employees of which 18% are female. The significant majority of our employees work
regular full time hours with a minority working flexible hours.
68
Headlam Group plc Annual Report and Accounts 2013 Gender of Group Employers
Gender of Group Employees
2,000
377
1,641
5
19
169
Directors
Management Function
Other
1,500
1,000
500
0
Female
Male
Political donations and expenditure
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 (2012: £nil).
Charitable contributions
Charitable donations made during the year in support of charitable causes in the local communities in which the group
operates and those of interest to employees amounted to £36,722 (2012: £35,192). Of the contributions made in 2013,
£23,050 related to GNO, a Birmingham-based charity which supports a number of children’s charities predominantly within
the West Midland Region. In addition, employees participated in a variety of fundraising activities and supported charities
local to their businesses.
Share capital
As at 31 December 2013, the issued share capital of the company comprised a single class of ordinary shares of 5p 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 1,827,794 shares held in treasury at the start of the year, 90,274 were transferred of treasury in connection with the
SAYE and executive share option schemes leaving 1,737,520 at the year end representing 2.04% of the issued share capital.
Proceeds received in respect of the 90,274 shares were £243,000. Details of the company’s share capital are set out in note 23
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 Coleshill on Wednesday 21 May 2014 at 10.00 a.m.
The notice convening this meeting is set out within this Annual Report and Accounts on page 131, along with explanatory
notes regarding the resolutions that will be proposed at the meeting on pages 133 to 134. 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
Our auditors, KPMG Audit Plc, have instigated an orderly wind-down of the business and have notified the company that
they are not seeking re-appointment. The Board has decided to put KPMG LLP forward to be appointed as auditors and
resolution concerning their proposed appointment will be put to the forthcoming AGM of the company.
The auditor’s responsibilities are set out on pages 73 to 75 and should be read in conjunction with those of the directors as set
out at the end of this report.
69
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
Other Statutory Disclosures continued
Authority to allot shares and disapply statutory pre-emption rights
Subject to certain limits, at the AGM on 24 May 2013, 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 24 May 2013, 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.
Rights under employees’ share schemes
As at 31 December 2013, 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 was 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 Headlam Group Employee Trust Company Limited 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 interests in voting rights
As at 31 December 2013 and unchanged at 6 March 2014, being as at the end of the financial year and a date not more than
one month before the date of notice of the AGM, in accordance with the requirements of the Listing Rules and the disclosure
and transparency rules of the Financial Conduct Authority, the company had been notified of the following interests
exceeding the 3% notification threshold in the ordinary share capital of the company.
Ordinary shares of 5p each
Shareholder
Franklin Templeton
Institutional, LLC
Tweedy, Browne
Company LLC
Heronbridge Investment
Management LLP
JO Hambro Capital
Management Limited
Threadneedle Investments
Schroders plc
Rathbone Brothers plc
Kames Capital
Investmentaktiengesellschaft fuer
langfristige Investoren TGV
Legal & General Investment
Management Limited
70
31 December 2013
aggregate
voting rights
28 February 2014
aggregate
voting rights
%
%
Indirect/direct
15,066,975
18.02
15,066,975
18.02
indirect
4,523,274
5.41
4,523,274
4,209,552
5.04
4,209,552
4,190,972
4,154,941
4,119,581
4,070,078
3,305,204
5.01
4.97
4.93
4.87
3.95
4,190,972
4,154,941
4,119,581
4,070,078
3,305,204
2,773,093
3.32
2,773,093
2,580,698
3.08
2,580,698
5.41
5.04
5.01
direct
direct
direct
4.97 indirect and direct
4.93
4.87
indirect
indirect
3.95 indirect and direct
3.32
3.08
direct
direct
Headlam Group plc Annual Report and Accounts 2013 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 138 to 139.
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.
Statement of directors’ responsibilities in respect of the Annual Report and financial statements
The statement of directors’ responsibilities in respect of the Annual Report and financial statements can be found on page 72.
Amendment of articles
The company’s articles may only be amended by a special resolution at a general meeting of shareholders.
UK Corporate Governance Code
The board reviews its work on the UK Corporate Governance Code in the Corporate Governance Report on pages 36 to 43.
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 auditors’ report of which the
auditors are unaware and each director has taken all the steps that 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 7 March 2014 and signed on its behalf by
Geoff Duggan
Company Secretary, 7 March 2014
71
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information 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 Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
Responsibility statement of the Directors in respect of the Annual Report and Accounts and the
financial statements
Each of the directors of Headlam Group plc, confirms that to the best of his knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards and contained in this
Annual Report and Accounts, give a true and fair view of the assets, liabilities, financial position and profit of the company
and the undertakings included in the consolidation taken as a whole;
• the Strategic Report, included in this Annual Report and Accounts, includes a fair review of the development and
performance of the business and the position of the company and the undertakings included in the consolidation taken
as a whole, together with a description of the principal risks and uncertainties that they face; and
• the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and provides the information
necessary for shareholders to assess the company’s performance, business model and strategy.
72
Headlam Group plc Annual Report and Accounts 2013 Independent Auditor’s Report
to the members of Headlam Group plc only
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements
is unmodified
We have audited the financial statements of Headlam Group
plc for the year ended 31 December 2013 set out on pages
76 to 128. 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 2013 and of the group’s profit for the year
then ended;
• the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(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.
2 Our assessment of risks of material
misstatement
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the
greatest effect on our audit were as follows:
Carrying amount of goodwill (£10.0 million):
Refer to page 46 (Audit Committee Report), page 83
(accounting policies) and pages 92 and 100
(financial disclosures).
• The risk – The determination of the recoverable amount
of goodwill is a key judgement area as small changes in
assumptions, notably in respect of forecast growth and
discount rates, can result in materially different outcomes.
This is particularly the case in respect of the goodwill
allocated to the group’s business in France where there
are ongoing challenging market conditions impacting
business performance.
• Our response – Our audit procedures in this area
included, among others, testing of the group’s budgeting
procedures upon which the forecasts are based and the
principles and integrity of the group’s discounted cash
flow model. We compared the group’s assumptions to the
group’s internal data, such as historic growth rates, as well
as our own assessments in relation to key inputs such as
forecast revenue and profit growth and the discount rate
applied. We used our own valuation specialist to assist
us in evaluating the discount rate applied in the UK and
continental Europe. We performed break even analysis in
relation to key assumptions and considered whether the
group’s disclosures regarding the sensitivity of the outcome
of the impairment review to changes in key assumptions
appropriately reflected the subjectivity in the valuation.
We also performed a review of the disclosures relating to
the impairment charge recognised during the year.
Carrying amount of freehold property
(£79.3 million):
Refer to page 46 (Audit Committee Report), page
82 (accounting policies) and pages 92 and 97
(financial disclosures).
• The risk – The group holds a number of freehold properties
which are used for operational purposes in the UK and in
continental Europe. The carrying amount of the freehold
property represents original cost less accumulated
depreciation. The aggregate carrying value of the property
portfolio exceeds its current market value indicating that
there is a risk that the carrying amount of the property may
be impaired.
• Our response – Our audit procedures included, among
others, comparing the carrying value of the group’s
freehold properties to recent external market valuations
prepared for the group by an independent expert. We use
our valuation specialist to assist us in evaluating the
external market valuations. Where the carrying amount
of a property exceeded the external market valuation we
assessed the directors’ determination of the value to be
recovered through ongoing use of the property within the
business unit to which it belongs, including testing the
principles and integrity of the model used to determine
value in use. We compared the group’s assumptions to
the group’s internal data, such as historic growth rates,
as well as our own assessments in relation to key inputs
such as profit growth and the discount rate applied.
We also performed break even analysis in relation to
key assumptions and considered whether the group’s
disclosures regarding the outcome of the impairment
review were appropriate.
Carrying amount of inventory (£115.7 million):
Refer to page 47 (Audit Committee Report), page 86
(accounting policies) and page 104 (financial disclosures).
• The risk – The group holds a significant amount of
inventory across a broad and diverse product range which
is subject to a risk that changes in consumer tastes and
demand could result in some products becoming slow-
moving or obsolete, such that they cannot be sold or sales
prices are discounted to less than the current carrying
value. This could result in a material provision against the
carrying amount of inventory.
73
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Independent Auditor’s Report continued
4 Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and
• the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
• the information given in the Corporate Governance
Statement set out on pages 36 and 43 with respect to
internal control and risk management systems in relation
to financial reporting processes and about share capital
structures is consistent with the group financial statements.
5 We have nothing to report in respect of
the matters on which we are required to report
by exception
Under ISAs (UK and Ireland) we are required to report to you
if, based on the knowledge we acquired during our audit, we
have identified other information in the Annual Report that
contains a material inconsistency with either that knowledge
or the financial statements, a material misstatement of fact,
or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the Annual Report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s performance, business
model and strategy; or
• the Audit Committee Report does not appropriately
address matters communicated by us to the
Audit Committee.
• Our response – Our audit procedures in this area
included, among others, determining the ageing profile
of inventory and the inventory lines sold at a loss during
the year. We used our own IT specialist to perform data
analytics to assess the accuracy of the ageing profile of
inventory by analysing data extracted from the group’s
accounting system. We assessed the adequacy of the
group’s provisions against inventory by assessing the
appropriateness of group’s assumptions by reviewing the
carrying amount and ageing profile of inventory as well
as the historic value of inventory sold at a loss or written
off. We also considered the adequacy of the group’s
disclosures about the degree of estimation involved in
arriving at the provision.
3 Our application of materiality and an overview
of the scope of our audit
The materiality for the group financial statements as a
whole was set at £1.9m. This has been determined using a
benchmark of group profit before taxation which we believe
is one of the principal considerations for members of the
company in assessing the financial performance of the
group. Materiality represents 8.9% of group profit before
taxation and 7.1% of underlying group profit before taxation
as disclosed on the face of the income statement.
We agreed with the Audit Committee to report to it all
corrected and uncorrected misstatements we identified
through our audit with a value in excess of £94,000, in
addition to other audit misstatements below that threshold
that we believe warranted reporting on qualitative grounds.
Audits for group reporting purposes were performed at the
key reporting components in France and Switzerland and
by the group team in the UK. In addition, specified audit
procedures were performed by the group audit team in the
Netherlands. Together these covered in excess of 90% of
total group revenue, 95% of underlying group profit before
taxation and 90% of total group assets.
The audits undertaken for group reporting purposes at the
key reporting components of the group were all performed
to materiality levels set by, or agreed with, the group audit
team. These materiality levels were set individually for each
component and ranged from £0.2 million to £1.4 million .
Detailed audit instructions were sent to all the auditors in
these locations. These instructions covered the significant
audit areas that should be covered by these audits (which
included the relevant risks of material misstatement detailed
above) and set out the information required to be reported
back to the group audit team. The group audit team visited
the reporting components as appropriate.
74
Headlam Group plc Annual Report and Accounts 2013 Under the Companies Act 2006 we are required to report to
you if, in our opinion:
We have nothing to report in respect of the
above responsibilities.
• 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
1. 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
2. certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit; or
• a Corporate Governance Statement has not been
prepared by the company.
Under the Listing Rules we are required to review:
• the directors’ statement, set out on page 24, in relation to
going concern; and
• the part of the Corporate Governance Statement on pages
36 relating to the company’s compliance with the nine
provisions of the 2010 UK Corporate Governance Code
specified for our review.
Scope of report and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 72, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. 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. This report is
made solely to the company’s members as a body and
is subject to important explanations and disclaimers
regarding our responsibilities, published on our website
at www.kpmg.com/uk/auditscopeukco2013a, which are
incorporated into this report as if set out in full and should
be read to provide an understanding of the purpose of
this report, the work we have undertaken and the basis
of our opinions.
Graham Neale
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snowhill Queensway
Birmingham
B4 6HG
7 March 2014
75
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Consolidated Income Statement
for the year ended 31 December 2013
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
Note
2
2
7
7
3
8
23
10
10
Underlying
2013
£000
603,051
(421,796)
181,255
(115,067)
(38,508)
27,680
629
(1,870)
(1,241)
26,439
(6,146)
Non-underlying
items* (note 4)
2013
£000
Total
2013
£000
Restated±
2012
£000
–
–
–
–
603,051
585,984
(421,796)
(410,251)
181,255
175,733
(115,067)
(109,621)
(5,352)
(5,352)
–
–
–
(43,860)
22,328
629
(1,870)
(1,241)
(5,352)
21,087
–
(6,146)
(36,798)
29,314
783
(2,246)
(1,463)
27,851
(6,939)
20,912
14.15p
20,293
(5,352)
14,941
14.85p
24.5p
24.3p
–
–
18.0p
17.9p
25.3p
25.2p
* Non-underlying items comprise the impairment of intangible and tangible fixed assets.
± Restated to reflect the changes for revised IAS 19.
All group operations during the financial years were continuing operations.
76
Headlam Group plc Annual Report and Accounts 2013 Consolidated Statement of Comprehensive Income
for the year ended 31 December 2013
Profit for the year attributable to the equity shareholders
Other comprehensive income:
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans
Related tax
Items that are or may be reclassified to profit or loss
Foreign exchange translation differences arising on translation of
overseas operations
Effective portion of changes in fair value of cash flow hedges
Transfers to profit or loss on cash flow hedges
Related tax
Other comprehensive income/(expense) for the year
Total comprehensive income attributable to the equity shareholders
for the year
± Restated to reflect the changes for revised IAS 19.
Note
21
2013
£000
14,941
Restated±
2012
£000
20,912
450
(529)
(79)
397
115
137
(65)
584
505
(4,984)
928
(4,056)
(389)
(383)
44
86
(642)
(4,698)
15,446
16,214
77
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Statements of Financial Position
at 31 December 2013
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiary undertakings
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Total assets
Liabilities
Current liabilities
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
2013
£000
2012
£000
Company
2013
£000
2012
£000
Note
11
12
13
14
15
16
17
18
19
20
21
9
19
21
23
23
103,079
10,013
–
2,388
96,182
13,210
–
2,376
88,061
79,672
–
88,431
1,051
–
88,136
1,294
115,480
111,768
177,543
169,102
115,678
119,488
47,477
–
282,643
398,123
115,332
108,070
49,798
212
273,412
385,180
–
15,452
32,231
–
47,683
225,226
–
15,121
28,763
212
44,096
213,198
(218)
(213)
–
–
(164,519)
(153,755)
(39,116)
(39,653)
(2,842)
(7,022)
(2,754)
(7,117)
(2,842)
(3,508)
(2,754)
(2,988)
(174,601)
(163,839)
(45,466)
(45,395)
(33,239)
(12,780)
(46,019)
(33,371)
(14,641)
(48,012)
(220,620)
(211,851)
(30,000)
(11,089)
(41,089)
(86,555)
(30,000)
(12,590)
(42,590)
(87,985)
177,503
173,329
138,671
125,213
4,268
53,512
(4,742)
124,465
177,503
4,268
53,512
(5,812)
121,361
173,329
4,268
53,512
9,671
71,220
4,268
53,512
8,998
58,435
138,671
125,213
These financial statements were approved by the board of directors on 7 March 2014 and were signed on its behalf by:
Tony Brewer
Director
Steve Wilson
Director
Company Number: 460129
78
Headlam Group plc Annual Report and Accounts 2013 Statement of Changes in Equity – Group
for the year ended 31 December 2013
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Translation
reserve
£000
Cash flow
hedging
reserve
£000
Treasury
reserve
£000
Restated±
retained
earnings
£000
Total
equity
£000
4,268
53,512
88
6,157
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
Balance at
1 January 2013
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 2013
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(389)
(339)
(389)
(339)
–
–
–
–
–
–
–
–
–
–
(13,258)
115,778
166,545
–
–
–
–
20,912
20,912
(3,970)
(4,698)
16,942
16,214
1,183
1,183
1,929
(1,013)
916
134
134
(11,663)
(11,663)
1,929
(11,359)
(9,430)
4,268
53,512
4,268
53,512
88
88
5,768
(339)
(11,329)
121,361
173,329
5,768
(339)
(11,329) 121,361
173,329
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
397
397
–
252
252
–
–
–
–
–
–
–
–
–
–
14,941
14,941
(144)
505
14,797
15,446
421
(178)
288
497
288
243
497
(12,300)
(12,300)
421
(11,693)
(11,272)
–
–
–
–
–
–
–
–
4,268
53,512
88
6,165
(87)
(10,908) 124,465
177,503
± Restated to reflect the changes for revised IAS 19.
79
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Statement of Changes in Equity – Company
for the year ended 31 December 2013
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Special
reserve
£000
Cash flow
hedging
reserve
£000
Treasury
reserve
£000
Restated±
retained
earnings
£000
Total
equity
£000
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
Balance at
1 January 2013
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 2013
4,268
53,512
88
20,578
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(339)
(339)
–
–
–
–
–
(13,258)
59,679
124,867
–
–
–
–
14,248
14,248
(4,044)
(4,383)
10,204
9,865
1,183
1,183
1,929
(1,013)
916
45
45
(11,663)
(11,663)
1,929
(11,448)
(9,519)
4,268
53,512
4,268
53,512
88
88
20,578
(339)
(11,329)
58,435
125,213
20,578
(339)
(11,329)
58,435
125,213
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
252
252
–
–
–
–
–
25,343
25,343
(550)
(298)
24,793
25,045
421
(178)
288
182
288
243
182
(12,300)
(12,300)
421
(12,008)
(11,587)
4,268
53,512
88
20,578
(87)
(10,908)
71,220
138,671
–
–
–
–
–
–
–
–
± Restated to reflect the changes for revised IAS 19.
80
Headlam Group plc Annual Report and Accounts 2013 Cash Flow Statements
for the year ended 31 December 2013
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation, amortisation and impairment
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
21
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
Repayment of borrowings
Dividends paid
Net cash flow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
25
11
23
Group
Company
Note
2013
£000
Restated±
2012
£000
2013
£000
Restated±
2012
£000
21,087
27,851
1,596
1,090
10,136
(629)
1,870
(177)
288
7
7
22
4,695
(783)
2,246
(185)
1,183
1,458
(663)
1,203
(148)
(7)
1,468
(759)
1,533
(133)
388
32,575
35,007
3,439
3,587
1,967
(9,114)
9,421
(491)
3,498
(819)
34,849
37,195
(1,565)
(6,344)
(2,913)
(1,682)
(6,766)
(2,839)
24,027
25,908
479
613
–
(1,974)
(13,267)
(14,149)
243
(223)
(12,300)
(12,280)
(2,402)
49,798
81
1,530
768
–
(771)
(7,999)
(6,472)
916
(213)
(11,663)
(10,960)
8,476
41,494
(172)
–
(506)
824
3,757
(839)
284
(2,913)
289
360
452
23,999
–
(9,575)
15,236
243
–
(12,300)
(12,057)
3,468
28,763
–
–
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
–
Cash and cash equivalents at 31 December
17
47,477
49,798
32,231
28,763
± Restated to reflect the changes for revised IAS 19.
The company’s profit before tax excludes dividends received from subsidiaries.
81
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements
The financial position of the group, its cash flows, liquidity
position and borrowing facilities are described in the
Operating Review on pages 20 to 25. In addition, note 24
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. The group’s long term banking
arrangements run to March 2017, its level of committed
funds are £40 million. The group also has short term
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:
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 7 March 2014.
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 company’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 Operating
Review on pages 3 to 25.
82
Headlam Group plc Annual Report and Accounts 2013 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 principal assumptions are
set out in note 21. 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
With the exception of the amendments to IAS 19 and IAS 1
as described below, 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 2013.
Amendment to IAS 19
As a result of the amendments to IAS 19, “Employee
Benefits”, the group has changed its accounting policy with
respect to determining the income or expense related to
its defined benefit pension plan. The standard prescribes
that an interest expense or income is calculated on the net
defined benefit liability/(asset) by applying the discount
rate to the net defined benefit liability/(asset). This replaces
the interest expense on the defined benefit obligation and
the expected return on plan assets. The revised standard
requires retrospective application, therefore the table
overleaf reflects the adjustments made to the comparative
amounts for the year to 31 December 2012.
These comprise the reversal of the interest income on
pension plan assets at 31 December 2012 of £3,693,000
and the interest expense on the defined benefit obligation
£3,628,000 to be replaced by a net interest expense
of £545,000. The associated income tax has been
restated accordingly.
Actuarial losses recognised in the Consolidated Statement of
Comprehensive Income of £5,595,000 at 31 December 2012
have been restated into a re-measurement loss of £4,985,000
with the associated income tax also restated.
1 ACCOUNTING POLICIES continued
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 occasion give rise to an adverse
difference between carrying value and market value. At the
Statement of Financial Position date, the assets have been
reported at their carrying value. Market values are formally
assessed for all properties on a triennial basis and compared
with the carrying values.
At the latest review, carried out at 31 December 2013, the
2013 carrying value of UK freehold and long leasehold land
and buildings would have exceeded market value (on an
existing use basis) by £14,737,000. 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 2013 or 2012.
A review of the properties held in continental Europe has
resulted in an impairment provision for the group’s property
held in the Netherlands, see note 4.
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.
For the year ended 31 December 2013 it was considered
necessary to impair the goodwill held for the group’s French
subsidiary LMS SA, see note 4. No impairment resulted from
the annual impairment test for 2013 in the UK.
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.
Inventory
Inventories are valued at the lower of cost and net realisable
value. Provision is calculated based on the ageing profile and
consideration of inventory sold for less than its carrying value.
83
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
1 ACCOUNTING POLICIES continued
• International Financial Reporting Standard (IFRS) 9
“Financial instruments”
Year ended
31 December
2012
£000
• International Financial Reporting Standard (IFRS) 10
“Consolidated financial statements”
Consolidated Income Statement
Decrease in finance income
Decrease in finance expense
Decrease in income tax expense
Decrease in profit for the period
Decrease in basic and diluted earnings
per share
Consolidated Statement
of Comprehensive Income
Other comprehensive income:
Decrease in re-measurement of defined
benefit plans
Decrease in income tax on other
comprehensive income
Increase in other comprehensive income
(3,693)
3,083
153
(457)
(0.5p)
£000
610
(153)
457
The impact on the current year Consolidated Income
Statement and Consolidated Statement of Comprehensive
Income would not be materially different from that in the
prior year as set out above.
The revised standard stipulates that remeasurement gains
and losses are recognised immediately in the periods in
which they occur. The group already adopted this policy
and therefore there are no changes to the Consolidated
Statement of Financial Position and Consolidated Cash
Flow Statement.
Amendment to IAS 1
IAS 1, “Presentation of Items of Other Comprehensive
Income” increases the required level of disclosure within
the statement of comprehensive income. The amendment
requires items within the statement of comprehensive
income to be analysed between items that will not be
reclassified subsequently to profit or loss and items
that may be reclassified subsequently to profit or loss in
accordance with the respective IFRS to which the item
relates. The amendment has been applied retrospectively
and hence the presentation of items in the statement of
comprehensive income has been restated to reflect the
change. The amendment to IAS 1 has had no impact on
profit, earnings per share or net assets in the year ended
31 December 2013
(d) IFRS not yet applied
The following standards and interpretations, which were
not effective as at 31 December 2013 and have not been
early adopted by the group, will be adopted in future
accounting periods:
84
• International Financial Reporting Standard (IFRS) 11
“Joint arrangements”
• International Financial Reporting Standard (IFRS) 12
“Disclosure of interests in other entities”.
None of the standards above are expected to have a
material impact on the group.
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.
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.
Headlam Group plc Annual Report and Accounts 2013 1 ACCOUNTING POLICIES continued
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 24 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 market
price at the Statement of Financial Position date, being
the present value of the 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. Self-constructed assets begin to be depreciated from
the date they become available for 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.
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.
85
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
1 ACCOUNTING POLICIES continued
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
86
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.
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.
Headlam Group plc Annual Report and Accounts 2013 1 ACCOUNTING POLICIES continued
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 immediately.
To the extent that any benefits vest immediately, the expense
is recognised directly 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.
Further details of the share plans are given in the
Remuneration Report on pages 60 to 61.
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.
87
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
The group determines the net interest expense on the
net defined benefit liability for the period by applying the
discount rate used to measure the defined benefit obligation
at the beginning of the annual period to the then net defined
benefit liability, taking into account any changes in the net
defined benefit liability during the period as a result of
contributions and benefit payments.
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.
1 ACCOUNTING POLICIES continued
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.
88
Headlam Group plc Annual Report and Accounts 2013 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.
UK
2013
£000
Continental Europe
2012
£000
2013
£000
2012
£000
Total
2013
£000
2012
£000
Revenue
External revenues
Reportable segment operating profit
Reportable segment assets
509,340
26,877
233,913
492,256
28,275
226,595
93,711
1,678
35,708
93,728
2,036
39,583
603,051
28,555
269,621
585,984
30,311
266,178
Reportable segment liabilities
(148,457)
(137,563)
(15,975)
(15,853)
(164,432)
(153,416)
During the year there are no inter-segment revenues for the reportable segments (2012: £nil).
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total profit for reportable segments
Impairment of intangibles and assets
Unallocated expense
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit for the year
± Restated to reflect the changes for revised IAS 19.
2013
£000
Restated±
2012
£000
28,555
(5,352)
(875)
22,328
629
(1,870)
21,087
(6,146)
14,941
30,311
–
(997)
29,314
783
(2,246)
27,851
(6,939)
20,912
89
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
2 SEGMENT REPORTING continued
Assets
Total assets for reportable segments
Unallocated assets:
Properties, plant and equipment
Deferred tax assets
Assets held for sale
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 2013
Capital expenditure
Depreciation
Amortisation
Impairment of assets
Impairment of intangible assets
Other material items 2012
Capital expenditure
Depreciation
Amortisation
2013
£000
2012
£000
269,621
266,178
93,883
2,388
–
32,231
398,123
87,651
2,376
212
28,763
385,180
(164,432)
(153,416)
(15,622)
(33,457)
(7,022)
(87)
(17,395)
(33,584)
(7,117)
(339)
(220,620)
(211,851)
UK
£000
Continental
Europe
£000
Reportable
segment total
£000
Unallocated
£000
Consolidated
total
£000
3,043
2,171
–
–
–
2,008
2,193
–
649
666
–
–
–
271
648
–
3,692
2,837
–
–
–
2,279
2,841
–
9,847
1,797
150
2,155
3,197
5,720
1,764
90
13,539
4,634
150
2,155
3,197
7,999
4,605
90
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.
90
Headlam Group plc Annual Report and Accounts 2013 2 SEGMENT REPORTING continued
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 by principal product group and geographic origin is summarised below:
Revenue
Residential
Commercial
UK
2013
£000
Continental Europe
2012
£000
2013
£000
2012
£000
Total
2013
£000
2012
£000
350,020
159,320
509,340
337,569
154,687
492,256
47,608
46,103
93,711
43,959
49,769
93,728
397,628
205,423
603,051
381,528
204,456
585,984
3 PROFIT BEFORE TAX
The following are included in profit before tax:
Depreciation on property, plant and equipment
Amortisation of intangible assets
Impairment of intangible and tangible fixed 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
2013
£000
4,634
150
5,352
(177)
9,580
2,573
2013
£000
74
165
3
20
262
2012
£000
4,605
90
–
(185)
9,821
1,814
2012
£000
68
155
3
14
240
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.
91
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
4 NON-UNDERLYING ITEMS
Non-underlying items charged through administrative expenses comprise:
Impairment of property held in fixed assets
Impairment of goodwill held in intangible assets
2013
£000
2,155
3,197
5,352
2012
£000
–
–
–
The group presents underlying measures of performance in order to better reflect the financial performance of the group
over time.
Impairment of property, plant and equipment
In the Netherlands, management obtain an annual market value of the property for local rates purposes. The latest valuation
obtained indicated the carrying value of the property exceeded its market value. Management considered this to represent
an indicator of impairment and therefore performed an impairment review to establish the value in use for the Dutch cash-
generating unit (“CGU”) which represents an operating segment. The future cash flows used in the value in use calculation
were based on forecast operating results per the 2014 approved business plan with a growth rate assumption of 2.5% over
a period of five years. These were discounted at a pre-tax discount rate of 13.3%.
The outcome of the impairment review concluded that the carrying value of the assets of the Dutch CGU were less than their
recoverable amount by £2,155,000 which was not less than the amount by which the market value of the property exceeded
its carrying value. This is a reflection of the ongoing challenging market conditions in the Netherlands. As a consequence,
a £2,155,000 impairment loss has been recognised in the income statement during the year and disclosed as a non-
underlying item. Non-underlying items are not attributable to reportable segments. If they were, the impairment would be
attributable to the continental Europe segment.
Impairment of goodwill
In line with the requirements of IAS 36, impairment reviews are required to be completed annually for CGUs to which
goodwill is allocated. In performing these impairment reviews management assesses the value in use for each CGU based on
actual reported results for 2013 with a growth rate assumption of 0% over a period of five years. These were discounted at a
pre-tax discount rate of 13.3%.
The outcome of the impairment review concluded that the carrying value of the assets of the LMS CGU in France, which
represents an operating segment, were less than their recoverable amount by £3,197,000, equivalent to the goodwill
attributed to the CGU. This is a reflection of the ongoing challenging market conditions in France. As a consequence, a
£3,197,000 impairment loss has been recognised in the income statement during the year and disclosed as a non-underlying
item. Non-underlying items are not attributable to reportable segments. If they were, the impairment would be attributable
to the continental Europe segment.
92
Headlam Group plc Annual Report and Accounts 2013 5 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 21)
Number of employees
Group
2013
2012
2,172
9
2,181
2,014
167
2,181
£000
68,729
288
8,947
4,737
2,098
9
2,107
1,947
160
2,107
£000
67,188
1,183
8,805
3,663
82,701
80,839
6 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
2013
£000
1,830
–
1,830
2012
£000
2,137
312
2,449
Short term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
93
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
7 FINANCE INCOME AND EXPENSE
Interest income:
Bank interest
Finance income
Interest expense:
Bank loans, overdrafts and other financial expenses
Net change in fair value of cash flow hedges transferred from equity
Net interest on defined benefit plan obligation
Other
Finance expenses
± Restated to reflect the changes for revised IAS 19.
2013
£000
629
629
Restated±
2012
£000
783
783
(1,044)
(1,490)
(137)
(578)
(111)
(44)
(545)
(167)
(1,870)
(2,246)
During the year interest costs of £273,000 were capitalised as assets in the course of construction. The amount capitalised was
determined by applying the group’s UK borrowing rate to the expenditure incurred on assets under construction. Tax relief on
capitalised borrowing costs for the year amounted to £64,000.
2013
£000
Restated±
2012
£000
6,151
100
6,251
152
(159)
(98)
(105)
6,806
253
7,059
377
(126)
(371)
(120)
6,146
6,939
8 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
± Restated to reflect the changes for revised IAS 19.
94
Headlam Group plc Annual Report and Accounts 2013 8 TAXATION continued
Tax relating to items (charged)/credited 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
± Restated to reflect the changes for revised IAS 19.
2013
£000
Restated±
2012
£000
(4)
8
497
134
(529)
(61)
(97)
928
78
1,014
Factors that may affect future current and total tax charges
Reductions in the UK corporation tax rate from 26% to 24% (effective from 1 April 2012) and to 23% (effective 1 April 2013)
were substantively enacted on 26 March 2012 and 3 July 2012 respectively. Further reductions to 21% (effective from
1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the company’s
future current tax charge accordingly. The deferred tax asset at 31 December 2013 has been calculated based on the rates
of 20% and 21% substantively enacted at the balance sheet date.
Reconciliation of effective tax rate
Profit before tax
Add back non-underlying items*
Underlying 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
2013
Restated±
2012
%
£000
%
21,087
5,352
26,439
6,146
(161)
(26)
167
18
2
23.2
(0.8)
(0.1)
0.8
0.1
0.0
24.5
(0.4)
(0.2)
1.5
(0.1)
(0.4)
£000
27,851
–
27,851
6,819
(118)
(68)
427
(4)
(117)
Total tax in income statement on underlying items
23.2
6,146
24.9
6,939
± Restated to reflect the changes for revised IAS 19.
* Non-underlying items were non-deductible for tax.
9 CURRENT TAX LIABILITIES
The group’s current tax liability of £7,022,000 (2012: £7,117,000) 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 £3,508,000
(2012: £2,988,000) represents the amount of income tax payable in respect of current and prior year periods which exceed any
amounts recoverable.
95
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information
Notes to the Financial Statements continued
10 EARNINGS PER SHARE
Earnings
Earnings for underlying basic and underlying diluted earnings per share
Earnings for basic and diluted earnings per share
Number of shares
Issued ordinary shares at 31 December
Effect of shares held in treasury
2013
£000
Restated±
2012
£000
20,293
14,941
–
20,912
2013
2012
85,363,743 85,363,743
(2,383,937)
(2,672,553)
Weighted average number of ordinary shares for the purposes of basic earnings per share
82,979,806 82,691,190
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
82,979,806 82,691,190
646,209
446,420
Weighted average number of ordinary shares for the purposes of diluted earnings per share
83,626,015 83,137,610
At 31 December 2013, the company held 2,337,520 (2012: 2,427,794) shares which have been disclosed in the treasury reserve
and these are excluded from the calculation of earnings per share.
± Restated to reflect the changes for revised IAS 19.
96
Headlam Group plc Annual Report and Accounts 2013 11 PROPERTY, PLANT AND EQUIPMENT
Group
Cost
Land and
buildings
£000
Plant and
equipment
£000
Under
construction
£000
Total
£000
Balance at 1 January 2012
100,358
27,660
Acquisition
Additions
Disposals
Effect of movements in foreign exchange
Transfer to use
Transfer to assets held for sale
Balance at 31 December 2012
Balance at 1 January 2013
Acquisitions
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2013
Depreciation and impairment
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
Balance at 1 January 2013
Depreciation charge for the year
Disposals
Impairment (note 4)
Effect of movements in foreign exchange
Balance at 31 December 2013
Net book value
At 1 January 2012
At 31 December 2012 and 1 January 2013
At 31 December 2013
4
212
(1,224)
(329)
1,003
(270)
99,754
99,754
–
408
–
215
51
2,138
(1,369)
(199)
–
–
28,281
28,281
39
3,411
(953)
150
112
–
5,649
(2)
–
(1,003)
–
4,756
4,756
–
128,130
55
7,999
(2,595)
(528)
–
(270)
132,791
132,791
39
9,720
13,539
–
–
(953)
365
100,377
30,928
14,476
145,781
15,900
1,744
(337)
(118)
(58)
17,131
17,131
1,761
–
(2,155)
60
18,029
2,861
(1,273)
(139)
–
19,478
19,478
2,873
(864)
–
108
21,107
21,595
–
–
–
–
–
–
–
–
–
–
–
–
33,929
4,605
(1,610)
(257)
(58)
36,609
36,609
4,634
(864)
(2,155)
168
42,702
84,458
82,623
79,270
9,631
8,803
9,333
112
4,756
94,201
96,182
14,476
103,079
At 31 December 2013 the cost less accumulated depreciation of long leasehold property held by the group was £8,152,000
(2012: £8,332,000).
97
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
11 PROPERTY, PLANT AND EQUIPMENT continued
Company
Cost
Balance at 1 January 2012
Additions
Disposals
Transfer to use
Transfer to assets held for sale
Balance at 31 December 2012
Balance at 1 January 2013
Additions
Disposals
Balance at 31 December 2013
Depreciation
Balance at 1 January 2012
Depreciation charge for the year
Disposals
Transfer to assets held for sale
Balance at 31 December 2012
Balance at 1 January 2013
Depreciation charge for the year
Disposals
Balance at 31 December 2013
Net book value
At 1 January 2012
At 31 December 2012 and 1 January 2013
At 31 December 2013
Land and
buildings
£000
Plant and
equipment
£000
Under
construction
£000
Total
£000
87,418
1
(1,202)
1,003
(270)
86,950
86,950
10
–
86,960
11,037
1,426
(315)
(58)
12,090
12,090
1,423
–
13,513
76,381
74,860
73,447
291
47
(169)
–
–
169
169
117
(115)
171
233
42
(162)
–
113
113
35
(115)
33
58
56
138
112
5,649
(2)
(1,003)
–
4,756
4,756
9,720
–
87,821
5,697
(1,373)
–
(270)
91,875
91,875
9,847
(115)
14,476
101,607
–
–
–
–
–
–
–
–
–
112
4,756
14,476
11,270
1,468
(477)
(58)
12,203
12,203
1,458
(115)
13,546
76,551
79,672
88,061
At 31 December 2013 the cost less accumulated depreciation of long leasehold property held by the company was
£8,152,000 (2012: £8,332,000).
98
Headlam Group plc Annual Report and Accounts 2013 12 INTANGIBLE ASSETS – GROUP
Cost
Balance at 1 January 2012
Addition (note 25)
Balance at 31 December 2012
Balance at 1 January 2013
Addition (note 25)
Balance at 31 December 2013
Amortisation
Balance at 1 January 2012
Charge for the year
Balance at 31 December 2012
Balance at 1 January 2013
Charge for the year
Impairment
Balance at 31 December 2013
Net book value
At 1 January 2012 and 31 December 2012
At 1 January 2013 and 31 December 2013
Goodwill
£000
Customer lists
£000
Total
£000
13,210
–
13,210
13,210
–
13,210
–
–
–
–
–
3,197
3,197
13,210
10,013
4,142
90
4,232
4,232
150
4,382
4,142
90
4,232
4,232
150
–
4,382
17,352
90
17,442
17,442
150
17,592
4,142
90
4,232
4,232
150
3,197
7,579
–
–
13,210
10,013
Cumulative impairment losses recognised in relation to goodwill is £3,197,000 (2012: £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
2013
£000
4,348
1,369
3,342
–
954
2012
£000
4,348
1,369
3,342
3,197
954
10,013
13,210
99
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
12 INTANGIBLE ASSETS – GROUP continued
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, this resulted in an impairment charge on goodwill attributable to the LMS CGU, see note 4.
Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU on a basis
consistent with 2012, and applying the following key assumptions.
Key assumptions
Cash flows were projected based on actual operating results, the approved 2014 business plan and management’s
assessment of planned performance in the period to 2018. For the purpose of impairment testing the cash flows were
assumed to grow into perpetuity at a rate of 2.5% beyond 2018.
The main assumptions within the operating cash flows used for 2014 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 11.6% (2012: 12.3%) has been used for impairment testing, adjusted to 13.3%
(2012: 14.1%) 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 2018.
With the exception of the goodwill attributed to the LMS CGU which was impaired during the year, see note 4, 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 which the group consider to be reasonable possible changes, would result in any impairment.
100
Headlam Group plc Annual Report and Accounts 2013 13 INVESTMENTS IN SUBSIDIARIES
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2012
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2012
Balance at 1 January 2013
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2013
Carrying value
At 1 January 2012
At 31 December 2012
At 31 December 2013
The principal trading subsidiaries are listed on page 129. There were no impairments recognised on the company’s
investments in subsidiaries at the year ended 31 December 2013.
£000
87,341
795
88,136
88,136
295
88,431
87,341
88,136
88,431
101
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
14 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
2013
£000
–
–
4,262
17
469
4,748
(2,360)
2,388
2012
£000
–
–
4,680
78
488
5,246
(2,870)
2,376
Liabilities
2013
£000
(2,166)
(194)
–
–
–
(2,360)
2,360
–
2012
£000
(2,661)
(209)
–
–
–
(2,870)
2,870
Net
2013
£000
(2,166)
(194)
4,262
17
469
2,388
–
–
2,388
2012
£000
(2,661)
(209)
4,680
78
488
2,376
–
2,376
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
Hedging
Other items
1 January
2013
£000
Recognised in
income
£000
Recognised in
equity
£000
31 December
2013
£000
(2,661)
(209)
4,680
78
488
2,376
495
15
(386)
–
(19)
105
–
–
(32)
(61)
–
(93)
(2,166)
(194)
4,262
17
469
2,388
1 January
2012
£000
Recognised in
income
£000
Recognised in
equity
£000
31 December
2012
£000
(3,198)
(206)
3,793
–
573
962
537
(3)
(329)
–
(85)
120
–
–
1,216
78
–
(2,661)
(209)
4,680
78
488
1,294
2,376
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the group has unused capital losses of £10,055,000 (2012: £10,055,000) 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.
102
Headlam Group plc Annual Report and Accounts 2013 14 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
2013
£000
–
3,076
17
145
3,238
(2,187)
1,051
2012
£000
–
3,621
78
166
3,865
(2,571)
1,294
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
Hedging
Other items
Liabilities
2013
£000
2012
£000
(2,187)
(2,571)
–
–
–
(2,187)
2,187
–
–
–
–
(2,571)
2,571
Net
2013
£000
(2,187)
3,076
17
145
1,051
–
–
1,051
2012
£000
(2,571)
3,621
78
166
1,294
–
1,294
1 January
2013
£000
Recognised in
income
£000
Recognised in
equity
£000
31 December
2013
£000
(2,571)
3,621
78
166
1,294
384
(331)
–
(21)
32
–
(214)
(61)
–
(2,187)
3,076
17
145
(275)
1,051
1 January
2012
£000
Recognised in
income
£000
Recognised in
equity
£000
31 December
2012
£000
(2,962)
3,086
–
257
381
391
(627)
–
(91)
(327)
–
1,162
78
–
(2,571)
3,621
78
166
1,240
1,294
Unrecognised deferred tax assets and liabilities
At the Statement of Financial Position date the company has unused capital losses of £10,055,000 (2012: £10,055,000)
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.
103
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
15 INVENTORIES
Goods for resale
Cost of sales consists of the following:
Material cost
Processing cost
16 TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
Group
2013
£000
2012
£000
115,678
115,332
Company
2013
£000
–
Group
2013
£000
2012
£000
Company
2013
£000
416,723
407,223
5,073
3,028
421,796
410,251
–
–
–
Group
2013
£000
92,614
3,636
23,238
–
2012
£000
85,378
3,425
19,267
–
119,488
108,070
Company
2013
£000
–
32
645
14,775
15,452
14,897
15,121
2012
£000
–
2012
£000
–
–
–
2012
£000
–
47
177
£1,516,000 (2012: £1,993,000) 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
2013
£000
1,175
341
1,516
2012
£000
1,651
342
1,993
104
Headlam Group plc Annual Report and Accounts 2013 17 CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
Cash and cash equivalents per Statement of Financial Position
47,477
49,798
32,231
28,763
Group
2013
£000
2012
£000
Company
2013
£000
2012
£000
18 ASSETS HELD FOR SALE
Assets classified as held for sale:
Property, plant and equipment
Group
2013
£000
2012
£000
Company
2013
£000
2012
£000
–
212
–
212
At 31 December 2013 there were no properties classified as held for sale. At 31 December 2012 the company held a freehold
property in the West Midlands, UK that was being actively marketed for sale; this was later sold in April 2013 for £330,000.
19 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 24.
Current liabilities
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
Group
2013
£000
218
218
2012
£000
213
213
Company
2013
£000
–
–
2012
£000
–
–
33,239
33,239
33,371
33,371
30,000
30,000
30,000
30,000
The group has undrawn borrowing facilities expiring in one year or less which, at 31 December 2013, amounted to
£53,386,000 (2012: £53,294,000). 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
%
1.92
1.72
0.97
1.50
2013
£000
45,000
1,248
3,744
3,394
53,386
Interest
rate
%
2.04
1.61
0.86
1.50
2012
£000
45,000
1,217
3,650
3,427
53,294
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.
105
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
20 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
2013
£000
2012
£000
Company
2013
£000
124,167
116,559
13,796
23,050
1,205
1,639
4,301
2012
£000
518
1,615
3,579
–
31,884
33,602
339
11
87
–
339
–
14,535
25,608
–
87
122
164,519
153,755
39,116
39,653
Included within non-trade payables and accrued expenses is an amount of £43,000 for accrued interest on unsecured bank
loans (2012: £44,000).
The group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.
21 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.
UK defined benefit plan
The Headlam Group plc Staff Retirement Benefits Scheme is the principal defined benefit plan which provides pensions in
retirement and death benefits to members. The majority of members are entitled to receive pensions from age 65, equal to
either 1/50 or 1/60 of final salary for each year of service that the employee provided, depending on which section of the plan
the member is part of.
The plan is a registered scheme under UK legislation and is contracted out of the State Second Pension. The plan is legally
separated from the company and assets are held independently of the company’s finances.
The plan is subject to the scheme funding requirements outlined in UK legislation.
The company has a right to a refund of any surplus in the plan if the plan winds up, after payment of expenses, members
benefits and any enhancements to the members’ benefits as the Trustee sees fit. In addition, if the assets of the plan exceed
the estimate by the actuary of the cost of buying out the benefits of all beneficiaries with an insurance company, including the
associated expenses, and the plan is not being wound up, then the company may request a payment of the excess funds.
There have been no payments made to the company out of the plan’s assets over the year, and so no additional liability has
been recognised on the balance sheet.
The plan was established from 11 February 1983 under trust and is governed by the plan’s Trust Deed and Rules dated
29 March 2000. The Trustee of the plan comprises two employee representatives and four employer representatives.
The Trustee of the plan is required by law to act in the best interests of the plan participants. The Trustee is responsible for the
operation and the governance of the plan, including making decisions regarding the plan’s funding and investment strategy
in conjunction with the company.
The ultimate cost of the plan to the company will depend upon actual future events rather than the assumptions made.
Many of the assumptions made are unlikely to be borne out in practice and as such the cost of the plan may be higher (or
lower) than disclosed.
106
Headlam Group plc Annual Report and Accounts 2013 21 EMPLOYEE BENEFITS continued
The plan exposes the company to actuarial risks such as longevity risk, interest rate risk, market (investment) risk and
currency risk. The risk to the company is that the assumptions underlying the disclosures, or the calculation of contribution
requirements are not borne out in practice and the cost to the company is higher than expected. This could result in higher
contributions required from the company and a higher deficit disclosed. More specifically, the assumptions not being borne
out in practice could include:
• The return on the plan assets being lower than assumed, resulting in an unaffordable increase in the required
company contribution rate.
• Falls in asset values not being matched by similar falls in the value of liabilities.
• Inflation being higher than that assumed, resulting in an increase in the value of the members’ benefits and
therefore a higher cost to the plan.
• Unanticipated future changes in mortality patterns leading to an increase in the plan’s liabilities. Future mortality
rates cannot be predicted with certainty.
• The potential exercise of options against the plan, for example taking early retirement or exchanging a portion
of pension for a cash lump sum.
There have been no amendments, curtailments or settlements made to the plan during 2013.
The plan’s investment strategy is to invest broadly 90% in return seeking assets and 10% in matching assets, mainly
government bonds. This strategy reflects the plan’s liability profile and the Trustee’s and company’s attitude to risk.
The matching fund seeks to match the return achieved on the liabilities.
The plan’s investments include interest rate and inflation hedging.
The plan holds a number of annuity policies which match a portion of the pensions in payment.
The scheme is funded partly by contributions from members and partly by contributions from the company at rates advised
by professionally qualified actuaries The last scheme funding valuation of the plan was as at 31 March 2011 and revealed a
funding deficit of £11,543,000. 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.
In the recovery plan dated 29 July 2011 the company has agreed to pay contributions of £231,286 per month as at
31 December 2013, increasing by 3.2% each 1 April, with the view to eliminating the shortfall by 31 December 2015. The next
actuarial valuation is due at 31 March 2014 and the opportunity will be used to reassess the recovery plan.
In accordance with the recovery plan, payments were made to the plan during 2013 of £2,747,000. The company is expected
to pay contributions of £4,058,000 over the next accounting period. This includes £2,835,000 for payments under the recovery
plan and £1,223,000 for the accrual of benefits.
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 £166,000 during 2013 (2012: £177,000).
In addition, the company is expected to meet the cost of administrative expenses and insurance premiums for the plan.
The liabilities of the plan are based on the current value of expected benefit payment cash flows to members of the plan over
the next 60 years or more. The weighted average duration of the liabilities is approximately 20 years.
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.
107
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
21 EMPLOYEE BENEFITS continued
Swiss defined benefit plan
The plan provides occupational retirement, disability and survivors’ benefits. The members are entitled to receive pensions
from age 64 (female) or 65 (male), equal to the old age savings balance multiplied with a conversion rate of 6.8% for the
mandatory part of the savings balance and 5.85.% for the part beyond the mandatory part. The minimum interest rate on old
age savings has legally been fixed.
The company is affiliated to the Columna Collective Foundation Client Invest. The plan is legally separated from the
company. The executive body of the collective foundation is the board of trustees, which is elected directly by the insured of
the affiliated companies/occupational benefits funds and functions independently of AXA. Its members include employer
and employee representatives from a wide range of occupations and companies of different sizes. The board of trustees’
responsibilities include, among other things, supervising compliance with legal provisions and issuing the regulations that
govern the various activities. The company elects a occupational benefits fund commission (OBC). The Foundation was
established on March 20, 1974 by Credit Suisse Ltd.
The collective foundation is reinsured for risk benefits with AXA Winterthur Life insurance company.
The plan exposes the company to the market (investment) risk. The risk to the company is that return on assets may be lower
than legally required. This could result in higher contributions required from the company and a higher deficit disclosed.
There have been no amendments, curtailments or settlements made to the plan during 2013.
The occupational benefits fund commission (OBC) defines the investment strategy; the affiliated occupational benefits fund
itself bears the investment risk. The investments are managed with Credit Suisse.
The last (provisional) scheme funding valuation of the plan was as at 31 December 2013 and revealed cover ratio of 115.41%
(overfunding). This overfunding is appropriate to Swiss legislation and cannot be considered in the context of IAS 19.
According to Swiss rules there is no need to evaluate the scheme using assumptions for future changes of salary increase,
benefit increase, inflation.
The last IAS 19 valuation at year-end 2013 revealed a funding deficit of £1,415,000. The group is expected to pay £496,000 for
future service costs over the next accounting period.
The liabilities of the plan are based on the current value of expected benefit payment cash flows to members of the plan over
the next 50 years or more. The weighted average duration of the liabilities is approximately 14 years.
Defined benefit obligation
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
108
Group
2013
£000
(97,085)
82,263
(14,822)
(14,822)
(800)
2012
£000
(93,499)
76,388
(17,111)
(17,111)
(284)
Company
2013
£000
(87,111)
73,704
(13,407)
(13,407)
(524)
2012
£000
(82,735)
67,391
(15,344)
(15,344)
–
(15,622)
(17,395)
(13,931)
(15,344)
(2,842)
(12,780)
(15,622)
(2,754)
(14,641)
(17,395)
(2,842)
(11,089)
(13,931)
(2,754)
(12,590)
(15,344)
Headlam Group plc Annual Report and Accounts 2013 21 EMPLOYEE BENEFITS continued
Movements in present value of defined benefit obligation
At 1 January
Current service cost
Past service cost
Interest cost
Net remeasurement (gains)/losses – financial
Net remeasurement (gains)/losses – experience
Benefits paid
Contributions by members
Effect of movements in foreign exchange
At 31 December
± Restated to reflect the changes for revised IAS 19.
Movements in fair value of plan assets
At 1 January
Interest income on plan assets
Return on assets, excluding interest income
Contributions by employer:
Future service contributions
Past service deficit contributions
Additional past service deficit contributions
Employer augmentations
Contributions by members
Benefits paid
Effect of movements in foreign exchange
At 31 December
± Restated to reflect the changes for revised IAS 19.
The fair value of the plan assets were as follows:
Equities
Government debt
Corporate bonds
Annuities
Commodities
Hedge funds
Other
Group
Company
2013
£000
93,499
1,553
307
3,531
1,285
(216)
(3,384)
404
106
Restated±
2012
£000
84,923
1,546
–
3,628
6,674
(520)
(2,925)
412
(239)
2013
£000
82,735
1,056
307
3,342
1,744
381
Restated±
2012
£000
74,737
1,040
–
3,404
6,004
19
(2,652)
(2,681)
198
–
212
–
97,085
93,499
87,111
82,735
Group
2013
£000
76,388
2,953
1,519
1,535
2,581
166
10
404
(3,384)
91
82,263
Group
2013
£000
35,410
8,199
23,378
4,875
1,334
(185)
9,252
82,263
Restated±
2012
£000
70,692
3,083
1,170
1,297
2,662
177
19
412
(2,925)
(199)
76,388
2012
£000
17,158
7,668
25,142
4,951
6,297
7,067
8,105
76,388
Company
2013
£000
67,391
2,793
2,032
1,185
2,581
166
10
198
Restated±
2012
£000
62,202
2,892
937
971
2,662
177
19
212
(2,652)
(2,681)
–
–
73,704
67,391
Company
2013
£000
33,391
8,199
18,948
4,875
1,334
(185)
7,142
73,704
2012
£000
15,178
7,668
20,331
4,951
6,297
7,067
5,899
67,391
109
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
21 EMPLOYEE BENEFITS continued
Expense recognised in the income statement relating to defined benefit obligation
Service cost – including current and past service costs
Other long term employee benefits
Net interest on the net defined benefit liability (note 7)
Total
± Restated to reflect the changes for revised IAS 19.
The expense recognised in the following line items in the Consolidated Income Statement are:
Administrative expenses
Net financing income (note 7)
± Restated to reflect the changes for revised IAS 19.
Remeasurement of the net defined benefit liability in the Statement of Comprehensive Income:
Net remeasurement – financial
Net remeasurement – experience
Return on assets, excluding interest income
± Restated to reflect the changes for revised IAS 19.
Group
2013
£000
1,860
524
578
2,962
Restated±
2012
£000
1,546
–
545
2,091
Group
2013
£000
2,384
578
2,962
Restated±
2012
£000
1,546
545
2,091
Group
2013
£000
1,285
(216)
(1,519)
(450)
Restated±
2012
£000
6,674
(520)
(1,170)
4,984
110
Headlam Group plc Annual Report and Accounts 2013 21 EMPLOYEE BENEFITS continued
Principal actuarial assumptions are as follows:
Discount rate
Future salary increases
Future pension increases
Inflation rate
Mortality table assumptions:
UK pre-retirement
UK post-retirement –
future pensioners
UK post-retirement –
current pensioners
UK
2013
%
4.4
5.0
3.5
3.5
2012
%
4.1
4.5
3.0
3.0
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.
Swiss
2013
%
2.0
2.0
0.5
2.0
–
–
–
2012 %
1.8
2.0
0.5
1.0
–
–
–
Swiss scheme
–
–
BVG 2010
BVG 2010
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
2013
23.7
22.3
25.6
24.0
2012
23.6
22.2
25.5
24.0
2013
23.7
22.3
25.6
24.0
2012
23.6
22.2
25.5
24.0
Company
The principal actuarial assumptions for the company are the same as those disclosed for the UK above.
Sensitivity analysis
The tables below for the UK and Swiss defined benefit plans, show the impact on the defined benefit obligation of changing
each of the most significant assumptions in isolation.
111
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21 EMPLOYEE BENEFITS continued
UK defined benefit plan
Effect in £000
Discount rate
Rate of inflation (RPI) *
Salary increases
Assumed life expectancy
Change in
assumption
0.25% movement
0.25% movement
0.25% movement
one year movement
Impact on scheme liabilities
2013
Impact on scheme liabilities
2012
Increase
Decrease
Increase
Decrease
(0.4)
3.4
0.9
1.8
4.3
(3.2)
(0.9)
(2.1)
(3.8)
3.2
0.9
1.7
4.1
(3.0)
(0.9)
(2.0)
* With corresponding changes to the salary and pension increase assumptions.
The figures in the table as at 31 December 2013 have been calculated using the same valuation method that was used to
calculate the UK defined benefit obligation at the same date. The figures in the table as at 31 December 2012 have been
calculated by applying the same percentage increase or decrease as at 31 December 2013.
Extrapolation of the sensitivity analysis beyond the ranges shown may not be appropriate.
Swiss defined benefit plan
Effect in £000
Discount rate
Rate of inflation (RPI) *
Salary increases
Assumed life expectancy
Change in
assumption
0.25% movement
0.25% movement
0.25% movement
one year movement
Impact on scheme liabilities
2013
Impact on scheme liabilities
2012
Increase
Decrease
Increase
Decrease
(4.3)
3.3
0.6
1.4
4.6
(3.1)
(0.6)
(1.5)
(4.4)
3.1
0.4
1.5
4.3
(3.2)
(0.7)
(1.7)
The figures in the table as at 31 December 2013 have been calculated using the same valuation method that was used to
calculate the Swiss defined benefit obligation at the same date. The figures in the table as at 31 December 2012 have been
calculated by applying the same percentage increase or decrease as at 31 December 2013.
Extrapolation of the sensitivity analysis beyond the ranges shown may not be appropriate.
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
2013
£000
(97,085)
82,263
(14,822)
2013
£000
(87,111)
73,704
(13,407)
2012
£000
2011
£000
2010
£000
2009
£000
(93,499)
(84,923)
(80,889)
(88,253)
76,388
70,692
68,451
65,803
(17,111)
(14,231)
(12,438)
(22,450)
2012
£000
2011
£000
2010
£000
2009
£000
(82,735)
(74,737)
(71,713)
(81,412)
67,391
62,202
60,382
59,583
(15,344)
(12,535)
(11,331)
(21,829)
112
Headlam Group plc Annual Report and Accounts 2013 21 EMPLOYEE BENEFITS continued
At 31 December 2013, the group had other long term employee benefits of £800,000 (2012: £284,000). During the year, the
group provided for equalisation costs on the UK defined benefit plan of £524,000. 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
2013 is £276,000 (2012: £284,000).
Total group pension costs
Included within the total staff costs as disclosed in note 5 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 £2,362,000
(2012: £2,117,000). Contributions amounting to £156,000 (2012: £143,000) in respect of December 2013 payroll were paid in
January 2014.
The total group cost of operating the plans during the year was £4,737,000 (2012: £3,663,000) and, at 31 December 2013,
there was an amount of £301,000 (2012: £286,000) owed to the plans, being employer and employee contributions due for
December 2013, which was paid in January 2014.
22 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 10 May 2013 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 60 and 61.
113
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22 SHARE-BASED PAYMENTS continued
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares:
Grant date/employees entitled
Approved 1998 scheme granted to
key management 14 April 2003
Approved 1998 scheme granted to
key management 22 August 2005
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*
Three-year Sharesave scheme granted
to other employees 10 May 2013
Five-year Sharesave scheme granted
to other employees 10 May 2013
Total share options
Number of instruments
2013
–
2012 Vesting conditions
5,000 Movement of the group’s basic
earnings per share exceeding RPI 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
750
36,168 Continuous service
–
164 Continuous service
341,849
344,666 Continuous service
–
48,715 Continuous service
61,327
61,327 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%
83,154
87,259 Continuous service
52,790
61,066 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%
324,434
364,855 Continuous service
59,105
79,272 Continuous service
440,968
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%
146,514
– Continuous service
59,645
– Continuous service
2,532,846
2,491,770
Contractual
life of options
14/04/06 –
14/04/13
22/08/08 –
22/08/15
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
01/07/16 –
01/01/17
01/07/18 –
01/01/19
* Further details are provided on pages 60 and 61 of the Remuneration Report.
114
Headlam Group plc Annual Report and Accounts 2013 22 SHARE-BASED PAYMENTS continued
The number and weighted average exercise prices of share options are as follows:
Weighted
average
exercise price
2013
Number of
options
2013
Weighted
average
exercise price
2012
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
113.4 2,491,770
269.22
(90,274)
274.0
243.1
216,531
(85,181)
117.2 2,532,846
418.5
57,886
Number of
options
2012
3,446,680
(413,403)
903,291
245.0
221.6
121.8
401.8
(1,444,798)
113.4
403.0
2,491,770
62,300
The weighted average share price for options exercised during the year was 367.7p (2012: 284.3p).
The options outstanding at the year end have an exercise price in the range of 0.0p to 420.0p and a weighted average
contractual life of 1.7 years.
The fair value of services received in return for share options granted are measured by reference to the fair value of share
options granted. 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 2013 are shown below:
2013
Number of options
Fair value at measurement date:
No performance conditions
Share price at 31 December
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free rate of interest
Three-year
Sharesave
scheme
153,341
69.5p
405.5p
274.0p
Five-year
Sharesave
scheme
63,190
71.8p
405.5p
274.0p
29.5%pa
32.9%pa
three years
five years
4.3%pa
0.5%pa
4.3%pa
1.0%pa
115
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
22 SHARE-BASED PAYMENTS continued
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
Three-year
Sharesave
scheme
440,968
381,413
Five-year
Sharesave
scheme
80,910
–
68.5p
83.7p
252.6p
330.0p
–
–
330.0p
238.0p
–
330.0p
238.0p
33.6%pa
33.6%pa
40.2%pa
three years
three years
five years
5.0%pa
0.3%pa
4.9%pa
0.6%pa
4.9%pa
1.1%pa
The total expenses recognised for the year arising from share-based payments are as follows:
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)
Share options granted in 2013 under the
SAYE three-year scheme
Share options granted in 2013 under the
SAYE five-year scheme
Total expense recognised
116
Group
Company
Subsidiaries
2013
£000
2012
£000
2013
£000
2012
£000
2013
£000
2012
£000
48
–
33
10
14
63
54
33
27
14
–
–
1
–
–
–
–
1
–
–
48
–
32
10
14
63
54
32
27
14
319
414
136
177
183
237
41
17
41
17
–
–
–
2
41
17
41
15
(286)
323
(133)
151
(153)
172
87
14
(32)
18
5
288
56
9
132
–
–
1,183
2
–
(13)
–
–
(7)
1
–
56
–
–
388
85
14
(19)
18
5
295
55
9
76
–
–
795
Headlam Group plc Annual Report and Accounts 2013 23 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
2013
2012
107,840,000 107,840,000
85,363,743
85,363,743
2013
£000
2012
£000
4,268
4,268
–
4,268
4,268
4,268
4,268
–
4,268
4,268
At 31 December 2013, the company held 2,337,520 (2012: 2,427,794) 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 2.7% (2012: 2.8%) of the issued share capital with a nominal value of £116,876 (2012: £121,390).
In the period from 31 December 2013 to 7 March 2014 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 2012 of 4.65p paid 2 January 2013
Final dividend for 2012 of 10.20p paid 1 July 2013
Interim dividend for 2011 of 4.30p paid 3 January 2012
Final dividend for 2011 of 9.85p paid 2 July 2012
2013
£000
3,850
8,450
–
–
12,300
2012
£000
–
–
3,544
8,119
11,663
The final proposed dividend of 10.65p per share (2012: 10.20p per share) will not be provided for until authorised by
shareholders at the forthcoming AGM. There are no income tax consequences.
Interim dividends of 4.65p per share (2012: 4.65p per share) are provided for when the dividend is paid. The dividend was
paid on 2 January 2014 and totalled £3,856,000.
The total value of dividends proposed but not recognised at 31 December 2013 is £12,688,000 (2012: £12,300,000).
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.
Capital redemption reserve
The capital redemption reserve represents the nominal value of shares repurchased and cancelled during 2007.
117
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23 CAPITAL AND RESERVES continued
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 comprises 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.
24 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.
The carrying amount of financial assets at the Statement of Financial Position date was:
Trade and other receivables (note 16)
Cash and cash equivalents (note 17)
Group
2013
£000
115,852
47,477
163,329
2012
£000
104,645
49,798
154,443
Company
2013
£000
15,420
32,231
47,651
2012
£000
15,074
28,763
43,837
The fair values of the above financial assets at both 31 December 2013 and 2012, are deemed to approximate to carrying
value due to the short term maturity of the instruments.
118
Headlam Group plc Annual Report and Accounts 2013 24 FINANCIAL INSTRUMENTS continued
The maximum exposure to credit risk for trade receivables at the Statement of Financial Position date by geographic
region was:
UK
Continental Europe
Group
2013
£000
80,613
12,001
92,614
2012
£000
73,373
12,005
85,378
Company
2013
£000
–
–
–
2012
£000
–
–
–
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
2013
2012
Gross
£000
Impairment
£000
Gross
£000
Impairment
£000
84,662
6,256
4,182
95,100
–
(487)
(1,999)
(2,486)
80,531
4,334
3,167
88,032
–
(156)
(2,498)
(2,654)
All other receivables and derivative financial assets are not past due (2012: not past due).
The company had trade receivables of £nil (2012:£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
2013
£000
2,654
1,516
(1,704)
20
2,486
2012
£000
3,031
1,993
(2,348)
(22)
2,654
Company
2013
£000
2012
£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 0.25% (2012: 0.34%).
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 2013 cash and cash
equivalents covered the amounts of borrowings maturing in the next 12 months with a net positive liquidity of £47,259,000
(2012: £49,585,000). Details of the total facilities that the group has access to are given in note 19.
119
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
24 FINANCIAL INSTRUMENTS continued
The following are the contractual maturities of financial liabilities:
31 December 2013
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 2012
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
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
33,457
(36,305)
(1,080)
(1,076)
(31,740)
(2,409)
149,775
(149,775)
(149,775)
87
122
(87)
(88)
(122)
(122)
–
(12)
–
–
13
–
–
–
–
183,441
(186,289)
(151,065)
(1,088)
(31,727)
(2,409)
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
(37,296)
(1,079)
(1,075)
(32,534)
(2,608)
139,609
(139,609)
(139,609)
–
–
(88)
–
–
–
–
Interest rate swaps used for hedging
Forward exchange contracts used for
hedging
339
11
(339)
(129)
(122)
(11)
(11)
–
31 December 2013
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
31 December 2012
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Interest rate swaps used for hedging
173,543
(177,255)
(140,827)
(1,197)
(32,622)
(2,608)
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1–2 years
£000
2–5 years
£000
–
13
(30,918)
30,000
37,390
(32,527)
(798)
(798)
(30,931)
(37,390)
(37,390)
–
87
(87)
(88)
67,477
(70,004)
(38,276)
(12)
(810)
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)
(800)
(31,734)
–
–
339
(339)
(129)
68,038
(71,373)
(38,628)
(122)
(922)
(88)
(31,822)
The value of the group’s and company’s financial liabilities as detailed above at 31 December 2013 and 2012 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.
120
Headlam Group plc Annual Report and Accounts 2013 24 FINANCIAL INSTRUMENTS continued
The table below sets out the group’s accounting classification of each class of financial assets and liabilities at 31 December
2013 and 2012.
31 December 2013
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 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
Available
for sale
£000
47,477
–
–
–
–
–
–
–
47,477
Available
for sale
£000
49,798
–
–
–
–
–
–
–
49,798
Other
derivatives
at fair value
£000
–
–
–
–
–
–
–
(209)
(209)
Other
derivatives
at fair value
£000
–
–
–
–
–
–
–
(350)
(350)
Amortised
cost
£000
Total carrying
value
£000
–
47,477
(218)
(218)
(33,239)
(33,239)
(124,167)
(124,167)
(25,608)
(25,608)
92,614
23,238
–
92,614
23,238
(209)
(67,380)
(20,112)
Amortised
cost
£000
Total carrying
value
£000
–
(213)
49,798
(213)
(33,371)
(33,371)
(116,559)
(116,559)
(23,050)
(23,050)
85,378
19,267
–
85,378
19,267
(350)
(68,548)
(19,100)
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 its 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 £87,000 derivative liability
(2012: £339,000).
121
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
24 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
Company
Carrying amount
2013
£000
2012
£000
2013
£000
2012
£000
47,477
(33,457)
14,020
49,798
(33,584)
16,214
32,231
(30,000)
2,231
28,763
(30,000)
(1,237)
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 2012.
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 2013
Variable rate instruments
31 December 2012
140
(140)
Variable rate instruments
162
(162)
–
–
–
–
22
(22)
(12)
12
–
–
–
–
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 2013 amounted to £122,000 (2012: Liability £11,000).
For the 12-month period to 31 December 2013, 7.3% (2012: 6.9%) of the group’s operating profit was derived from overseas
subsidiaries and at 31 December 2013, 18.8% (2012: 21.0%) 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.
122
Headlam Group plc Annual Report and Accounts 2013 24 FINANCIAL INSTRUMENTS continued
The exposure to foreign currency risk was as follows:
2013
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2012
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£000
140
298
(1,054)
(616)
Euro
amount
£000
102
420
(1,175)
(653)
Group
Other
amount
£000
300
468
(2,355)
(1,587)
Group
Other
amount
£000
255
476
(1,219)
(488)
Total
£000
440
766
(3,409)
(2,203)
Total
£000
357
896
(2,394)
(1,141)
Company
Euro
amount
£000
Other
amount
£000
76
44
–
120
17
–
–
17
Company
Euro
amount
£000
Other
amount
£000
76
42
–
118
17
–
–
17
Total
£000
93
44
–
137
Total
£000
93
42
–
135
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 2012.
Euro
Other
Group
2013
£000
(62)
(159)
2012
£000
(65)
(49)
Company
2013
£000
12
2
2012
£000
12
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 2013 (2012: level 2) and forward currency contracts which were fair valued in accordance with level 2
(2012: level 2).
123
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
24 FINANCIAL INSTRUMENTS continued
Fair values
The carrying amounts shown in the Statement of Financial Position for financial instruments are a reasonable approximation
to fair value.
Trade receivables, trade payables and cash and cash equivalents
Fair values are assumed to approximate to cost due to the short term maturity of the instrument.
Borrowings, other financial assets and other financial liabilities
Where available, market values have been used to determine fair values. Where market values are not available, fair values
have been estimated by discounting expected future cash flows using prevailing interest rate curves. Amounts denominated
in foreign currencies are valued at the exchange rate prevailing at the Statement of Financial Position date.
Capital management
The group views its finance capital resources as primarily comprising share capital, bank loans and operating cash flow.
The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The board closely monitors its shareholder base, dividend yield and earnings per
share. 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 2013 and
31 December 2012.
124
Headlam Group plc Annual Report and Accounts 2013 25 ACQUISITIONS
On 28 March 2013, a group subsidiary company acquired the trade and assets of Hall’s Floorings Limited, a distributor
of residential floorcovering, based in Edmonton, north London, and a supplier to independent floorcovering retailers
throughout most of England. Cash consideration of £521,000 was paid. Since its acquisition the business has contributed
revenue of £5,146,000 and a loss of £24,000 to the consolidated statement of comprehensive income for the year ended
31 December 2013. If the acquisition had occurred on 1 January 2013 group revenue would have been an estimated
£610 million and profit after tax would have been an estimated £14.9 million.
On 29 November 2013, a group subsidiary company acquired the trade and assets of Roger Fell Limited (Fells Carpets),
a distributor of residential floorcovering throughout the north of England, for a cash consideration of £1,453,000. The primary
reason for this acquisition is for the group to enhance its position in the north of England. Since its acquisition the business
has contributed revenue of £455,000 and a loss of £27,000 to the consolidated statement of comprehensive income for
the year ended 31 December 2013. If the acquisition had occurred on 1 January 2013 group revenue would have been
an estimated £609.5 million and profit after tax would have been an estimated £14.9 million.
Acquiree’s
book value
£000
Fair value
adjustments
£000
Acquisition
amounts
£000
Acquiree’s net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Restructuring
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid
Satisfied by:
Cash
Analysis of cash flows:
On completion
Costs of acquisition
–
39
2,033
1,962
(1,990)
(220)
1,824
150
–
–
–
–
–
150
150
39
2,033
1,962
(1,990)
(220)
1,974
–
1,974
1,974
1,974
110
2,084
Professional fees of £110,000 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 represents 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 the trade and assets of Hall’s Floorings Limited or Roger Fell 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.
125
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
25 ACQUISITIONS continued
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.
Acquiree’s
book value
£000
Fair value
adjustments
£000
Acquisition
amounts
£000
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
–
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.
126
Headlam Group plc Annual Report and Accounts 2013 26 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
1,695
3,285
2,275
7,255
Land and
buildings
£000
39
105
1,907
2,051
2013
Plant and
machinery
£000
9,405
17,692
–
27,097
2013
Plant and
machinery
£000
7
2
–
9
Total
£000
11,100
20,977
2,275
34,352
Total
£000
46
107
1,907
2,060
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
Total
£000
10,737
19,802
2,628
33,167
Total
£000
84
115
1,933
2,132
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 2013, total operating lease expense of £12,153,000 was recognised in the Consolidated
Income Statement (2012: £11,635,000).
27 CAPITAL COMMITMENTS
Group
During the year ended 31 December 2013, the group entered into commitments to purchase property, plant and equipment
for £2,261,000 (2012: £11,268,000). These commitments are expected to be settled in the following financial year.
Company
During the year ended 31 December 2013, the company entered into commitments to purchase property, plant and
equipment for £2,014,000 (2012: £10,902,000). This commitment is expected to be settled in the following financial year.
127
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notes to the Financial Statements continued
28 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 34.
As at 31 December 2013, directors of the company and their immediate relatives controlled 1.6% of the voting shares of the
company (2012: 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 £nil
(2012: £312,000).
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
2013
£000
Highest
during
the year
£000
Balance at
31 December
2012
£000
14,775
14,775
16,579
14,897
(31,884)
(31,884)
(33,602)
(33,602)
Transactions with group companies typically comprise management, rent and interest charges during the period.
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
2013
£000
For year ended
31 December
2012
£000
6,368
23,999
2,318
138
166
6,368
13,299
2,241
160
177
29 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.
128
Headlam Group plc Annual Report and Accounts 2013 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.
129
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Financial Record
Trading results
Revenue
Gross profit
Overheads
Underlying operating profit
Underlying profit before net financing costs
Net financing costs
Underlying profit on ordinary activities before tax
Taxation
Underlying profit on ordinary activities after taxation
Shareholder value
Paid dividend per share
Proposed dividend per share
Underlying 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
± Restated to reflect the changes for revised IAS 19.
130
2013
£000
Restated±
2012
£000
2011
£000
2010
£000
2009
£000
603,051
181,255
585,984
175,733
569,795
175,739
535,690
164,959
533,793
162,260
(153,575)
(146,419)
(147,687)
(138,893)
(137,502)
27,680
27,680
(1,241)
26,439
(6,146)
20,293
14.85p
15.30p
24.5p
103,079
10,013
2,388
29,314
29,314
(1,463)
27,851
(6,939)
20,912
14.15p
14.85p
25.3p
96,182
13,210
2,376
28,052
28,052
(464)
27,588
(7,184)
20,404
12.40p
14.15p
24.6p
94,201
13,210
962
26,066
26,066
(1,060)
25,006
(7,127)
17,879
24,758
24,758
(2,694)
22,064
(6,168)
15,896
11.00p
12.40p
21.5p
19.70p
11.00p
19.1p
97,215
13,210
896
96,530
13,210
4,731
115,480
111,768
108,373
111,321
114,471
115,678
119,488
47,477
–
282,643
398,123
115,332
108,070
49,798
212
273,412
385,180
114,196
111,656
41,494
362
267,708
376,081
105,694
102,240
44,758
362
253,054
364,375
99,637
101,149
45,737
2,275
248,798
363,269
–
(218)
–
–
(213)
(30,219)
–
(225)
(758)
(900)
(164,519)
(153,755)
(154,490)
(149,476)
(143,216)
(2,842)
(7,022)
(2,754)
(7,117)
(2,669)
(6,678)
(2,586)
(4,201)
(2,506)
(8,615)
(174,601)
(163,839)
(194,056)
(156,488)
(155,995)
(33,239)
(12,780)
(46,019)
(220,620)
177,503
(33,371)
(14,641)
(48,012)
(3,691)
(11,789)
(15,480)
(34,011)
(10,138)
(44,149)
(34,392)
(20,253)
(54,645)
(211,851)
(209,536)
(200,637)
(210,640)
173,329
166,545
163,738
152,629
Headlam Group plc Annual Report and Accounts 2013 Notice of AGM
Notice is hereby given that the 66th Annual General
Meeting of Headlam Group plc will be held at the group’s
distribution facility located at Gorsey Lane, Coleshill,
B46 1JU on Wednesday 21 May 2014 at 10.00 a.m. for the
following purposes.
As ordinary business
1. To receive, consider and adopt the Annual Report
and Accounts, the reports of the directors and the
Independent Auditor’s Report for the year ended
31 December 2013.
2. To declare a final dividend for the year ended
31 December 2013 of 10.65p per ordinary share.
3. To re-elect as a director Tony Brewer who is retiring by
rotation in accordance with the company’s articles.
4. To re-elect as a director Andrew Eastgate who is retiring by
rotation in accordance with the company’s articles.
5. To appoint KPMG LLP 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 Directors’ Remuneration Report for the
year ended 31 December 2013.
8. To approve the Directors’ remuneration policy to take
effect from the conclusion of this AGM.
As special business
To consider and, if thought fit, pass the following resolutions
of which resolution 9 will be proposed as an ordinary
resolution and resolutions 10 to 12 will be proposed as
special resolutions:
9. 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
2015 AGM (or, if earlier, at the close of business on
30 June 2015), 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.
10. Disapplication of pre-emption rights
that, subject to the passing of resolution 9 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 9
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 2015 AGM if passed (or, if earlier, at the close of
business on 30 June 2015), 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
(b) shall be limited to:
(i) the allotment of equity securities in connection
with an issue to holders of ordinary shares of 5p in
the capital of the company in proportion (as nearly
as may be practicable) to their existing holdings
and to people who hold other equity securities, if
this is required by the rights of those securities or,
if the directors consider it necessary, as permitted
by the rights of those securities and so that the
directors may impose any limits or restrictions
and make any arrangements which they consider
necessary or appropriate to deal with treasury
shares, fractional entitlements, record dates, legal,
regulatory or practical problems in, or under the
laws of, any territory or any other matter; and
(ii) the allotment of equity securities for cash
otherwise than pursuant to paragraph 9(b)(i) up to
an aggregate nominal amount of £213,000.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Notice of AGM continued
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 9 in this
Notice” were omitted.
11. 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 5p 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 5p;
(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 2015 AGM or, if earlier, at the
close of business on 30 June 2015 (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).
12. 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 2015 or 30 June 2015, whichever is
the earlier.
By order of the board
Geoff Duggan
Company Secretary, 7 March 2014
Headlam Group plc
Registered No. 460129, England
Registered office:
Gorsey Lane, Coleshill
Birmingham, B46 1LW
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Headlam Group plc Annual Report and Accounts 2013 Explanatory Notes to the Proposed Resolutions
This year’s AGM will be held at the group’s distribution
facility at Gorsey Lane, Coleshill, Birmingham B46 1JU on
Wednesday 21 May 2014 at 10.00 a.m.
A description of the resolutions that will be proposed at the
meeting is set out below.
Resolutions 1 to 9 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 10 to 12 inclusive are
proposed as special resolutions, which means, that for each
of those resolutions to be passed, at least three-quarters of
the votes cast must be cast in favour of the resolution.
Resolution 1 – Annual Report and Accounts
The company is required by law to present to shareholders
at the AGM its audited accounts and the directors’ and
independent auditor’s reports for the financial year ended
31 December 2013. Shareholders are invited to vote to
receive and adopt the Annual Report and Accounts for the
year ended 31 December 2013.
Resolution 2 – Declaration of dividend
The directors recommend the payment of a final dividend of
10.65p on each of the ordinary shares entitled thereto, which
together with the interim dividend of 4.65p, gives a total
dividend of 15.30p for the year ended 31 December 2013.
Subject to approval of the declaration of the final dividend at
the AGM, the final dividend will be paid on 1 July 2014 to the
holders of ordinary shares whose names are recorded on the
register of members at the close of business on 6 June 2014.
Resolution 3 – Re-election of Tony Brewer
as a director
Tony Brewer is retiring by rotation in accordance with the
company’s articles and is offering himself for re-election by
shareholders. Under the articles of association, directors
are required to retire every three years. Tony was appointed
an executive director in June 1991, becoming Managing
Director of the Floorcoverings Division in 1992 and Group
Chief Executive in November 2000. The board believes
that Tony Brewer should be re-elected and makes such a
recommendation to shareholders.
Resolution 4 – Re-election of Andrew Eastgate
as a director
Andrew Eastgate 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. Andrew was appointed a
non-executive director in May 2010 at which time he joined
the Nominations, Audit and Remuneration Committees,
becoming Chairman of the Audit Committee on
1 September 2013. The board believes that Andrew Eastgate
should be re-elected and makes such a recommendation
to shareholders.
Resolution 5 – 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 Audit Plc have notified the company that they
are not seeking re-appointment. It is proposed that KPMG
LLP be and are hereby appointed auditors of the company
and will hold office from the conclusion of this meeting until
the conclusion of the next Annual General Meeting at which
accounts are laid before the company.
Resolution 6 – Agreement of auditor
remuneration
In addition to the company’s requirement to appoint an
auditor, shareholder authority is sought for the directors to
determine the remuneration to be paid to the auditor for the
period of appointment.
Resolution 7 – Directors’ Remuneration Report
Shareholders are being asked to approve the 2013 Directors’
Remuneration Report, which gives details of the directors’
remuneration for the period ended 31 December 2013
and is set out on pages 50 to 66 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. As required
by the Directors’ Remuneration Report Regulations 2002,
KPMG Audit Plc have audited those parts of the Directors’
Remuneration Report capable of being audited and their
report can be found on pages 73 to 75 of the Annual Report
and Accounts.
Resolution 8 – Directors’ remuneration policy
Changes made under the Large and Medium-sized
Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 and the Enterprise &
Regulatory Reform Act 2013, require UK listed companies
to put before shareholders a binding resolution inviting
shareholders to approve the company’s remuneration policy
at least every three years (or when the policy changes).
The directors’ remuneration policy, which can be found
on pages 50 to 66 of the company’s Annual Report and
Accounts sets out details of the company’s proposed policy
on directors’ remuneration. Subject to approval at the AGM
the policy will take effect from the conclusion of this AGM.
Special Business – Resolutions 9 to 12
Resolution 9 – 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,
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continued
the proposed general authority, similar to last year, is to
allot up to an aggregate nominal amount of £620,000
representing 12,400,000 ordinary shares (15% of the
company’s ordinary share capital (excluding treasury
shares) in issue at 6 March 2014). As at 6 March 2014, the
company held 1,737,520 treasury shares, which represented
approximately 2.04% 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 2015, or, if earlier, on 30 June 2015. 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 10 – Disapplication 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 6 March 2014). The authority will lapse at
the conclusion of the AGM to be held in 2015 or, if earlier, on
30 June 2015.
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 11 – 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
134
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 2013. The authority is in respect of 10% of the company’s
issued ordinary share capital as at 7 March 2014 and will lapse
at the conclusion of the AGM to be held in 2015 or, if earlier,
on 30 June 2015. 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 11, 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 22 and 23 to the
Financial Statements.
Resolution 12 – 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 12,
the minimum notice period under the regulations would be
21 days. If resolution 12 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 12, which is
a repeat of the same resolution passed at the AGM in 2013,
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 2013 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 our registrars, Capita Asset Services, 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 Asset Services, 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.
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 19 May 2014
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.
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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 6 March 2014, being the latest practicable date prior to
the publication of this document, the company’s issued share
capital, including treasury shares, consisted of 85,363,743
ordinary shares of 5p (“shares”). Of these 1,737,520 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 83,626,223.
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.
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 Asset Services, 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 2013 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.
136
Headlam Group plc Annual Report and Accounts 2013
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 Nominations 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.
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Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Shareholder Information
Shareholder helpline
The company’s shareholder register is maintained by Capita
Asset Services (“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 Asset Services, 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.capitaassetservices.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. For a real-time buying or selling price, you
should contact a stockbroker. Additionally there is a link to
the London Stock Exchange on the company’s website.
The company’s website
The company’s website at www.headlam.com provides
news, details of activities, and information on the share price.
The investor information section of the website contains up
to date information for shareholders including the company’s
latest results and key dates such as dividend payment dates.
ShareGift
ShareGift, the charity share donation scheme, is a free service
for shareholders wishing to give shares to charitable causes.
It may be especially useful for those who wish to dispose of
a small parcel of shares which would cost more to sell than
they are worth. There are no capital gains tax implications
(i.e. no gain or loss) on gifts of shares to charity and it is also
possible to obtain income tax relief. Further information can
be obtained at www.sharegift.org.
The Unclaimed Assets Register
The Unclaimed Assets Register is a unique search service
that helps individuals to find their lost assets and re-establish
contact with financial institutions. It has a database of
unclaimed life policies, pensions, unit trust holdings, and
share dividends drawn from many companies and can search
for lost assets and entitlements. The Unclaimed Assets
Register charges a small fixed fee for each search, 10% of
which goes to charity.
For further information, visit www.uar.co.uk.
138
Headlam Group plc Annual Report and Accounts 2013 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 Conduct
Authority (FCA) by calling 0800 111 6768 or by visiting
www.fca.org.uk and contact the firm using the details on
the register.
• Report the matter to the FCA by calling 0800 111 6768 or
by visiting www.fca.org.uk.
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 FCA website
www.moneymadeclear.org.uk. If you have any queries, please
contact the Company Secretary.
139
Headlam Group plc Annual Report and Accounts 2013 Strategic ReportGovernanceFinancial StatementsShareholder Information Advisers
Auditor
KPMG Audit Plc
One Snowhill
Snow Hill Queensway
Birmingham B4 6GH
Taxation Advisors
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 Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
140
Headlam Group plc Annual Report and Accounts 2013 Strategic Report
Governance
Financial Statements
Shareholder Information
Financial Calendar
Announcements
Interim Management Statement
Annual General Meeting
Interim results announced
Interim Management Statement
Full year results announced
Dividend Dates
Final dividend for 2013, if approved, payable to qualifying
shareholders on the register as at 6 June 2014
Interim dividend for 2014 announced
Interim dividend for 2014 payable
16 May 2014
21 May 2014
22 August 2014
18 November 2014
March 2015
1 July 2014
22 August 2014
2 January 2015
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Registered office
Headlam Group plc
Website
www.headlam.com
PO Box 1
Gorsey Lane
Coleshill
Birmingham
B46 1LW
Tel: 01675 433000
Fax: 01675 433030
Email
headlamgroup@headlam.com
Registration
Registered in England and Wales
Number 460129
For further detail on
our business please visit:
www.headlam.com
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