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Europe’s
leading
floorcoverings
distributor
Headlam Group plc
Annual Report and Accounts 2019
Headlam Group plc
RNS Trading Update - March 2020
Dear Reader
ANNUAL REPORT AND ACCOUNTS 2019 AND COVID-19 TRADING UPDATE
Since the approval and printing of Headlam Group plc’s Annual Report and Accounts 2019, the Company has released a
COVID-19 Trading Update to the London Stock Exchange (‘Announcement’) on 25 March 2020.
This subsequent Announcement alters the detail contained in the Annual Report and Accounts 2019 in relation to the 2019
final ordinary dividend and the total ordinary dividend in respect of 2019. Further to the Announcement, the total ordinary
dividend in respect of 2019 will now be 7.55 pence per share, with no 2019 final ordinary dividend proposed.
The Announcement can be found on our website at www.headlam.com and is printed in full for those shareholders requesting
a hard copy of Headlam Group plc’s Annual Report and Accounts 2019.
Headlam Group plc
26 March 2020
Headlam Group plc, PO Box 1, Gorsey Lane, Coleshill, Birmingham B46 1LW
T +44 (0) 1675 433 000, F +44 (0) 1675 433 030 (Confidential)
headlamgroup@headlam.com www.headlam.com
Registered Office: As above. Registered in England No. 460129
01
Headlam Group plc
RNS Trading Update - March 2020
25 March 2020
Headlam Group plc
('Headlam' or the 'Company')
COVID-19 Trading Update
Headlam Group plc (LSE: HEAD), Europe's leading floorcoverings distributor, today announces a COVID-19 trading update.
The Board is committed to following all of the UK Government’s guidance and to ensuring the long-term sustainability and
success of the Company. An overview of the short and longer-term measures the Company is taking in this regard is detailed
below as well as an overview of the Company’s financial position and liquidity.
2020 Trading and Full Year Expectations
Trading to date in 2020, incorporating the majority of the first quarter, has been reasonably resilient, and broadly in-line with
that of 2019. However, following the recent changes in UK Government guidance in response to COVID-19, the Company now
expects an imminent and meaningful downturn in orders. As the overall impact on demand and over what time period is not
yet known, it is not currently possible to provide guidance on the expected outturn for the financial year ending 31 December
2020. As soon as the Board has improved clarity, a further announcement will be made in respect of the anticipated 2020
performance.
Operations and Cash Management
The Company is focused on cash management and limiting operating costs to the lowest possible level in preparation for the
expected meaningful reduction in orders, which will hopefully be deferrals and temporary in nature, until Government
restrictions on movement are lifted. All non-critical operational and capital spend has been halted and all purchasing of stock
ceased earlier this month.
The Company closed all of its UK sites as of close of business yesterday until further notice, with the exception of its largest
national distribution centre in Coleshill. This will enable the Company to fulfil demand which may arise, specifically within the
commercial sector where there is essential work driven by health and safety requirements and medical or emergency
infrastructure related orders. The Company has a significant inventory position, £132.5 million as at 31 December 2019, which
will enable it to continue to fulfil demand for the foreseeable future.
The opening of the Company’s new regional distribution centre in Ipswich has been delayed from the originally planned Easter
2020 opening as a result of European contractors being recalled due to travel restrictions. It will be possible for the centre to
be operational in a matter of weeks once restrictions are lifted.
The Company is currently assessing the UK Government’s range of COVID-19 related financial support available to
businesses and is assessing if any of them would provide any benefit to the Company in the long-term.
People
It is the Board’s intention to protect the wellbeing of its people and preserve employment, with this firmly in-line with the UK
Government’s aim. All of the Company’s people who are affected by the temporary closure of sites and businesses will be paid
an enhanced form of the UK Government’s Coronavirus Job Retention Scheme.
Operational Improvement Programme
It is the Company’s intention to remain focused on the long-term, and will, where practical, continue with the planning and / or
acceleration of some of the projects forming part of the overall operational improvement programme designed to make the
business more efficient and effective.
Balance Sheet and Liquidity
The Company has a strong Balance Sheet and significant liquidity headroom as detailed below. Additionally, the Company has
a largely freehold property portfolio with minimal lease commitments which limits property cash outflows.
As stated in the Company’s final results announcement on 5 March 2020, average net debt in 2019 was £3.3 million (2018:
£16.9 million net debt), with cash and cash equivalents of £33.4 million as at 31 December 2019.
On 5 August 2019, the Company completed a refinancing of its existing banking facilities to extend their term from 14
December 2021 to 30 April 2023. The Company maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc,
and decreased the level of Sterling committed facilities from £72.5 million to £68.5 million and increased its Euro committed
facilities from €8.6 million to €9.6 million. The Company also has short-term uncommitted facilities which continue at £25.0
million, and are renewable on an annual basis. The total banking facilities available to the Company at 31 December 2019 were
£109.7 million, and as at that date 94.1% of the total facilities were undrawn, equivalent to £103.2 million.
02
Headlam Group plc
RNS Trading Update - March 2020
2019 Final Ordinary Dividend
Notwithstanding the current Balance Sheet strength and liquidity headroom, in light of the uncertain environment which is
likely to prevail for a considerable period, the Board has taken the prudent decision to suspend the proposed 2019 final
ordinary dividend of 17.45 pence per share that was detailed within the final results announcement, and that was to be put to a
shareholder vote at the forthcoming AGM in May 2020. This is reflective of the Board’s overriding focus on preserving the
financial stability of the Company, with the suspension of the dividend reducing cash outflow by £14.6 million. The Board is
committed to providing dividend income to its shareholders, and dependent on prevailing conditions at the time, the Board
will consider an appropriate augmentation to the 2020 interim dividend that is normally declared at the time of the Company’s
interim results announcement and payable in January of the following year. Alternatively, and subject to trading in the final
quarter of 2020 and other prevailing conditions at the time, the Company may consider the declaration of a special dividend.
The Company will continue to engage with all its stakeholders during this difficult time, and wishes to express its utmost
appreciation to all its people.
It is currently anticipated that the 2019 Annual Report and Accounts and accompanying Notice of AGM will be posted to
shareholders in April 2020.
Enquiries:
Headlam Group plc
Steve Wilson, Chief Executive
Chris Payne, Chief Financial Officer
Catherine Miles, Director of Communications
Tel: 01675 433 000
Email: headlamgroup@headlam.com
Investec Bank plc (Corporate Broker)
David Flin / Alex Wright
Panmure Gordon (UK) Limited (Corporate
Broker)
Erik Anderson / Dominic Morley / Ailsa
Macmaster
Tel: 020 7597 5970
Tel: 020 7886 2500
Buchanan (Financial PR and IR)
Mark Court / Toto Berger
Tel: 020 7466 5000
Notes for Editors:
Operating for 28 years and employing 2,575 people as at 31 December 2019, Headlam is Europe's leading floorcoverings
distributor.
Headlam provides the distribution channel between suppliers and trade customers of floorcoverings. Working in partnership
with suppliers across the globe manufacturing a diverse range of floorcovering products and ancillary accessories, Headlam
provides an unparalleled route to market for their products across the UK and certain Continental European territories.
The utilisation of an outsourced distribution channel enables manufacturers to focus on their core activities, incur reduced
costs associated with distribution, and benefit from localised sales, marketing and distribution expertise that provides a more
effective and greater route to market for their products.
To maximize customer and market penetration, and reflecting the regionalised nature of the marketplace, Headlam
comprises 67 individual businesses in the UK and Continental Europe (France, the Netherlands and Switzerland) each
operating under their own unique trade brand and utilising individual sales teams.
Headlam's extensive customer base, operating within both the residential and commercial sectors and comprising principally
independent retailers and flooring contractors, receives the broadest product offering supported by next day delivery as well
as additional marketing and other support.
Headlam's offering is enabled through its unrivalled operating expertise, long-established supplier and customer
relationships, and comprehensive distribution network. Following years of considerable investment, Headlam's distribution
network currently comprises four national distribution hubs, 19 regional distribution centres and a supporting network of
smaller warehouse premises, trade counters, showrooms and specification centres.
In 2019, Headlam worked with 190 suppliers from 19 countries and fulfilled 5.3 million customer orders.
03
www.headlam.com
We’ve got
it covered
Headlam Group plc is Europe’s leading
floorcoverings distributor, providing the
distribution channel between suppliers
and trade customers of floorcoverings.
Headlam provides suppliers with an
unparalleled route to market for their
products across the UK and certain
Continental European territories.
Customers receive a market-leading service
through access to the broadest range of
floorcoverings, unrivalled product knowledge
and expertise, and next day delivery.
Operating for 28 years, Headlam has long-
established supplier partnerships and
customer relationships, and an extensive
distribution network following years of
considerable investment.
To find out more
visit us online at
www.headlam.com
Overview
Chief Executive’s Welcome
2019 Highlights
2
3
10 About Us
Strategic Report
12 Chairman’s Statement
13
Investment Case
14 Chief Executive’s Review
17 Non-Financial Information Statement
18 Our Marketplace
20 Our Strategy and Values
22 Our Business Model
Financial Review
24
Key Performance Indicators
32
34
Risk Management and Principal Risks and Uncertainties
37 Viability Statement
38
40
44
46 Our People
Environment
50
52 Health and Safety
53 Communities and Charitable Donations
Introduction to Corporate Responsibility and ESG
Stakeholder Interaction and Engagement
Section 172 Statement
Governance
54
Board of Directors and Executive Team
58 Chairman’s Introduction to Governance
60 Corporate Governance Report
67 Nomination Committee Report
70 Audit Committee Report
76 Directors’ Remuneration Report
98 Other Statutory Disclosures
102 Statement of Directors’ Responsibilities
103 SECR Disclosure
Financial Statements
Independent Auditors’ Report
104
110 Consolidated Income Statement
111 Consolidated Statement of Comprehensive Income
112 Statements of Financial Position
113 Statement of Changes in Equity – Group
114 Statement of Changes in Equity – Company
115 Cash Flow Statements
116 Notes to the Financial Statements
IBC Financial Record
Headlam Group plc Annual Report and Accounts 2019
1
GovernanceFinancial StatementsStrategic ReportOverview Chief Executive’s Welcome
I am pleased to welcome you to our 2019
Annual Report and Accounts. Considerable
activity was undertaken during the year, and
reflective of this, within this Report you will
find refined strategic objectives following
their review during 2019, articulated
Company Values, detail of increased
engagement with our workforce, enhanced
reporting and disclosures on our
Environmental activities, and detail of our full
compliance with the requirements of the
2018 UK Corporate Governance Code. I
hope you find this Report informative, and
please do get in touch with any questions or
feedback you may have.
Steve Wilson
Chief Executive
See Chief Executive's Review on page 14
2
2019 Highlights*
Revenue
£719.2m
+1.5%
(2018: £708.4m)
677.7
692.5
708.4
719.2
639.3
2015
2016
2017
2018
2019
Underlying** operating profit
£42.2m
-4.8%
(2018: £44.3m, not restated*)
Statutory operating profit £38.3 million
(2018: £41.3 million, not restated*)
41.1
43.8
44.3
42.2
36.8
2015
2016
2017
2018*
2019
Underlying** profit before tax
Statutory profit before tax
£39.5m
-9.1%
(2018: £43.4m, not restated*)
40.1
35.6
43.1
43.4
39.5
£35.2m
-13.0%
(2018: £40.4m, not restated*)
38.2
35.6
40.7
40.4
35.2
2015
2016
2017
2018*
2019
2015
2016
2017
2018*
2019
Statutory basic earnings per share
Total ordinary dividend
34.0p
-15.0%
(2018: 40.0p, not restated*)
Net cash position
£27.0m
-26.4%
(2018: £36.7m)
36.8
33.8
39.1
40.0
34.0
25.0p
Maintained
(2018: 25.0p)
24.8
25.0
25.0
22.5
20.7
2015
2016
2017
2018*
2019
2015
2016
2017
2018
2019
* The 2019 results have been prepared in accordance with the new IFRS 16 ‘Leases’
accounting standard (‘IFRS 16’) effective for financial periods beginning on or after 1 January
2019. As the Company has adopted the modified retrospective approach, there has been no
restatement of the comparatives for the 2018 reporting period. The impact on the
Company’s financial statements is detailed in the Notes to the Financial Statements
(Note 11), with adjustments recognised in the Income Statement, Cash Flow Statement and
Statement of Financial Position (Balance Sheet). There is no overall impact on the Company’s
cash and cash equivalents.
** Underlying is before non-underlying items which includes amortisation of acquired
intangible assets, impairment of goodwill, acquisition related fees and associated
restructuring costs, movements in deferred and contingent consideration, finance costs on
deferred and contingent consideration, non-recurring pension costs in relation to
guaranteed minimum pension (‘GMP’) equalisation, and non-recurring costs relating to
senior personnel changes.
52.6
43.9
35.3
36.7
27.0
2015
2016
2017
2018
2019
Operational Highlights
• Strategic focus on improving, growing and broadening position within the floorcoverings industry
• Scope of ongoing operational improvement programme enlarged, with the constituent projects designed to grow revenue and
improve the customer service proposition, operating performance and margin
– Roll-out of inventory management and automated stock re-ordering system completed as planned in 2019, with benefits including
improved product availability and warehouse capacity becoming increasingly evident
– Trial successfully completed in 2019 under the transport consolidation project, with phased roll-out stage now commenced
ultimately leading to a decrease in the cost to serve
– New regional distribution centre in Ipswich remains on track, with the facility due to become operational next month at a total cost
of approximately £26.0 million
•
ISO 45001:2018 accreditation, the world’s first international standard for occupational health and safety management, achieved
across all 18 UK national distribution hubs and regional distribution centres
Headlam Group plc Annual Report and Accounts 2019
3
GovernanceFinancial StatementsStrategic ReportOverview 4
Partnerships
& scale
covered
Over the 28 years we have been operating,
we have focused on building long-term
partnerships with our suppliers and
customers. This focus, coupled with the
longevity of our operations and substantial
investment in the business and network, has
resulted in us becoming Europe’s leading
floorcoverings distributor.
See more on page 10
Headlam Group plc Annual Report and Accounts 2019
5
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview 6
Service &
expertise
covered
Our service proposition is focused on
supporting our customers by providing a
market-leading service with unparalleled
product knowledge, expertise and solutions
across the broadest range of floorcoverings,
with a continual focus on enhancing the
customer service proposition.
See more on page 10
Headlam Group plc Annual Report and Accounts 2019
7
GovernanceFinancial StatementsStrategic ReportOverview Processing
& delivery
covered
Our considerable processing and delivery
capabilities are enabled by our material
handling expertise, specialised equipment
and comprehensive distribution network,
with 5.3 million customer orders being
processed and fulfilled in 2019 on a next-day
or collection basis.
See more on page 10
8
Headlam Group plc Annual Report and Accounts 2019
9
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview About Us
We are Europe’s leading
floorcoverings distributor
Operating for 28 years and employing 2,575 people,
Headlam is Europe’s leading floorcoverings
distributor providing the distribution channel
between suppliers and trade customers of
floorcoverings.
Working in partnership with suppliers
across the globe manufacturing a diverse
range of floorcovering and ancillary
products, Headlam provides an
unparalleled route to market for their
products across the UK and certain
Continental European territories. Utilisation
of an outsourced distribution channel
enables suppliers to focus on their core
manufacturing activities, incur reduced
costs associated with distribution, and
benefit from localised sales, marketing
and distribution expertise.
To maximise customer and market
penetration, and reflecting the regionalised
nature of the marketplace, Headlam
comprises 66 individual businesses in the
UK and Continental Europe (France, the
Netherlands and Switzerland). Each
business operates under their own unique
trade brand and utilise individual sales
teams while being supported by the
Company’s centralised and financial
resources and distribution network.
Headlam’s extensive customer base spans
both the residential and commercial
sectors, with residential the predominate
sector at 63.7% of revenue in 2019 and
independent retailers and flooring
contractors being the Company’s two
principal customer groups.
Headlam’s customer service proposition is
centred on supporting and assisting its
customers’ growth, and customers are
provided with a market-leading service
through:
•
the broadest product offering;
• unrivalled product knowledge;
• marketing support and frequent
interaction with sales teams;
• e-commerce support;
• provision of credit; and
• next day delivery, or collection utilising
the Company’s trade counter network.
The Company’s ‘just-in-time’ delivery or
collection negates the need for customers
to invest in and hold meaningful levels of
stock, additionally allowing for smaller
premises and any associated rental
commitments.
The Company’s business is largely
characterised by a high volume of smaller
value orders and in 2019 Headlam
processed and fulfilled 5.3 million customer
orders. This capability is enabled by the
Company’s material handling expertise,
specialised processing equipment including
cutting tables and sortation units, and
comprehensive distribution network.
Following years of considerable investment,
Headlam’s distribution network currently
comprises four national distribution hubs,
19 regional distribution centres and a
supporting network of smaller warehouse
premises, trade counters, showrooms and
specification centres. A new regional
distribution centre is due to be operational
for Easter 2020 following a £26 million
investment.
Leading position for
28 years
Employees
2,575
Businesses
66
10
All data stated for the financial year ended 31 December 2019 or as at 31 December 2019
2019 Revenue
Residential sector
63.7%
UK
84.8%
Commercial sector
36.3%
Continental Europe
15.2%
1 UK
2 France
3 Switzerland
4 Netherlands
Countries of operations
4
4
1
3
2
Supplier countries
Distribution hubs and centres
19
23
Active customer accounts
70,458*
Customer orders processed
5.3m
* Across all the Company’s businesses, and includes duplication
What we do
Suppliers
We work with suppliers across
the globe manufacturing a
diverse range of floorcovering
products, and provide them
with an unparalleled route to
market.
Sales
Our extensive customer base
spans both the residential and
commercial sectors, with each
of our businesses having an
unique identity and sales team
with unparalleled product
knowledge.
Customer Service
Our service proposition is
centred on supporting and
assisting our customers
growth, including through
providing the broadest product
offering and next day delivery.
Processing
Our ability to process a high
volume of smaller value orders
is enabled by our long-
established operations and
processes and material
handling expertise.
Delivery
Following years of considerable
investment, we have an
extensive distribution network
across the UK and certain
Continental Europe territories
which enables next day delivery
or collection.
Headlam Group plc Annual Report and Accounts 2019
11
GovernanceFinancial StatementsStrategic ReportOverview Chairman’s Statement
Against a backdrop of general softness
in the market, it was encouraging to
have recorded revenue growth
The ongoing operational improvement programme is a key enabler of
our strategy and strategic objectives, and the programme continues
to be developed, enhanced in scope, implemented and rolled-out
through a number of constituent and holistic projects. As well as
leading to an increasingly positive impact on the Company’s financial
performance through revenue growth and margin improvement, it is
designed to benefit all stakeholders, including our people through more
efficient working processes, suppliers through increased and more
productive collaboration, and customers through an enhanced service
proposition including improved product availability and delivery.
We believe that a sustainable business is one which employs strong
and well-defined Environmental, Social and Governance (‘ESG’)
practices, and our strategic objectives and the supporting operational
improvement programme will allow a more concerted focus and
measurement of our ESG practices, particularly in the area of the safety
and wellbeing of our people and the mitigation of our impact on the
environment. 2019 saw the establishment of our Employee Forum
strengthening engagement with our workforce and providing another
mechanism from which to directly seek and act on employee feedback.
The transport consolidation project, part of the operational
improvement programme, provides a clear roadmap for a reduction in
the commercial vehicles needed to service local areas and the
attendant positive impact on the environment and communities due
to lower carbon emissions and vehicle movements.
We are committed to continuing to invest in the business to support
its sustainability and future success. Following on from 2019, and as
previously announced, we have a substantial level of investment
planned in 2020 to support our growth and improvement objectives.
A highlight of 2020 will be the opening of our new regional distribution
centre in Ipswich after a total capital investment of £26 million, with the
centre supporting and improving customer service throughout the
South East of England while enabling greater network and operational
efficiency.
With a backdrop of clearly defined strategic objectives and the ever-
increasing momentum and scope of our activities to support their
delivery, we are increasingly optimistic in our ability to build upon and
grow our leading position and deliver an associated improvement in
financial performance.
I wish to thank all our colleagues for their ongoing hard work and
commitment.
Philip Lawrence
Non-Executive Chairman
5 March 2020
Philip Lawrence Non-Executive Chairman
Against a backdrop of general softness in the market, it was
encouraging to have recorded revenue growth on both an absolute
and like-for-like* basis during the year and, despite the previously
guided reduced profit performance compared with 2018, propose
a final ordinary dividend in-line with the Board’s previously stated
intention to maintain the full year dividend with that of 2018.
Notwithstanding this performance, the market conditions that have
been evident over the past two years combined with ongoing cost
inflation have underscored the need for the business to become more
effective and efficient in order to deliver higher levels of growth and
improved performance.
Despite being a market-leader with unparalleled expertise and scale,
there is still much we can do to improve, grow and broaden our position
within the floorcoverings industry. In-line with this intent, we have
introduced considerable additional expertise into the business and,
over the past twelve months, have focused on reviewing and refining
our strategy and the associated strategic objectives.
The strategic objectives support the delivery of revenue growth,
a broadened position in the market, and an improvement to both
customer service and margin. These objectives build upon our
industry-leading position, and are intended to provide the basis for
long-term sustainable growth.
12
* Like-for-like revenue is calculated based on constant currency from activities and
businesses that made a full contribution in both the 2019 and 2018 periods and is
adjusted for any variances in working days
Investment Case**
Significant scale and longevity of operations underpinned by capital efficiency,
progressive dividend policy, and operational improvement programme to improve
performance.
Exposure to future UK economic growth.
Market
Leader
• 28 years of operations, with
• Significant scale and
•
market-leading position, people
and expertise.
market penetration, with
centralised resources and
multiple businesses.
Increasing sustainability through
broadening presence in the
industry and growing in
underweight product
categories, customer groups
and market segments.
• Strong balance sheet and cash
• Net cash of £27.0 million as at
• Total ordinary dividend of
Financial
Strength &
Dividend
generation, with cash generated
from operations representing
146% of statutory operating
profit in 2019.
Long-
established
Relationships
• Long-established supplier
partnerships, working with 190
suppliers in 19 countries during
2019.
Operational
Improvement
Programme
• Comprehensive programme
underway to grow revenue
and improve operating
performance, the customer
service proposition and margin.
period-end, and following capital
expenditure of £18.3 million on
new Ipswich regional distribution
centre and existing network
in 2019.
• Exceptionally broad and diverse
customer base, with 5.3 million
orders processed in 2019.
25.0 pence in 2019, and ongoing
commitment to a progressive
dividend policy.
• Modest average order value of
£136 reflecting RMI spend
towards the lower-end of the
range, with little reliance on
larger projects and new
construction activity.
• Early-stage financial
•
contributions able to offset
general non-employee related
year-on-year inflationary
pressures in 2019, with
increasing future contributions
able to enhance margin.
Improvements to customer
service already evident through
increased product availability
and more efficient delivery
operations, which additionally
reduces carbon footprint.
Extensive
Network
• Extensive network and
• Largely freehold property
inventory supporting the
customer service proposition,
with inventory position of
£132.5 million at period-end
and improved management
creating growth capacity.
portfolio underpinning value,
with property, plant and
equipment assets totalling
£114.6 million.
• Substantial time and resources
required to replicate network
and service levels, creating
a significant barrier
to entry.
Commitment to the highest levels of corporate responsibility and governance
further reinforces the Investment Case, see Corporate Responsibility on page 38
and Corporate Governance on page 58.
** All numbers given are for the financial year ended 31 December 2019 or as at 31 December 2019
Headlam Group plc Annual Report and Accounts 2019
13
GovernanceFinancial StatementsStrategic ReportOverview Chief Executive’s Review
2019 Financial Performance
As per the guidance we gave in January 2019, we have reported a
profit performance below that of 2018, with this reduction attributable
to a number of factors including market conditions, ongoing cost
inflation and regulatory requirements associated with accounting
standards, all of which are detailed below.
It was reassuring that we were able to deliver results in-line with our
January 2019 guidance, including a maintained dividend, given the
backdrop of economic and political uncertainty and associated weak
market that prevailed in the UK throughout the year, with the business
demonstrating a degree of underlying resilience. In a soft market,
which could have impacted us more greatly, we were able to maintain
our trading performance throughout the year and additionally achieve
some revenue growth on both an absolute and like-for-like* basis.
Total revenue grew 1.5% to £719.2 million (2018: £708.4 million) with
growth in Continental Europe outperforming that of the UK, at 4.5%
and 1.0% respectively, and leading to the UK accounting for a slightly
reduced 84.8% of total revenue (2018: 85.3%). Following a like-for-like*
increase of 3.2% in Continental Europe and 0.3% in the UK, total
like-for-like* revenue growth was 0.7%.
Reflective of the weak UK residential sector and overall soft market
conditions that have persisted since 2018, there was a continuation of
the gradual shift in overall business mix towards the commercial
sector which has proven to be the more resilient UK revenue stream.
Conversely, in Continental Europe, the residential sector performed
better than the commercial sector so, when combined with the
marginal decline in UK residential performance, this resulted in total
residential sector revenue being flat. In 2019, the residential sector
accounted for a reduced 63.7% of total revenue (2018: 64.6%; 2017:
67.9%).
Despite the shift in business mix towards the lower-margin
commercial sector, the gross margin was fairly resilient year-on-year
at 31.9% (2018: 32.3%) and supported by ongoing pricing discipline
across the group.
As described in detail within the Financial Review, the new IFRS 16
‘Leases’ accounting standard (‘IFRS 16’) became effective in the
financial year, positively impacting reported operating profit while
reducing reported profit before tax and, therefore, having a marginally
adverse impact on earnings per share. The Company adopted the
modified retrospective approach and, therefore, there is no
restatement of the 2018 comparatives. Underlying operating profit
and underlying profit before tax was £42.2 million (2018: £44.3 million)
and £39.5 million (2018: £43.4 million) respectively. This performance
was in-line with the Company’s guidance at the beginning of 2019 that,
due to the anticipated and aforementioned movement in revenue mix
and associated margin, and early-stage contributions from the
operational improvement programme not yet able to fully offset
year-on-year inflationary cost pressures, underlying profit
performance would be lower year-on-year.
However, we stated at the same time that despite the lower profit
guidance, the Board intended to maintain the 2019 dividend in-line
with that of 2018, being reflective of the Board’s confidence in the
Company’s ability to improve future profitability.
* Like-for-like revenue is calculated based on constant currency from activities and
businesses that made a full contribution in both the 2019 and 2018 periods and is
adjusted for any variances in working days
Steve Wilson Chief Executive
We have in place a strategy
that will support the delivery
of revenue growth and an
improvement to both
customer service and
profitability, and are pleased
with the enlarged scope and
increasing momentum of the
supporting activities.
14
The following paragraphs provide detail on the strategy and
associated activities which will support the delivery of this
improvement, as well as detail on the declared and proposed
maintained dividend for 2019.
Strategy and Operational Improvement Programme
As referred to in the Chairman’s Statement, while we hold a leading
position in our industry, there is much we can do to improve, grow and
broaden our business. We remain underweight in certain product
categories, customer groups and market segments which present
both revenue and margin growth opportunities. Additionally, further
revenue opportunity lies in improving our service proposition to
customers, particularly in the areas of product availability and
differentiation and tailored propositions for different customer
groups.
Improvement is achieved by making the business more effective
and efficient, which in tandem with revenue growth drives margin
enhancement with a greater percentage of revenue drop-through
to profit on our fairly fixed cost base. Our improvement activity
encompasses greater collaboration with suppliers to improve buying
and production scheduling, which in turn supports the increased
product availability initiative, transport and delivery consolidation
projects which reduce distribution costs, greater network
optimisation, and the introduction of more efficient operating
processes which additionally benefits our people and the
environment.
The above aims form the basis of our strategy and strategic objectives
which are supported by ongoing investment in people and capability,
processes and the distribution network.
During 2019, considerable resource was focused on evaluating,
developing and implementing the ongoing operational improvement
programme which is a key enabler of our strategic objectives and
designed to improve the customer service proposition, operating
performance and margin. Much has been achieved in establishing the
various constituent projects, which have additionally grown in scope,
with their ongoing implementation and roll-out leading to an
increasingly positive impact on financial performance.
The contribution from the operational improvement programme’s
earlier stage projects, largely in the area of a group procurement
approach to goods not for resale and the extension of commercial
and motor vehicle leasing contracts, amounted to over £1.0 million in
2019. This enabled us to offset general non-employee related
year-on-year inflationary pressures during the year. This benefit is now
embedded in the business and it is anticipated that the continued
introduction, implementation and roll-out of various other projects
during 2020 will provide an additional year-on-year benefit to the
Company of approximately £1.0 million in 2020. This cost benefit will
cover the additional investment required in the year to deliver on the
constituent projects. 2021 and beyond is then anticipated to deliver
progressive net contributions from the projects and overall
programme to benefit operating margin. It is our overarching aim to
enable the Company to consistently outperform the cyclical nature of
the market in which we operate, establishing a higher level of growth
and sustainably improving operating margin.
Of the constituent projects within the operational improvement
programme, the roll-out of the inventory management and
automated stock-reordering system to all UK sites was completed as
planned at the end of 2019 with the benefits of improved product
availability, stock-turn, warehouse capacity and improved supplier
production scheduling becoming increasingly evident across the
group. The transport consolidation project, focused around more
effective delivery fleet utilisation, continues to be progressed
following the successfully completed trial in South Wales during 2019
which validated the project. We have now moved to the phased
roll-out stage, with this enabling a fuller quantification and realisation
of a decrease in the cost to serve through an increased number of
order drops per commercial vehicle combined with a reduction in the
number of vehicles needing to service a local area. This project is not
just of significance operationally and financially, but will additionally
reduce our impact on the environment and local communities in which
we operate through reduced transport emissions, air pollution and
vehicle movements. Other projects centred upon enhancing
customer service, including better tailored support and fulfilment
propositions for different customer groups, is being supported by
work undertaken in the area of customer insight and the resource
added in the areas of operational support and customer engagement.
Our new regional distribution centre in Ipswich, described in detail
below and due to be operational next month, is another key
component in improving our performance through enabling greater
network optimisation, operational efficiency, and improved customer
service throughout the South East of England. Following the build-up
of operations after its opening in Easter 2020, it is expected to
become earnings enhancing during 2021.
We are pleased with the enlarged scope and increasing momentum of
the operational improvement programme and its constituent projects
following the considerable focus and attention deployed on fully
defining and developing them throughout 2019 and into 2020. The
programme provides a broad foundation for the delivery of an
improving operating margin.
Investments and Capital Expenditure
2019 incorporated a planned substantial level of investment to
support future growth and improved operational and financial
performance, and as previously announced this will be continued in
2020.
Capital investment of £15.5 million was incurred during 2019 in relation
to our new 190,000 square feet regional distribution centre in Ipswich,
which remains on-track in terms of both cost and timing. The state-of-
the-art facility with 10.6 million cubic feet of capacity is expected to
become operational next month at a total cost of approximately £26.0
million, with the final tranche of £10.0 million being incurred during
2020 and forming the majority of the capital investment planned for
the year.
The opening of the Ipswich distribution centre is an important
milestone for us, and it would be an understatement to say it has been
some years in the planning. I would like to thank everyone who has
helped deliver this significant project for the group.
Headlam Group plc Annual Report and Accounts 2019
15
15
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview Chief Executive’s Review continued
Current Trading and Outlook
The spread of Coronavirus (COVID-19) has currently had no direct
impact on our people, inventory position or customers. We have
extensive inventories, breadth of product and a large geographical
spread of suppliers. We continue to monitor the situation, put in place
mitigation plans, and are communicating with our stakeholders as
necessary.
Trading to date in 2020 has been marginally below the Board’s
expectations. Nevertheless, subject to no deterioration in market
conditions or disruption, we continue to anticipate that this year’s
financial performance will show a modest improvement compared
with 2019 as advised in the January 2020 Pre-Close Trading Update
announcement. In-line with the Company’s commitment to a
progressive dividend policy, it is the Board’s intention to reflect any
increase in statutory basic EPS for 2020 in the 2020 full year dividend.
Steve Wilson
Chief Executive
5 March 2020
Acquisitions
We made one acquisition during the year, completing the purchase
of the trade and assets of Edel Telenzo Carpets Ltd. (‘Telenzo’) in
October 2019. Telenzo is the nationwide UK distribution company for
Edel Carpets, a modern carpet producer located in the Netherlands
owned by Condor Group, and is renowned for its wool tufted carpets
and high-quality man-made fibre carpets for residential and
commercial use. The business’s operations were consolidated into
our Tamworth distribution hub during 2019 creating operational
efficiencies and continues to be operated day-to-day by its existing
sales management team under its own trade brand.
Post the period-end, in March 2020, we completed the acquisition of
Supertex Furnishing Limited (‘Supertex’) for a total consideration
of £1.3 million, subject to finalising the net assets position. This
acquisition enlarges our residential sector activities in the North West
of England, a competitive region of the UK, and Supertex’s main
operations will eventually move to our existing premises in Stockport
creating operating efficiencies.
We continue to monitor a targeted pipeline of acquisitions in-line
with our strategic objectives of achieving meaningful growth and a
broadened presence in the wider industry, including through product
categories and market segments, and remain receptive to further
opportunities.
People
As referred to in the Chairman’s Statement, a wealth of additional
experience and new expertise has been introduced into the business
to help delivery of our strategic objectives. In addition to a fully
assembled Board and Executive Team, we have made several key
project manager and customer focused appointments to support the
constituent projects of the operational improvement programme,
and I am delighted to welcome them all to Headlam.
An ongoing priority is the continued development of a positive
workplace culture, and we introduced a number of new forms of
workforce engagement in 2019 as well as formulating a clear set of
values and behaviours that will be utilised and embedded across the
business. One of our core values is ‘we keep people safe’ and as part of
this we undertook both internal and external assessments of our
health and safety practices throughout 2019. Following a series of
external audits, we were delighted that in October 2019, all the
Company’s UK national distribution hubs and regional distribution
centres were certified as meeting the requirements of ISO
45001:2018, the world’s first international standard for occupational
health and safety management.
Dividend
In-line with the Board’s previously stated intention to maintain the
2019 full year dividend with that of 2018, the Board has proposed a
final ordinary dividend of 17.45 pence per share (2018: 17.45 pence per
share) bringing the total ordinary dividend declared and proposed in
respect of 2019 to a maintained 25.0 pence per share (2018: 25.0
pence per share). If approved by shareholders at the forthcoming AGM
in May 2020, the final ordinary dividend will be payable on 1 July 2020
to shareholders on the register as at 5 June 2020.
16
Non-Financial Information Statement
The table below sets out where stakeholders can find information in the Strategic Report that relates to non-financial matters detailed under
Section 414CB of the UK Companies Act 2006, and this, taken together, comprises the Company’s Non-Financial Information Statement.
Reporting Requirement
Matters
Environmental matters
Employees
Social matters
Respect for Human Rights
Anti-corruption and Anti-bribery matters
Information disclosed in support of the Matters
Business model
Policies pursued, due diligence processes implemented, and outcomes
Principal risks, impact and mitigation
Non-financial key performance indicators
Section and page number
Our Strategy and Values (page 20)
Introduction to Corporate Responsibility and ESG (page 38)
Environment (page 50)
Communities and Charitable Donations (page 53)
Corporate Governance (page 58)
Shareholder Interaction and Engagement (page 40)
Our People (page 46)
Corporate Governance (page 58)
Introduction to Corporate Responsibility and ESG (page 38)
Shareholder Interaction and Engagement (page 40)
Communities and Charitable Donations (page 53)
Corporate Governance (page 58)
Shareholder Interaction and Engagement (page 40)
Corporate Governance (page 58)
Corporate Governance (page 58)
Our Business Model (page 22)
Our People (page 46)
Environment (page 50)
Corporate Governance (page 58)
Risk Management and Principal Risks and Uncertainties (page 34)
Key Performance Indicators (page 32)
Headlam Group plc Annual Report and Accounts 2019
17
17
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview
Our Marketplace
Overview
The UK floorcoverings market is both large and mature, with an
estimated value of £2.1 billion* in 2019 expressed by reference
to manufacturers’ selling price, and is forecasted to grow at rates
ranging from 2.2% to 3.1% per annum over the next five years**.
In macro terms, the market is divided between the residential
and commercial sectors, with the key drivers of demand being
Repair, Maintenance and Improvement (‘RMI’) spend, new
construction activity, and housing transactions.
The residential sector, which accounts for approximately
two-thirds of the value of the market, is largely comprised of
end-consumers undertaking home improvement and
refurbishment activity. This is characterised by a very high
volume of small value orders which are mostly discretionary in
nature and towards the lower-end of the RMI spending range.
Activity within the commercial sector is far broader,
encompassing both private and public spending across a wide
variety of environments including private and public housing
developments, healthcare and educational establishments,
retail premises, offices and the hospitality sector. Order values
span a wide spectrum, encompassing very large through to
modest.
While demand in both the residential and commercial sectors
has a cyclical profile and is influenced by consumer and business
confidence and economic and political backdrops, the
commercial sector has a lesser discretionary aspect to it and
hence a higher degree of resilience in the face of weaker market
backdrops. This is attributable to increased H&S regulations and
the requirement for clean, comfortable, fit-for-purpose
environments meaning that, for example, while deferral can
occur due to limited budgets, replacement of floorcoverings has
to be undertaken periodically.
Manufacturers of floorcoverings are instrumental in creating
demand through continuous product innovation and
development, with certain product categories increasing in
popularity and market share in recent years due to
manufacturers’ technical advancements and changes in
consumer tastes, for example an increased preference for
hard-surface flooring in downstairs areas. The value of
the market is affected by both volume and price, with
manufacturers’ selling price subject to change due to external
factors such as fluctuations in exchange rates and raw material
prices. However, demand for floorcovering products tends to
be inelastic to price increases due to the huge proliferation of
products available in the marketplace at all price points, and
the relative infrequency of purchase by the end-consumer.
Headlam within the Marketplace
The marketplace has a highly fragmented customer base which
gives rise to a significant proportion of manufacturers choosing
to utilise a specialised national distributor such as Headlam
rather than selling direct, thereby reducing their distribution
costs and benefiting from the distributor’s localised sales,
marketing and distribution expertise.
Headlam’s customer base is principally comprised of independent
floorcovering retailers and smaller flooring contractors which gives
rise to the Company fulfilling a high volume of smaller value orders,
with 5.3 million orders processed in 2019 at an average order size of
£136. These two customer groups have been considered the more
resilient during the last two years which have seen generally
restrained markets. This is attributed to the fact that they typically
aren’t encumbered with large overheads or commitments, including
large premises and high property rent, and are able to quickly adjust
their business models and sustain their businesses during weaker
market backdrops.
Headlam’s predominate customer profile means that the
Company has little forward visibility on orders and a very limited
order book. However, this customer profile greatly lessens the
Company’s exposure to new construction work and associated
large-scale projects which are generally more affected by
weaker market backdrops due to more meaningful degrees of
deferral or cancellation.
The Company’s revenue growth in recent years despite muted
levels of housing transactions indicates that the Company’s
performance is not predicated on housing transactions, rather
that they augment the Company’s growth rates when property
markets are more buoyant. Therefore, of the three key drivers of
demand detailed above, RMI spend, towards the lower end of the
scale, is the predominate driver and under pinner of the
Company’s performance.
Sustainability of the Industry
The floorcoverings industry as a whole is responding to the
impact of Climate Change by undertaking actions and
initiatives aimed at reducing its environmental impact, including
through the development of increasingly sustainable and
recyclable products. Working as part of this response, Headlam
is committed to mitigating its own direct impact which arises
predominately from transport emissions while additionally
partnering with manufacturers to support the development,
production and marketing of sustainable and recyclable
products into the marketplace.
See Introduction to Corporate Responsibility and ESG,
and Environment on pages 38 and 50 respectively
* Source: AMA Research
** Source: AMA Research, MTW Research, Mintel
18
UK Market Value
£2.1 billion*
Headlam’s Marketplace and Customer Base
End-consumer
End-consumer
Independent
retailer
Corporate
Larger
retailer
Housebuilder
Flooring
contractor
Developer
Residential
Sector
(63.7% of
revenue)
Commercial
Sector
(36.3% of
revenue)
Flooring
contractor
Housebuilder
Developer
Corporate
Specifier
Housebuilder
End-consumer
Developer
Housebuilder
Specifier
Other
See Introduction to Corporate Responsibility and ESG,
and Environment on pages 38 and 50 respectively
Developer
End-consumer
e.g. direct to a
local authority
Including architects and interior designers who determine the products to be used on a project
Headlam Group plc Annual Report and Accounts 2019
19
GovernanceFinancial StatementsStrategic ReportOverview Our Strategy
Our strategy is to build a successful company, positively impacting
all stakeholders, and delivering sustainable long-term value.
Mission
Provide our customers with a market leading service with unparalleled product
knowledge and solutions across the broadest range of floorcoverings by working in
partnership with our suppliers.
Vision
To build on our market leading position by offering excellent customer service and solutions
across all areas of the floorcoverings industry, and work with suppliers to support the
manufacture and marketing of innovative and sustainable products.
Strategic area
Strategic objectives
Industry
position
Operational
Performance
Customers
and Service
Product and
Expertise
Suppliers
People and
Communities
• Grow leading position
through improved
performance and increased
sales across all customer
groups.
• Broaden presence in the
industry through growing in
underweight product
categories, customer
groups and market
segments.
• Ongoing investment in the
network and people to
support future growth and
the sustainability of the
Company.
• Roll-out of the operational
improvement programme
to improve both the
operational and financial
performance of the
Company.
• Continue to improve the
customer service
proposition through greater
insight into the differing
customer groups’
preferences and
requirements.
• Remain leaders in product
knowledge and expertise,
with improvements in sales
force development and
CRM systems.
• Build upon existing
partnerships with suppliers
through increased
engagement and a shared
value proposition.
• Continue to develop a
positive workplace culture
through colleague
engagement, and embed a
clear set of values and
behaviours in the business.
•
Improve inventory
management and product
availability, while creating
capacity for growth.
• Continued collaboration
between the Company’s
businesses and greater
network optimisation.
• Continue developing
tailored propositions
specific to each customer
group in both the residential
and commercial sectors.
• Enhance e-commence
support for customers,
including an improved
transactional B2B website.
• Enhance the product
offering through increased
product differentiation
and exclusivity.
• Grow sustainable product
offerings and support
recyclable products.
• Work with suppliers to
improve production
scheduling and buying.
• Support suppliers in new
product development and
the marketing of innovative
and sustainable products.
• Focus on the provision of a
safe and inclusive working
environment where
everyone can fulfil their
potential.
• Reduce the Company’s
direct environmental
footprint including through
transport efficiency
initiatives and energy
efficient technologies.
20
Our Values
Teamwork
We work together
and support each
other
Service
We go the extra mile
to deliver excellent
customer service
Safety
We keep
people safe
Partnerships
We build long-term
partnerships with
our customers and
suppliers
Headlam
Values
Support
We offer
unparalleled
product knowledge
and expertise
Innovation
We provide
customers with a
choice of innovative
products and
solutions
Headlam Group plc Annual Report and Accounts 2019
21
GovernanceFinancial StatementsStrategic ReportOverview
Our Business Model
Creating long-term
sustainable value
Headlam provides the distribution channel between suppliers
and trade customers of floorcoverings
Global
manufacturing
supplier base
SUPPLIERS
Receive an unparalleled route
to market for their products
and a partnership approach
Leading expertise
and market position
28 years
2,575 employees
CUSTOMERS
Receive the broadest product
offering supported by a market
leading service
Trade
customers
of floorcoverings
See Our
Marketplace on
page 18
22
Broadest product offering
and knowledge
Financial track-record and
strength
19 supplier countries
£27.0m net cash
+36,000 SKUs
£44.3m net
cash flow*
Greatest market and
customer peneration
Extensive network and
processing capabilities
66 businesses
70,458 customer
accounts**
23 distribution
hubs and centres
5.3m orders
* Net cash flow from operating activies.
** Across all the Company’s businesses, includes duplication.
All data stated for the financial year ended 31 December 2019 or as at
31 December 2019.
Creating long-term sustainable value for all stakeholders
Suppliers
Utilisation of an outsourced
distribution channel enables
suppliers to focus on
manufacturing, benefit from sales
expertise, and reduces the costs
associated with distribution.
Work as a partnership to support
the manufacture and marketing
of innovative and sustainable
products, and improve production
scheduling.
Customers
Help customers grow their
businesses through frequent
interaction with sales teams,
marketing and technical support,
and the provision of credit.
Cater to the customers’ specific
service requirements, and provide
next day delivery and trade
counter collection which mitigates
the need to hold stock.
Workforce and Communities
Enhanced engagement activities
and workforce participation in the
strategy and sustainability of the
Company, and sharing in the
financial success.
Embedding values and behaviours
into the culture of the Company to
increase sense of teamwork,
wellbeing and community.
Shareholders
Commitment to maintaining a
strong balance sheet and
progressive dividend policy, with
focus on improving performance
and broadening presence
in the industry.
Uphold the highest levels of
corporate governance and focus
on ESG practices to ensure the
long-term sustainability of the
Company.
Supported by
ongoing
investment in
the business
See Stakeholder Interaction
and Engagement on page 40
Headlam Group plc Annual Report and Accounts 2019
23
GovernanceFinancial StatementsStrategic ReportOverview Financial Review
Chris Payne Chief Financial Officer
Cash generation remained
strong, with cash generated
from operations representing
146% of statutory operating
profit, equating to 107% (2018:
121%, not restated1) after
adjusting for the IFRS 16 lease
principal repayments.
1
The 2019 results have been prepared in accordance with the new IFRS 16 ‘Leases’ accounting standard
(‘IFRS 16’) effective for financial periods beginning on or after 1 January 2019. As the Company has
adopted the modified retrospective approach, there has been no restatement of the comparatives for
the 2018 reporting period. The impact on the Company’s financial statements is detailed in the Notes
to the Financial Statements (Note 11), with adjustments recognised in the Income Statement, Cash
Flow Statement and Statement of Financial Position (Balance Sheet). There is no overall impact on the
Company’s cash and cash equivalents.
24
Key metrics
Capital expenditure
18.3
4.4
3.1
2017
2018
2019
£18.3m
+315.9%
(2018: £4.4m)
Net cash flow from
operating activities
43.2
40.0
44.3
£44.3m
+10.5%
(2018: £40.0m)
2017
2018
2019
Total expenses
191.1
187.7
176.7
2017
20181
2019
£191.1m
+1.8%
(2018: £187.7m,
not restated1)
Average net debt
9.2
(net
funds)
2017
2018
16.9
2019
3.3
£3.3m
-80.5%
(2018: £16.9m)
See KPIs on page 32
Like-for-like2 revenue growth
Gross margin
Underlying3 operating margin
0.7%
31.9%
5.9%
IFRS 16 ‘Leases’ Accounting Standard
These results have been prepared in accordance with International
Financial Reporting Standards and, therefore, include the new IFRS 16
‘Leases’ accounting standard (‘IFRS 16’) effective for financial periods
beginning on or after 1 January 2019. As the Company has adopted
the modified retrospective approach, there has been no restatement
of the comparatives for the 2018 reporting period. The impact on the
Summary tables of impact of IFRS 16 adoption
Impact on the Income Statement
Costs charged to operating profit
Interest expense
Total costs charged to the income statement
Company’s Income Statement and Statement of Financial Position is
summarised below and further detailed in Note 11 to the Financial
Statements. There is no overall impact on the Company’s cash and
cash equivalents.
Financial year ended 31 December 2019
Under new IFRS 16 standard
£000
Under previous standard
£000
15,260
1,688
16,948
16,375
–
16,375
Net impact and effect on statutory basic earnings per share
573
0.6 pence
Impact on the Statement of Financial Position
As at 1 January 2019
Operating lease commitments as disclosed at 31 December 2018
Additional liabilities on adopting IFRS 16*
Discount effect
Lease liability recognised at 1 January 2019
Of which current liabilities
* See Note 11 to the Financial Statements
Revenue
During the year and against the backdrop of a soft market, total
revenue improved marginally by 1.5% from £708.4 million to £719.2
million, an increase of £10.8 million. Like-for-like² revenue increased in
both the UK and Continental Europe, by 0.3% and 3.2% respectively,
producing a total like-for-like² revenue increase of 0.7% (2018: total
like-for-like² revenue decline of 3.8%).
UK
The Company’s UK revenue performance, which accounted for 84.8%
of total revenue, was £6.0 million up on 2018 at £610.2 million (2018:
£604.2 million), reflecting a continued weak market backdrop
particularly in the residential sector that has been evident over the last
two years. The five UK acquisitions made during 2018 and 2019 added
£6.6 million of revenue in 2019 and, therefore, excluding the impact of
the acquisitions, revenue was almost flat.
£000
50,436
4,065
(4,673)
49,828
13,930
The residential sector represented 65.1% of UK revenue in 2019 (2018:
66.3%), representing a reduction of 0.8% and 1.4% on an absolute and
like-for-like² basis respectively. As a consequence, there was a
continued shift in the business mix towards the commercial sector
which has been the more resilient business stream, representing
34.9% of UK revenue in 2019 (2018: 33.7%; 2017: 29.6%). The year-on-
year commercial revenue increase on an absolute and like-for-like²
basis was 4.6% and 3.8% respectively.
Continental Europe
The Continental European businesses growth outperformed the UK,
delivering a 4.5% increase in revenue to £109.0 million, with a 3.2%
increase on a like-for-like² basis. Continental Europe accounted for
15.2% of total revenue in 2019, up from 14.7% in 2018. In contrast to
the UK, the weighting between the residential and commercial sector
revenue showed a movement towards residential which performed
more strongly with 5.9% like-for-like² growth and now accounting for
56.0% of revenue (2018: 54.7%; 2017: 52.6%). The commercial sector
was essentially flat during the period on a like-for-like² basis.
2
Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2019 and 2018 periods and is adjusted for any variances in
working days.
3 Underlying is before non-underlying items which includes amortisation of acquired intangible assets, impairment of goodwill, acquisition related fees and associated restructuring costs,
movements in deferred and contingent consideration, finance costs on deferred and contingent consideration, non-recurring pension costs in relation to guaranteed minimum pension ('GMP')
equalisation, and non-recurring costs relating to senior personnel changes.
Headlam Group plc Annual Report and Accounts 2019
25
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GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview Financial Review continued
Revenue for the year ended 31 December 2018
UK
Continental Europe
Incremental items during the 12-month period to 31 December 2019
UK:
Like-for-like2
One less working day
Acquisitions
Continental Europe:
Like-for-like2
Changes in working days
Acquisitions
Translation effect
Total movement
Revenue for the year ended 31 December 2019
UK
Continental Europe
£000
%
£000
%
604,150
104,273
85.3
14.7
708,423
100.0
1,897
(2,396)
6,591
3,157
(642)
2,562
(355)
0.3
(0.4)
1.1
3.2
(0.6)
2.5
(0.4)
610,242
108,995
84.8
15.2
6,092
1.0
4,722
10,814
4.5
1.5
719,237
100.0
2
Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2019 and 2018 periods, and is adjusted for any variances in
working days.
Gross Margin
Gross margin reduced by 40 basis points in the year from 32.3% to
31.9%. This was due, in part, to the shift in product mix towards the
lower margin commercial sector as a result of the weakness in the UK
residential sector, with the balance arising from general pricing
movement and the one-off prior year benefit resulting from the trade
creditor early settlement discount disclosed in the 2018 financial results.
Expenses
Combined distribution costs and administrative expenses were
marginally up on both an underlying and statutory basis year-on-year,
at £187.3 million and £191.1 million respectively, although this included
a £1.1 million reduction benefit due to the reclassification of costs
under IFRS 16 adoption (2018: £184.8 million and £187.7 million
respectively, not restated). The increase was driven by one acquisition
in the year, detailed below, and the full year impact of acquisitions
made in 2018 offset by reductions in vehicle expenses. People costs
were largely flat year-on-year (excluding the effects of acquisitions),
however, this includes a reduction in pension costs largely related to
the defined benefit schemes, a reduction in share-based payments,
and a reduction in the number of employees of 40, offset by a 2% cost
of living award and the restoration of performance target bonuses.
The primary contributors to the early phases of the operational
improvement plan were the group procurement initiatives on goods
not for resale and the extension of commercial and motor vehicle
leasing contracts delivering an accumulated cost saving of over £1.0
million in 2019 which compensated for inflationary pressures
elsewhere.
Underlying distribution costs and administrative expenses expressed
as a proportion of total revenue was essentially flat compared with
2018 at 26.0% (2018: 26.1%), and relative proportions of distribution
costs and administrative expenses as a percentage of total underlying
expenses for 2019 remained largely consistent at 72.5% and 27.5%
respectively (2018: 72.7% and 27.3%, not restated).
Items totalling £4.3 million (net) have been treated as non-underlying
in 2019 (2018: £2.9 million). These non-underlying items related to the
amortisation of acquired intangible assets and impairment of goodwill
(£3.5 million), acquisition related fees and associated restructuring
costs (£0.7 million), the movements in deferred and contingent
consideration (reducing by £0.3 million), and finance costs on deferred
and contingent consideration (£0.4 million). These are discussed in
detail in Notes 1 and 3 to the Financial Statements and referred
to below.
26
Expenses for 2018 (not restated)
Significant movements in 2019:
People cost
Vehicle expenses
Legal and professional
Occupancy costs
Effect of acquisitions
Impact of IFRS 16
Other
Underlying sub total
Non-underlying
Total before currency translation
Currency translation
Total expenses
Distribution
Administration
£000
187,743
%
£000
134,316
136
(1,564)
1,191
626
1,888
(1,116)
1,420
2,581
943
3,524
(124)
3.9
(44.4)
33.8
17.8
53.6
(31.7)
40.3
73.2
26.8
100.0
1,185
(1,651)
–
–
1,247
–
731
1,512
–
1,512
(90)
%
71.5
78.4
(109.2)
–
–
82.4
–
48.4
100.0
–
100.0
£000
53,427
(1,049)
87
1,191
626
641
(1,116)
689
1,069
943
2,012
(34)
%
28.5
(52.2)
4.3
59.2
31.1
31.9
(55.5)
34.2
53.1
46.9
100.0
Expenses for 2019
191,143
135,738
71.0
55,405
29.0
Operating Profit
As a consequence of the weak market backdrop contributing to
relatively flat like-for-like² revenue growth and a slight reduction in
gross margin, absolute gross profit was flat year-on-year at £229.4
million (2018: £229.1 million) despite a year-on-year £2.7 million gross
profit benefit from acquisitions. Therefore, after factoring in the £2.5
million increase in underlying expenses largely arising from the
acquisitions, underlying operating profit was down £2.1 million on 2018
at £42.2 million (2018: £44.3 million, not restated) with an underlying
operating margin of 5.9% (2018: 6.2%, not restated). Statutory
operating profit was £38.3 million (2018: £41.3 million, not restated).
Operating profit 2018 (not restated)
Gross margin improvement in 2019:
Volume benefit
Mix change
Pricing movement
Anticipated trade creditor settlement discount
Effect of acquisitions
Expense changes
Distribution
Administration
Effect of acquisitions
Total increase
Operating profit 2019
Underlying
£000
Non-underlying
£000
Total
£000
44,273
(2,942)
41,331
532
(660)
(1,174)
(1,049)
2,689
338
(175)
(394)
(1,888)
(2,457)
–
–
–
–
–
–
–
(943)
–
(943)
532
(660)
(1,174)
(1,049)
2,689
338
(175)
(1,337)
(1,888)
(3,400)
42,154
(3,885)
38,269
Profit and EPS
The adoption of IFRS 16 impacted underlying profit before tax and
statutory basic earnings per share through a reduction of £0.6 million
and 0.6 pence respectively. Underlying profit before tax was £39.5
million (2018: £43.4 million, not restated), statutory profit before tax
was £35.2 million (2018: £40.4 million, not restated) and statutory
basic earnings per share 34.0 pence (2018: 40.0 pence, not restated).
Statutory profit before tax and statutory basic earnings per share
were further impacted by a goodwill impairment described below.
Tax
The underlying effective tax rate for 2019 was 17.4% (2017: 17.9%)
which is lower than the headline rate of corporation tax in the UK of
19.0%. This difference is largely due to an adjustment in recognising
deferred tax assets relating to the Headlam BV business in the
Netherlands and a reassessment of the need to provide for uncertain
tax positions following the ongoing review of tax risks in the Company.
The full effective rate of tax in 2019 was 18.8% (2018: 17.2%), up on
2018 due to the effect of the non-underlying items.
Headlam Group plc Annual Report and Accounts 2019
27
GovernanceFinancial StatementsStrategic ReportOverview
Financial Review continued
The Company is committed to being fully compliant with the relevant
tax laws and compliance obligations regarding the filing of tax returns,
payment and collection of tax. The Company maintains an open
relationship with HM Revenue & Customs and currently operates with
a level of tax compliance risk that is rated as ‘low’. HM Revenue &
Customs advised in September 2019 that the Company’s low risk
rating had been renewed for another three years.
Ordinary Dividends
When declaring the interim and recommending the final ordinary
dividend, the Board considers the Company’s cash resource,
adequacy of distributable reserves and future expectations of
performance.
The total ordinary dividend payable in respect of 2019 equates to an
earnings per share cover ratio of 1.4 (2018: 1.6, not restated), cash
outflow of £20.9 million, and reflects a free cash flow (cash from
operating activities less capital equipment spend) cover ratio of 1.2
(2018: 1.7) reflecting the expenditure on the Ipswich facility during the
year, detailed below.
Dividend announcements, approvals and payments are typically
expected to be as follows:
Dividend
Ordinary interim
Ordinary final
Status and date announced
Approval
Declared
August
The Board
August
Approximate
payment date
January in the
year following
announcement
Recommended
March
AGM by shareholders
May
July
Acquisitions, Related Goodwill and Other Intangible Assets
The Company completed one acquisition during the year, purchasing
the trade and assets of Edel Telenzo Carpets Ltd. (‘Telenzo’) for a total
consideration of £2.1 million, with the business contributing revenue
of £1.7 million and an operating profit of £0.3 million in the year. The
acquired assets included intangible assets of £0.9m which were
attributed to brand name, customer relationships and supply
agreements with residual goodwill of £0.3m. During the year,
£25,000 of intangibles were amortised in the Income Statement.
The Company acquired five businesses in 2018, and the fair values of
the assets and liabilities acquired were reconsidered for 2019 as part
of the hindsight period, with no adjustment considered necessary.
One of the businesses, CECO (Flooring) Ltd (‘CECO’), a leading
specification business based in Carryduff, south of Belfast,
outperformed management expectations and as a result the
outstanding contingent consideration under the terms of the
acquisition was paid in full during the year. This led to a reversal of part
of the discounting applied on the original acquisition and a total
consideration payment above that provided on acquisition due to the
strength of the business performance. These amendments are
included as non-underlying items in the Income Statement.
Domus Group of Companies Limited (‘Domus’) was acquired in
December 2017, and during 2019 deferred consideration of £1.6
million became payable which was partly satisfied by the issue of
88,350 new ordinary shares of 5 pence each in the capital of the
Company. The original contingent consideration relating to the
acquisition has now been fully released to the income statement as a
non-underlying credit since the likelihood of achieving the EBITDA
criteria required to trigger any contingent consideration payments is
considered to be very low. Additionally, based on the Board’s
assessment of the carrying value of the investment in the Domus
business, a goodwill impairment of £2.1 million has been recognised
within non-underlying items in the year. Due to its predominant focus
on larger scale projects within the London area, the Domus business
in particular has been adversely affected by the weak market backdrop
and political and economic uncertainty that has prevailed over the last
two years, and which has particularly impacted investment in the
London market. Although the market is anticipated to recover, the
Board felt it prudent to take a more cautious view on the revenue
recovery in Domus and hence to take a write-down reflecting an
impairment in the carrying value as at the 31 December 2019. This
assessment is sensitive to assumptions used by the Board in reviewing
the carrying value and they are disclosed in more detail in the Financial
Statements.
Retirement Benefits
The Company operates two defined benefit pension schemes, in the
UK and in Switzerland, the assets and liabilities of which are dominated
by the UK scheme which is closed to new members.
The year-on-year decrease in the net liability amounts to £1.6 million.
This was mainly caused by the changes in the UK scheme’s financial
assumptions, where 70% of retiring members are now assumed to
commute their pensions by taking the maximum tax-free cash
element allowed (2018: nil), salary and pension increases are assumed
to rise in-line with RPI (3.1%, 2018: 3.4%), a 0.7% decrease in the
discount rate to 2.0%, together with positive changes in the scheme’s
asset performance.
The Company reviewed its pension arrangements in 2019, and in
particular the future build-up of final salary benefits in its UK Defined
Benefit Pension Scheme (‘UK DB Scheme’). As stated above, the
Company closed the UK DB Scheme to new entrants many years ago.
Since then, new employees have been eligible to join the Defined
Contribution Pension Plan. The Company wishes to provide
sustainable and competitive pension benefits for all its employees,
and during 2019 consultation began on the closure of the UK DB
Scheme to future accruals, with its closure from the end of
28
March 2020 reducing an area of risk and volatility for the Company
and providing fairer pension provision across the workforce. Various
adjustments were made in response to feedback from affected
members following the consultation, including adjustments to
ongoing benefits and the date of closure of the scheme. Affected
members will automatically be enrolled into the Company’s Defined
Contribution Pension Plan.
Capital Allocation, Investment Decisions and Return on Capital
The Board is committed to ensuring the efficient allocation of capital,
with a clear strategy for sustainable growth, with controls in place to
govern capital expenditure and working capital.
The Board routinely reviews organic growth opportunities and
associated investment, value enhancing acquisitions, and shareholder
returns to ensure the Company deploys an optimal capital structure.
Such investment opportunities are subject to both internal rate of
return and cash flow payback criteria, regularly reviewed by the
Company to ensure consistency of assessment.
Return on Capital Employed, measured as earnings before interest
and taxes (‘EBIT’) as % of capital employed, in 2019 was 20.3% (2018:
23.2%, not restated).
Capital Expenditure
The Company incurred a replacement level of capital expenditure on
its land and buildings of £0.2 million during the year (2018: £0.4 million),
and capital expenditure on plant and machinery of £2.6 million (2018:
£3.5 million).
Total capital expenditure on the new Ipswich regional distribution
centre continues to be estimated to be in the region of £26.0 million,
with £0.5 million spend incurred in 2018, £15.5 million incurred in 2019
(including land acquisition cost of £4.0 million), and the balance of
£10.0 million in 2020.
Cash Flows
Net Cash Flow from Operating Activities
During the year, net cash flow from operating activities was £44.3
million (2018: £40.0 million) with the key drivers behind this positive
cash flow generation shown below.
Cash flows from operating activities
Profit before tax for the year
Net finance cost
Depreciation of property, plant and equipment, amortisation and impairment
Depreciation of right of use asset
Profit on sale of property, plant and equipment
EBITDA
Share-based payments
Working capital changes
Cash generated from the operations
Interest paid
Tax paid
Additional pension contributions
Net cash from operating activities
Cash generated from operations remained strong in the year despite
the weaker trading backdrop, being 146% of statutory operating profit
and 107% (2018: 121% not restated) after adjusting for the principal
elements of lease payments resulting from IFRS16 adoption.
2019
£000
2018
£000
36,169
3,100
8,898
15,260
(60)
62,367
807
(7,213)
55,961
(3,407)
(8,289)
–
44,265
40,447
884
7,038
–
(50)
48,319
1,478
209
50,006
(1,426)
(7,789)
(747)
40,044
Headlam Group plc Annual Report and Accounts 2019
29
GovernanceFinancial StatementsStrategic ReportOverview Financial Review continued
Cash Flows from Investing and Financing Activities
The table below summarises the cash flow movements arising from
investing and financing activities during the year. The overall net cash
outflow from the two activities was £54.5 million, with the main factors
being the dividends paid (£20.9 million), investment in capital
equipment (£15.8 million), and the inclusion of lease payments for the
right of use assets introduced following the adoption of IFRS 16.
Cash flows from investing activities
Acquisition of subsidiaries, net of cash and debt acquired and repaid
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Net cash from investing activities
Cash flows from financing activities
Shares acquired and issued
Net movement on borrowings
Principal elements of lease payments
Dividends paid
Net cash from financing activities
2019
£000
2018
£000
(4,448)
(15,777)
130
857
(19,238)
825
(229)
(14,880)
(20,941)
(35,225)
(9,576)
(4,384)
403
601
(12,956)
(4,764)
211
–
(20,969)
(25,522)
Net Funds
Net funds at the year-end decreased to £27.0 million from
£36.7 million in 2018 as a result of the net cash outflows arising from
operating, investing and financing activities outlined above. During
the year, this included net cash outflows totalling £15.3 million on
the Ipswich distribution centre and Telenzo acquisition.
In both 2018 and 2019, the Company drew-down on its banking
facilities during the year in-line with the normal swings in working
capital. Average net debt in 2019 was £3.3 million (2018: £16.9 million
net debt).
At
1 January
2019
£’000
44,005
(221)
(236)
(6,805)
36,743
Cash flows
including
acquisitions
£’000
(10,403)
205
229
–
9,969
Foreign
exch/other
movement
£’000
At
31 December
2019
£’000
(217)
6
(215)
604
178
33,385
(10)
(222)
(6,201)
26,952
Cash at bank and in hand
Bank overdraft
Debt due within one year
Debt due after one year
30
The Company maintains sufficient banking facilities to fund its
operations and investments, and as at 31 December 2019, 94.1% of
the total facilities were undrawn as shown below.
Drawn
£’000
232
6,201
6,433
Undrawn
£’000
32,817
70,421
Total facility
£’000
33,049
76,622
103,238
109,671
Funding and Going Concern
On 5 August 2019, the Company completed a refinancing of its
existing banking facilities to extend their term from 14 December
2021 to 30 April 2023. The Company has maintained its two
agreements with Barclays Bank PLC and HSBC Bank Plc, but
decreased the level of Sterling committed facilities from £72.5 million
to £68.5 million and increased its Euro committed facilities from €8.6
million to €9.6 million. The Company also has short-term
uncommitted facilities which continue at £25.0 million, and are
renewable on an annual basis. The total banking facilities available at
31 December 2019 were £109.7 million (2018: £112.8 million).
Less than one year
Over one year and less than five years
Having reviewed the Company’s resources and a range of likely
outcomes, the Board believes there are reasonable grounds for
stating that the Company has adequate resources to continue in
operational existence for a period no shorter than 12 months from the
date of this Financial Review and it is appropriate to adopt the going
concern basis in preparing the Company’s Financial Statements.
Chris Payne
Chief Financial Officer
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
31
GovernanceFinancial StatementsStrategic ReportOverview Key Performance Indicators
The Board believes these Key Performance Indicators
(’KPIs’) provide a comprehensive and relevant list of
measurements with which to assess the Company’s
financial, operational and social performance towards
the achievement of its strategy.
See Our Strategy on page 20
Measurement
Why it’s important
Performance
(3 years)
Initiatives and actions
for improvement
Allows a consistent measure of
year-on-year performance
1.1
0.7
Organic growth focus for regional
businesses and universal product
coverage.
Year-on-year revenue
growth as a % adjusted
to normalise currency,
businesses making a full
year’s contribution, and
consistent working days
Gross profit
margin
Measured as a % of
revenue
Shows the effectiveness of
gross profit generation from
revenue
3.8
(3.8)
2018
2017
2019
31.5
32.3
31.9
2017
2018
2019
25.2
26.1
26.0
2017
2018
2019
***
6.3
6.2
5.9
2017
2018
2019
***
Pricing discipline and
product expansion.
Maintain cost control to ensure
increases remain below revenue
growth.
Ongoing operational
improvement programme to
improve operating performance,
the customer service proposition
and margin.
Measured as a % of
revenue
Shows how effective the
Company is at converting gross
profit into operating profit
Measured as a % of
revenue
Shows the effectiveness of
sustainable operating profit
generation from revenue
Financial
Like-for-like*
revenue growth
Underlying**
selling, general
and administrative
(’SG&A’) costs
Underlying**
operating
profit margin
Statutory basic
earnings
per share (’EPS’)
Profit after tax divided
by average weighted
number of shares
Demonstrates the level of profit
per share attributable to the
shareholders
39.1
40.0
34.0
In-line with statutory profit
performance.
Return on capital
employed (’ROCE’)
Measured as EBIT as a %
of capital employed
Demonstrates the relative level
of profit generated by the capital
employed
26.2
23.2
20.3
2017
2018
2019
***
Cash generated
from operations
Measured as a % of
statutory operating profit
Cash conversion measures
the success of the Company
in converting operating profit
(measured as EBITDA) to cash,
which underpins the quality of
the Company’s earnings and
reflects the effectiveness of
working capital management
2017
2018
2019
***
132
121
146
2017
2018
2019
***
May be offset in the short-term
by infrastructure investment, for
example investment on the new
Ipswich regional distribution centre.
Should be held above 90% to ensure
profit growth is cash generative.It is
anticipated that improvements in
inventory turn (see KPI) will also lead
to improvements in cash conversion
%.
32
*
Like-for-like revenue is calculated based
on constant currency from activities and
businesses that made a full contribution
in each of the financial year periods
and is adjusted for any variances in
working days.
**
Underlying is before non-underlying
items which includes amortisation of
acquired intangible assets, impairment
of goodwill, acquisition related fees
and associated restructuring costs,
movements in deferred and contingent
consideration, finance costs on
deferred and contingent consideration,
non-recurring pension costs in relation
to guaranteed minimum pension (‘GMP’)
equalisation, and non-recurring costs
relating to senior personnel changes.
Non-financial
*** Impacted by the adoption of IFRS 16
in 2019. As the Company adopted
the modified retrospective approach,
there has been no restatement
of the comparatives for the 2018
reporting period.
**** Performance measurement relates only
to the geographic areas that have been
subject to the project to date.
Measurement
Why it’s important
Performance
(3 years)
Initiatives and actions
for improvement
Inventory turn
Annual ratio measured
by comparing cost of
goods sold during the
financial period with the
average annual inventory
level (using averaged data
points at 1 January, 30
June and 31 December)
A higher inventory turn is an
indicator of efficient revenue
generation, reduced risk of
inventory obsolescence and
more effective utilisation of
distribution centre capacity
3.8x
3.6x
3.6x
2017
2018
2019
Employee
retention
Reportable
incidents
(’RIDDOR
Reports’)
Recycled
packaging
Retention measures the
ability to retain employees
in the current year
compared with previous
years. Measured as a
percentage of employees
retained in the Company
between 1 January
and 31 December
Retention demonstrates the
Company’s ability to retain
employees. The Company’s
medium-term objective is to
further develop a cultural ethos
which attracts and retains the
best talent in order to ensure
valuable workforce knowledge
is retained to support delivery
of the strategic objectives and
reduce the substantial costs
involved in hiring and training
employees
74
76
72
2017
2018
2019
Reporting of Injuries,
Diseases and Dangerous
Occurrences Regulations
2013. These regulations
require employers, the
self-employed and those
in control of premises
to report specified
workplace incidents
By measuring reportable injuries,
it is possible to benchmark and
identify any deficiencies in the
Company’s processes, allowing
continuous improvement in
health and safety standards
25
23
18
2017
2018
2019
Use of recycled
polythene for protective
plastic packaging needs
across the Company’s UK
locations. Measured as
% of the Company’s total
UK volume per annum
Protective plastic packaging is
one of the main areas of waste
arising from the Company’s
operations. By utilising recycled
polythene, the Company
mitigates its impact on the
environment
Customer orders
per commercial
vehicle****
Measured as a %
increase in average
number of orders
delivered per commercial
vehicle per day
More orders delivered per vehicle
reduces the Company’s impact
on the environment through
a reduction in the number of
vehicles needed to service the
local area. It additionally indicates
that the Company is operating
more efficiently with a resulting
improvement in operating
performance, the customer
service proposition, and margin
86
69
2018
2019
New KPI for 2018
22
2019
New KPI for 2019
Moving from a manual reordering
system to an automated stock
re-ordering system across all
sites. Roll-out initially leads to a
rise in absolute inventory levels
as availability of customers’ most
requested products is improved.
With maturing use of the re-
ordering algorithm, and as the
product life cycle progresses, the
benefits of an improvement to
product availability, inventory turn,
warehouse capacity and improved
supplier production scheduling
become increasingly evident.
Continue building on the activities
in the areas of workforce
engagement and development
of a positive workplace culture.
Identify future skills gaps and
implement learning strategies.
Increase frequency of in-house
compliance assessments
to identify and limit failures
in compliance. Additionally
undertake independent audits
to further identify areas for
improvement in the health and
safety function.
Group procurement initiative in
place for all UK locations to be
using regranulated polythene
packaging manufactured from
100% recycled polythene
(machinery permitting).
Phased roll-out of the transport
consolidation project under
the ongoing operational
improvement programme.
Headlam Group plc Annual Report and Accounts 2019
33
GovernanceFinancial StatementsStrategic ReportOverview Risk Management
Principal Risks
and
Uncertainties
Risk Heat Map
High
Risk Governance
The Board is responsible for the adequacy and
effectiveness of the Company’s internal control system
and risk management framework.
The Executive Directors and Executive Team have been
delegated ownership and responsibility from the Board for
day-to-day risk management and control. The Company’s
Chief Financial Officer chairs a Risk Committee whose
purpose it is to discharge this delegated authority with a
more granular review of business risks from a cross
function of business leaders which are then reported back
to the Board on a quarterly basis.
External risk management consultants provide ongoing
support to the Risk Committee, including in the
identification of any additional risks and appropriate
processes to follow.
Risk Assessment
During the year the Board carried out a robust
assessment of the emerging and principal risks facing
the Company, including those that would threaten its
business model, future performance, solvency or
liquidity.
Summarised here are the principal risks, not in order of
significance, which the Board considers could have a
material impact on the Company’s reputation,
operations or financial performance. These include, but
are not limited to, risks that are directly managed by the
Board and therefore may be informed by more detailed
risk management processes in place via the Risk
Committee or the Audit Committee.
2
8
1
4
6
7
3
5
High
d
o
o
h
i
l
e
k
L
i
Low
Impact
1 Market demand
2 Competitor risk
3
4 People
IT resilience and cyber security
5 Health and safety
6 Brexit
7 L egislation and regulation
8 Environmental
Increasing
Decreasing
Unchanged
New
Risk change
from prior
year
Area of risk
Potential impact
Mitigating actions
1
Market demand
A significant proportion of the Company’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 economic recession that
create reduced consumer and
business confidence, 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 Company.
Market activity is monitored daily
in each individual business and
collectively at Company level. This
visibility allows prompt response to
factors adversely affecting trading.
Additionally, since the Company’s
principal activities are supply and
distribution, the Company has
the ability to react quickly to
market changes.
The development of a range of
regional, national and specialist
businesses selling a wide range of
products provides the Company
with broad market penetration
and the capability to manage
the downside risk arising from a
market contraction or changes in
customers preferences.
See Our Strategy on page 20
34
Area of risk
Potential impact
Mitigating actions
Risk change
from prior
year
2
3
Competitor risk
The Company operates across four
geographical markets, each of which has a
number of similar trading characteristics.
Within each market, the Company competes
directly with a variety of regional and national
distributors and manufacturers selling directly
to its customer base and indirectly with
multiple retail chains.
The emergence of a competitor or
market disruptor with a strong
business model could undermine
the Company’s growth and
financial performance.
IT resilience and cyber security
The IT system is a vital component of the
Company’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.
The theft, destruction or loss of
sensitive and or confidential
information could adversely affect
business performance
and reputation.
4
People
The Company’s ability to deliver ongoing
success is dependent upon its ability to
attract, retain and develop its people.
An inadequate pool of suitably
qualified and motivated people can
disrupt business development,
customer service and undermine
the Company’s ability to deliver on
its strategy.
5
Health and safety
The Company’s operations and business
model carry inherent health and safety risks to
its people, customers and the wider public.
If the Company were to breach
health and safety law and/or
regulations it could have a material
adverse effect on reputation, overall
business performance and the
welfare of its people.
The Company 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, customer insight, product
availability, IT, efficient material
handling and logistics enables the
Company to continue to improve its
market leading position.
Each business has its own dedicated
IT infrastructure and failure in one
will not interrupt another.
Furthermore, the Company
operates well defined backup
procedures and has contingency
plans in place to enable swift
recovery from a failure of
this nature.
Third-party IT provision enables
network software to be kept up to
date, and independent audits are
conducted in the area of security
and resilience.
The Company continues to build
on its activities in the areas of
workforce engagement and
development of a positive
workplace culture.
Recruitment, training and
development are aimed at ensuring
the Company has suitably skilled
and qualified people to meet the
current and future operational
needs of its businesses. The
Company additionally has retention
and succession plans in place.
See Our People on page 46
Health and safety is a standing
agenda item at the Company’s
Board Meetings, with an associated
report submitted including details
on incidents, updates on procedures
and actions to improve performance,
and any changes in legalisation and
regulation that could affect the
Company.
The Company employs a dedicated
health and safety team, has
comprehensive policies and
procedures in place, and additionally
undertakes independent audits of its
health and safety function to identify
areas for improvement.
See Health and Safety on page 52
Headlam Group plc Annual Report and Accounts 2019
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GovernanceFinancial StatementsStrategic ReportOverview
Risk Management continued
Area of risk
Potential impact
Mitigating actions
Risk change
from prior
year
6
Brexit
The Company operates an
international supply chain, with
purchases made across EU borders.
A hard Brexit is likely to result in
cost increases and extended
supply chain timelines.
Any tariffs or other increases in
costs will affect the whole market
and result in higher prices.
Delays in supply chain
deliveries may affect the Company’s
ability to service customers in a timely
manner, particularly during a
period of adjustment to
post-Brexit conditions.
The Company maintains strong
relationships with its suppliers
enabling an open dialogue to
secure supply. The Company issued
a letter to suppliers during 2019 with
the purpose of confirming how the
Company and the supplier would
support each other around the
potential impact of Brexit and preserve
business continuity.
The Company’s business model
creates a significant level of UK
stock holding which buffers
supply disruption, and would help
preserve levels of customer service in
the event of a hard Brexit.
7
Legislation and regulation
The Company’s operations are regulated by
a variety of laws and regulations, the principal
ones relating to the environment, employment,
commerce, corporate, financial reporting
and taxation.
Failure to comply could cause
reputational harm and lead to
serious civil or criminal proceedings,
causing disruption to the Company’s
operations and leading to financial loss.
The Company manages its
obligations through a framework of
policies and procedures and, where
appropriate, engages the services
of competent third-party advisers.
See Corporate Governance on page 58
8 Environmental
The floorcoverings industry, and the Company’s
operations within it, have a direct negative impact
on the environment. The Company’s direct
impact on the environment arises predominately
from its transport emissions.
Ineffective response and management
of the Company’s and overall
industry’s impact on the environment
could lead to: accelerating Climate
Change; reputational damage; loss
of stakeholder support; reduced
demand for products and financial
performance; and financial penalties.
The Company is undertaking a number
of actions to reduce its transport-
related emissions and other areas of
environmental impact, and is working
as part of the overall floorcoverings
industry to reduce the industry’s
environmental footprint.
The Company fully complies with all
relevant environmental legislation
and regulation, and has additionally
engaged with an external energy data
collation and verification company
on a three-year basis to assist in
measuring its impact, and identifying
and implementing additional energy
saving actions.
See Environment on page 50
Increasing
Decreasing
Unchanged
New
3636
Viability Statement
Background
Provision 1 in line with Principle C of the UK Corporate Governance
Code 2018 requires the Board to assess the risks to the sustainability
of the business model and delivery of strategy, and whether these
have been considered and addressed. This statement sets out, in
overview, that assessment.
A period of three years, to 31 December 2022, was chosen for the
purpose of the viability assessment as this represents Headlam’s
three-year rolling strategy plan normally used to evaluate liquidity.
This period also allows for modelling of capital investments planned
during the timeframe.
Sensitivity Analysis
Reporting on the Group’s viability requires the Board to consider those
principal risks that could impair the solvency and liquidity of the Group.
In order to determine those risks, the Board considered the Group-
wide principal risks as given in the Risk Management and Principal Risks
and Uncertainties on page 34.
In light of the Group’s competitive position in its geographical markets
and corporate governance controls, it is the Board’s opinion that it is
unlikely that any of the individual risks other than market demand
would compromise the Group’s viability.
In respect of market demand the key risk relates to periods of
economic recession that create reduced consumer and business
confidence which could result in a significant reduction in demand for
the Group’s products. As a result, two alternative plausible downside
scenarios have been modelled which have a potential to threaten the
viability of the Group.
Scenario A – Sustained Recessionary Environment
Scenario A is modelled on the basis that there is a sustained
recessionary environment in both the UK and Continental Europe
such that revenues decline in 2020, 2021 and 2022 whilst there are
ongoing inflationary fixed cost pressures.
In this scenario, even in the absence of any significant mitigating
actions, the Group continues to operate within its current banking
facilities and the covenant restrictions set out therein.
Scenario B – Economic Crisis
Scenario B is modelled on the basis that there is a similar economic
crisis to that observed in 2008, where revenues decreased sharply in
2009 with modest growth thereafter through to 2014.
In this scenario, the Group continues to operate within its current
banking facilities and the covenant restrictions set out therein,
although the covenant headroom is significantly reduced and this
position requires swift and pro-active management of the cost base.
Based on the consolidated financial impact of the scenarios analysed
and associated mitigating actions that are either in place or could be
implemented, the Board has been able to conclude that the Company
will be able to operate within its existing bank covenants and maintain
sufficient bank facilities to meet its funding needs over the three-year
assessment period. In coming to this conclusion, it has been assumed
that the Company’s existing UK bank facilities, running to 30 April
2023, continue in existence.
Confirmation of Longer-Term Viability
Based on the results from these two scenarios, and having considered
the available mitigating actions, the Board can have a reasonable
expectation that the Group will be able to continue in operation and
meet its liabilities as they fall due over the three-year period of this
assessment. This longer-term assessment process supports the
Board’s statements on both Viability and Going Concern.
This Strategic Report was approved by the Board on 5 March 2020 and
signed on its behalf by:
Steve Wilson
Chief Executive
Chris Payne
Chief Financial Officer
Headlam Group plc Annual Report and Accounts 2019
37
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GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview
Introduction to Corporate
Responsibility and ESG
Our
commitment
We are committed to operating in an ethical and responsible manner at all times
and upholding the highest levels of corporate responsibility including in the key
areas of Environmental, Social and Governance (‘ESG’).
Within the following pages, incorporating the newly required Section 172
Statement on page 44, we have detailed how we have addressed and are
continuing to address ESG issues and engaged with, considered and sought to
positively impact all our stakeholders during the year and on an ongoing basis.
We are committed to building on our activities and practices in all areas of
corporate responsibility and continually improving our performance in operating
and discharging our duties responsibly, with some examples of activities
undertaken in 2019 summarised to the right.
In recognition of our activities and practices to date, we continue to be a
constituent of the FTSE4Good Index which identifies companies demonstrating
strong ESG practices as measured against globally recognised standards.
It is our fundamental belief that strong ESG practices and acting responsibly is
central to ensuring a long-term sustainable business and one which positively
impacts all stakeholders whilst creating shareholder value, and we shall focus
increasing resources to support our activities and aims in this area.
Philip Lawrence
Non-Executive Chairman
Steve Wilson
Chief Executive
38
Independent Health and Safety audit commissioned
An independent Health and Safety audit commissioned, with the resulting recommendations being actioned to strengthen the provision of a
safe working environment which positively impacts not only our workforce but also the communities in which we operate.
See Health and Safety page 52
Voluntary early compliance with SECR scheme
Voluntary early compliance with the UK government’s new Streamlined Energy and Carbon Reporting (‘SECR’) scheme introduced to
encourage organisations to become more energy efficient, and engagement with an external energy data collation and verification company
to assist in identifying additional energy saving opportunities.
See Environment on page 50
Introduction of Environmental as a Principal Risk
Enhanced risk assurance activities and introduction of Environmental as an additional Principal Risk in recognition of the critical issue of
Climate Change, and to generate a greater focus on our actions in mitigating our direct environmental impact and working as part of the
overall floorcoverings industry in reducing its environmental footprint.
See Risk Management and Principal Risks, and Communities on pages 34 and 53 respectively
Development of a positive workplace culture
Development of a positive workplace culture through new Values and Behaviours workshops, launch and roll-out of apprenticeship schemes
to develop skills and aid succession across the business, and establishment of an Employee Forum for employee feedback to be considered
directly by the Board.
See Our People on page 46
Greater focus on sustainability
Greater focus on ensuring the long-term sustainability of the business through the acceleration of the operational improvement programme
designed to improve operating and financial performance, the customer service proposition, as well as reducing environmental impact
through more effective delivery fleet utilisation.
See Chairman’s Statement, and Chief Executive’s Review on pages 12 and 14 respectively
Activities
Independent Health and Safety audit commissioned
An independent Health and Safety audit commissioned, with the resulting recommendations being actioned to strengthen the provision of a
safe working environment which positively impacts not only our workforce but also the communities in which we operate.
See Health and Safety page 52
Voluntary early compliance with SECR scheme
Voluntary early compliance with the UK government’s new Streamlined Energy and Carbon Reporting (‘SECR’) scheme introduced to
encourage organisations to become more energy efficient, and engagement with an external energy data collation and verification company
to assist in identifying additional energy saving opportunities.
See Environment on page 50
Introduction of Environmental as a Principal Risk
Enhanced risk assurance activities and introduction of Environmental as an additional Principal Risk in recognition of the critical issue of
Climate Change, and to generate a greater focus on our actions in mitigating our direct environmental impact and working as part of the
overall floorcoverings industry in reducing its environmental footprint.
See Risk Management and Principal Risks, and Communities on pages 34 and 53 respectively
Development of a positive workplace culture
Development of a positive workplace culture through new Values and Behaviours workshops, launch and roll-out of apprenticeship schemes
to develop skills and aid succession across the business, and establishment of an Employee Forum for employee feedback to be considered
directly by the Board.
See Our People on page 46
Greater focus on sustainability
Greater focus on ensuring the long-term sustainability of the business through the acceleration of the operational improvement programme
designed to improve operating and financial performance, the customer service proposition, as well as reducing environmental impact
through more effective delivery fleet utilisation.
See Chairman’s Statement, and Chief Executive’s Review on pages 12 and 14 respectively
Headlam Group plc Annual Report and Accounts 2019
39
GovernanceFinancial StatementsStrategic ReportOverview
Stakeholder Interaction and Engagement
Workforce
Engagement
4040
The Company has introduced a number
of new forms of workforce engagement
over the last few years which significantly
increase the channels available to the
Company to test ideas and actively seek
feedback, making changes and
improvements in response. Key new
engagement activities are listed below,
with these supplementing enhanced
policies and procedures and regular
interaction via various communication
channels, all of which are designed
to further improve the working
environment. Further detail is given within
the Our People section on page 46.
• Senior management team events, with a
range of presentations from the Executive Team
covering operational, financial, health and safety,
marketplace and strategic matters. The events
include Q&A sessions, and a follow-up feedback
survey is issued to all participants. Feedback
received to date has resulted in enhancements
being made to presentational content and
event formats, and has proven this form of
engagement to be well received.
• Departmental group meetings, with members
of specific departments such as sales, transport
and warehouse from across the Company’s
businesses coming together to discuss matters
specific to their job function and future
developments, with the opportunity to share
their views and have input into decision-making.
• Non-Executive Director visits to businesses as
part of a comprehensive induction programme
and an ongoing mechanism for Board members
to observe operations and listen to views and
feedback directly from employees across a wide
cross-section of the workforce.
• Employee Forum launched in 2019 and acting as
the formal workforce advisory panel to the Board,
its responsibilities include providing feedback
from employees to be considered by the Board
across a broad spectrum of matters. The Forum
consists of elected employees from across the
workforce alongside the Chief Executive and the
Non-Executive Director holding the position as
Chair of the Remuneration Committee.
• Values and Behaviours workshops, held
with 135 employees across several business
locations during 2019, with the aim of
collaboratively developing a bottom-up set
of values and behaviours to subsequently be
communicated and embedded across
the Company.
• Employee surveys, which were introduced in 2017
and are held across the whole workforce, with a
pulse-check survey taking place in 2020. The
surveys are instrumental in helping to
monitor and continue to develop a positive
workplace culture. Activities and actions as a
result of feedback from previous surveys
continue throughout the year, and have
included improvements to the CRM system
and commercial vehicles drivers app, and the
introduction of team and social events.
• Employee Champions, introduced following the
first employee survey in 2017, are now an integral
part of the local businesses. Regular meetings
taking place where champions and management
meet to discuss and implement actions to improve
the working environment.
See Our People on page 46
Overview
Strategic report
Governance
Financial statements
Supplier
Engagement
Two further engagement initiatives
instigated in 2019 are given below, both
of which have increased the collaborative
approach between the Company and
its suppliers.
• Brexit letter, issued to suppliers during 2019,
with the purpose of confirming how the
Company and the supplier would support
each other around the potential impact of
Brexit and preserve business continuity.
•
Inventory management project, which the
Company is undertaking to improve product
availability and stock-turn, has resulted in the
Company working more closely with suppliers
to improve production scheduling and buying,
and increase the efficiency of both parties.
The Company engages with suppliers
through a variety of means including
meetings, presentations, collaborative
trade show events, reviews of practices
and questionnaires, including in the area
of ensuring a supply chain free from
slavery and human trafficking. The
Company has actively sought to increase
its partnership approach with suppliers
in 2019, including members of the
Executive Team undertaking a more
comprehensive schedule of meetings
with suppliers with which to obtain
feedback and which supplements the
suppliers’ frequent interaction with the
Company’s delegated buyers.
The Company shares market feedback
and sales performance data to suppliers
allowing them to adjust their ranges and
production activities as appropriate, and
actively supports suppliers in new
product development and the marketing
of innovative and sustainable products,
an example of which is given in the
Environment section on page 50.
Headlam Group plc Annual Report and Accounts 2019
41
41
GovernanceFinancial StatementsStrategic ReportOverview Stakeholder Interaction and Engagement continued
Customer
Engagement
4242
• Customer surveys, introduced in 2019 and to
be continued in 2020 to a wider audience. The
customer surveys have been instigated to gain
greater insight into customers’ requirements
and preferences, with the resulting analysis to be
used to enhance the customer service
proposition.
• E-commerce support, with an improved
transactional B2B website relaunched in
March 2020. The updated website will support
customers in more efficient ordering and
account management, and has a new feedback
portal direct to the relevant team members
servicing the customer.
Customer relationships and their
performance are integral to the success
of the Company, and many different
touch-points are maintained with
customers. Customers have regular
interaction with sales representatives,
delivery drivers and customer service
teams, all of which provide a method to
gain feedback which is then utilised to
improve customer service levels. The
Company has increased its engagement
with customers via formalised customer
surveys and enhanced e-commerce
support through the provision of a
relaunched e-commerce platform,
detailed to the right.
Overview
Overview
Strategic report
Strategic report
Governance
Governance
Financial statements
Financial statements
Shareholder
and
Investment
Community
Engagement
Community
Engagement
Clear and concise regulatory
announcements and regular interaction
with shareholders and the wider
investment community is essential for
their understanding of the Company and
its performance, and evaluation of the
Company as an appropriate investment.
The Company proactively offers
meetings to its largest shareholders and
analyst community, primarily following the
publication of its interim and final results,
while also encouraging the investment
community to visit its main operating
locations to review operations first-hand
and meet additional members
of the workforce. Feedback is actively
sought, either directly or via the
Company’s brokers, and then considered
and monitored against performance
and strategy, with investor and analyst
feedback a Board Meeting agenda item.
The Company is committed to
maintaining a comprehensive level of
engagement with shareholders and the
investment community, including via
members of the Executive Team and the
Board as detailed within the Corporate
Governance section on page 58, with two
specific areas on how this is done given
below.
•
Investor Relations function, with additional
resource added in 2017 to improve and increase
breadth of communications with the investment
community. Emphasis is placed on meeting with
new potential investors and analysts due to the
importance of liquidity on a company’s share
price and the preservation of an orderly market.
• Capital Markets Day, following a previous event
held in 2018, it is the Company’s intention to
hold an event at the Company’s new regional
distribution centre following it becoming
operational during 2020. This will provide greater
first-hand insight into the Company’s operations
and Strategic Objectives as detailed on page 20.
When there are complaints from
members of the public or other road-
users regarding a member of the
Company’s workforce or the Company’s
operations, these are fully investigated by
the business concerned with support
from the centralised HR function.
The Company is committed to positively
impacting the communities and local
areas in which it operates, and strongly
supports all its businesses in their various
channels of engagement with the
communities in which they operate. As
referenced in Our People on page 46, the
Company actively recruited in all
departments throughout 2019, with the
Company’s businesses predominately
recruiting from within their local areas and
utilising a number of methods including
local employment agencies, job boards
and word-of-mouth.
The Company actively encourages each
of its businesses to build strong
relationships with their communities and
has in place a Charitable Donations Policy
which supports locally-focused charitable
giving and community involvement by
each of the Company’s businesses,
thereby allowing local communities to
benefit directly.
Headlam Group plc Annual Report and Accounts 2019
43
43
4343
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview Section 172 Statement
Introduction
Following the introduction of the Companies (Miscellaneous Reporting) Regulations
2018 applicable to the Company from 1 January 2019, the Company is required to
include a statement in its Annual Report and Accounts which describes how the
Directors have had regard to the matters set out in section 172(1) (a) to (f) of the
Companies Act 2006 (the ‘Act’) when performing their duties during the year under
review. Additionally, Provision 5 of the 2018 UK Corporate Governance Code issued by
the FRC states that the Board should understand the views of the Company’s key
stakeholders and describe how it has taken into account the matters set out in section
172 of the Act in Board decision-making. The Board believes that consideration of these
factors is and has always been, an essential part of good decision-making and it is a
rolling agenda item at Board Meetings. The Statement to the right provides information
on how its stakeholders have been considered by the Board during the year in both its
near and longer-term decision-making.
The Company’s principal stakeholder groups are: its people; suppliers; customers;
local communities in which it operates; and shareholders.
44444444
Overview
Strategic report
Governance
Financial statements
Elsewhere, the Company also took further actions to help mitigate
the Company’s Principal Risks as detailed on page 34 which could
affect the stability and sustainability of the Company to the
detriment of all stakeholders. For example, during 2019, all of the
Company’s business servers and applications were migrated into a
cloud-based hosted IT environment to improve IT resilience and
cyber security. Additionally, Environmental has been included as a
Principal Risk within this year’s Annual Report, and the Company
undertook actions in 2019 to reduce its environmental impact
which predominately arises from its transport operations. One
such action was a trial, now being rolled-out, targeting more
effective delivery fleet utilisation which resulted in a reduction in
commercial vehicles needed to service the trial area with an
attendant positive impact on local communities being served due
to lower carbon emissions and vehicle movements.
Due to the Company’s market leading position, its sustainability and
future success is vital in supporting the marketplace and the
participants within it, including the Company’s suppliers and
customers, and in providing employment opportunities within local
communities. The Board is focused on promoting the future
success of the Company against a background of strong corporate
governance with the attendant positive impact on all stakeholders,
and in this regard approved investment in comprehensive market
research during the year. This research incorporated feedback from
stakeholder groups and identified areas for improvement and
avenues of growth for the Company to build its scale and resilience,
and workstreams to better service the addressable market. These
included building improved service propositions for different
customer groups and focus on product differentiation, which in turn
supported the Board’s approval of the acquisition of modern carpet
distributor Telenzo in October 2019.
Our People on page 46 details how the Company has sought to
support and further the interests of its workforce, and the
Stakeholder Interaction and Engagement section on page 40
details a number of specific initiatives and engagement activities
the Company undertook in 2019 across all its principal stakeholder
groups and through which it actively sought feedback. When acting
on this feedback, the Company gave equal importance to
improving the working environment, supporting suppliers and
customers, positively impacting its local communities, and the
interests of shareholders.
Conclusion
Following thorough consideration of the above and all other activities
and undertakings detailed in this Annual Report, the Board considers it
has fulfilled its duty in respect of section 172, both individually and
collectively, and that it has acted in the way it considers would be most
likely to promote the success of the Company for the benefit of its
members as a whole (having regard to the stakeholders and matters
set out in s172(1) (a) to (f) of the Act) in the decisions taken during the
year ended 31 December 2019.
Section 172 Statement
The Company announced in January 2019 that it anticipated the
UK floorcoverings market to show continued general weakness
during 2019 following on from that evident throughout 2018. The
cause of this expected continued weakness was attributed to
ongoing political and economic uncertainty, including around the
potential impact of Brexit, and the resulting impact on consumer
and business confidence. As a consequence, the Board thought it
prudent to provide guidance that revenue was expected to be in line
with 2018 and underlying profit before tax lower. Despite this
anticipated outcome, the Board reaffirmed its commitment to a
progressive dividend policy as a reflection of its confidence in the
Company’s ability to improve future profitability and stated its
intention to maintain the 2019 dividend in-line with that of 2018 for
the benefit of the Company’s shareholders.
Alongside the maintenance of the dividend, the Board remained
committed to continuing to invest in the business throughout 2019
irrespective of the anticipated weaker backdrop. This included
investment in the workforce, network and operations. At the
beginning of the year, the Board approved a 2% cost of living award
to all employees to offset inflationary pressures, and additionally
the approved 2019 Budget included performance-related
employee bonus awards to inspire over-achievement. In February
2019, the Company proceeded to acquire land in Ipswich to build a
new regional distribution centre on a brownfield site to rehome
businesses in a modernised fit-for-purpose facility, with the centre
also expected to create a significant number of additional jobs in
the local area when operational in 2020. Additionally, in April 2019, a
UK Operations Director was appointed to head up the Company’s
operational leadership team and ongoing operational improvement
programme to improve operating performance, the customer
service proposition and margin.
The operational improvement programme is designed to benefit all
stakeholders, including through improving the working
environment and processes for employees, better collaboration
with suppliers on production scheduling and buying, enhanced
product availability and delivery services for customers, lessening
the impact on local communities from transport operations, and a
reduction in costs and improved future financial performance for
shareholders. Requests were made by several stakeholder groups
for further detail on different constituents of the programme,
including how it would affect them as well as detail on the expected
financial contributions from improved efficiency. The Company
responded to this by actively engaging with the stakeholders, and
publishing its Strategic Objectives as detailed on page 20 and
quantifying within the Chief Executive’s Review and Financial
Review on pages 14 and 24 respectively the actual and anticipated
contributions from the programme in 2019 and 2020.
As part of the review of improving overall performance and the
sustainability of the Company, the Company examined all areas of
cost including employee reward. This resulted in the introduction of
remodelled bonus structures during 2019 for some parts of the
workforce to make them more aligned with annualised Company
performance and shareholders’ interests. Additionally, following
Board approval, consultation began on the closure of the
Company’s defined benefit pension scheme to future accrual, with
the closure of the scheme from March 2020 reducing an area of risk
and volatility for the Company and providing fairer pension provision
across the workforce. Following consultation, various adjustments
were made in response to feedback from affected members,
including adjustments to ongoing benefits and the date of closure
of the scheme.
Headlam Group plc Annual Report and Accounts 2019
45
45
4545
GovernanceFinancial StatementsStrategic ReportOverviewGovernanceFinancial StatementsStrategic ReportOverview Our People
As set out in Our Strategy
on page 20, at the heart of Headlam’s
approach to people management is the
provision of a safe and inclusive working
environment where everyone can fulfil
their potential, and the continued
development of a positive workplace
culture. 2019 saw further progress in
these commitments particularly through
enhanced workforce engagement,
expansion of people practices, and the
development of a clear set of values and
behaviours to be embedded across
the business.
See Our Values on page 21
4646
Workforce Engagement
As summarised in Stakeholder Interaction and
Engagement on page 40, the Company has introduced
a number of new forms of workforce engagement over
the last few years which significantly increase the
channels available to the Company to test ideas and
actively seek feedback, making changes and
improvements to the working environment in response.
During 2019, the Employee Forum was established
acting as the formal workforce advisory panel to the
Board and facilitating employee feedback being
considered directly by the Board. Elected employees
from across the workforce met with Company
representatives, including the Chief Executive and the
Non-Executive Director holding the position of Chair
of the Remuneration Committee, on two occasions in
2019 and discussed matters including health and
safety, customer engagement, strategy, and values
and behaviours.
Three further senior management team events were
held in 2019 to engage this group in a wide variety of
matters including strategy, and feedback received
has resulted in enhancements being made to
presentational content and event formats.
Departmental group meetings hosted by the UK
Operations Director were newly introduced in early
2020 for members of specific departments such as
sales, transport and warehouse to discuss matters
specific to their job function, with the opportunity for
these groups to share their views and have input into
decision-making.
A key focus during 2019 was the development of a
clear set of values and behaviours that could be utilised
across the business. 135 employees from
a wide cross-section of the Company’s businesses
attended workshops to collaboratively develop a
bottom-up set of values and behaviours which will be
communicated and embedded across the Company
during 2020.
Overview
Strategic report
Governance
Financial statements
Positive Workplace Culture
To continue the development of a positive
working environment and culture, a number of
policies and working practices were reviewed,
launched or relaunched during 2019 including:
•
•
Paternity Leave – an enhanced Paternity
Policy was introduced aimed at providing
greater support for families;
Family Friendly policies – the relaunch of
the Parental Leave, Shared Parental Leave,
Adoption Leave, Compassionate Leave,
and Emergency Dependents Leave, with
the latter aimed at providing support for
employees and their families dealing with
life events; and
• Flexible Working – the relaunch of the
Flexible Working Policy aimed at promoting
work-life balance, increasing motivation,
reducing stress, and improving
performance and productivity.
The Company’s effectiveness in developing a
positive working environment is monitored
using a bi-annual employee survey whereby
employees are given the opportunity to share
their view across a wide range of areas.
Additionally, in 2020, a ‘culture capture’ exercise
will be undertaken. The Company will work with
a third-party to carry out a research study using
focus groups, interviews and a survey which will
provide a bespoke report that provides both
insight into the Company’s culture and detailed
recommendations over key interventions
required to prompt cultural shift.
Employee Support
Following its introduction in November 2017,
the Employee Assistance Programme (‘EAP’)
ran for its second full year in 2019. The EAP,
delivered via an independent company called
LifeWorks, is a confidential telephone,
internet, app-based service available to all
employees and their immediate families
providing advice, information and support
on issues spanning work, health, and family
issues. During 2019, 26 people benefited from
individual support provided.
An enhanced Occupational Health service
was introduced in 2018 to further support
employee wellbeing, and in 2019 the
service assisted the HR team in supporting
38 employees with complex medical
conditions via early intervention and their
appropriate return to work.
Recruitment, Tenure and Vacancies
The Company actively recruited in all
departments throughout 2019 and the total
number of employees was 2,575 as at 31
December 2019 (2018: 2,612). Through the
continued focus on supporting and
encouraging internal moves, 23 vacancies
were filled by internal candidates during the
year. The Company’s activities in relation to
workforce engagement and the development
of a positive workforce culture are critical to
attracting and retaining talent and experience.
As at 31 December 2019, 30% of employees
had been with the Company over 10 years, and
employee retention which is included as one of
the Company’s KPIs decreased slightly in the
year to 72% (2018: 76%).
Headlam Group plc Annual Report and Accounts 2019
47
47
GovernanceFinancial StatementsStrategic ReportOverview Our People continued
Training and Development
The Company actively encourages all its employees
to participate in the training opportunities available to
them to support their development and the fulfilment
of their potential. In addition to the training
programmes detailed in Health and Safety on page 52,
during 2019:
Employee Benefits
The Company encourages and supports the financial
security of all its employees and offers a number of
benefits including the opportunity to participate in the
Company’s Pension Plan and providing death in service
benefits through the Headlam Group Life
Assurance scheme.
• 10 newly appointed managers attended a ‘Step into
Management’ course designed to equip first-time
managers with the skills needed to lead people;
• 50 sales representatives attended the Sales
Induction Programme; and
• 46 buyers attended workshops to further develop
their buying skills.
Apprenticeships schemes to develop skills and aid
succession were launched and rolled-out across the
business in 2019 with 29 employees involved, and
further investment will be made in 2020 to expand
the schemes.
Cost of Living Pay Award
The cost of living award is designed to benefit
employees through helping offset the effect of
inflation and the rising cost of living. For 2019, the
Company elected to award a cost of living increase
of 2% to base salary for all UK employees, and the
Company has replicated this for 2020. An additional
0.5% has been incorporated into the 2020 budget to
enable senior managers to make additional individual
awards. For the Company’s employees in Continental
Europe, local market practice was followed in 2019 and
for 2020.
The Company reviewed its pension arrangements in
2019, and in particular the future build-up of final salary
benefits in its Defined Benefit Pension Scheme (‘DB
Scheme’). The Company closed the DB Scheme to
new entrants many years ago. Since then, new
employees have been eligible to join the Defined
Contribution Pension Plan. The Company wishes to
provide sustainable and competitive pension benefits
for all its employees, and during 2019 consultation
began on the closure of the DB Scheme to future
accrual, with its closure from March 2020 reducing
an area of risk and volatility for the Company and
providing fairer pension provision across the
workforce. Various adjustments were made in
response to feedback from affected members
following the consultation, including adjustments to
ongoing benefits and the date of closure of the
scheme. Affected members have been offered the
opportunity to continue saving for their retirement
via the Company’s Defined Contribution Pension Plan.
The Company operates a HM Revenue & Customs
approved Save-As-You-Earn share option scheme
(‘SAYE’), a monthly savings scheme facilitating the
purchase of shares in Headlam at a discount by eligible
employees. The SAYE not only provides employees
with a tax-efficient savings plan but additionally
promotes a sense of ownership of the Company.
During 2019, 610 eligible employees participated in the
Company’s SAYE schemes, equivalent to 29% of the
eligible UK workforce.
Table showing gender diversity:
Employees
Male
Female
Number of employees
as at 31 December 2019
Executive
Directors
Executive
Team
Managers
2
0
2
2
3
5
269
52
321
Other
1,759
488
Total
2,032
543
2,247
2,575
4848
Overview
Strategic report
Governance
Financial statements
Diversity and Equal Opportunities
At the heart of the Company’s approach to people is
the provision of an environment where everyone can
fulfil their potential and where colleagues from all
backgrounds can feel confident in their ability to achieve
their best.
The Company has a Diversity Policy in place and is fully
committed to the elimination of unlawful and unfair
discrimination. The Company recognises and values
highly the benefits of diversity in the workplace, of
which gender is one important aspect, and 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. Where existing employees become
disabled, it is the Company’s policy, wherever
practicable, to provide continuing employment under
normal terms and conditions and to provide training,
career development and promotion wherever
appropriate, and the Company gives full and fair
consideration to applications for employment from
disabled persons.
As at 31 December 2019, the Company had 2,575
employees of which 21% were female (2018: 20%
female).
As of the date of the report, the Board (including the
Non-Executive Directors) and Executive Team, who
attend all Board Meetings, comprised five females and
six males, equivalent to a 45% female representation.
The Company is continuing to work to improve the
male:female ratio across the whole Company which
stood at 4:1 as at 31 December 2019. Actions and
initiatives launched to deliver improvement include:
•
•
•
•
Enhance Maternity Policy;
Paternity and Shared Paternity Leave policies (as
detailed on page 47);
Flexible Working Policy and practices (as detailed
on page 47); and
Reward frameworks and policies (to be launched in
2020).
Gender Pay Gap Report
In-line with the UK Government’s regulations which
introduced gender pay gap reporting, the Company
has published its most recent report dated 5 April 2019
on the gov.uk website and its own website. The report
fully complies with the legislation and an abridged
summary is given below which includes the Company’s
two legal entities required to report (‘HFD’ and ‘MCD’)
and additionally the ultimate holding company (‘PLC’)
not required to report.
• The Company’s overall median pay gap was lower
than the UK national average at 10.8% (national
average: 17.3%)
• The proportion of men and women
receiving bonuses:
• HFD – men 93%, women 87%
• MCD – men 91%, women 86%
• PLC* – men 20%, women 0%
The Company is continuing to work to improve both
the male:femail ratio and gender pay gap across the
Company, which includes both supporting the women
who currently work for the Company moving into
more senior positions, and attracting more women to
join the Company.
Right to Work and Brexit
The Company is ensuring that it is fully compliant with
the legal requirement to carry out checks with existing
and prospective employees to ensure that they have
the legal right to work in the UK. The Company has 134
identified EU and EEA nationals working in the UK, and
throughout 2019 implemented a communication
plan providing ongoing support and guidance for
employees gaining pre-settled or settled status to
secure their status in the UK after Brexit.
* Only one individual received a bonus, an operations leader for Continental Europe
Headlam Group plc Annual Report and Accounts 2019
49
49
GovernanceFinancial StatementsStrategic ReportOverview Environment
Introduction
The Company has a substantial understanding of the
impact its day-to-day operations, and the industry of
which it is a part, has on the environment and is
committed to mitigating its direct impact as well as
working as part of the overall floorcoverings industry
to reduce the industry’s environmental footprint.
Headlam’s Chief Executive is nominated as the
individual who champions environmental
performance at Board level, and the Company is
committed to pursuing and promoting recycling,
energy saving actions and ‘good energy behaviour’
across its business and routinely monitoring and
reviewing its energy usage, carbon emissions and
energy saving actions to improve environmental
performance.
Actions
Mitigating direct impact
Headlam’s direct impact on the environment arises
predominately from transport emissions, with its
transport activities accounting for approximately
90% of its total annual energy consumption.
Actions being undertaken to reduce its transport-
related emissions include:
• Fleet Operator Recognition Scheme (‘FORS’),
a voluntary accreditation scheme which
promotes best practice for commercial vehicle
operators including in the area of environmental
impact, with further of the Company’s
businesses applying for accreditation in 2020;
In addition to reducing transport emissions,
Headlam is focused on reducing its direct
environmental impact through:
• Monitoring and reducing where possible its
water consumption which is primarily used in the
washing of commercial vehicles;
• Recycling the waste arising from its operations,
predominately plastic packaging, cardboard
poles and wooden pallets;
• Utilising recycled protective packaging across its
UK operations;
• Sending zero floorcovering products or plastic
packaging waste to landfill;
• Promoting energy saving activities and actions in
its office and warehouse environments;
•
Incorporating energy efficient technologies
and equipment across its office and warehouse
portfolio, with the new regional distribution centre
currently being constructed on a brownfield site
in Ipswich incorporating photovoltaic panels and
LED lighting;
• Conducting its operations as efficiently as
possible in order to reduce energy consumption,
with the Company’s operational improvement
programme being a key driver of this;
• Maintaining, and annually reviewing, a group-
wide Environmental Policy that is applicable to all
employees; and
• All commercial vehicles being compliant with the
• Developing KPIs and intensity ratios to better
latest Euro 6 emission standards;
• Hybrid and lower CO2 emission vehicles available
in all company car categories, with a commitment
to further reviewing the car emissions policy; and
• Trialling and roll-out of more effective delivery
fleet utilisation under the Company’s ongoing
operational improvement programme, with less
miles travelled per delivery and an attendant
reduction in fuel consumption and air pollution.
measure performance in reducing energy usage
and carbon emissions, with the KPI section
on page 32 detailing two environmentally-
related KPIs.
See KPIs on page 32
5050
Overview
Strategic report
Governance
Financial statements
Case Study:
During 2019, Headlam worked closely with Texfelt, a world-leading
manufacturer of eco-engineered carpet underlays, to promote their
newly launched environmentally-friendly carpet underlay SpringBond to
its customer base. SpringBond is manufactured from recycled plastic
bottles and other single-use plastics helping to combat the millions of
tonnes of plastic entering the world’s oceans each year, whilst also being
fully recyclable at the end of its useable life. Through the promotion of
SpringBond’s market-leading green and other high-performance
credentials by the Headlam sales teams, Headlam’s collective sales of
the product reached the 1.25 million plastic bottles saved and recycled
milestone in 2019.
Plastic bottles saved and
recycled
1.25 million
Working as part of the industry to reduce
overall impact
Headlam is committed to working as part of the overall
floorcoverings industry to reduce the industry’s
environmental footprint. Actions and commitments in
this area include:
• Working in partnership with manufacturers
to support the development, production and
marketing of sustainable and recyclable products
into the marketplace;
• Growing a sustainable product offering for its
customer base; and
• Supporting actions focused on the recycling
of industry waste and diversion from landfill,
including through being a core funder of Carpet
Recycling UK and member of Recofloor.
Disclosure and SECR
As a demonstration of its commitment to the
highest levels of disclosure and to the measurement
and implementation of actions to reduce energy
usage and carbon emissions, Headlam has elected
to voluntarily comply a year early with the UK
government’s new Streamlined Energy & Carbon
Reporting (‘SECR’) scheme which applies to financial
years starting on or after 1 April 2019, and therefore
would not have applied until the Company’s 2020
Annual Report and Accounts.
Additionally, during 2019 the Company engaged
with an external energy data collation and
verification company on a three-year basis to
assist in identifying and implementing additional
energy saving actions. This same company
assisted Headlam with its mandatory Energy
Savings Opportunity Scheme 2 (‘ESOS 2’) external
audit and assessment completed in the year, with
the Company already taking action on some of
the energy saving recommendations provided,
including in the area of ‘good energy behaviours’.
Streamlined Energy & Carbon Reporting (‘SECR’)
Jan – Dec 2019 Summary
Growth
Acquisitions
One in 2019
Revenue change (UK)
+1.0%
Reporting Data Completeness
Invoices Processed
Over 1,500 invoices
Consumption data estimated
Current
Previous
Period: 15%
Period:
n/a
Carbon & Consumption
Gas and Fuel
5,055,888 kWh
930 tCO2e
YOY change: +1%
Electricity
8,252,552 kWh
2,109 tCO2e
YOY change: +14%
Transport
91,911,413 kWh
22,423 tCO2e
YOY change: +2%
Carbon Intensity Metric
1.5 tCO2e per £m
YOY change: 0%
3.5 tCO2e per £m
YOY change: +12%
36.7 tCO2e per £m
YOY change: +1%
Overall
tCO2e per £m
41.7
YOY = Year-on-year change
£m = £m revenue
YOY change
+1.7%
The detailed SECR Disclosure is given on page 103, and should be read in
conjunction with this Environment section
Headlam Group plc Annual Report and Accounts 2019
51
51
GovernanceFinancial StatementsStrategic ReportOverview
Health and Safety
ISO 45001 Accreditation achieved across the UK
Introduction
As detailed in Our Values on page 21, one of the
Company’s core values is ‘We keep people safe’, and
the Company is committed to providing a safe
working environment, promoting a positive health and
safety (‘H&S’) culture and the achievement of the
highest standards of H&S management throughout
the Company.
H&S is a standing agenda item at the Company’s Board
Meetings, with an associated report submitted
including details on incidents, updates on procedures
and actions to improve H&S performance, and any
changes in legalisation and regulation that could
affect the Company and its businesses. Regular
presentations are additionally made to the Board by
the UK Operations Director who has lead day-to-day
oversight of H&S matters, members of the H&S team,
and specialist third-parties.
The Company has an established Risk Committee and
H&S is included as a principal risk, as detailed within the
Principal Risks and Uncertainties on page 34 where a
summary of mitigating actions is given.
Activities and Actions
Since the establishment of a dedicated in-house H&S
team in 2017, much has been achieved in the
improvement of H&S across the group, including:
• Launch of a web-based Management System to
enable data and trend analysis and a standardised
approach to risk assessments;
ISO 45001:2018 is the world’s first international
standard for occupational health and safety (‘OH&S’)
management, and the Company was delighted that
in October 2019 all the Company’s UK national
distribution hubs and regional distribution centres
were certified as meeting the requirements of ISO
45001:2018. The ongoing ISO 45001 audits to be
conducted throughout 2020 and 2021 will establish
ongoing accreditation.
As a result of recommendations arising from
the external audits, the Company has already
implemented a number of actions to strengthen the
provision of a safe working environment, and has a
programme in place to make further improvements
throughout 2020 including in the areas of machine
guarding, increased vehicle and pedestrian separation,
and further embedding H&S culture through increased
employee engagement and the ‘Opportunity for
Improvement’ scheme where employees ideas are
actively sought to improve the working environment.
The Company continually strives to make
improvements above that required by regulation, and
beginning in 2020, Autonomous Emergency Braking
(‘AEB’) systems will be fitted as standard to all new
commercial vehicles helping to avoid accidents and
reduce the severity of potential crashes.
Other actions to be undertaken during 2020 include:
• Continuing racking safety inspections by a
specialist independent company;
• Full review and updating of policies and procedures;
•
Improved employee engagement and involvement
in H&S systems and processes;
• Further applications for Fleet Operator
Recognition Scheme (‘FORS’) accreditations which
promotes best practice for commercial vehicle
operators;
• Enhancements to the Management System,
including the roll-out of a training app to improve
the level of employee training; and
• Commitment to Roadwatch which is focused
on reducing speeding vehicles across the UK.
There were 23 reportable incidents in 2019
(2018: 18; 2017: 25), none of which resulted in a serious
or ongoing life-changing injury, and there were no
prosecutions for breaches of health and safety or
enforcement actions in the year.
• Significant increase in compliance assessments
across the group;
•
•
•
Increased levels of internal and external training
programmes, including all business managers
responsible for H&S completing Institution of
Occupational Safety & Health (‘IOSH’) training
courses;
Improvements to working environments, facilities
and buildings; and
Installation of safety devices such as fall arrest on
the commercial fleet and creep speed on all fork lift
trucks (where applicable).
To gain a comprehensive independent assessment
of its H&S practices and identification of areas for
improvement, the Company commission an
independent external audit during 2019 and
additionally was subject to a series of external audits in
connection with the objective of achieving ISO 45001
accreditation, a stated aim with the 2018 Annual
Report and Accounts.
5252
Overview
Strategic report
Governance
Financial statements
Communities and Charitable Donations
The Company is committed to positively impacting
the communities and local areas in which it operates.
One key area is through providing employment
opportunities and, as referenced in Our People on
page 46, the Company actively recruited in all
departments throughout 2019, with the Company’s
businesses predominately recruiting from within their
local areas. The Company’s new regional distribution
centre on a brownfield site in Ipswich is scheduled to
become operational during 2020, and in addition to
rehousing existing businesses in a modernised facility
is expected to create a significant number of new jobs
in the local area.
The Company actively encourages each of its
businesses to build strong relationships with the
communities in which they operate. As part of this
focus, the Company has in place a Charitable
Donations Policy which supports locally-focused
charitable giving and community involvement by each
of the Company’s businesses, thereby allowing local
communities to benefit directly from the Company’s
activities in their area. Charitable giving is undertaken
through both monetary donations and donations of
floorcovering products to identified local good
causes, with recipients during the year including
a local community hub and an elderly people
welfare association.
Monetary donations made during the year in support
of charitable causes in local communities, nationally,
and those of interest to employees amounted to
£12,011 (2018: £24,172). This included a donation of
£9,360 to Pennies from Heaven on behalf of the
Company and its employees. Under the Pennies from
Heaven payroll giving scheme, of which the Company
has been a member since 2011, the Company
matches the charitable donation made by
its employees.
The Company is a corporate member of The Furniture
Makers’ Company, the furnishing industry’s charity,
and in 2019 signed up to support their ‘One Step at a
Time’ campaign aimed at ensuring that all people
working within the wider industry, as well as retirees
and former workers, are aware of the charity’s welfare
support in times of financial need.
While the Company positively impacts its local
communities through employment, community
involvement and charitable giving, it has a substantial
understanding of the impact its day-to-day transport
operations have on the local communities it serves
and is committed to reducing this impact.
As detailed in the Environment section on page 50, the
Company has in place a number of actions to reduce
its transport-related emissions, which form a key
component of its efforts to mitigate its direct impact
on the environment. These actions have and will
continue to reduce the Company’s impact on air
pollution in the areas it operates, while the action
specifically focused on more effective delivery fleet
utilisation will additionally help alleviate traffic
congestion in its delivery areas.
As part of its overall commitment to lessening the
impact of its transport operations on local
communities, operating more efficiently, and to
achieving the highest standards of H&S management,
the Company is focused on pedestrian safety and
reducing the potential for road traffic incidents.
Initiatives introduced in this area including making
further applications for FORS accreditations, support
of ‘Roadwatch’, and continuing to embed H&S culture
across the business.
See Health and Safety on page 52
Headlam Group plc Annual Report and Accounts 2019
53
53
GovernanceFinancial StatementsStrategic ReportOverview Board of Directors
The capabilities, experience and areas
of expertise of the individuals within the
Board and Executive Team are detailed
on pages 54 to 57, with these combining
to deliver on the Company’s Strategy
whilst also addressing and helping to
mitigate the Company’s Principal Risks
& Uncertainties.
See Our Strategy on page 20
See Risk Management and
Principal Risks & Uncertainties on page 34
Philip Lawrence
Non-Executive
Chairman
Steve Wilson
Chief Executive and
Executive Director
Committees
Audit
Nomination
Remuneration
Denotes Chair
54
Philip was appointed a Non-
Executive Director in June 2015 and
became Non-Executive Chairman
on 1 June 2018. Philip is currently
Non-Executive Director of private
equity backed Airband Community
Internet Limited and a member of
the advisory board for the Offshore
Petroleum Regulator for
Environment and Decommissioning,
part of the Department for
Business, Energy and Industrial
Strategy (‘BEIS’). Philip was formerly
Chief Executive of the Coal
Authority, an arm’s-length body of
BEIS, before stepping down in May
2018 after 11 years, and prior to this
he held significant roles with
Marconi plc and Deloitte LLP. He is
an Associate of the Institute of
Chartered Accountants in England
and Wales.
Philip’s experience and expertise
spans the key areas of change
management leadership, including
overseeing the development of
organisations and commercialisation,
and expansion of customer bases
and addressable markets.
Committees
Steve joined Headlam in 1991 as
Group Finance Director and was
highly involved in the Company’s
acquisitive growth strategy
throughout the 1990s, with eight
floorcoverings distribution
businesses acquired during 1992 and
a subsequent acquisition in 1996
resulting in the Company becoming
the UK market leader. In 2016, he was
appointed Chief Executive and has
overseen the move to a more
unified operating structure and the
implementation of an operational
improvement programme to improve
performance. He is a Fellow of the
Institute of Chartered Accountants
in England and Wales.
In addition to his 27 years’ experience
within the floorcoverings industry,
Steve has also previously held
Non-Executive positions within the
distribution and healthcare
industries. Following his appointment
as Chief Executive, he instigated the
establishment of dedicated in-house
HR and Health and Safety teams.
Steve is nominated as the individual
who champions environmental
performance at Board level.
Committees
Chris Payne
Chief Financial Officer and
Executive Director
Keith Edelman
Independent Non-Executive
Director and Senior Independent
Director
Amanda Aldridge
Independent
Non-Executive Director
Alison Littley
Independent
Non-Executive Director
Chris joined the Company as Chief
Financial Officer in 2017. Previously
he was at Biffa plc, the UK integrated
waste management company,
where he was Group Commercial
Finance Director with
responsibilities including overseeing
all the operational finance teams
and divisional Finance Directors.
Prior to that, Chris held two
divisional Finance Director positions
at Mitie Group plc. He is a qualified
Chartered Accountant having
trained with KPMG and is a Fellow of
the Institute of Chartered
Accountants in England and Wales.
Chris has broad operationally-based
finance experience including in the
areas of IT and environmental
reporting and outputs. He chairs the
Company’s Risk Committee, and as
part of this remit has lead oversight
of the identified risks relating to IT
and change management amongst
others.
Keith was appointed a Non-
Executive Director in October 2018
and was appointed Senior
Independent Director on 1 January
2019. Keith is currently Chairman of
Revolution Bars Group Plc and
Pennpetro Energy Plc, and a
Non-Executive Director of the
London Legacy Development
Corporation and Altitude Group plc.
His last executive appointment,
which ended in 2009, was Managing
Director of Arsenal Holdings Plc
where he was responsible for the
move from Highbury to Emirates
Stadium. Since 2009, Keith has held
a number of Non-Executive roles
including Superdry Plc, Safestore
Plc, Goals Soccer Centres plc, JE
Beale Plc and Thorntons Plc.
Keith brings extensive commercial
experience to the Board coupled
with a background in consumer
facing businesses. In his executive
career he was a director of
consumer, retail and leisure
companies including Ladbroke
Group Plc, Carlton Communications
Plc and Storehouse Plc.
Committees
Amanda was appointed a Non-
Executive Director in February 2018
and appointed Chair of the Audit
Committee on 1 June 2018.
Amanda is currently a Non-
Executive Director of Impact Health
REIT plc and The Brunner
Investment Trust PLC. Amanda was
a partner in KPMG LLP from 1996
until 2017, when she retired from the
partnership, having joined the firm in
1984 and qualified as a chartered
accountant in 1987. During her 32
years with KPMG LLP, Amanda held
a number of strategic and line
management roles. She is a Fellow
of the Institute of Chartered
Accountants in England and Wales.
Alison was appointed a Non-
Executive Director in January 2019
and was appointed Chair of the
Remuneration and Nomination
Committees on 1 June 2019. She is
currently a Non-Executive Director
and Chair of the Remuneration
Committee at Norcros plc, a supplier
of high quality and innovative
bathroom and kitchen products, and
a Non-Executive Director at
Weightmans LLP and Geoffrey
Osborne Group. In her executive
career, Alison held a variety of senior
management positions in Diageo plc
and Mars Inc, and was Chief
Executive Officer at an agency to
HM Treasury.
Amanda has significant experience
as an external auditor, working
predominately with quoted clients
in the retail and distribution sectors,
and additionally advised quoted
companies on corporate
transactions and the assessment
and remediation of internal controls.
Committees
Alison has substantial experience in
multinational manufacturing and
supply chain operations, and a
strong international leadership
background of building effective
management teams and third-party
relationships. In addition to having
recent and relevant remuneration
committee and policy experience,
she is a representative on the
Company’s Employee Forum which
acts as the formal workforce
advisory panel to the Board.
Committees
Headlam Group plc Annual Report and Accounts 2019
55
GovernanceFinancial StatementsStrategic ReportOverview Executive Team
The capabilities, experience and areas
of expertise of the individuals within the
Board and Executive Team are detailed
on pages 54 to 57, with these combining
to deliver on the Company’s Strategy
whilst also addressing and helping to
mitigate the Company’s Principal Risks
& Uncertainties.
See Our Strategy on page 20
See Risk Management and
Principal Risks & Uncertainties on page 34
Adrian Harris
UK Operations Director
Darryl Price
Commercial Director
Adrian was appointed UK
Operations Director in 2019 having
previously been Chief Operating
Officer at Yodel, one of the UK’s
largest delivery companies for B2B
and B2C orders serving many of the
UK’s leading retailers. Prior to that,
Adrian held roles in the areas of
logistics, e-commerce fulfilment
and supply chain management at
Marks and Spencer, Amazon, Tesco
and Home Retail Group. He initially
spent 10 years in the Royal Logistic
Corps of the British Army, latterly as
a Major.
Adrian has brought important
additional skills and areas of
expertise to the Executive Team,
particularly in the areas of logistics,
customer insight and e-commerce,
and heads up the Company’s
operational leadership team and
operational improvement
programme. As part of his remit, he
is the day-to-day overseer of the
Company’s health and safety
activities and a member of the
teams dedicated to Brexit
preparations and sustainability.
Darryl has over 25 years’ experience
in the floorcoverings industry having
joined the Company in 1994. He has
extensive knowledge and
experience in all areas of the
Company’s operations including
warehouse and distribution, supplier
management, sales and customer
service. He has been Commercial
Director since 2016 and is
responsible for the Company’s
global supplier base and product
development activities, including in
the area of sustainability, and also
holds operational oversight of a
number of the Company’s UK
businesses.
Due to his in-depth supplier base
knowledge, Darryl is a member of
the operational leadership teams
involved in the preparations around
the potential impact of Brexit, and
the monitoring and prevention of
Modern Slavery in the Company’s
supply chain.
56
Sue LaVerne
People Director
Catherine Miles
Director of Communications
Karen Atterbury
Company Secretary
Sue was appointed People Director
in 2017, joining from E.ON where she
had worked since 2009 carrying out
various commercial and
international HR leadership roles,
latterly as HR Director of the global
customer solutions division. Sue
started her career in retail with
commercial and HR appointments
including at Marks and Spencer and
Arcadia Group. She has broad
experience in all areas of HR and has
contributed to external bodies,
including the Department for Work
and Pensions employers steering
group focused on giving more
disabled people access to work.
Catherine was appointed Director of
Communications in 2017 having
previously been Corporate Broking
Director at the stockbroker Arden
Partners, where she was an adviser
to Headlam. Catherine worked in
Corporate Broking for six years
advising on transactions and
regulatory matters, and raising
money for a broad spectrum of
public companies predominately in
the small and mid-cap space. Prior
to this she was Corporate
Communications Director and
Company Secretary at an AIM listed
company, and initially worked in the
Financial PR industry.
Sue established the Company’s
dedicated HR function and has been
instrumental in implementing the
Company’s workforce engagement
activities and initiatives, whilst
developing the culture and
succession planning programmes
across the business.
Catherine is involved in ensuring
regulatory compliance and heads up
the Company’s investor relations
function. She is highly involved in all
stakeholder engagement activities,
including workforce
communications, and additionally
heads up the team focused on
environmental policy setting, data
collation and reporting.
Karen was appointed Company
Secretary in 2019. Previously she
was Deputy Company Secretary of
Barratt Developments PLC, and
prior to this held various company
secretarial roles including Company
Secretary of Dixons Carphone PLC
and Deputy Company Secretary of
Dixons Retail. Karen is a qualified
Chartered Secretary and
governance professional within
listed companies, and has extensive
transactional, compliance and
corporate governance experience.
She is an Associate of the Chartered
Governance Institute.
Karen is focused on governance and
compliance in all areas of the
Company’s activities and
operations. She additionally
manages the Company’s property
portfolio, insurance, and pension
administration.
Headlam Group plc Annual Report and Accounts 2019
57
GovernanceFinancial StatementsStrategic ReportOverview Chairman’s Introduction to the
Corporate Governance Report
As Chairman it is with great pleasure that I present the approach your
Board has taken on Corporate Governance throughout the year under
review. As outlined within last year’s Annual Report and Accounts, we
welcomed Alison Littley as a Non-Executive Director on 1 January
2019 and the only other change to Board composition during the year
was Andrew Eastgate’s retirement on 31 May 2019 after nine years’
service. I wish to thank Andrew for his contribution to the Group during
his tenure.
Following the evolution of the Board over the last two years, this has
been a year of strategic progress with continued focus on governance
practices across the Group enabling the Board to ensure that the
requirements of the 2018 UK Corporate Governance Code (the
‘Code’) have been fully met.
We strive for continual improvement in our governance practices and I
set out below some of the highlights from the year under review:
Strategic Priorities
One of our main priorities was to look longer-term, discuss, challenge
and establish the strategic objectives for the business, as given on
page 20, and to ensure that the resources, skills, processes and
investment was in place to successfully deliver both short-term and
long-term goals in order to drive operational and financial
performance and the achievement of long-term stakeholder value.
Remuneration Policy
The Remuneration Committee has reviewed the Company’s
Remuneration Policy which is now due to be re-presented to
shareholders for approval for the next three years. The Remuneration
Committee has concluded that it will re-present the current policy
framework for approval, as it continues to be effective, whilst
introducing a number of amendments to align it with current
governance standards. The Remuneration Policy was previously
approved by shareholders at the 2017 AGM with over 99% votes cast
in favour. Further information is outlined in the Remuneration report
on page 76.
Succession Planning
The Nomination Committee undertook a review of succession
planning for Board and Executive Team appointments and agreed the
way in which it would be carried out. This was then undertaken during
January 2020. Contingency succession planning and long-term
succession planning have both been undertaken as outlined further
on page 68.
Stakeholder Engagement
In one of the most notable updates, the Code states that Boards
should understand the views of their key stakeholders and that they
explain in their annual report how their interests and the matters set
out in section 172 of the Companies Act 2006 were considered in
Board discussions and in the decision-making processes. The full
statement explaining the Board’s approach to stakeholder
engagement is included on pages 40 to 45.
One of our principal stakeholder groups is, of course, our workforce.
During 2019 we launched our Employee Forum to serve as our formal
workforce advisory panel in compliance with provision 5 of the Code.
The Employee Forum has held two meetings to date, to discuss items
of importance to the Company’s business and strategic direction.
The Board believes that our people are at the heart of the business
and they are delivering our strategy every day. Their views are
therefore vitally important in shaping the Company’s approach to its
day-to-day operations. Members of the Employee Forum have been
nominated from across the business, from different levels of the
Philip Lawrence Non-Executive Chairman
“A commitment to the
highest levels of corporate
governance underpins the
delivery of our strategic
objectives and the
sustainability of the business
for the benefit of all
stakeholders and the
wider society as a whole.”
58
Diversity
Diversity and inclusion has continued to be an item of focus on the
governance agenda. The Board and Nomination Committee supports
the FRC's proposals to require greater consideration of ethnic and
social diversity when planning and reviewing the composition of the
Board and structuring talent development initiatives. The Board has
considered the Company’s diversity strategy during the year. Further
details on Diversity can be found in the Nomination Committee
Report on page 69 and the Strategic Report on page 49.
Environment and Sustainability
Any socially responsible business is aware of the impact its operations
have on its stakeholders and the environment. We have a substantial
understanding of the impact our operations, with this principally
arising through the movement of our fleet and the waste arising from
product and packaging. We are committed to mitigating our direct
environmental impact as well as working as part of the overall
floorcoverings industry to reduce the industry’s environmental
footprint. The actions we are pursuing are detailed within
‘Environment’ on page 50.
During the year we completed the mandatory ESOS Phase 2
Assessment which included energy saving recommendations that the
business has assessed and will look to implement as appropriate
during 2020. Additionally, as a demonstration of our commitment to
the highest levels of disclosure and to the measurement and
implementation of actions to reduce energy usage and carbon
emissions, we elected to voluntarily comply a year early with the UK
government’s new Streamlined Energy & Carbon Reporting (‘SECR’)
scheme which applies to financial years starting on or after 1 April
2019, and therefore would not have applied until the Company’s 2020
Annual Report and Accounts.
Full information on ESG (Environmental, Social and Governance)
issues and the Environment are given on pages 38 and 50.
Board Evaluation
The Board has undertaken an external Board effectiveness evaluation
exercise during the year. The evaluation was facilitated by Board
Evaluation and further information on the outcomes are set out on
page 64.
2020 and beyond
2019 has been an important year for the Group with much having
been achieved at an operational and strategic level. We will continue to
strive to achieve long-term shareholder value and to positively impact
all our stakeholders. I am confident that we have the right mix of skills
and experience on the Board to provide strong and effective
leadership and successfully drive performance in all areas through
2020 and beyond.
Philip Lawrence
Non-Executive Chairman
5 March 2020
organisation, so as to achieve a genuine cross-section to represent
the views of our people. After each meeting of the Forum, the Chief
Executive reports on the business of the meeting back to the Board. In
addition, Alison Littley attends each Forum in her role as Non-
Executive Director and Chair of the Remuneration Committee to
further inform the discussions at Board level. Further information on
the Employee Forum and engagement with our workforce is
contained on page 46. Additionally, the Board is planning to hold two of
its meetings at regional businesses over the next year, to hear directly
from our business leaders.
Culture, Values and Ethics
The regionalised nature of the marketplace is reflected in the
Company’s culture, which is firmly rooted in it’s heritage of regionally-
focused, local businesses where each business takes pride in its
unique identity and long-established customer relationships. It is this
locally focussed culture which is at the heart of the Company’s ability
to provide customers with tailored propositions and products specific
to their needs. The Board wishes to preserve the local, customer
focused attributes of the culture, while additionally encouraging the
appropriate levels of collaboration between the Company’s
businesses to deliver greater operational efficiency and further
improve performance at a group-level.
During 2019, a key focus has been the development of a clear set of
values and behaviours. Workshops were held across the Company’s
businesses, which involved 135 employees. The output from these
workshops informed the draft values and behaviours that were
presented to the Employee Forum, whose ideas and suggestions were
subsequently included in the final presentation to the Board.
The Company’s strategic objectives and values, which will be
embedded in 2020, include a focus on teamwork, partnership and
service which support the strategy of developing a positive workplace
culture and delivering sustainable long term value.
The Board believes that the values of the Company should not be an
overlay but should simply become ‘the way we do business’. By
listening to and understanding our workforce, we can develop
corporate values supported by behaviours that truly resonate with the
business and support the achievement of our strategy for the benefit
of all stakeholders. With that in mind, the Board has approved a culture
capture exercise which will take place in March 2020 to inform its
understanding and monitoring of culture throughout the Group. The
Board will continue its assessment of workplace culture and monitor
the implementation of the Company’s values and associated
behaviours during 2020.
The principles of good governance are also embedded in the day-to-
day running of the Group in a variety of different ways including:
– a key focus on the health, safety and working practices of our
people, see page 52;
– the requirement to observe good business practice, including
abiding by applicable laws and legislation;
– a fully implemented delegation of authority document which sets
out which decisions can be made by whom in the organisation;
– the undertaking of internal control audits by Group Finance with
oversight by the Audit Committee;
– the implementation of group-wide policies such as Anti-
Corruption and Bribery, Fraud and Money Laundering. Group
businesses are required to confirm compliance with these policies
as part of the half year and full year reporting process; and
– the encouragement of disclosures in line with the Group’s
Whistleblowing Policy and the thorough investigation of any such
disclosures.
Headlam Group plc Annual Report and Accounts 2019
59
GovernanceFinancial StatementsStrategic ReportOverview Corporate Governance Report
Our governance framework helps the Company in the delivery of its strategic objectives and ensures that its obligations to its stakeholders are
understood and fully met.
Compliance statement
It is the Board’s view that, throughout the financial year ended 31 December 2019, and as at the date of this report, the Company complied with
all the relevant principles and provisions set out in the UK Corporate Governance Code 2018 (the ‘Code’). The Code is published by the Financial
Reporting Council, and is available on its website at www.frc.org.uk.
This Corporate Governance Report, together with the Nomination Committee report on pages 67 to 69, the Audit Committee report on pages
70 to 75, the Directors’ Remuneration Report on pages 76 to 97, and the Other Statutory Information section page 98 provides a description of
how the main principles of the Code have been applied by the Company during 2019.
This Report complies with Rule 7 of the Disclosure Rules and Transparency Rules of the Financial Conduct Authority, with the information
required to be disclosed by sub-section 2.6 of Rule 7 being shown on pages 98 to 101. The Company has also complied with the relevant
requirements of the Disclosure Guidance and Transparency Rules, the Listing Rules, Directors’ Remuneration Reporting regulations and
narrative reporting requirements.
Leadership
The Board is the Company’s principal decision-making body. The schedule of matters reserved for the Board, as approved by the Board, is
available on the Governance section of the Company’s website, www.headlam.com. It includes matters relating to strategy, capital expenditure,
acquisitions and risk management. An overview of the main duties, roles and responsibilities of the Board are also available on the Company’s
website. The Statement of the Responsibilities of the Chairman, Chief Executive and Senior Independent Director have been reviewed during
the year and are also available on the Company’s website.
Board responsibilities
The Board is responsible for providing strategic and entrepreneurial leadership of the business and promoting its long-term sustainable
success. This is achieved within a framework of strong governance and effective controls enabling opportunities and risks to be assessed and
managed appropriately. In doing so the Board aims to generate value for shareholders while contributing positively to the wider society. In
addition, the Board sets the Company’s strategic objectives; ensures that the necessary financial and human resources are in place for the
Company to meet its objectives; and reviews management performance.
Board Committees and Delegation
The Board takes decisions on strategy and in relation to items set out in the written schedule of matters reserved for its deliberation. Various
operational matters and decisions have been delegated to Board or management committees. The Company has long-established Board,
Audit, Nomination and Remuneration Committees which oversee and debate important issues of policy and assist the Board in attending to its
responsibilities. Terms of reference for each Committee have been reviewed during the year and are available on the Governance section of the
Company’s website.
Group Board
Provides effective and entrepreneurial leadership within an environment of strong
corporate governance, ethics and values, and effective controls
Nomination Committee
To monitor the size, diversity
and composition of the
Board and its Committees
and ensure a formal, rigorous
and transparent procedure
for the appointment of new
directors and to plan for
succession.
To take an active role in
monitoring the Company’s
diversity strategy and
approach and monitoring its
effectiveness.
Page 67
Audit Committee
To assist the Board in
fulfilling its corporate
governance obligations
relating to the Group’s
financial reporting practices,
internal control and risk
management framework,
and its internal and external
audit processes.
Page 70
Remuneration Committee
To determine and agree the
remuneration policy for
Executive Directors and
Executive Team and to
monitor and report on it.
To review wider workforce
remuneration and related
policies in accordance with
the Code.
Page 76
Disclosure Committee
To assist the Board in
discharging its
responsibilities in relation to
the control of inside
information and obligations
under the Market Abuse
Regulation.
Assurance
Executive Risk Management Committee
To identify emerging and principal risks and monitor and assess the operational risks of the business and their mitigation.
60
Board balance
The Board consists of the Non-Executive Chairman, two Executive Directors and three Non-Executive Directors. The Chairman was
independent upon appointment. The Executive Directors are responsible for the implementation of the decisions of the Board. The Non-
Executive Directors are responsible for evaluating and challenging management’s proposals and their mix of skills and experience bring a
broader perspective to the Board’s dialogue and decision-making process. Following review, the Board considers the balance achieved
between Executive and Non-Executive Directors to be appropriate and effective for the control and direction of the business going forward,
such that no one individual or small group of individuals dominates the Board’s decision-making. The Directors as a whole, bring strong
judgement to the Board’s deliberations, and the size and balance of skills and experience of the Board is considered appropriate for the
requirements of the business and the size of the Company.
The Board recognises the valuable contribution that diversity, including gender, can bring to board discussions and the decision-making
process. Although the Board does not set gender targets, preferring instead to appoint on merit, at the date of this report, 33% of the Board is
represented by female directors (2 out of 6 Board members). The Board considers this to be appropriately balanced to achieve a gender diverse
perspective. Additional disclosures relating to the Company’s approach to diversity considerations are set out in the Nomination Committee
report.
Independence
The Company recognises the importance of its Non-Executive Directors remaining independent of executive management in character and
judgement in order for them to effectively support and challenge management’s proposals. The Board has considered the independence of
the three Non-Executive Directors and consider that all 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.
Philip Lawrence was considered independent upon appointment to the Board in 2015 and continued to be so upon taking up his role as
Non-Executive Chairman. As part of the 2019 effectiveness review of the Chairman, the Non-Executive Directors led by Keith Edelman,
considered Philip Lawrence’s other interests and confirmed that he continues to dedicate sufficient time to his role and that his other interests
did not impact on his availability to fulfil his duties.
The Senior Independent Director is available to shareholders if they have concerns which are not resolved through the normal channels of the
Chairman, Chief Executive or Chief Financial Officer, or for which such contact is inappropriate.
The Non-Executive Chairman and 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 by shareholders, can serve up to a maximum of three
such terms. In line with the Code, all Board members will stand for re-election by shareholders at the 2020 AGM.
Board Roles
All Directors share collective responsibility for the activities of the Board; the long-term success of the business and its impact on stakeholders
and the wider society. The Board roles are constructed to ensure a clear distinction between leadership of the Board and the executive
leadership of the business. Specific Board roles are outlined below:
Non-Executive Chairman
Philip Lawrence
Chief Executive
Steve Wilson
• Manage and provide leadership to the Board and set its agenda;
• Ensure high standards of corporate governance and set the cultural tone from the top;
• Act as a liaison between the management of the Company and the Board;
• Provide independent advice and counsel to the Chief Executive;
• Responsible for the effectiveness of the Board and its decision-making process and enable
an annual review of its effectiveness;
• Facilitate effective contribution of all Directors and constructive relations between
Executive and Non-Executive Directors;
• Ensure appropriate induction training for each Director; and
• Ensure effective communication with shareholders and other stakeholder groups and
participates in corporate relations activities, including with shareholders as appropriate.
• Lead and manage the Group;
• Develop Group strategy for the enhancement of long-term stakeholder value taking into
account the needs and views of each stakeholder group;
• Lead the Executive Team in the implementation of Group Strategy agreed by the Board;
• Run the businesses in accordance with the policies and plans approved by the Board;
• Maintain relationships with shareholders and advise the Board accordingly;
• Set an example to the workforce and communicate the Board’s expectations particularly
with regard to culture, diversity and compliance; and
• Champion environmental performance and Health and Safety at Board level.
Headlam Group plc Annual Report and Accounts 2019
61
GovernanceFinancial StatementsStrategic ReportOverview Corporate Governance Report continued
Chief Financial Officer
Chris Payne
• Responsibility for managing the Group’s financial affairs;
• Support the Chief Executive with his corporate relations responsibilities, including with
Senior Independent Director
Keith Edelman
Independent Non-Executive Directors
Amanda Aldridge
Alison Littley
shareholders;
• Chairs the Risk Committee;
•
In conjunction with the Executive Team and Risk Committee, oversee the Company’s risk
profile and risk management process;
• Responsible for managing the Group’s I.T. department and infrastructure; and
• Responsible for implementing the Group’s corporate development strategy.
In addition to the role as a Non-Executive Director:
• Act as a sounding board for the Chairman on Board related matters;
• Lead the effectiveness evaluation of the Chairman;
• Act as an intermediary for other Directors, when necessary;
• Be available to shareholders who wish to discuss matters which cannot be resolved
otherwise; and
• Work with the Chairman, other Directors and/or shareholders to resolve significant issues
and to maintain Board and Company stability in periods of stress.
• Provide effective and constructive challenge;
• Particular responsibility to critically assess the strategy proposed by management and
provide strategic guidance;
• Offer specialist advice to management using their experience and expertise; and
• Scrutinise the performance of management in the implementation of the approved
strategy.
The Role of the Company Secretary
The Company Secretary provides support to the members of the Board:
Company Secretary
Karen Atterbury
• Provide updates to the Board and advise on corporate governance and compliance matters;
• Support the Chairman and Chief Executive in fulfilling their duties particularly in relation to
induction, training and Board effectiveness evaluations;
• Support the Non-Executive Directors; and
• Provide effective support to the Board and its meetings, including attending and maintaining
a record of the same.
Attendance at Board meetings
The Board met nine times during the year to discuss the latest operating and financial information, key strategic items and other topics
requiring discussion or decision. Board papers are issued where possible, a week prior to each meeting to allow adequate consideration of the
matters to be discussed. The Board’s meeting agenda is structured to ensure that sufficient time is given to each item under consideration.
The Chairman holds meetings of the Non-Executive Directors without the Executive Directors being present on the day of each board meeting
and they have additionally met once during the year. The Non-Executive Directors have also met without the Chairman or the Executive
Directors present, led by the Senior Independent Director.
A record of Directors’ attendance at scheduled Board meetings held during the year is set out below. Committee meeting attendance is given
in the relevant Committee reports.
Directors
Philip Lawrence
Steve Wilson
Chris Payne
Keith Edelman
Amanda Aldridge
Alison Littley
Former Director
Andrew Eastgate1
Role
Non-Executive Chairman
Chief Executive
Chief Financial Officer
Senior Independent Director
Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director (stepped down as Director 31/5/19)
Meetings
attended
Eligible to
attend
9
9
9
9
9
9
3
9
9
9
9
9
9
4
1 Andrew Eastgate was unable to attend one Board meeting due to a prior commitment.
In addition to the meetings above, the Board held an offsite strategy day with the Executive Team to assist with the development of the
Company’s strategy and strategic objectives.
The Board considers that it may be beneficial for the Executive Directors to hold external directorships to broaden their experience. The Board
has approved a policy which would limit such appointments to one Non-Executive Directorship or other significant appointment.
62
The Board’s Activities in 2019
Overview
The following sections outline the key activities of the Board during 2019 and to the date of this report. The Board paid specific attention to
assisting management in the development of the Company’s strategic objectives and the approach that it takes to governance in general. At
each meeting the Board receives updates from the Chief Executive, the Chief Financial Officer and the Company Secretary in addition to
reports on health and safety, consideration of the views of stakeholders (including employees, suppliers, customers and shareholders), and
corporate governance updates.
Specific activities of the Board included the following:
Strategy and
management:
• Considered a report from an external consultant on
the Company’s marketplace, industry and customer
insights;
• Received presentations from senior managers of the
Company’s Domus and LMS businesses on strategy
and development plans;
• Through detailed interaction at Board meetings with
• Undertook post implementation reviews of the
the Executive Team in attendance, considered options
leading to the review and approval of the Company’s
strategy and operational, people and IT plans;
Company’s acquisitions; and
• Considered and challenged margin and efficiency
initiatives and projects as part of the Company’s overall
operational efficiency programme;
Internal
controls
and risk
management:
Governance
and
stakeholder
engagement:
• Provided oversight of the Risk Committee, and
completed a robust assessment of the Company’s
emerging and principal risks, mitigating actions and
residual risk exposure;
• Conducted a deep dive into the Company’s Health &
Safety management and procedures and resulting
recommendations;
• Reviewed updates on the Company’s approach to IT
resilience and cyber security;
• Assessed capital investment in property and
acquisitions and approved the purchase of land and
subsequent development of the new Ipswich regional
distribution centre;
• Considered the Company’s viability statement;
• Reviewed and approved the implementation of an
updated Anti-Corruption and Bribery policy,
procedures on gifts & hospitality, and Fraud and
Anti-money Laundering policy;
• Received and considered reports on compliance with
financial, regulatory, corporate responsibility and
environmental commitments; and
• Reviewed the Company’s insurance programme.
•
Interacted with shareholders and
the wider investment community;
• Reviewed investor feedback
provided by the Company’s
stockbrokers and financial PR
agency plus reports from the Chief
Executive, Chief Financial Officer
and Director of Communications
on investor roadshows;
• Considered supplier updates and
the results of a customer insight
questionnaire;
• Participated in and reviewed the
results of an externally facilitated
Board and Committee evaluation
exercise;
• Reviewed the Statement of the
• Reviewed and approved the
Responsibilities of the Chairman,
Chief Executive and Senior
Independent Director and terms of
reference of each Board
Committee;
• Reviewed and updated the
Company’s Share Dealing Code
and procedures;
• Listened to feedback from the
Employee Forum via the Chief
Executive and the Chair of the
Remuneration Committee;
• Approved the Terms of Reference
for the Company’s Disclosure
Committee;
Board’s principal policies, including
the Modern Slavery Statement;
• Reviewed the Company’s Register
of Conflicts;
• Considered the culture of the
Company and approved the
undertaking of a culture capture
exercise to further inform
deliberations on culture;
• Reviewed environmental reporting
obligations and activities; and
• Approved a further grant under the
Company’s Sharesave Scheme.
Operations
and material
transactions:
• Reviewed the planning, trialling and roll-out of the
automated stock re-ordering initiative;
• Reviewed the Company’s products, suppliers and use
of incentives;
• Approved the acquisition of the trade and assets of
Edel Telenzo Carpets Limited. (see page 158);
• Conducted assessments of potential acquisitions,
whilst being cognisant of the market and general
economic background, with the objective of delivering
on the Company strategic objectives as defined on
page 20; and
• Reviewed management structures in the Company’s
UK and Continental Europe businesses;
Brexit:
Financial and
performance
reporting:
• Considered the impact of Brexit on the Company, its workforce, customers and supply of product, and agreement
of plans to mitigate the associated risk.
• Approved the Company’s annual
and half-year results and trading
updates;
• Reviewed the Company’s ongoing
capital management strategy;
• Approval of share allotments under
the terms of the deferred
consideration related to the
acquisition of Domus;
• Reviewed and approved the
Company’s investment
programme;
• Reviewed and approved the
Company’s dividend policy, and
approval of the interim and
proposed final dividend;
• Approved the UK Tax Strategy;
• Reviewed the Company’s
performance against KPIs, 2019
budget, operating and project
milestones; and
• Reviewed and approved the
Company’s 2020 budget.
Headlam Group plc Annual Report and Accounts 2019
63
GovernanceFinancial StatementsStrategic ReportOverview Corporate Governance Report continued
Effectiveness
Induction
When joining, each new Director receives a tailored induction
programme relevant to their experience, expertise and committee
membership. Particular emphasis is placed on the new Director
visiting several operating locations and businesses and meeting the
associated senior managers to aid with deep understanding of the
Group’s business operations. The Director is also able to accompany a
salesperson and a driver for a day to help develop an all-round
understanding of the roles and the day-to-day challenges faced at all
levels of the organisation.
Additionally, an induction programme will typically include briefings on
strategy and other matters, site visits, and one-to-one meetings with
all relevant colleagues, including other Directors and the Executive
Team, as well as with advisers including the Company’s stockbrokers
and auditor.
Information on Board meeting procedures;
A comprehensive information pack is provided which includes (but is
not limited to):
• Background information about the Company;
• Briefings on Directors’ duties and responsibilities;
•
• Board minutes;
• Company policies;
• Matters reserved for the Board and Committee terms of reference;
• Financial budgets;
• Shareholder and other stakeholder feedback;
• Sell-side analyst research notes;
• Customer insights; and
• Relevant industry reports.
The new Director is also provided with an explanation of the
Company’s financing structure and relevant statutory and regulatory
guidance, including the Code.
Training and Development
Training and development in the year took various forms, including
visits to Company 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. During 2019, training also included
presentations by the Executive Team to the Board on items within
their remit. Topics included culture, operational effectiveness,
diversity, gender pay gap, and customer insights. In addition, at each
meeting the Company Secretary provides a governance update.
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.
The Non-Executive Directors are encouraged to further their
knowledge of the Company by spending time with the Executive
Directors, the Executive Team and senior managers of the Company’s
businesses on site visits. Non-Executive Directors are also
encouraged to engage with all people across the Company to further
enhance their understanding of the business.
Board Evaluation
Progress on 2018 Evaluation
In the 2018 Annual Report and Accounts we reported on the internal effectiveness board evaluation that had been conducted by the Chairman
and the Company Secretary. Details of progress made on the actions arising out of the 2018 evaluation are detailed below:
Board Decisions
Succession Planning
Board Meetings
Risk Management
2018 Outcomes To continue to ensure that
Board decisions are reviewed
following their
implementation.
Further enhance the
succession planning for the
Board and Executive Team
roles.
Actions for 2019 Broaden the use of post-
implementation reviews.
Enhance succession plans
for Executive Directors and
the Executive Team.
Progress made
in 2019
Formal post implementation
reviews have been
conducted in relation to
larger acquisitions.
Formal action logs have been
implemented to ensure that
decisions are analysed at the
appropriate time.
The Nomination Committee
has reviewed the succession
planning process for Board
and Executive Team roles
and reviewed succession
plans.
Further evolve the approach
to risk management.
Review approach to risk
appetite.
Review of the mitigation
plans and actions by the
Board and Audit Committee.
Maintain and develop
disciplines surrounding Board
processes and ensure that an
appropriate balance exists
between the Board’s
discussions on short-term
and long-term issues.
Make further progress in
developing Board and
Committee agendas and
packs to assist the Board in
its analysis of items
presented for discussion.
Board and Committee
planning is performed in a
more structured way. An
electronic Board portal has
been implemented. Strategy
reviews have provided
improved balance of
long-term and short-term
matters.
64
2019 Board Evaluation
The Code recommends that an evaluation of the effectiveness of the Board and its Committees is conducted annually and that this process is
externally facilitated at least every three years. Under the Code, companies outside the FTSE 350 Index are not required to complete externally
facilitated Board evaluations, however it is recommended that they be considered. The Company was not a constituent of the FTSE 350 Index
during 2019, nor is it at the date of this Report. However, as detailed in last year’s annual report the Company announced its intention to
conduct an externally facilitated Board and Committee evaluation in 2019, and it was subsequently completed during the year.
In choosing an external evaluator the Company Secretary approached a number of potential evaluators who each provided a written proposal
for the conduct of the evaluation. A detailed report was provided to the Chairman and Chair of the Nomination Committee who then agreed to
appoint Gary Cowdrill of Board Evaluation Limited, to perform the review. Neither Gary Cowdrill nor Board Evaluation Limited had any
connection to the Company or its Directors.
A comprehensive and tailored online questionnaire was completed in private by all members of the Board and Executive Team, who all attend
Board meetings. Gary Cowdrill then presented a draft report to the Company Secretary and Chairman. The report was then discussed at the
Board meeting in December 2019. In addition, each Committee reviewed its own evaluation at its next meeting and the Nomination
Committee reviewed the results and confirmed that there was nothing in the results which would have any impact on the considerations of the
size or composition of the Board.
The evaluation concluded that the Board and its committees continued to operate effectively. The recent Non-Executive Director
recruitments had strengthened the diversity of Board skills and experience in key areas, and the Board had spent time, and continued to
consider the individual thinking styles and personal attributes, to ensure the Board effectively challenges and supports. Areas considered for
improvement and actions arising from the external evaluation for the Board, were as follows:
Succession Planning
Monitor performance
Cultural alignment with strategy
Risk Management
2019 Outcomes Succession plans to be
re-reviewed with the new
strategic objectives in mind.
The updated strategy and
operational efficiency
programme will require new
metrics to monitor progress
and performance.
To ensure that the Group’s
culture is recognised
throughout the business and
aligned with Company
strategy.
Further evolve the
Company’s approach to risk
management.
Actions for
2020
Update and refresh
succession plans that align
with the skills requirements
of the Company going
forward.
Monitor the revised
operational and project
metrics that align with the
updated strategy.
Oversee the bottom up
culture capture exercise and
monitor cultural
developments to assess its
alignment with strategy.
Strengthen the risk
management reporting
framework by further
assessing the Board’s risk
appetite.
As part of the annual effectiveness review of the Directors, the Chairman provided feedback to each Director, and the Senior Independent
Director provided feedback to the Chairman. The effectiveness review found that the Chairman continued to operate the Board in a culture of
openness and debate, facilitating an atmosphere of challenge whilst encouraging the effective contribution of all Board members.
Re-election of Directors
The Company’s current Articles of Association provide that each Director shall retire from office and shall be eligible for reappointment at the
third annual general meeting after the general meeting at which he or she was appointed or last reappointed. As outlined within the 2018
Annual Report and Accounts, the Board has agreed that all Directors will submit themselves to annual re-election at AGMs, in compliance with
the Code. The Notice of AGM, separate to this document, sets out the specific reasons why the Board considers the contribution of each
Director to be important to the Company’s long-term sustainable success and recommends their appointment or re-appointment.
The Board is of the opinion, supported by the Nomination Committee, that each Director continues to make an effective and valuable
contribution and demonstrates commitment to their role.
Headlam Group plc Annual Report and Accounts 2019
65
GovernanceFinancial StatementsStrategic ReportOverview Corporate Governance Report continued
Meetings are also periodically offered to and held with shareholders at
various Company locations to help illustrate the Company’s
operations and aid understanding. Non-Executive Directors, including
the Chairman, attend certain meetings, events and briefings during
the year where shareholders are present in addition to the AGM. The
Non-Executive Directors are committed to facilitating a direct
channel of communication with the Company’s larger shareholders to
hear any views and concerns, and attend meetings with shareholders
without Executive Directors present as appropriate.
The Company actively seeks shareholder feedback. Feedback is
collated by both the Company and its advisers, discussed at Board
level, and considered in relation to all aspects of the Company’s
performance and strategy whilst also helping to inform its future
communications.
All shareholders have the opportunity to communicate directly with
the Board at the AGM. Shareholders are invited to ask questions
during the meeting, followed by an opportunity to meet with the
Directors after the formal business of the meeting. The Executive
Team also attend the AGM and meet with shareholders before and
after the meeting, and offer operational tours to interested parties.
All of the Directors attend the AGM, and the Chairman of the Board
and the Chairs of each Committee are available to answer shareholder
questions during the formal business of the meeting. The voting on all
resolutions at the AGM is conducted on a show of hands unless a poll
is requested and a separate resolution on each substantially separate
issue will be proposed. The Company publishes the results of voting,
including proxy votes on each resolution, on its website by no later
than close of business on the next business day after the AGM and
announces them through a regulatory news service on the day of the
AGM. Details of the 2020 AGM are set out in the Notice of Annual
General Meeting circular provided to shareholders as a separate
document to this Report, and which is also available on the
Company’s website.
Directors’ conflicts of interest
Procedures are maintained by the Board whereby potential conflicts
of interests are reviewed regularly and upon appointment to the Board
or prior to taking on an external appointment. These procedures have
been refreshed during the year. The implementation of these
procedures mean that the Board may be reasonably assured that any
potential situation where a Director may have a direct or indirect
interest which may conflict, or may possibly conflict, with the interests
of the Company are identified and, where appropriate, dealt with in
accordance with the Companies Act 2006 and the Company’s Articles
of Association. The Board has not had to deal with any conflicts of
interest during the year.
Directors holding significant commitments outside of the Company
are required to disclose them prior to appointment and on an ongoing
basis where there are any changes. Actual and potential conflicts of
interest are regularly reviewed and are included on a register which is
maintained by the Company Secretary and which is reviewed annually.
Under the Company’s Articles of Association, the Board has authority
to authorise potential conflicts of interest and to impose any limits or
conditions it sees fit. In addition, the Board has delegated approval of
new appointments where no conflict exists to a committee of two
Directors, or where a potential conflict could exist, this is referred to
the Nomination Committee for consideration. All of the Directors are
required to allocate sufficient time to the Company to discharge their
responsibilities effectively. The ability of each Non-Executive Director
to dedicate sufficient time to the Company is reviewed annually.
During the year several members of the Board have accepted
additional outside commitments. In line with Board policy, for each
additional role, approval was requested in advance of accepting the
position. In considering each request, the Director’s other
commitments were taken into consideration, in addition to whether or
not a conflict or potential conflict would exist. In each case during the
year, it was agreed that the Director would continue to be willing, and
able, to dedicate sufficient time to their role with the Company and
therefore the new role was approved.
Relations with shareholders
The information on stakeholder interaction and engagement,
including with shareholders, is contained within the stakeholder
interaction and engagement section of the Strategic Report on
pages 40 to 43.
The Board places considerable importance on communication with
shareholders. The Board considers that ongoing engagement with
shareholders and the wider investment community, including analysts
and investors not currently shareholders in the Company, is essential
to shareholders’ understanding of the Company and their ability to
appraise the performance and management of the Company and
consider the Company as an investment proposition.
The Company offers its larger shareholders, either directly or via its
stockbrokers, face-to-face meetings on a bi-annual basis at a
minimum, to present and discuss performance and other matters,
and obtain feedback. These meetings are typically hosted by the two
Executive Directors and the Company’s Director of Communications.
The Company also retains a Financial PR and IR adviser to further
facilitate interaction and support its communication with the
investment community.
66
Nomination Committee Report
Skills and Experience Assessment
The Nomination Committee annually reviews the skills, experience
and diversity required on the Board to achieve the Group’s long-term
strategy. We have refreshed the process of performing this review to
ensure it was rigorous and comprehensive. Further detail is included
later in the report.
Succession Planning
We have also given full consideration to succession planning for
Directors and other members of the Executive Team. We have
conducted a detailed succession planning exercise for all Board roles
which took into account the skills and experience assessment and the
present and future needs of the Group ensuring that succession plans
were based on merit, against objective criteria, and promote diversity
of gender, social and ethnic backgrounds, cognitive and personal
strengths. Further detail is included later in this report. The succession
planning exercise was completed in January 2020.
Board Evaluation
We have assisted the Board in arranging an externally facilitated Board
evaluation which has been conducted during the year, further
information on this is contained in the Corporate Governance section
on page 65.
Key Priorities
Over the coming year, our key priorities will remain to:
• ensure that the Group continues to have the diversity, skills and
experience necessary at Board and Executive Team level to
effectively deliver group strategy; and
further develop the succession planning at Board and Executive
Team level.
•
We will continue to focus on ensuring that the composition of the
Board and the Executive Team is appropriate for the delivery of
the Group’s long-term strategy and that all of the requirements
of the Code as they relate to the Nomination Committee continue
to be met.
The following report sets out in detail the work that we have
undertaken during the year under review.
Philip Lawrence
Chair of the Nomination Committee
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
67
Philip Lawrence Chair of the Nomination Committee
Statement from the Chair of the Nomination Committee
On behalf of the Board, I am pleased to present the Nomination
Committee report for the year ended 31 December 2019. The
Nomination Committee plays a vital role in the stewardship of the
Company and this is demonstrated by the fact that myself, the
Non-Executive Directors and the Chief Executive are all members
of the Committee. The majority of the members are independent
Non-Executive Directors as required by the Code.
The primary objective of the Committee is to support the Board in
ensuring that the Board and Executive Team have the right skills,
experience and diversity to deliver the Company’s strategic objectives
over the long term. It achieves this through a variety of means,
primarily by: annually reviewing the structure, size and composition
of the Board; recommending to the Board any changes required
for succession planning; and identifying and nominating candidates
for Board approval, to fill vacancies as and when they arise.
The Nomination Committee is also responsible for overseeing the
development of a diverse pipeline for succession.
Following the appointment to the Board on 1 January 2019 of Alison
Littley and Andrew Eastgate’s retirement from the Board on 31 May
2019, there have been no further director changes during the year
under review. The appointments of all three Non-Executive Directors
within the last two years were made with the strategy of the Company
in mind, and it was agreed that following Andrew’s retirement, the size
of the Board continued to be appropriate for the Company’s size and
listing and would contain appropriate experience to achieve its
strategy. A review was undertaken in January 2020 and this was
reconfirmed.
During 2019, the Nomination Committee focused on the following
areas:
GovernanceFinancial StatementsStrategic ReportOverview
Nomination Committee Report continued
Main role and activities undertaken
The Nomination Committee met on two occasions in order to fulfil its
responsibilities delegated to it by the Board. The key areas of focus for
the Committee are: to review the structure, size and composition of the
Board and recommend to the Board any changes required; to plan for
succession taking into account diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths; and to identify and
nominate for the approval of the Board, candidates to fill vacancies as
and when they arise. The Committee is also responsible for reviewing the
results of any Board performance evaluation process and making
recommendations to the Board concerning the Board’s committees and
the re-election of Directors at the AGM. Full details of responsibilities
delegated to the Nomination Committee by the Board are set out in the
written terms of reference which are available on the Company’s website.
Membership and attendance at meetings held in 2019
The Nomination Committee was initially chaired by Alison Littley and
then subsequently, Philip Lawrence. It comprises a majority of
Independent Non-Executive Directors as required by the Code and
their biographies are set out on page 54. The Committee met on two
occasions during the year under review and the table below set out its
members and their attendance.
Members
Philip Lawrence
Alison Littley
Amanda Aldridge
Keith Edelman
Steve Wilson
Former Member
Andrew Eastgate (stepped down as a
Director 31/5/19)
Meetings
attended
Eligible to
attend
2
2
2
2
2
0
2
2
2
2
2
0
Only members of the Nomination Committee are entitled to be
present at meetings but other Directors, members of the Executive
Team and advisers may be invited to attend. The Company Secretary
is the Secretary to the Committee.
An annual workplan for standing items is in place which ensures that all
of its delegated responsibilities are concluded within the year.
Board changes and appointment and re-appointment of Directors
Andrew Eastgate stepped down from the Board on 31 May 2019
following nine years’ service.
The Committee has procedures in place with regard to maintaining a
formal, rigorous and transparent process for Board appointments,
ensuring that appointments to the Board are made on merit, against
objective criteria, and promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths. There have been no
appointments during the year to the Board other than Alison Littley’s
appointment becoming effective on 1 January 2019. In the case of
recruitment to Chairman or Non-Executive Director positions,
following a formal skills assessment, the following procedure is used:
• Appoint and brief an independent recruitment consultancy with no
other connection to the Company or its directors to carry out a
market appraisal and to present potential candidates with the
particular skills required. Recruitment agencies for Board and
senior management positions are selected on the basis that they
will put forward a diverse list of candidates;
• Consider each candidate on merit against the comprehensive
candidate brief developed by the Committee;
Interviews and meetings with the Board;
•
• Committee meet / debate and agree candidate
for recommendation to the Board; and
• Board discuss and confirm appointment.
All Non-Executive Directors are appointed to the Board for an initial
three-year term which may be extended by two further three-year
terms, subject to independence and effectiveness assessments by
the Committee and annual re-election by shareholders at annual
general meetings. The letters of appointment of all Non-Executive
Directors (alongside the service contracts for the Executive Directors)
are available for inspection by any person at the Company’s registered
office during normal office hours. Copies are also made available at
each of the Company’s Annual General Meetings for 15 minutes prior
to the meeting and throughout. The letters of appointment clearly set
out the time commitment expected from each Non-Executive
Director and this is reviewed annually by the Committee to ensure it
remains appropriate. Each Non-Executive Director confirms at the
time of their appointment, and each year thereafter, that they can
continue to dedicate sufficient time to the Company’s business.
Skills assessment
The Committee leads the process to regularly assess whether there is
an appropriate blend of skills and experience on the Board and within
the Executive Team to enable the implementation of the Group’s
strategy. A full skills assessment is in the process of being undertaken.
The Non-Executive Director skills assessment was completed in
January 2020 alongside a review of cognitive and personal strengths.
A detailed discussion was held on the skills and experience required
from the appointed Non-Executive Directors to enable them to
appropriately challenge and support the Executive Directors and
these were then matched against the skills present on the Board.
For the Executive Directors, the Nomination Committee has
approved a detailed matrix which will map the existing skills and
experience of the Executive Directors against those desired for the
effective implementation of the Group’s strategic priorities whilst
considering the factors affecting the long-term success and future
viability of the Company. The matrix will be completed and presented
to the next Committee meeting for review.
The Committee and the Board, based on work completed to date and
the evidence from Board meetings, have concluded that the skills and
experience currently available are sufficient for the implementation of
Company strategy.
Succession planning
Planning for succession is of vital importance to ensure the long-term
effectiveness and smooth operation of the business, additionally, it
provides the opportunity to further the Group’s diversity objectives as
appropriate candidates present themselves. Succession planning is
therefore a key area of focus for the Committee.
Detailed consideration has been given to both contingency and
long-term succession planning.
Contingency succession planning
The aim of contingency succession planning is to identify suitable
individuals who could assume the responsibilities of another in the
case of sudden absence. A full review was undertaken of all Board and
Executive Team roles and suitable individuals identified within the
Company who, either on their own or together could effectively
assume additional responsibilities until the incumbent returned to
their position or a successor appointed.
68
Long-term succession planning
Executive Directors and the Executive Team – the Committee has
performed a succession planning exercise for the Executive Directors.
With the aim of ensuring that the business’s leadership needs are met,
the Committee considered suitable individuals who were identified as
being able to fill each Executive Director and Executive Team position on
a short- or medium-term basis. Development plans were proposed and
reviewed by the Committee for each individual identified as a potential
successor. As part of their development, all of the Executive Team are
invited to attend Board meetings and present on items within their remit.
In 2020 the Board intends to hold two Board meetings on site, at which
local management will be invited to present, giving the Board a greater
understanding of the breadth of talent across the business.
Board Policy
In accordance with DTR 7.2.3A, the Committee confirms that a Board
Diversity Policy is in place and was last reviewed and approved in
January 2020 by the Board. It remains the policy that all appointments
to the Board and Executive Team should be made on merit and
against objective criteria. However, whilst adopting this approach, the
Board’s diversity objective is to have a broad range of age, gender,
approach, skills, experience and educational / professional
backgrounds represented in senior management positions.
Recruitment agents engaged by the Company for Board and senior
management positions are selected on the basis that they will put
forward a diverse range of candidates including female candidates and
candidates from ethnic backgrounds.
Long-term succession planning
Chairman and Non-Executive Directors – the Committee annually
reviews the length of service and independence of the Chairman and
Non-Executive Directors to ensure compliance with the Code and plan
for the progressive refreshment of the Board in a controlled manner. The
Committee considered the changes on the Board during the previous
two years and it was agreed that no further progressive refreshment was
necessary.
The succession planning process in the broader organisation allows
active steps to be taken towards monitoring and increasing diversity
not just at board and senior management level.
Board Evaluation
Detailed information on how the externally facilitated board and
committee effectiveness reviews were conducted and the outcomes, can
be found on page 65. The review found that this Committee is operating
effectively and that its role and remit remained appropriate for the current
needs of the business. The Committee discussed the findings of the
evaluation to identify opportunities for further improvement. There was
no finding that would influence Board composition.
Governance
The composition and performance of the Board and its Committees
were considered and it was concluded that the Board and each
Committee continue to function effectively. The Committee
considers that the balance of the Board, consisting of the Chairman,
three Non-Executive Directors and two Executive Directors not only
meets the provisions of the Code but will continue to provide the
appropriate mix of experience, expertise and challenge to enable the
Company to achieve its strategic aims.
Retirement and Re-election of Directors
In line with the 2019 AGM and the Code, all Board members will again
stand for re-election at the 2020 AGM. Each director has been subject to
a performance evaluation conducted by the Chairman, with the Senior
Independent Director discussing with the Chairman the results of his
external review. The evaluation, amongst other items, covered the
appropriateness of the Directors’ experience and their time
commitment and contribution to the Board during the year. In light of the
results of these effectiveness evaluations, the Board recommends that
shareholders approve the resolutions to be proposed to the forthcoming
AGM relating to the re-election of the Directors.
Diversity and Inclusion Policy
The Company is fully committed to developing a diverse workforce
and equal opportunities for all. The Board recognises the valuable
contribution that diversity can bring to achieving the right mix of skills,
experience and perspective that enables the organisation to reach its
full potential. Steve Wilson has been appointed as champion of the
Company’s diversity and inclusion initiatives.
Gender Diversity
The Company continues to take note of the guidance provided by the
Hampton-Alexander Review on FTSE Women Leaders which
recommended a voluntary target of 33% female directors in FTSE 350
companies. Whilst the Company is a constituent of the FTSE
SmallCap and not currently covered by this voluntary target, it is
pleased to confirm that as at 31 December 2019, 33% of the Board,
60% of the Executive Team (excluding Executive Directors) and 28%
of the Executive Team and their direct reports were female.
Whilst fully supporting the aim of increasing diversity across the Board
and wider workforce, the Board does not currently publish specific
targets on gender balance.
Ethnic Diversity
The Committee is also mindful of the best practice recommendations
of the Parker Review that each FTSE 250 Board should have at least
one director of colour by 2024, and the recommendations of the
McGregor-Smith Review which include the publication of 5-year
diversity targets. While fully supporting the aim of increasing diversity
across the Board and wider workforce, the Board does not currently
publish specific targets on ethnicity.
When performing its annual review, the Board reviewed and approved
the diversity and inclusion plan for the business. Further information is
set out on page 49.
Advice
The Nomination Committee has access to such information and
advice, both from within the Company 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
own re-appointment or re-election including the Chairman.
Changes to Directors’ commitments are reported as they arise and
where there is a potential conflict, they are reported to the
Nomination Committee and considered on their individual merits.
Appointments to the Nomination Committee are made by the Board.
This report forms part of the Corporate Governance Report and is
signed on behalf of the Nomination Committee by:
Philip Lawrence
Chair of the Nomination Committee
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
69
GovernanceFinancial StatementsStrategic ReportOverview The Committee reviewed its terms of reference and annual calendar
in October 2019. The annual calendar allocates all responsibilities
delegated by the Board (as set out in our terms of reference) to one or
more Committee meetings. It additionally takes into account the
external environment, internal operations of the business and any
planned accounting and regulatory changes, to ensure that all of the
areas we need to prioritise are included. We also ensure that the
programme is sufficiently flexible to permit the Committee to
respond quickly to any major changes in circumstances should this be
necessary.
In performing our duties during the year, we have complied with all
applicable requirements of the Code and followed the best practice
guidance set out by the FRC. We work closely with the Group
accounting team and Auditor, helping to ensure that our financial
reporting remains clear; accounting issues and judgements
appropriate; and our internal control system sound and operational.
The Committee intends, over the next year, to build on the progress
made during 2019. Our main areas of focus during 2020 will be:
• To continue to monitor changes in accounting and governance
standards, assess their impact on the Group, and evolve internal
control procedures to test operational compliance;
• To continue our focus on developing the overall assurance and risk
management framework, including links with the executive risk
committee;
• To ensure that the finance function is evolving to include the talent
and skills required to support the strategic and operational
objectives in the business, through the attraction, development
and retention of team members with the appropriate skillset; and
• To consider the impact of the FRC revised Ethical Standard 2019
and the implications for our policy on non-audit services.
In this report, we share some of the Committee’s discussions from the
year including details of the Committee’s assessment of significant
accounting matters and issues in relation to the Group’s financial
statements. We explain why the issues were considered significant in
order to provide context for understanding the Group’s accounting
policies and financial statements. Additionally, we set out further
information of how we have discharged our duties in respect of the
year under review.
I will be available at the AGM to answer any further questions about
our work.
Amanda Aldridge
Chair of the Audit Committee
5 March 2020
Audit Committee Report
Amanda Aldridge Independent Non-Executive Director
Statement from the Chair of the Audit Committee
On behalf of the Board, I am pleased to present the Committee’s
report for the year ended 31 December 2019 and to summarise below,
and in the report which follows, the ongoing responsibilities and
objectives of the Committee; the work that has been carried out
during 2019; and the priorities for 2020. I would like to thank Andrew
Eastgate, who stood down from the Committee on retiring from the
Board in May 2019, for his contribution to the Committee and I am
delighted to have welcomed Alison Littley to the Committee from
1 January 2019.
The Audit Committee is given its authority by the Board and we act in
accordance with our written terms of reference which are available in
full on the Company’s website. An important part of our role is to
monitor the integrity of the Group’s financial reporting and
management. In performing this role, we scrutinise the full and half
yearly financial statements, and review in detail the work of the
external auditor (the ‘Auditor’) and any significant financial judgements
made by management to ensure they are appropriate. Another
important part of our role is to review the risk management and
internal control framework operating across the Group to ensure that
risks are being carefully identified; assessed; appropriately mitigated;
and that sound systems of internal control are operating effectively.
An externally facilitated evaluation of the Committee’s effectiveness
was undertaken as part of the Board Performance evaluation during
the year. Results were initially considered by the Board at its December
2019 meeting with those relating specifically to the Committee
formally being considered at its meeting in March 2020. The
evaluation results were very positive and confirmed that the
Committee continued to operate effectively. Further information on
the evaluation of the Audit Committee is set out on page 75.
70
Main role and activities undertaken
The Audit Committee met on four occasions in order to fulfil its responsibilities delegated to it by the Board and is the body responsible for
carrying out the audit functions required by DTR 7.1.3R. The key areas of focus for the Committee are to assist the Board in fulfilling its
corporate governance responsibilities relating to the Group’s risk management and internal control framework; financial reporting practices
including key accounting judgements; and the external audit process.
Membership and attendance at meetings held in 2019
The Audit Committee is chaired by Amanda Aldridge and all members are independent Non-Executive Directors as required by the Code. The
Committee has a meeting agenda linked to events in the Company’s financial calendar, meeting at a minimum twice a year before the final and
interim results announcements and subsequent publication of the reports. The Audit Committee met four times in the year and attendance
was as follows:
Members
Amanda Aldridge
Keith Edelman
Alison Littley
Former Member
Andrew Eastgate (stepped down as a Director 31/5/19)
Meetings
attended
Eligible to
attend
4
4
4
1
4
4
4
1
The Code additionally requires that at least one member has recent and relevant financial experience and Amanda Aldridge has fulfilled that
role throughout the year under review. In addition, all members of the Committee are financially literate and have expertise relevant to the
Company’s sector, gained through a variety of corporate and professional appointments (see biographies on pages 54 and 55).
The Chief Executive, Chief Financial Officer, Chairman and the Auditor also attend the Committee’s meetings at the invitation of the
Committee Chair. Meetings of the Committee with the Auditor without the presence of management were also held during the year and the
Committee Chair additionally holds meetings with the Lead Audit Partner. The role of Secretary to the Committee is performed by the
Company Secretary.
In addition to attending the Audit Committee meetings, the Committee members met with operational and finance team members and other
members of senior management appropriate to its role during the year.
Key activities of the Audit Committee during the year
The Audit Committee agrees annually a workplan which is designed to cover its terms of reference across its meetings. This has been followed
throughout the year and the Committee, therefore, confirms that it has completed the items delegated to it throughout the year. In addition to
matters relating specifically to its terms of reference, agendas incorporate matters arising and topical items on which the Audit Committee has
chosen to focus. The key activities of the Audit Committee during the year in discharging its principal areas of responsibility were:
Area of responsibility
Financial Reporting
Going Concern and Viability Statement
Key Activities
• Reviewed the half year and annual financial statements and reports, and the significant financial
reporting estimates and judgements.
• Reviewed the process established for ensuring that (and opined upon whether) the annual report
and accounts is fair, balanced and understandable, and provides information necessary for
shareholders to assess the Group’s performance, business model and strategy.
• Assessed the impact of the adoption of IFRS16.
• Reviewed and approved the Audit Committee Report to be published in the annual report and
accounts.
• Considered liquidity risk and the basis for preparing the Group’s half yearly and full year accounts
on a going concern basis and reviewed the related disclosures in the annual report and accounts.
• Assessed the long-term prospects of the Company, and agreed the timescale to be covered by
the long-term viability statement for disclosure in the Annual Report and Accounts.
• Reviewed the Viability Statement included in the annual report and accounts in the context of the
Group’s three-year financial plan which had previously been considered by the Board.
External Audit
• Considered and approved the audit approach and scope of the audit work to be undertaken by
the External Auditor, and the audit fee.
• Reviewed reports on audit findings.
• Assessed and confirmed the independence of the Auditor.
• Reviewed the policy for provision of non-audit services.
• Assessed the effectiveness of the external audit.
• Considered audit succession planning and approved the appointment of a new Audit Partner
following the current partner’s announcement that he will move off the account during 2020.
Headlam Group plc Annual Report and Accounts 2019
71
GovernanceFinancial StatementsStrategic ReportOverview Audit Committee Report continued
Internal Controls and Risk
• Considered reports from management, the Auditor and other third parties on their assessment of
the control environment.
• Assessed the effectiveness of the Group’s internal control environment and the need for an
internal audit function.
• Reviewed output from the Executive Risk Committee, and considered the systems and processes
for identifying, managing and mitigating those risks.
• Reviewed reporting disclosures in relation to internal controls, risk management, principal risks and
uncertainties and the work of the Audit Committee.
• Reviewed the Whistleblowing, Fraud and Anti-Money Laundering and the prevention of Bribery
Policies.
• Progressed actions arising from the 2018 internal effectiveness review.
• Participated in the 2019 externally facilitated evaluation of its performance.
• Received updates on general corporate governance requirements relevant to its responsibilities.
• Reviewed the Committee’s Terms of Reference and annual workplan.
Governance
Significant financial reporting issues and areas of estimate and judgement
A key responsibility of the Committee is to consider the significant areas of complexity, management judgement and estimation that have
been applied in the preparation of the financial statements. The Committee has received reports and recommendations from management
and the Auditor setting out the significant areas. These areas of judgement and estimation were discussed with management during the year
and with the Auditor, at the time the Audit Committee reviewed and agreed the Auditor’s Group audit plan, and when the Auditor presented its
findings at the conclusion of its year-end audit. Set out below is a description of how the Committee concluded that such judgements and
estimates were appropriate.
Carrying value of Domus goodwill
The Domus business was acquired in December 2017 at which time £23m of goodwill was recognised. The assessment of the recoverable
amount of goodwill is a significant judgement and any impairment has the potential to be material.
The Directors performed sensitivity analysis on the estimated recoverable amounts and concluded that an impairment charge of £2.1m was
appropriate in respect of the carrying amount of the goodwill in respect of the Domus Group of Companies Ltd.
The key assumptions used in the cash flow forecasts are considered to be revenue growth and the discount rate. The values assigned to the
sales growth assumptions in 2021 through to 2024 are 9%, 8%, 7% and 5% respectively. The value assigned to the discount rate is 9.4%.
The Committee considered the impairment review carried out by management and discussed the basis of the key assumptions and the
sensitivities performed. Based on this discussion and review of the Auditor’s findings, the Committee was satisfied that the approach taken by
management was robust and that the assumptions made were reasonable.
Supplier arrangements
The Group has a significant number of rebate agreements with suppliers. These agreements can contain multiple terms or tiered arrangements
based on the volume of goods purchased and significant amounts had not been received at the year-end.
The Audit Committee reviewed management’s calculation of amounts expected to be received. Management explained the process of
recalculating the amounts expected to be received and confirming these balances with suppliers. The Audit Committee challenged the
assumptions used by management and reviewed the level of cash receipts or credit notes received after the year-end. The Audit Committee is
satisfied that the amounts recognised have been appropriately scrutinised and that the assumptions upon which the calculation was based are
sufficiently robust.
Inventory valuation
Inventory amounts to £132.5 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 may result in some inventory lines becoming slow-moving or
obsolete, such that the recoverable amount is less than the carrying value.
The Audit Committee discussed the Group’s management of its inventory position and calculation of net cost and gave careful consideration
to the gross carrying value and related provisions. Management explained to the Audit Committee that the process of determining the
appropriate valuation of inventory entails close monitoring of inventory levels, review of relevant supplier rebates and overheads which are
absorbed into the cost of inventory, review of the ageing profile and consideration of inventory sold for less than its carrying value.
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The Audit Committee reviewed the valuation basis and challenged
management’s assumptions. The Audit Committee was satisfied that
the significant assumptions used for determining the valuation of
inventory had been appropriately scrutinised and challenged and were
sufficiently robust.
IFRS16
The Group adopted IFRS16 during the year under review. Given the
number of leases held by the Group there was an increased risk in
respect of the completeness and accuracy of lease liabilities on
adoption of the new standard.
Valuation of employee benefit liabilities
In the UK, the Company operates a defined benefit pension scheme
(the ‘Scheme’), further details of which are set out in note 21 to the
financial statements. During the year under review the Company
undertook a consultation exercise and has agreed to close the Scheme
to future accrual from 31 March 2020 (the ‘Closure Date’). At
31 December 2019, the Scheme had assets of £114.5 million and
liabilities, measured on an IAS 19 basis, of £116.7 million, with a net
deficit of £2.2 million. As set out in note 21 to the financial statements,
the Scheme liabilities are calculated by estimating the amount of
benefit that employees have earned for their service in current and
until 31 March 2020. 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 Scheme.
Management highlighted to the Audit Committee how they arrived at
the key assumptions.
The Audit Committee considered the views and procedures of the
Auditor, which entailed a benchmarking of management’s
assumptions with the Auditor’s expectations.
The Audit Committee reviewed management’s assumptions and
were satisfied that they had been appropriately scrutinised and
challenged and were robust. They also reviewed the sensitivity
analysis set out in note 21 to the financial statements and consider it
to be appropriate.
Non-underlying items
The Group accounting policy for non-underlying items states that
performance measures will be presented which exclude items which by
virtue of their nature, size or expected frequency, warrant separate
additional disclosure in the financial statements in order to fully
understand the underlying performance of the Group. Management
must exercise judgements in deciding whether items should be treated
as non-underlying by reference to this policy.
The Committee considered the presentation of non-underlying items
in accordance with the Group accounting policy. The Committee
received reports from management and the Auditor, outlining the
judgements applied. The most significant items treated as non-
underlying are in respect of the impairment of Domus goodwill,
amortisation of acquired intangible assets, acquisition related
expenses, and the remeasurement and finance costs on deferred and
contingent consideration. The Committee concluded that the
disclosure of the non-underlying items was sufficient for the user of
the accounts to understand the nature of the items and reason for
their treatment as non-underlying.
An exercise was undertaken by management to identify lease
commitments subject to IFRS16 and to ensure that the data used for
the assessment of the underlying assets and lease liabilities was
accurate and complete.
The Audit Committee considered this process and the new reporting
disclosures. The Audit Committee also considered the views and
procedures undertaken by the Auditor to assess the completeness
and accuracy of management’s calculations.
Following these considerations, the Audit Committee concluded that
management’s response to the implementation of IFRS16 and the
associated processes undertaken had been appropriate and sufficient
to underpin accurate and sufficient reporting of the financial
implications.
Misstatements
Management reported to the Audit Committee that they were not
aware of any material misstatements or immaterial misstatements
made intentionally to achieve a particular presentation. The Auditor
reported to the Audit Committee the misstatements that had been
found in the course of the audit work and no material amounts remain
unadjusted. The Audit Committee confirmed that it was satisfied that
the Auditor’s responsibilities had been fulfilled with diligence and
professional scepticism.
Risk management and internal control
The Board has ultimate responsibility for effective management of risk
for the Group including determining its risk appetite and identifying
key strategic and emerging risks. An overview of the risk management
process and the principal risks and uncertainties identified is set out
on pages 34 to 36. The Executive Risk Committee serves as a
governance body to provide oversight, review and challenge of the risk
management processes, and to confirm that appropriate and
proportionate risk management procedures are in place. The work of
the Executive Risk Committee is reviewed by the Board. The role of
the Audit Committee in risk management is to monitor and review
assurance provided via the Executive Risk Committee, including over
any non-financial internal controls and management systems
requested by the Board.
In supporting the Board to assess the effectiveness of risk
management and internal control process, the Audit Committee relies
on a number of different sources including reports provided by
management and the assurance provided by the Auditor and other
third parties in specific risk areas. Additionally, the Audit Committee
receives reports from the Auditor on matters identified in the course
of its statutory audit work. The Audit Committee also takes into
account the resources within the finance team including the structure
of the team, and the qualifications, experience and competence of the
people within it.
Headlam Group plc Annual Report and Accounts 2019
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During the year the Committee received reports on and/or
considered the following:
(i) Management’s follow up on control recommendations raised by
the Auditor.
(ii) Monitoring progress with implementation of recommendations
made by third parties for strengthening the IT infrastructure and
reducing risk of cyber-attack.
(iii) Internal control review work undertaken by the finance team at
each location in the Group.
(iv) Structure, qualifications, competence and experience of the
finance team.
The Group’s control framework has developed over many years and is
intended to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss. The control
framework is evolving in line with the strategic objectives outlined on
page 20 and monitoring this will be a key element of the Committee’s
focus in 2020.
The Audit Committee was satisfied that the reporting disclosures in
respect of internal controls and risk management are a fair
representation of the Group’s position.
Internal audit
The Audit Committee undertook an assessment of the need for a
Group internal audit function during the year. In the absence of a
formal internal audit function, assurance was provided to the
Committee in the form of internal control audits undertaken by the
Group finance team; various additional reports provided by
management; assurance reporting from third parties and internal
self-certification reports. Following detailed consideration of the
assurance available, the Audit Committee considers that the Group’s
accounting team control systems and associated procedures are
adequate for the business and therefore does not currently propose
to introduce a formal Group internal audit function.
External Auditor
Each year the Audit Committee reviews the appointment and
performance of the Auditor and considers their independence and
objectivity, taking into account all appropriate guidelines.
PwC was appointed as Auditor in 2016 following a full tender exercise.
Mark Smith has been the lead audit partner since PwC’s appointment
and accordingly this is his fourth year in that role. Mark Smith has
indicated his intention to step down as lead audit partner following the
audit of the 2019 Annual Report and Accounts. Gill Hinks was
proposed by PwC to replace Mark and following interviews with the
Chair of the Audit Committee and the Chief Financial Officer, was
appointed to the role and will serve with effect from the conclusion of
the AGM in May 2020. She will serve as lead audit partner for a
maximum of five years, in accordance with current professional
standards. During the year, the Audit Committee considered
conducting a tender of its external audit to coincide with the change of
the audit partner, however, following review of the quality and
effectiveness of the audit, the change of the partner was considered
preferable at this time, recognising that under current FRC guidance it
will be due to retender its audit for the 2026 year-end. The Audit
Committee will continue to monitor the performance of the Auditor
during this time and make recommendations accordingly.
The Auditor has processes in place to ensure that independence is
maintained and has written to the Audit Committee confirming that,
in their opinion, they remain independent within the meaning of the
relevant regulations on this matter and their professional standards.
74
Non-audit services
The Audit Committee has the specific task of keeping the nature and
extent of non-audit services provided by the Auditor under review in
order to ensure that objectivity and independence are maintained.
The Audit Committee recognises that there are occasions when it is
advantageous to use the Auditor to undertake non-audit services, as
it may improve the quality of the audit and reduce cost and complexity
for the Company. The Committee has approved a policy for the
provision of non-audit services by the auditor which it has reviewed
during the year. Under this policy and in line with the EU Audit
Directive, non-audit fees paid to the Auditor should not exceed 70% of
the audit fee. During the year under review £8,731 was paid to the
Auditor for non-audit services out of a total fee of £360,131. The
non-audit fees represented the provision of business development
support to the Group’s Swiss subsidiary.
Under the policy, the Audit Committee is required to authorise all
non-audit services as it did regarding the non-audit services described
above. The policy prescribes services which the Auditor is prohibited
from providing including, amongst other things: taxation services;
bookkeeping and payroll; designing and implementing internal control
or risk management procedures relating to financial information or IT;
valuation services; certain legal services; and internal audit. A full
breakdown of audit and non-audit fees is provided in note 3 to the
Financial Statements.
The Audit Committee notes the Revised Ethical Standard issued by
the FRC in December 2019 and will consider it’s impact on it’s policy
for the provision of non-audit services in addition to any wider
impacts.
Effectiveness of External audit
The scope of the external audit for the 2019 Annual Report was
presented by the Auditor to the Committee in October 2019. The
Committee had the opportunity to discuss and challenge the audit
plan to gain a good understanding of the key elements.
The Committee assesses the effectiveness of the Auditor during the
year on the basis of meetings with management and carries out a
formal review of its performance after the year-end audit is
completed. In undertaking this assessment, the Audit Committee
considers a number of factors which include the experience and
tenure of the audit partner, the completion of the agreed audit plan,
the professional skepticism displayed as part of the audit process,
robustness and perceptiveness of the Auditor in handling of key
accounting judgements and the interaction between management
and the Auditor.
The Audit Committee has independent access to the Auditor, and the
Auditor has direct access to the Chair of the Audit Committee outside
formal Audit Committee meetings. At each meeting there is an
opportunity for the Auditor to discuss matters with the Audit
Committee, without executive management being present.
The Audit Committee is satisfied with the independence, objectivity
and effectiveness of the Auditor and recommends PwC to be
reappointed by the shareholders at the forthcoming AGM.
Interaction with the FRC
The Company can confirm that during the year under review it had no
interaction with the FRC’s Corporate Reporting Review Team or its
Audit Quality Review Team.
Committee effectiveness review
The effectiveness of the Audit Committee was evaluated this year as
part of the Board Performance evaluation process. Details of this can
be found on page 65. The review found that the Committee is
operating effectively and that its role and remit remained appropriate
for the current needs of the business. The Committee discussed the
findings of the evaluation to identify opportunities for further
improvement.
Summary
The Audit 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.
This report forms part of the Corporate Governance Report and is
signed on behalf of the Audit Committee by:
Amanda Aldridge
Chair of the Audit Committee
5 March 2020
Fair, balanced and understandable
The Audit Committee undertook a detailed review of the drafting and
preparation process of the Annual Report and Accounts to support its
deliberations on whether the 2019 Annual Report and Accounts were
fair, balanced and understandable. The drafting and preparation
process involved various teams and individuals within the Group
including Executive Directors, Finance Team, Director of
Communications, senior managers of the businesses and Company
Secretary working together with support and advice from the
Company’s advisers. This collaborative approach helped to ensure a
consistent and detailed approach between the Strategic Report, the
Governance section and the Financial Statements. At its meeting in
March 2020, the Audit Committee deliberated on whether the 2019
Annual Report and Accounts were fair, balanced and understandable.
Following detailed consideration of all sections, the Audit Committee
concluded that the 2019 Annual Report and Accounts contained an
accurate reflection of the Company’s performance and business
model, correctly reflected its strategy, and included consistent
messaging throughout. It, therefore, recommended to the Board that
the 2019 Report and Accounts reflect a fair, balanced and
understandable assessment of the Company’s position and
prospects and contained sufficient information for shareholders to
assess the Company’s position, performance, business model and
strategy.
Viability statement
The Audit Committee assessed the Group’s resilience to the principal
risks and uncertainties by consideration of a paper which included
stress testing forecasts through the application of adverse scenarios.
These scenarios included (A) a reduction in market demand whilst
there is ongoing inflationary fixed cost pressure and (B) an economic
crisis similar to that experienced in 2008, both modelled over a
three-year period. The testing indicated that the Group would be able
to operate within its current facilities and meet its financial covenants,
however the scenario based on a severe economic environment did
require management to take swift action to manage the cost base in
mitigation. The Audit Committee was therefore comfortable that the
Group would maintain resilience in the event such scenarios occurred
and concluded that there was a reasonable expectation that the
Group would continue to operate and meet its liabilities over a
three-year period. The Audit Committee agreed that the long-term
viability assessment should continue to be performed over a three-
year timespan. This conclusion was communicated and
recommended to the Board for approval.
The viability statement is shown on page 37.
Whistleblowing policy, Fraud and the Bribery Act
The Group has in place a whistleblowing policy that sets out the formal
process by which an employee of the business may, in confidence,
raise concerns about possible improprieties in financial reporting or
other matters. During the year, the Audit Committee and the Board
reviewed the Whistleblowing Policy and found that it remained
appropriate and was operating effectively.
The Group also has in place a procedure for detecting fraud and
systems to prevent a breach of anti-bribery legislation. The Group is
committed to a zero-tolerance position with regard to bribery. The
Anti-Corruption and Bribery, and Fraud and Anti-Money Laundering
policies were considered by the Committee during the year and
approved in October 2019.
Headlam Group plc Annual Report and Accounts 2019
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In the meantime, the Committee believes that the current framework
continues to be effective and that no significant changes are required
at this stage. We operate a simple and transparent structure
comprising salary, annual bonus, single long-term incentive plan,
benefits and pension, subject to stretching performance conditions.
Incentive pay is subject to withholding and recovery provisions, part of
any annual bonus payment is deferred into shares for a period of time,
a post-vesting holding period operates for the long-term incentive
plan and significant share ownership guidelines apply. These features
enhance the alignment of interest between our Executive Directors
and shareholders and contribute to an appropriate level of risk
mitigation.
The one substantive change to the Policy that we are proposing
relates to Executive Director pension provision. Under the revised
Policy the pension contribution level for new Executive Director
appointments will fall from the current maximum of 15% of salary to
the level available to the majority of the workforce. We will consider our
approach to current Executive Director pension provision as part of
the Policy Review. This important change will bring our policy into
alignment with the provisions of the 2018 UK Corporate Governance
Code (the ‘Code’) in this regard.
Our current approach to incentives ensures that Executive Directors
would normally continue to have significant interest in Company
shares for a period following cessation of employment. Under our
current policy they will not normally be entitled to accelerated vesting
of their unvested share awards. In addition, for LTIP awards, the
post-vesting holding period will also continue to operate. However, we
are aware some shareholders are advocating the adoption of specific
post-cessation shareholding requirements linked to the
in-employment guideline. Therefore, we will be implementing
appropriate changes to this element as part of the Policy Review later
in the year.
Business performance and incentive out-turn for 2019
For 2019, the Executive Directors had a maximum annual bonus
opportunity equal to 125% of base salary, with the bonus assessed,
75% of bonus opportunity against the Company’s underlying profit
before tax performance metric and 25% against non-financial /
strategic targets as shown in the table on page 89. Threshold
performance was achieved in respect of the underlying profit before
tax performance metric leading to a bonus payment of 32% salary for
this element. The non-financial / strategic targets are fully disclosed
on page 89 along with the extent to which they have been achieved. A
bonus payment of 25% salary will be paid for this element. A total
bonus payment of 57% salary will therefore be paid out of a total
bonus opportunity of 125% salary.
Awards granted under the PSP in 2017 will vest with respect to
performance for the financial year ended 31 December 2019. The
awards were subject to two performance conditions, based on
underlying EPS growth (80% of the award) and relative TSR (20% of
the award). The combined assessment of the two performance
conditions means that 5.7% of the awards will vest, as shown on page
90.
Discretion
The Remuneration Committee is conscious of its role in ensuring that
remuneration is appropriate when considering the performance of the
business and the individual directors. During the year it considered the
formulaic outcomes of the annual bonus plan and the long-term
incentive plan and was satisfied that the payments made under these
incentive schemes were appropriate. Therefore, no discretion has
been exercised during the year.
Alison Littley Chair of the Remuneration Committee
Statement from the Chair of the Remuneration Committee
On behalf of the Board, for the first time as Chair of the Remuneration
Committee, I am pleased to present the Directors’ Remuneration
Report for 2019. The Report includes my Annual Statement, a revised
Directors’ Remuneration Policy (‘Policy’) and the Annual Report on
Remuneration for the financial year ended 31 December 2019. The
Directors’ Remuneration Report, excluding the Policy, will be subject
to an advisory shareholder vote at the Annual General Meeting on
22 May 2020. The proposed Policy will be subject to a binding vote at
the same meeting. The new Policy, subject to approval by
shareholders, will be in place for three years from the forthcoming
AGM or until an alternative Policy is approved in a general meeting.
Remuneration Policy Review
Shareholders approved our current Remuneration Policy at the 2017
AGM, with over 99% of votes cast in favour. The three-year term of the
current Policy is due to expire in 2020, as a result of which, we are
required to seek approval for a new Policy at the 2020 AGM.
The Board has recently completed a strategic review of the business,
the outcome of which has been critical in determining how best to
optimise the new Policy in support of delivering the Group’s future
ambition. However, due to the timing of the review, the Remuneration
Committee was unable to take account of its full conclusions when
reviewing the Policy, ahead of the expiry of its three-year term.
Therefore, it is our intention to conduct a full review of the Policy
during the course of 2020. This will ensure the Policy and Group
strategy are effectively aligned. If appropriate, we will seek to consult
shareholders during 2020 if further changes to the Policy are
considered necessary.
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Remuneration for 2020
The Executive Directors received an increase in base salary of 2%
effective 1 January 2020, in line with the 2020 award to all UK
employees. Neither the Chairman, nor the Non-Executive Directors
received a fee increase for 2020.
The framework for operating our annual bonus and PSP in 2020 will be
generally consistent with our approach in 2019. Maximum bonus
potential will remain at 125% of salary but with 100% of the annual
bonus opportunity being based on a sliding scale underlying profit
before tax target albeit the Committee will also consider progress
made against the strategy when assessing any payouts. The PSP
awards will again be made at 80% of salary and vesting will be based
80% on EPS and 20% on relative TSR. The combination of a holding
period requirement under the PSP, the deferral into shares under the
annual bonus scheme and the shareholding guidelines will continue to
provide alignment between the interests of Executive Directors and
shareholders and with the delivery of the strategy.
Taking account of the revised 2018 UK Corporate
Governance Code
In reviewing our Policy during the course of 2019 and in planning for its
implementation in 2020, we have been careful to take full account of
the provisions of the Code. The Code will continue to be a key
touchstone when we further review the Policy in 2020.
In summary, with regard to how we have sought to comply with the six
factors outlined in Provision 40 of the Code, we think the following are
worthy of particular note:
• Clarity – Our Policy is transparent and well understood by our
senior executive team. It has been clearly articulated to our
shareholders and representative bodies (both on an ongoing basis
and during consultation when changes are being made).
• Simplicity – A key objective of the Committee is to ensure that our
remuneration framework is straightforward to communicate and
operate.
• Risk – Our Policy has been designed to ensure that it is aligned with
the Board’s risk appetite. Any inappropriate risk-taking is
discouraged and mitigated through (i) the operation of
arrangements that provide an appropriate balance of fixed pay to
short- and long-term incentive pay and with multiple performance
measures operating based on a blend of financial targets, which are
underpinned by key strategic objectives, and shareholder return
targets, (ii) the significant proportion of long-term share-based pay
in our packages (together with the operation of significant
shareholding guidelines) and (iii) the operation of robust recovery
and withholding provisions.
• Predictability – Our incentive plans are subject to individual caps,
with our share plans also subject to market standard dilution limits.
The Remuneration Committee has full discretion to alter the
pay-out levels or vesting outcomes to ensure payments are
appropriately aligned with the underlying performance of the
Company.
• Proportionality – There is a clear link between individual awards,
delivery of strategy and our long-term performance. Ensuring our
Executive Directors are not rewarded for failure underscores our
approach (e.g. through the significant proportion of our packages
based on long-term performance targets linked to the KPIs of the
Company, our ability and openness to the use of discretion to
ensure appropriate outcomes, and the structure of our Executive
Directors’ contracts).
• Alignment to culture – Our aim is to align our Remuneration Policy
to Company culture and this will be a key consideration when we
review our Policy later in 2020. We strive to instil a sustainable
performance culture at the management level that cascades
throughout the Company. The Board sets the framework of KPIs
against which we monitor the performance of the Company and
the Remuneration Committee links the performance metrics of
our incentive arrangements to those KPIs. We are keen to foster a
culture of share ownership throughout the Company and operate
UK employee share scheme arrangements in pursuit of this
objective.
Shareholder views and voting outcomes
We conducted a consultation exercise with our larger shareholders
early in 2020 on the Policy to be proposed to shareholders at the AGM.
The consultation also set out our proposals for the operation of the
policy in 2020.
Whilst feedback on the Committee’s approach was generally very
positive, the Committee will review the Company’s approach to
pension provision and the implementation of post-cessation
shareholdings during the 2020 review in light of a number of
comments received.
The Committee was pleased with the level of support received for the
advisory vote on the Remuneration Report at the 2019 AGM with 99%
of votes cast in favour, and hope we will again receive your support for
the resolutions relating to remuneration at the forthcoming AGM.
We remain committed to a responsible approach to executive pay, as I
trust this Directors’ Remuneration Report and new Policy
demonstrates. As always, I am happy to meet or speak with
shareholders if there are any questions or feedback on our approach
to executive remuneration.
Alison Littley
Chair of the Remuneration Committee
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
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DIRECTORS’ REMUNERATION POLICY
This part of the Directors’ Remuneration Report sets out the
Directors’ Remuneration Policy for the Company. The three-year
approval of our current Remuneration Policy by shareholders expires
in 2020 and, as a result, we are seeking approval for a new Policy at the
AGM in 2020. The Policy in this report will therefore be put to a binding
shareholder vote at the AGM on 22 May 2020 and will take formal
effect from that date, subject to shareholder approval. The Policy will
formally apply for three years beginning on the date of approval unless
a new Policy is presented to shareholders in the interim. Following
approval all payments to Directors will be consistent with the approved
Policy.
Considerations when determining the remuneration policy
The overarching objective of the remuneration policy is to promote
the long-term success of the Group. In seeking to achieve this
objective the policy has been designed based on the following key
principles:
• To operate remuneration arrangements which are simple and
transparent, and which help to build and maintain a sustainable
performance culture;
• To appropriately align executive reward with the Group’s strategic
objectives and the delivery of value to shareholders;
• To promote appropriately the long-term success of the Group, and
to not pay more than is necessary in doing so; and
• To have a competitive mix of base salary and short and long-term
incentives, with an appropriate proportion of the package
determined by the rigorous application of stretching targets linked
to the Group’s performance.
When designing the policy, the Remuneration Committee takes into
account the provisions of the 2018 UK Corporate Governance Code
and other good practice guidelines from institutional shareholders
and shareholder bodies.
Consideration of employment conditions elsewhere in the Group
In setting remuneration for the Executive Directors, the Committee
takes note of the overall approach to reward for employees in the
Group. Salary increases will ordinarily be (in percentage of salary
terms) no higher than those of the wider workforce. Whilst employees
are not formally consulted on executive remuneration, a number of
them are shareholders and as such are able to exercise their influence
along with other shareholders. Additionally, the Company operates an
Employee Forum at which aspects of remuneration across the Group
will be discussed. The Chair of the Remuneration Committee is a
member of the Employee Forum and as such receives feedback on
remuneration matters directly from other Forum members. The
Group People Director updates the Remuneration Committee
periodically on remuneration arrangements and employment
conditions across the Group.
Shareholder views
The Committee is committed to an ongoing dialogue with
shareholders and welcomes feedback on Executive and Non-
Executive Directors’ remuneration. The Committee will seek to
engage directly with larger shareholders and their representative
bodies should any material changes be made to the Policy. The
Committee also considers shareholder feedback received in relation
to the remuneration-related resolutions each year following the AGM.
This, plus any additional feedback received from time to time, is then
considered as part of the Committee’s annual review of remuneration
policy and its implementation.
Changes to the remuneration policy approved at the 2017 AGM
As outlined in the Remuneration Committee Chair’s annual statement
on page 76, the Board recently finalised a review of Group strategy and
associated strategic objectives. The outcome of this review will be key
to helping to shape the Committee’s full thinking on how the
remuneration policy can best support the delivery of the Group’s
future strategic ambitions. However, due to the timing of the recent
completion, the Committee has not been in a position to take full
account of its conclusions when reviewing the remuneration policy
during the course of 2019 and early 2020, ahead of the expiry of its
three-year term. As a result, it is our intention to conduct a full review
of the remuneration policy during the course of 2020. If appropriate,
we will seek to consult shareholders during 2020 if further changes to
the policy are considered necessary.
In the meantime, the Committee believes that the current
overarching framework continues to be effective and that no
significant changes are required at this stage. However, some minor
amendments have been proposed in order to ensure that the policy is
sufficiently flexible to operate effectively over the next policy period,
aligned with the Code, and to provide additional clarity on how we
operate our policy in some areas. Specifically, the policy incorporates
additional flexibility with regard to the specific measures and
weightings which will be used for the bonus and LTIP to ensure that
any measures and targets are fully aligned with the Group’s strategic
objectives.
In addition, we are proposing to change our approach to Executive
Director pension provision. We are proposing a reduction in the
pension contribution level for new Executive Director appointments
from the current maximum of 15% of salary to a level which is aligned
with the prevailing pension contribution (in percentage of salary terms)
available to the majority of the workforce. This important change will
bring our policy into alignment with the provisions of the Code in this
regard.
78
Policy table for Executive Directors
Component
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Base salary To provide a
competitive base salary
for the market in which
the Group operates to
attract and retain
Executives of a suitable
calibre.
Salaries are usually reviewed
annually, with any increases typically
effective 1 January.
Salaries are typically set after
considering:
• pay and conditions elsewhere
in the Group;
• overall Group performance;
individual performance and
•
experience;
• progression within the role; and
• competitive salary levels in
companies of a broadly similar
size and complexity and market
forces.
Although there are no formal
performance conditions, any
increase in base salary is only
implemented after careful
consideration of individual
contribution and performance
and having due regard to the
factors set out in the
Operation column of this
table.
While there is no maximum
salary, increases will normally
be in line with the typical range
of salary increases awarded (in
percentage of salary terms) to
the wider workforce.
Larger salary increases may be
awarded to take account of
individual circumstances, such
as:
• where an Executive
Director has been
promoted or has had a
change in scope or
responsibility;
• where the Committee has
set the salary of a new hire
at a discount to the market
level initially, a series of
planned increases can be
implemented over the
following few years to bring
the salary to the
appropriate market
position, subject to
individual performance;
• where there has been a
change in market practice;
or
• where there has been a
significant change in the
scale of the role or the size
and/or complexity of the
business.
Increases may be
implemented over such time
period as the Committee
deems appropriate.
Headlam Group plc Annual Report and Accounts 2019
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GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
Component
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Benefits
To provide broadly
market competitive
benefits as part of the
total remuneration
package.
Not applicable.
Executive Directors receive
benefits in line with market practice,
and these include life assurance,
private medical insurance, company
car or car allowance and, where
relevant, relocation expenses.
Executive Directors are also
provided with the opportunity to
join any HMRC approved all-
employee share plan arrangements
on the same basis as other
employees.
Whilst the Committee has not
set an absolute maximum on
the level of benefits Executive
Directors may receive, the
value of benefits is set at a
level that the Committee
considers appropriate against
the market and provides a
sufficient level of benefits
based on individual
circumstances.
Executive Directors will be eligible
for any other benefits which are
introduced for the wider workforce
on broadly similar terms and other
benefits might be provided from
time to time based on individual
circumstances and if the
Committee decides payment of
such benefits is appropriate.
Any reasonable business-related
expenses can be reimbursed (and
any tax thereon met if determined
to be a taxable benefit).
The Group may offer participation
in a defined contribution pension
plan or may permit Executive
Directors to take a cash supplement
in lieu of pension up to the same
value.
Retirement
benefits
To provide employees
with long-term savings
to allow for retirement
planning.
Not applicable.
For newly appointed Executive
Directors, maximum defined
contribution or cash allowance
in lieu of pension is limited to
the contribution level available
to the majority of the
workforce (in percentage of
salary terms) prevailing at the
time of hire or promotion.
Incumbent Executive
Directors may receive a
defined contribution or cash
allowance of up to 15% of base
salary.
80
Component
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Annual
bonus
Rewards performance
against targets which
support the strategic
direction of the Group.
Bonus deferral provides
a retention element
through share
ownership and direct
alignment with
shareholders’ interests.
Maximum annual bonus
opportunity is 125% of base
salary.
Targets are set annually with
measures linked to the
Group’s strategy and aligned
with key financial, strategic
and/or individual targets.
The majority, if not all, of the
annual bonus will be assessed
against key financial
performance metrics of the
business and any balance will
be based on non-financial
strategic/personal objectives.
A graduated scale of targets is
set for each measure, with up
to 10% of each element
payable for achieving the
relevant threshold
performance level and 100%
of maximum potential for
achieving stretch
performance.
The Committee has discretion
to amend the pay-out should
any formulaic output not
reflect the Committee’s
assessment of overall
business performance.
Awards are based on performance
typically measured over one year.
Pay-out levels are determined by
the Committee after the year end
based on performance against
pre-set targets.
Executive Directors will defer at
least one-third of any bonus award
into shares, typically for a two-year
period. The Committee may decide
to pay the whole of the bonus
earned in cash where the amount to
be deferred would, in the opinion of
the Committee, be so small as to
make deferral administratively
burdensome. Deferred shares will
typically take the form of nil-cost
share options but may be
structured as an alternative form of
share award.
Deferred bonus awards may be
granted on the basis that the
participant shall be entitled to an
additional benefit (in cash or shares)
in respect of dividends paid over the
deferral period, calculated on such
basis as the Committee shall
determine.
The vesting of the deferred shares
is not subject to the satisfaction of
any additional performance
conditions.
The Committee has the right to
apply malus and/or clawback (in
respect of both the cash and
deferred elements of bonuses) in
the event of certain defined
circumstances.
The annual bonus plan includes
provisions which enable the
Committee (in respect of both the
cash and the deferred elements of
bonuses) to recover or withhold
value in the event of certain defined
circumstances.
Headlam Group plc Annual Report and Accounts 2019
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GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
Component
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Performance
Share Plan
(‘PSP’)
To incentivise Executive
Directors, and to deliver
genuine long-term
performance-related
pay, with a clear line of
sight for Executives and
direct alignment with
shareholders’ interests.
The normal maximum PSP
award is 100% of salary in
respect of a financial year.
The normal maximum award
limit will only be exceeded in
exceptional circumstances
such as on the recruitment of
an Executive Director and is
subject to an overall limit of
200% of salary in respect of a
financial year.
PSP awards to the current
Executive Directors in respect
of 2020 will be 80% of salary.
Awards will be in the form of nil-cost
share options, conditional shares or
other such form as has the same
economic effect.
Awards will be granted with vesting
dependent on the achievement of
performance conditions set by the
Committee, with performance
normally measured over at least a
three-year performance period.
Awards will usually be subject to a
two-year holding period following
the end of the performance period,
and shares will typically not be
released to participants until the
end of any such holding period.
Awards under the PSP may be
granted on the basis that the
participant shall be entitled to an
additional benefit (in cash or shares)
in respect of dividends paid over the
holding period. This amount shall be
calculated on such basis as the
Committee determines.
The PSP includes provisions which
enable the Committee to recover or
withhold value in the event of
certain defined circumstances.
PSP awards currently vest
based on performance against
a mix of financial targets and
relative TSR performance
targets set and assessed by
the Committee in its
discretion. Financial targets
currently determine vesting in
relation to at least 50% of
awards.
A maximum of 25% of any
element vests for achieving
the threshold performance
target and 100% for maximum
performance.
Any vesting is also subject to
the Committee being satisfied
that the Company’s
performance on the headline
measures is consistent with
underlying business
performance and the vesting
outcome may be reduced if
deemed appropriate.
Performance metrics and
weightings are reviewed
annually and may be varied for
future award cycles as
appropriate to reflect the
prevailing strategic priorities of
the Group at that time.
Non-Executive Directors (including the Chairman)
Component
Purpose and link to strategy
Operation
Maximum opportunity
Performance measures
Annual Fee To attract individuals
with appropriate
knowledge and
experience.
Not applicable
Fees are normally reviewed annually
taking into account factors such as
the time commitment and
contribution of the role and market
levels in companies of comparable
size and complexity.
The Chairman is paid an all-inclusive
fee for all Board responsibilities.
Fees for the other Non-Executive
Directors may include a basic fee and
additional fees for further
responsibilities (for example,
chairmanship of Board committees
or holding the office of Senior
Independent Director).
In exceptional circumstances, if there
is a temporary yet material increase in
the time commitments for Non-
Executive Directors, the board may
pay extra fees on a pro rata basis to
recognise the additional workload.
Neither the Chairman nor the
Non-Executive Directors
participate in any of the Group’s
performance related schemes
(i.e. annual bonus or incentive
arrangements). Nor do they
receive any pension or private
medical insurance or taxable
benefits, other than the
potential to receive gifts at the
end of a long-standing term of
appointment.
Non-Executive Directors may
be eligible to receive benefits
such as the use of secretarial
support, travel costs or other
benefits that may be
appropriate and the Company
repays any reasonable
expenses that a Non-Executive
Director incurs in carrying out
their duties as a director,
including any tax liabilities
thereon, if appropriate.
82
Explanation of performance measures chosen
Performance measures for the annual bonus are selected annually to align with the KPIs and prevailing strategic imperatives of the Group, and
the interests of shareholders and other stakeholders. Financial measures (e.g. underlying profit before tax) will be used for a majority of the
bonus with any remainder based on key strategic and/or personal objectives designed to ensure that Executive Directors are incentivised to
deliver across a range of objectives. ‘Target’ performance is typically set in line with the business plan for the year, with threshold to stretch
targets set around this based on a sliding scale which takes account of relevant commercial factors. Only modest rewards are available for
delivering threshold performance levels, with rewards at stretch requiring material outperformance of the business plan. Details of the specific
measures used for the annual bonus are set out in the annual report on remuneration.
Performance measures for the PSP are selected in order to provide a robust and transparent basis on which to measure the Group’s
performance, to demonstrably link remuneration outcomes to delivery of the business strategy over the longer term, and to provide strong
alignment between senior management and shareholders. In achievement of these aims, PSP awards granted in respect of 2020 will be based
on underlying basic Earnings Per Share (‘EPS') and relative Total Shareholder Return (‘TSR’). EPS is currently a critical KPI for the Group,
supporting a focus on profitability and growth. TSR is aligned with the Group’s focus on creating value for our shareholders. However, the policy
provides for Committee discretion to alter the PSP measures and weightings to ensure they can continue to facilitate an appropriate
measurement of performance over the life of the policy, taking account of any evolution in the Group’s strategic ambitions.
When setting performance targets for the bonus and PSP, the Committee will take into account a number of different reference points, which
may include the Group’s business plans and strategy, external forecasts and the wider economic environment.
The Committee retains discretion to amend the bonus pay-out and to reduce the PSP vesting level if any formulaic outcome is not reflective of
the Committee’s assessment of overall business performance over the relevant performance period.
Discretion retained by the Committee in operation of the incentive plans
The Committee will operate the Company’s incentive plans according to their respective rules and consistent with normal market practice, the
Listing Rules and HMRC rules where relevant, including flexibility in a number of regards. These include making awards and setting performance
criteria each year, dealing with leavers, and adjustments to awards and performance criteria following acquisitions, disposals, special dividends,
changes in share capital and to take account of the impact of other merger and acquisition activity, and to settle awards in cash. The
Committee also retains discretion within the policy to adjust the targets, set different measures and/or alter weightings for the annual bonus
plan and PSP, pay dividend equivalents on vested shares up to the date those shares can first reasonably be exercised and, in exceptional
circumstances, under the rules of the long-term incentive plans to adjust performance conditions to ensure that the awards fulfil their original
purposes (for example, if an external benchmark or measure is no longer available).
All assessments of performance are ultimately subject to the Committee’s judgement. Any discretion exercised, and the rationale, will be
disclosed in the Annual Remuneration Report.
Differences in pay policy for Executive Directors compared to employees more generally
The Remuneration Policy applied to the Executive Directors is similar to the policy for the wider senior management team in that a significant
element of remuneration is dependent on Group performance and the key principles of the remuneration philosophy are applied consistently
across the Group below this level, taking into account seniority and market practice. Key features include:
• We aim to provide market competitive levels of remuneration across the workforce in order to recruit and retain high calibre employees at all
levels;
• We have aligned pension contributions for new Executive Directors going forward with those of the majority of the workforce;
• All UK employees have the opportunity to participate in an HMRC-approved employee share scheme arrangement; and
• Employees at selected levels participate in an annual bonus arrangement.
At senior levels, remuneration is increasingly long-term, and ‘at risk’ with an increased emphasis on performance-related pay and share-based
remuneration.
Headlam Group plc Annual Report and Accounts 2019
83
GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
Illustrations of application of remuneration policy
The charts below set out for the Chief Executive and Chief Financial Officer an illustration of the application for 2020 of the remuneration policy
set out above. The charts show the split of remuneration between fixed pay and annual bonus and PSP on the basis of minimum remuneration,
remuneration receivable for performance in line with the Group’s expectations, maximum remuneration (not allowing for any share price
appreciation) and maximum remuneration (assuming 50% share price growth).
Chief Executive
Chief Financial Officer
£511
100%
£980
38%
52%
£1,524
25%
41%
34%
£1,721
11%
23%
36%
30%
£424
100%
£770
35%
55%
£1,170
25%
39%
36%
£1,316
11%
22%
35%
32%
Minimum
On-target
Maximum
Maximum with growth
Minimum
On-target
Maximum
Maximum with growth
Fixed pay
Annual bonus
PSP
Share price growth
In illustrating the potential reward, the following assumptions have been made.
Fixed pay
Annual bonus (including any amount deferred) PSP
Minimum performance
Performance in line with
expectations
Maximum performance
Maximum performance plus 50%
share price growth
Fixed elements of remuneration
only – base salary (being the
salary effective 1 January 2020,
benefits as disclosed in the
single figure table on page 88 for
the year ended 31 December
2019 and cash in lieu of pension
of 11% of salary for the Chief
Financial Officer only (the
current Chief Executive receives
no pension contribution or cash
equivalent allowance)
No annual bonus award.
No vesting.
75% of salary awarded for
achieving target performance.
125% of salary awarded for
achieving maximum
performance.
25% of maximum award vesting
(equivalent to 20% of salary) for
achieving target performance.
100% of maximum award vesting
(equivalent to 80% of salary) for
achieving maximum
performance.
100% of maximum award vesting
(equivalent to 80% of salary) for
achieving maximum performance
plus hypothetical share price
growth of 50%.
Notes to the scenarios methodology:
• Annual bonus includes amounts deferred into shares.
• PSP is measured at face value, i.e. no assumption for dividends or share price growth (other than in the fourth scenario).
• Any potential amounts relating to all-employee share schemes have been excluded.
84
Recruitment remuneration
The policy aims to facilitate the appointment of individuals of sufficient calibre to lead the business, to execute the Group’s strategy effectively
and to promote the long-term success of the Group for the benefit of shareholders and other stakeholders. When appointing a new Executive
Director, the Committee seeks to ensure that arrangements are in the best interests of the Group and not to pay more than is appropriate.
The Committee will take into consideration a number of relevant factors, which may include the calibre and experience of the individual, the
candidate’s existing remuneration package, and the specific circumstances of the individual, including the jurisdiction from which the candidate
was recruited.
When hiring a new Executive Director, the Committee will typically align the remuneration package with the above policy. The Committee may
include other elements of pay which it considers are appropriate; however, this discretion is capped and is subject to the principles and the limits
referred to below.
• Base salary will be set at a level appropriate to the role and the experience of the Executive Director being appointed and the circumstances
of the appointment. This may include agreement on setting the salary at below the market rate with a series of future staged increases
planned in order to bring the salary up to a market level, in line with progression in the role, increased experience and/or responsibilities, and
subject to satisfactory performance, where it is considered appropriate.
• Retirement benefits will be workforce aligned and other benefits will be provided in line with the above policy.
•
If the Executive Director will be required to relocate in order to take up the position, it is the Group’s policy to allow reasonable relocation,
travel and subsistence payments. Any such payments will be at the discretion of the Committee.
• The Committee will not offer non-performance related incentive payments (for example a ‘guaranteed sign-on bonus’).
•
If an Executive Director is recruited at a time in the year when it would be inappropriate to provide a bonus or long-term incentive award for
that year as there would not be sufficient time to assess performance, subject to the limit on variable remuneration set out below, the
quantum in respect of the months employed during the year may be transferred to the subsequent year so that reward is provided on a fair
and appropriate basis.
• The Committee may also alter the performance measures, performance period, vesting period, deferral period and holding period of the
annual bonus or PSP, if the Committee determines that the circumstances of the recruitment merit such alteration. The rationale will be
clearly explained in the following Directors’ Remuneration Report.
• The maximum level of variable remuneration which may be granted (excluding ‘buyout’ awards as referred to below) is 325% of salary.
• The Committee may make additional payments or awards in respect of hiring an employee to ‘buyout’ remuneration arrangements
forfeited on leaving a previous employer. In doing so, the Committee will take account of relevant factors including any performance
conditions attached to the forfeited arrangements and the time over which they would have vested. The Committee will generally seek to
structure buyout awards or payments on a like-for-like basis to the remuneration arrangements forfeited. Any such payments or awards are
limited to the expected value of the forfeited awards. Where considered appropriate, such buyout awards will be liable to forfeiture or ‘malus’
and/or ‘clawback’ on early departure.
• Any share awards referred to in this section, including any buyout awards, will be granted as far as possible under the Group’s existing share
plans. If necessary, and subject to the limits referred to above, awards in relation to a recruitment may be granted outside of these plans as
permitted under the Listing Rules which allow for the grant of awards to facilitate, in unusual circumstances, the recruitment of an Executive
Director.
• Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue
according to the original terms.
• Fees payable to a newly appointed Chairman or Non-Executive Director will be in line with the fee policy in place at the time of appointment.
Service contracts and letters of appointment
Executive Directors’ service contracts are on a rolling basis and may be terminated on up to 12 months’ notice by the Group or by the Executive.
All Non-Executive Directors have letters of appointment providing for fixed-term agreements with the Group which may be terminated by the
giving of three months’ notice by either party (Chairman six months’ notice). The agreements last for an initial period of three years and may
then be extended for two additional periods of three years, subject to re-election by shareholders at the relevant AGM.
Copies of Executive Directors’ service contracts and Non-Executive Directors’ letters of appointment are available for inspection at the
Company’s registered office during normal hours of business.
Headlam Group plc Annual Report and Accounts 2019
85
GovernanceFinancial StatementsStrategic ReportOverview
Directors’ Remuneration Report continued
Payments for loss of office
The principles on which the determination of payments for loss of office will be approached are set out below:
Policy
Payment in lieu of notice
If notice is served by either party, the Executive Director can continue to receive basic salary, benefits and
pension for the duration of their notice period, during which time the business may require the individual to
continue to fulfil their current duties or may assign a period of garden leave.
Annual bonus
The Group has discretion to make a payment in lieu of notice. Such a payment would include base salary and,
at the election of the Committee, compensation for benefits and pension contributions (if applicable) for the
unexpired period of notice.
This will be at the discretion of the Committee on an individual basis and the decision as to whether or not to
award an annual bonus award in full or in part will be dependent on a number of factors, including the
circumstances of the individual’s departure and their contribution to the business during the annual bonus
period in question. Any annual bonus award amounts paid will normally be prorated for time in service during
the annual bonus period and will, subject to performance, be paid at the usual time (although the Committee
retains discretion to pay the annual bonus award earlier in appropriate circumstances). Any bonus earned for
the year of departure and, if relevant, for the prior year may be paid wholly in cash at the discretion of the
Committee.
Deferred bonus awards
The extent to which any unvested deferred bonus award will vest will be determined in accordance with the
rules of the Deferred Bonus Plan (‘DBP’).
If a participant ceases employment for any reason (other than summary dismissal, in which case his award will
lapse), his award will ordinarily continue until the normal vesting date. The Committee retains discretion to
release awards when the participant leaves.
Awards (in the form of nil cost options) which have vested and been released but remain unexercised at the
date of cessation may be exercised, for such period as the Committee determines, if a participant leaves for
any reason (other than summary dismissal).
PSP
The extent to which any unvested award will vest will be determined in accordance with the rules of the PSP.
Unvested awards will normally lapse on cessation of employment. However, if a participant leaves due to
death, ill health, injury, disability, the sale of his employer or any other reason at the discretion of the
Committee, the Committee shall determine whether the award will be released at cessation or on the normal
release date or at some other time (such as following the end of the performance period). In any case, the
extent of vesting will be determined by the Committee taking into account the extent to which the
performance condition is satisfied and, unless the Committee determines otherwise, the period of time
elapsed from the date of grant to the date of cessation relative to the performance period. Awards may then
be exercised during such period as the Committee determines.
If a participant leaves for any reason (other than summary dismissal) after an award has vested but before it
has been released (i.e. during a ‘holding period’), his award will ordinarily continue until the normal release date
when it will be released to the extent it vested. The Committee retains discretion to release awards when the
participant leaves.
Awards (in the form of nil cost options) which have vested and been released but remain unexercised at the
date of cessation may be exercised, for such period as the Committee determines, if a participant leaves for
any reason (other than summary dismissal).
Change of control
The extent to which unvested awards under the DBP and PSP will vest will be determined in accordance with
the rules of the relevant plan.
Awards under the DBP will vest in full in the event of a takeover, merger or other relevant corporate event.
Unvested awards under the PSP will vest early on a takeover, merger or other relevant corporate event. The
Committee will determine the level of vesting taking into account the extent to which the performance
condition is satisfied and, unless the Committee determines otherwise, the period of time elapsed from the
date of grant to the date of the relevant corporate event relative to the performance period.
Awards under the PSP which have vested but not been released (i.e. awards which are subject to a holding
period) will be released, to the extent vested.
86
Mitigation
Other payments
Policy
If an Executive Director’s employment is terminated, any compensation payment will be calculated in
accordance with normal legal principles including the application of mitigation to the extent appropriate to
the circumstances of the termination. Payments will be made in instalments and reduced to the extent
employment is taken up elsewhere.
Payments may be made either in the event of a loss of office or a change of control under any of the Group’s
HMRC-favoured all-employee share plans in line with the associated plan rules. There is no discretionary
treatment for leavers or on a change of control under these schemes.
In appropriate circumstances, payments may also be made in respect of accrued holiday, outplacement and
legal fees and other benefits that may be considered appropriate taking into account the circumstances of
the termination.
The Committee reserves the right to make additional exit payments where such payments are made in good
faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by
way of settlement or compromise of any claim arising in connection with the termination of a Director’s office
or employment.
Where a buy-out award is made under the Listing Rules then the leaver provisions would be determined at the time of the award.
Where the Committee retains discretion, it will be used to provide flexibility in certain situations, taking into account the particular
circumstances of the Director’s departure and performance.
There is no entitlement to any compensation in the event of Non-Executive Directors’ fixed-term agreements not being renewed or the
agreement terminating earlier.
Existing contractual arrangements and historical awards
The Committee retains discretion to make any remuneration payment or payment for loss of office outside the policy in this report (including
exercising any discretions available to it in connection with any such payment):
• where the terms of the payment were agreed before the policy came into effect (including the satisfaction of options granted under the
CIP), provided in the case of any payment whose terms were agreed after the previous Directors’ Remuneration Policy was approved and
before the policy in this report became effective, the remuneration payment or payment for loss of office was permitted under that former
policy;
• where the terms of the payment were agreed at a time when the relevant individual was not a Director of the Group and, in the opinion of the
Committee, the payment was not in consideration of the individual becoming a Director of the Group.
External appointments
The Board believes that experiences of other companies’ practices and challenges is valuable both for the personal development of its
Executive Directors and for the Group. Any external appointments are subject to board approval (which would not be given if the proposed
appointment would lead to a material conflict of interest). Fees received by Executive Directors in respect of external non-executive
appointments are retained by the individual Director. Details of such appointments are included in the Annual Report on Remuneration.
Shareholding guidelines
In order to further align the Executive Directors’ long-term interests with those of shareholders, the Group operates share ownership
guidelines. The guidelines provide that the Executive Directors are required to build up and maintain (as relevant) a certain level of shareholding
in the Group equivalent in value to 200% of annual salary. Until the guideline has been reached Executive Directors are required to retain half of
the net number of vested shares from the PSP and DBP. Vested shares which are subject to a holding period under the PSP and shares which
are subject to DBP awards will count towards the limit (on a net of assumed tax basis).
Headlam Group plc Annual Report and Accounts 2019
87
GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
ANNUAL REPORT ON REMUNERATION
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
2019 and 2018.
Executive Directors’ remuneration as a single figure – 2019 (audited)
Executive Directors
Steve Wilson
Chris Payne
Base salary/
fees
2019
£000
484
357
841
Non-salary
benefits1
2019
£000
16
20
36
Pension
related
benefits4
2019
£000
–
39
39
Annual
performance
bonus
2019
£000
276
203
479
Share-based
incentive
schemes2,3
2019
£000
23
13
36
Total
2019
£000
799
632
1,431
1 Non-salary benefits include the provision of a company car or car allowance, private medical insurance and other benefits deemed to be an employment benefit such as some fuel costs.
2 Performance conditions for the PSP were tested after 31 December 2019 and 5.7% of the award will vest in March 2020. The market price of the shares has been calculated based on an
average market value over three months to 31 December 2019 (470.98p). Given that the share price at grant was 536p, neither of the amounts presented for Steve Wilson or Chris Payne
include any amount in respect of share price appreciation.
Includes the grant of options under the Sharesave Scheme on 3 May 2019, calculated on an intrinsic value basis for Steve Wilson.
3
4 The amount of employer contribution to a scheme or paid as cash in lieu of retirement benefits based on a fixed percentage of base salary.
Executive Directors’ remuneration as a single figure – 2018 (audited)
Executive Directors
Steve Wilson
Chris Payne
Tony Judge (stepped down 14/9/18)
Base salary/
fees
2018
£000
475
346
301
1,122
Non-salary
benefits1
2018
£000
16
19
10
45
Pension
related
benefits3
2018
£000
–
38
–
38
Annual
performance
bonus
2018
£000
Share-based
incentive
schemes2
2018
£000
–
–
–
–
97
4
87
188
Total
2018
£000
588
407
398
1,393
1 Non-salary benefits include the provision of a company car or car allowance, private medical insurance and other benefits deemed to be an employment benefit such as some fuel costs.
2 CIP awards vested in respect of the performance to the year ended 31 December 2018 and approximately 53.5% of the award vested in May 2019. The long-term incentives figure for the year
ended 31 December 2018 has been restated to reflect the market value of the shares on the date of vesting. Figures also include the grant of options under the Sharesave Scheme on 3 May
2018, calculated on an intrinsic value basis. The figure shown for Chris Payne relates solely to the grant of options under the Sharesave Scheme.
3 The amount of employer contribution to a scheme or paid as cash in lieu of retirement benefits based on a fixed percentage of base salary.
The following tables report the total remuneration receivable in respect of qualifying services by each of the Non-Executive Directors for the
years 2019 and 2018.
Non-Executive Directors’ remuneration as a single figure – 2019 (audited)
Non-Executive Directors
Philip Lawrence
Amanda Aldridge
Keith Edelman
Alison Littley
Andrew Eastgate (stepped down 31/5/19)
Non-salary
benefits
2019
£000
Pension
related
benefits
2019
£000
Annual
performance
bonus
2019
£000
Share-based
incentive
schemes
2019
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fees
2019
£000
143
53
55
49
19
319
Total
2019
£000
143
53
55
49
19
319
88
Non-Executive Directors’ remuneration as a single figure – 2018 (audited)
Non-Executive Directors
Philip Lawrence (appointed Chairman 1/6/18)1
Andrew Eastgate
Amanda Aldridge (appointed 1/2/18)
Keith Edelman (appointed 1/10/18)
Dick Peters (stepped down 31/5/18)
Non-salary
benefits
2018
£000
Pension
related
benefits
2018
£000
Annual
performance
bonus
2018
£000
Share-based
incentive
schemes
2018
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fees
2018
£000
102
55
46
11
46
260
Total
2018
£000
102
55
46
11
46
260
1 Philip Lawrence’s fees until 31 May 2018 were paid to the Coal Authority which released him to perform his duties as a Non-Executive Director. Philip resigned from the Coal Authority with
effect from 31 May 2018 upon assuming his appointment as Chairman on 1 June 2018. Fees from 1 June 2018 were paid to him directly.
Annual performance bonus
For 2019, the Executive Directors had a maximum annual bonus opportunity equal to 125% of base salary. The bonus was assessed against the
Company’s underlying profit before tax (75% of the bonus opportunity) and against a number of strategic and personal objectives (25% of the
bonus opportunity) as shown in the tables below:
Performance metric
Underlying Profit Before Tax
Strategic and personal objectives
Proportion of
bonus
determined by
metric
75%
25%
Threshold
performance
£37.35m
Target
performance
£41.5m
Maximum
performance
£49.8m
Actual
performance
£39.46m
See commentary below
Bonus earned
(% max)
34%
80%
Strategic and personal objectives
The non-financial strategic objectives for the Executive Directors were designed to focus on the achievement of certain key elements of
Company strategy:
Objectives
Assessment / outcome
Potential bonus
weighting
(% of bonus
opportunity)
Bonus achieved
(% of bonus
opportunity)
Business Development
To develop strategic options
for the business.
A full review of the market, strategic options for the business and staffing
requirements undertaken. Proposals made to the Board for assessment.
10
10
Network Optimisation
To effectively manage the
development of the new regional
distribution centre in Ipswich, and
to complete and evaluate the
transport consolidation project.
The management of the building of the new distribution centre has been
undertaken during the year and the project is being delivered on time and on
budget. A trial was undertaken to optimise the utilisation of delivery
capability in the South Wales area. The trial was concluded by management
and results shared with the Board with lessons learned being rolled out
across the business.
People, Skills and Culture
To review the Company’s
approach to reward and make
recommendations accordingly.
Options for a new approach to reward were evaluated and proposals
developed. The implementation of any new reward practices was postponed
to allow focus on the operational priorities of the business.
7.5
7.5
7.5
2.5
In accordance with our remuneration policy, one-third of the bonus earned will be deferred into shares for a two-year period.
Headlam Group plc Annual Report and Accounts 2019
89
GovernanceFinancial StatementsStrategic ReportOverview
Directors’ Remuneration Report continued
Share based payments vesting in the financial year
Awards granted under the PSP in 2017 vest with respect to performance for the financial year ended 31 December 2019. The awards were
subject to two performance conditions, based on EPS growth (80% of the award) and relative TSR (20% of the award) each measured over a
three-year period. The performance outcome and consequent vesting was as follows:
Vesting (% of maximum)
0%
25% (threshold)
100% (maximum)
Outcome
Vesting (% of each element)
Proportion of total award vesting
Steve Wilson
Chris Payne
EPS growth (80% of award)
Less than 5% p.a.
5% p.a.
8% p.a.
-1.22% p.a.
0%
0%
TSR
Relative performance against FTSE
SmallCap Index (20% of award)
Below median
Median
Upper quartile
Just above median
28.6%
5.7%
Value of shares
Vesting
£19,070
£13,046
Shares granted
Shares vesting
70,789
48,435
4,049
2,770
Value is based on the average share price for the final quarter of the financial year which was 470.98 pence based on the mid-market closing
share price.
PSP awards granted during the financial period
PSP awards were granted to Executive Directors in 2019 as follows:
Steve Wilson
Chris Payne
Number of
ordinary shares
over which award
granted
86,459
63,707
150,166
Value of
Award
£000
388
286
674
% of
salary
% of award vesting
at threshold
Date of
grant
80
80
25 10 April 2019
25 10 April 2019
Performance
period
3 years
3 years
The share price used to determine the number of shares under the PSP was 448.30 pence, being the average mid-market closing share price
for the five business days prior to the date of award.
There are two performance conditions attaching to the PSP award: an EPS condition which accounts for 80% of the award and a TSR condition
which accounts for 20% of the award.
The EPS target required for maximum vesting was set at 8% compound annual growth over the three years to 31 December 2021. This was
above consensus market expectations at the date of the grant and above the Company’s internal business plan, and at a level which the
Remuneration Committee considered to be appropriate given the level of stretch within the forecast numbers. Threshold performance at
which 25% of the award vests is EPS growth of 5% per annum. The Remuneration Committee is satisfied that the EPS target range
appropriately reflects business risks and uncertainties.
The amount of the award which vests is also based on a TSR condition. The TSR for the period of three financial years commencing with the
financial year in which the award is granted is calculated for both the Company and a comparator group. The comparator group is constituted
from the companies making up the FTSE SmallCap Index (excluding investment trusts) at the start of the relevant period of three financial
years. If the Company’s TSR is below the median TSR for the comparative group then none of the award is vested. If the Company’s TSR is equal
to the median of the TSR of the comparator group then 25% of the award shall vest. If the Company’s TSR is between the median and upper
quartile of the TSR of the comparator group then between 25% and 100% of the award shall vest on a straight-line basis. If the Company’s TSR
is above the upper quartile of the TSR of the comparator group then 100% of the award shall vest.
Any awards vesting will be subject to a two-year holding period following the date of vesting.
90
Dilution
The Remuneration Committee supports the Investment Association (‘IA’) guidelines regarding dilution and regularly monitors compliance with
these requirements. The Company’s share plan rules 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 share plans, 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 3.92%
of the issued share capital (excluding treasury shares) and in respect of grants under discretionary plans was 0% of the issued share capital
(excluding treasury shares). It is the Remuneration Committee’s intention that options exercised under the SAYE scheme will continue to be
satisfied by shares held in treasury.
Further information on share-based payments is set out in note 22 to the financial statements.
Pension-related benefits
The only Executive Director to receive any pension benefit during the year was Chris Payne, who received pension contributions from the
Company equivalent to 11% of his base salary which is in line with pension payments to members of the Company’s senior management.
Payment for loss of office and to past Directors (audited)
No payments for loss of office were made to past Directors during the financial period other than in respect of Tony Judge who stepped down
as an Executive Director on 14 September 2018. Tony Judge remained employed by the Company until 14 March 2019 and continued to receive
his base salary and normal benefits during this time. For the period between 14 September 2018 and 14 March 2019 the payment to Tony
Judge relating to his salary and benefits was £217,277. The Company also made a contribution of £12,000 plus VAT in respect of Tony’s legal
fees incurred in relation to his leaving arrangements. A payment of £212,500 in lieu of notice was paid in respect of the six months from
14 March 2019 in equal monthly instalments. As he was employed for the whole of the relevant performance period in respect of the 2016
awards under the CIP, the awards granted in 2016 vested in 2019 and, accordingly, 19,550 shares vested and were issued. Tony Judge still retains
his 2017 grant under the Performance Share Plan. The Remuneration Committee has assessed the performance conditions and has
determined that 2,656 nil cost options will vest in March 2020 but will be subject to a further holding period of one year before the option can be
exercised. In addition, 29,424 nil cost options under the Deferred Bonus Plan will vest on 1 March 2020 and will be exercisable for the following six
months.
As outlined on page 70 of the 2017 Annual Report and Accounts, Tony Brewer was permitted to retain his 2016 CIP awards which subsequently
vested on 6 May 2019. Accordingly, 7,123 shares vested and were issued to Tony Brewer following the application of pro-rating for his period in
office and performance conditions.
No further payments to former Directors have been made in the 2019 financial year and up to the date of this Report except those disclosed
above.
Executive Directors’ Share Awards Outstanding
Steve Wilson
Number of
shares /
options as at
31 December
2018
–
86,187
29,514
70,789
40,886
–
7,874
Scheme
PSP
PSP
DBP
PSP
CIP2
SAYE
SAYE
Shares /
Options
granted
86,459
–
–
–
–
5,013
–
Shares /
Options
lapsed
–
–
–
–
19,026
–
–
Shares /
Options
exercised
Number of
Options at
31 December
2019
Date of Grant
Share Price at
Grant (pence)
Exercise Price
(pence)
Market price
on exercise
date (pence)
Vesting Date
Expiry Date
–
–
–
–
–
–
7,874
86,459 10 April 2019
9 April 2018
86,187
9 April 2018
29,514
5 July 2017
70,789
6 May 2016
21,860
3 May 2019
5,013
8 May 2014
0
448
441
441
536
477
443
476
Nil
Nil
Nil
Nil
Nil
359
381
– March 20221 April 2029
– March 20211 April 2028
– March 2020 April 2020
– March 20201 July 2027
May 2019 May 2026
–
July 2022 Dec 2022
–
July 2019 Dec 2019
454
1 Award vests on date shown but is subject to a further two-year holding period during which the option may not be exercised.
2 Award vested during the year.
Headlam Group plc Annual Report and Accounts 2019
91
GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
Chris Payne
Number of
shares /
options as at
31 December
2018
–
63,506
48,435
5,084
Scheme
PSP
PSP
PSP
SAYE
Shares /
Options
granted
63,707
–
–
–
Shares /
Options
lapsed
Shares /
Options
exercised
Number of
Options at
31 December
2019
Date of Grant
Share Price at
Grant (pence)
Exercise Price
(pence)
Market price
on exercise
date (pence)
–
–
–
–
–
–
–
–
63,707 10 April 2019
63,506
9 April 2018
48,435 25 Sept 2017
3 May 2018
5,084
448
441
536
442
Nil
Nil
Nil
353
Vesting Date
Expiry Date
March 20221 April 2029
March 20211 April 2028
March 20201 Sept 2027
July 2021 Dec 2021
1 Award vests on date shown but is subject to a further two-year holding period during which the option may not be exercised.
Statement of Directors’ shareholding and share interests (audited)
In order to align the interests of the Executive Directors with those of the Company’s shareholders, the Remuneration Committee encourages
Executive Directors to increase their shareholdings in the Company. The Executive Directors are required to build up and maintain a beneficial
interest (including interests of connected persons) in the ordinary shares of the Company equivalent in value to two times annual base salary.
Executive Directors are required to retain half of the net of tax vested shares under the CIP, PSP and DBP until the guideline is met.
The interests of Directors and their connected persons in the Company’s ordinary shares as at 31 December 2019 were as set out below. There
have been no changes to those interests between 31 December 2019 and the date of signing of these financial statements and reports.
Director
Steve Wilson
Chris Payne
Amanda Aldridge
Keith Edelman
Philip Lawrence
Alison Littley
Interests in Share Schemes
Owned Shares at
31 December 2019
PSP
Deferred Bonus
665,146
Nil
Nil
Nil
Nil
Nil
243,435
175,648
N/A
N/A
N/A
N/A
29,514
Nil
N/A
N/A
N/A
N/A
CIP
21,860
Nil
N/A
N/A
N/A
N/A
Shares under
Shareholding
Guidelines1
Shareholding
Guidelines achieved
(%)
676,731
Nil
N/A
N/A
N/A
N/A
100%
0%
N/A
N/A
N/A
N/A
SAYE
5,013
5,084
N/A
N/A
N/A
N/A
1 This includes all owned shares plus those vested scheme interests included on a net of tax basis as allowed under the Company’s share ownership policy.
92
TSR Graph
The graph below shows the value at 31 December 2019 of £100 invested in the Company on 1 January 2010 compared to the value of £100
invested in the FTSE SmallCap Index, making the assumption that dividends are reinvested to purchase additional equity.
The FTSE SmallCap Index has been selected as a comparator due to the Company being a constituent. This allows comparison of the
Company’s performance against the performance of the Index as a whole.
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
300
250
200
150
100
50
31 Dec 09 31 Dec 10 31 Dec 11 31 Dec 12 31 Dec 13 31 Dec 14 31 Dec 15 31 Dec 16 31 Dec 17 31 Dec 18 31 Dec 19
Headlam Group plc FTSE SmallCap Index
Chief Executive remuneration table
The table below sets out the remuneration of the Chief Executive for the latest ten financial year periods.
Period
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
Chief Executive
single figure of
total
remuneration
£000
Annual bonus
(% of maximum
opportunity)
Long-term
incentive
vesting rates
against
maximum
opportunity %
799
588
1,069
1,0671
7372
1,175
1,134
927
1,347
1,095
1,179
45.5
0.0
65.8
76.8
n/a
87.1
81.4
42.7
65.5
66.5
64.7
5.7
53.5
97.5
98.6
88.9
n/a
n/a
n/a
n/a
n/a
n/a
1 This remuneration is for the full year and incorporates his remuneration as Group Finance Director from 1 January 2016 until 14 September 2016 when he became Chief Executive
2 Tony Brewer stepped down as Chief Executive and a Director on 14 September 2016. The 2016 figures reflect his remuneration earned from the start of 2016 until the date of his resignation
as a Director. This remuneration is for a part year and does not include a termination payment.
Headlam Group plc Annual Report and Accounts 2019
93
GovernanceFinancial StatementsStrategic ReportOverview
Directors’ Remuneration Report continued
Percentage change in Chief Executive remuneration
The table below shows the percentage change in the Chief Executive’s remuneration and the Company’s employees as a whole between the
financial periods 2019 and 2018.
Percentage increase/(decrease) in remuneration in 2019 compared with 2018
Salary and fees
All taxable benefits
Annual bonuses
1 The Chief Executive did not receive a bonus for the financial period 2018.
Chief Executive
2%
0%
100%1
Total
Employees
2%
0%
28.1%
Relative importance of spend on pay
The table below shows the overall expenditure on dividends and on pay as a whole across the Company along with the percentage change
between each.
Dividends1
Pay
1
Includes dividends paid during the financial year.
2019
£000
20,941
103,432
2018
£000
20,969
103,239
% change
(0.00)
(0.08)
CEO pay ratio
The data shows how the CEO’s single figure remuneration for 2019 (as taken from the single figure remuneration table) compares to equivalent
single figure remuneration for full-time equivalent UK employees, on a Group basis, ranked at the 25th, 50th and 75th percentile.
Year
2019
Median
(50th percentile)
Method 25th percentile ratio
ratio 75th percentile ratio
Option A
39.3:1
31.8:1
22.7:1
No components of pay and benefits have been omitted for the purpose of the above calculations. Option A was selected given that this
method of calculation was considered to be the most efficient and robust approach in respect of gathering the required data for 2019.
The salary and total pay and benefits for the UK employees at the relevant percentiles, and upon which the pay ratios have been calculated, are
as follows:
Year
2019
Percentile
Salary
25th percentile
Median
75th percentile
£20,354
£25,160
£31,397
Total pay and
benefits
£20,354
£25,160
£35,272
Non-Executive Directors’ letters of appointment
Details of the current Non-Executive Directors’ appointment dates are set out below:
Non-Executive Director
Philip Lawrence
Keith Edelman
Amanda Aldridge
Alison Littley
Date of appointment
1 June 20181
1 October 2018
1 February 2018
1 January 2019
Expiry of current term
31 May 2021
30 September 2021
31 January 2021
31 December 2021
1 Philip Lawrence was appointed to the Board on 1 June 2015, the appointment date above represents the date on which he was appointed to his current role as Chairman.
94
Statement of implementation of remuneration policy in 2020
Details of how the Company will operate the Remuneration Policy in 2020 is provided below.
Base salaries for 2020
The Executive Directors received an increase in base salary of 2% for 2020 in line with the overall UK workforce, effective 1 January 2020, as
shown below:
Role
Chief Executive
Chief Financial Officer
Salary effective
1 Jan 2019
£000
Salary effective
1 Jan 2020
£000
484
357
494
364
Annual bonus
The maximum annual bonus opportunity for 2020 will remain at 125% of base salary. The payment of the annual bonus will be based on
underlying profit before tax (‘PBT’) performance albeit the Committee will also consider progress made against the strategy when assessing
any payouts. Full disclosure of the PBT target, will be provided in the 2020 Annual Report and Accounts. One third of any amount earned will be
deferred into shares which vest two years after the date on which the annual bonus pay-out is determined.
PSP
Awards in respect of 2020 will be granted in the form of nil cost options over ordinary shares in the Company at the level of 80% of salary,
subject to EPS and TSR metrics as described below:
Vesting (% of maximum)
0%
25%
100%
Straight-line vesting between points.
EPS growth
(80% of award)
Less than 5% p.a.
5% p.a.
8% p.a.
TSR relative to the
constituents of the FTSE
SmallCap Index
excluding investment trusts
(20% of award)
Below median
Median
Upper quartile
To balance the overall long-term nature of the package, and in line with best practice, awards will be subject to a two-year holding period
following the date of vesting.
Malus and clawback
Prior to the vesting of an annual bonus or PSP award, the Committee may operate ‘malus’ (or ‘withholding’) to cancel the award. For up to two
years following the payment of an annual bonus award, the Committee may operate ‘clawback’ (or ‘recovery’) to require the repayment of any
cash amount paid or may cancel any deferred bonus award. For up to two years after the vesting of a PSP award, the Committee may operate
clawback to cancel the award during the holding period (or require repayment of the award if it has been released prior to the end of the holding
period). The circumstances in which malus and clawback may be operated are as follows.
• The Executive’s gross negligence, fraud, dishonesty or other misconduct causing or contributing to the Group or any Group business having
to restate all or a portion of its financial statements to a material degree;
• The Executive’s conduct being such that it would entitle (or, where the Employment has terminated prior to the date on which the Board
becomes aware of such act or omission, would have entitled) the Group to terminate the Employment summarily;
• A material error having occurred in determining whether any corporate or personal performance conditions relating to the bonus or PSP
award have been met (or any other material error having occurred in calculating the sum that was awarded as a bonus or the size of the PSP
award); or
• Such other exceptional circumstances which, in the Remuneration Committee’s absolute discretion, justify such reimbursement being
imposed.
Headlam Group plc Annual Report and Accounts 2019
95
GovernanceFinancial StatementsStrategic ReportOverview Directors’ Remuneration Report continued
Non-Executive Directors’ fees for 2020
The fees of the Non-Executive Directors were reviewed and no increase is to be applied for the financial year ended 31 December 2020.
Role
Chairman fee
Non-Executive Director base fee
Senior Independent Director fee
Audit Committee chair fee
Remuneration Committee chair fee
Fees effective
1 Jan 2019
£000
Fees effective
1 Jan 2020
£000
143.5
45.0
10.0
7.5
7.5
143.5
45.0
10.0
7.5
7.5
Remuneration Committee activity
The Board approved the terms of reference, delegating certain responsibilities to the Remuneration Committee, most recently on 23 October
2019. The terms of reference are reviewed periodically and are available on the Company’s website within the Governance section at www.
headlam.com. The Remuneration Committee comprises the Chairman and each of the other Non-Executive Directors, and attendance at
scheduled meetings of the Committee during the year was as follows:
Members
Philip Lawrence
Keith Edelman
Amanda Aldridge
Alison Littley (appointed 1 January 2019)
Former Member
Andrew Eastgate (stepped down 31 May 2019)
Meetings
attended
Eligible to
attend
2
2
2
2
1
2
2
2
2
1
Other Directors may attend Remuneration Committee meetings by invitation. The Committee also receives assistance from the Group
People Director, the Company Secretary and from independent external advisers, and the Company Secretary acts as secretary to the
Committee. No one attending a Remuneration Committee meeting may participate in discussions relating to their own terms and conditions
of service or remuneration.
The Remuneration Committee’s main responsibilities include:
• Selecting the framework and policy for Executive Directors remuneration and determining the remuneration packages for the Executive
Directors and Chairman.
• Setting the level and structure of remuneration for the Senior Management Team.
• Approving the design and operation of the Company’s short-term and long-term incentive arrangements. This includes agreeing the
targets that are applied to awards made to Executive Directors and the Senior Management Team.
• Administering share plans as required.
The key matters discussed at the two meetings of the Remuneration Committee in 2019 were as follows:
Meeting Date
1 March 2019
Key agenda items
Review of performance related pay outturn for 2018 including approval of the Annual Bonus payments and
the percentage vesting of the 2016 CIP; Approval of the Annual Bonus scheme for 2019 and the PSP Award
and targets; and approval of the 2018 Remuneration Report.
19 September 2019
Appointment of Remuneration Advisers; approach to policy review; CEO pay ratio; gender pay gap; review of
terms of reference.
The effectiveness of the Remuneration Committee was evaluated as part of the Board performance evaluation process. The review found that
the Committee is operating effectively and that its role and remit remained appropriate. The Committee discussed the findings of the
evaluation to identify opportunities for further improvement.
Advisers
FIT Remuneration Consultants LLP (FIT) was appointed as independent adviser to the Remuneration Committee in August 2019 following a
tender process. FIT’s fees in respect of advice to the Remuneration Committee during the period ended 31 December 2019 were £14,804
(excluding VAT) and were charged on a time and disbursements basis. FIT is a member of the Remuneration Consultants Group and as such
voluntarily operates under its Code of Conduct in relation to executive remuneration in the UK.
Prior to the appointment of FIT, Deloitte LLP provided advice to the Remuneration Committee. Deloitte’s fees during the period ended
31 December 2019 were £6,150 (excluding VAT).
The Remuneration Committee is satisfied that all advice received was objective and independent.
96
Statement of shareholders’ votes
The following table sets out the results of the advisory vote on the 2018 annual report on remuneration at the 2019 AGM and the binding vote
on the remuneration policy at the 2017 AGM.
2019 Directors’ Remuneration Report
2017 Remuneration Policy
% of votes cast
For
% of votes cast
Against
Number of shares
Withheld
98.99
99.34
1.01
0.66
6,568,330
160,202
This report has been approved by the Board of Directors and signed on its behalf by Alison Littley, Chair of the Remuneration Committee.
Alison Littley
Chair of the Remuneration Committee
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
97
GovernanceFinancial StatementsStrategic ReportOverview Other Statutory Disclosures
The Directors present their report, together with the audited financial
statements, for the year ended 31 December 2019. This report
contains additional information which the Directors are required by law
and regulation to include within the Annual Report and Accounts.
This would bring the total dividend for the year to 25.0p per ordinary
share (2018: 25.0p). The payment of the final dividend is subject to
shareholder approval at the AGM on 22 May 2020.
In conjunction with the information from the Chairman’s Statement
on page 12 to the Statement of Directors’ Responsibilities on page
102, this section constitutes the Directors’ Report in accordance with
the Companies Act 2006.
Principal activities
The principal activities of the Group are the sales, marketing, supply and
distribution of floorcoverings and certain other ancillary products in the
UK and certain Continental Europe territories. The principal activity of
the Company is that of a holding company and its subsidiaries are listed
on page 160. Further details of the Group’s activities and future plans are
set out in the Strategic Report on pages 12 to 53.
Headlam Group plc is a company incorporated and domiciled in the
UK, company number 00460129. The address of the registered office
is PO Box 1, Gorsey Lane, Coleshill, Birmingham, B46 1LW.
Strategic report and future developments
The Group is required by the Companies Act 2006 to include a
Strategic Report in this document. The information that fulfils the
requirements of the Strategic Report, and which is incorporated in this
report by reference, can be found on the inside front cover to page 53.
The Strategic Report includes certain disclosures required to be
contained in the Directors’ Report as follows: approach to diversity
(page 49), workforce engagement (page 40), equal opportunities
(page 40) and an indication of likely future developments (page 14,
Chief Executive’s Review), and the approach to risk management
(pages 34 to 36).
Corporate governance statement
The Corporate Governance Statement as required by the Financial
Conduct Authority’s Disclosure and Transparency Rules (DTR) 7.2.1 is
set out on page 60 and is incorporated into this report by reference.
Acquisitions
On 18 October 2019, a subsidiary company of Headlam Group plc
completed the acquisition of all the trade and assets of Edel Telenzo
Carpets Ltd. (‘Telenzo’). Telenzo is the UK distribution company for
Edel Carpets, a modern carpet producer from Genemuiden, in the
Netherlands. The acquisition of Telenzo supports the Group’s position
as Europe’s leading floorcoverings distributor.
Post-balance sheet events
On 1 March 2020, HFD Ltd, a group subsidiary company acquired
100% of the issued share capital of Supertex Furnishing Ltd, a
floorcovering distribution business based in Leyland, Lancashire, for a
consideration of £1.3 million, subject to finalising the net assets
position.
Financial results and ordinary dividends
The results for the year and financial position at 31 December 2019
are shown in the Consolidated Income Statement on page 110 and
Statements of Financial Position on page 112.
A 2019 interim dividend of 7.55p per ordinary share (2018: 7.55p) was
paid on 2 January 2020 to shareholders on the register at the close of
business on 29 November 2019. The Directors propose a final
dividend of 17.45p per ordinary share (2018: 17.45p), to be paid on
1 July 2020 to shareholders on the register of members at the close of
business on 5 June 2020, the associated ex-dividend date being
4 June 2020.
98
Share capital
As at 31 December 2019, the issued share capital of the Company
comprised a single class of ordinary shares of 5p each (‘Ordinary
Shares’).
The Company’s Ordinary Shares are listed on the Main Market of the
London Stock Exchange. 88,350 Ordinary Shares were issued during
the year to satisfy the deferred consideration payments under the
terms of the acquisition of Domus Group of Companies as announced
on 7 December 2017. Following this new issue, the Company’s total
issued share capital was 85,452,093 Ordinary Shares as at
31 December 2019. During the year, the Company purchased no
shares into treasury pursuant to the authority granted by shareholders
at the Company’s Annual General Meeting on 24 May 2019.
A total of 209,440 Ordinary Shares were transferred from treasury
stock during 2019 in connection with the Company’s employee share
schemes, and the balance of shares in treasury stock following these
transfers was 548,649 Ordinary Shares as at 31 December 2019
(0.64% of the Company’s total issued share capital).
Details of the Company’s share capital are set out in note 23 to the
financial statements, which should be treated as forming part of this
report. Subject to the provisions of the Articles of Association and the
Companies Act 2006, 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 Conduct Authority (the
‘Listing Rules’), and the Market Abuse Regulation, whereby certain
employees require the approval of the Company to deal in the
Company’s shares.
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 by the next business
day after the meeting. The holders of ordinary shares are entitled to
receive the 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 in the Notice of AGM
which contains explanations as to the resolutions proposed.
Subject to certain limits, at the AGM on 24 May 2019, 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. The Directors will be seeking
to renew these authorities to allot unissued shares and to disapply
statutory pre-emption rights at the forthcoming AGM. Full details are
set out in the Notice of AGM which is contained in a separate circular
to shareholders.
At the AGM on 24 May 2019, the Company was given the authority to purchase shares in the Company up to 10% of the issued share capital.
Under this authority there is a minimum and maximum price to be paid for such shares. Any shares which are brought back may be held as
treasury shares and cancelled, sold for cash or used to satisfy share options and share awards under the Company’s employee share schemes.
As detailed above, the Company did not use this authority during the year under review. No further shares have been purchased into treasury
since 1 January 2020 and to the date of signing of this report. The Directors will be seeking to renew the authority at the forthcoming AGM. For
the avoidance of doubt, the Company does not currently intend to use the authority in relation to share buyback and cancellation of Ordinary
Shares unless in the opinion of the Directors, it would increase the EPS and be in the best interests of shareholders in general. Full explanation
and details are set out in the Notice of AGM sent in a separate circular to shareholders and which is also available on the Company’s website,
www.headlam.com.
Directors
Biographies of Directors currently serving on the Board are set out on pages 54 and 55.
Changes to the Board during the period are set out on page 67. Details of the Directors’ service agreements are set out below:
Executive Directors
Steve Wilson
Chris Payne
Non-Executive Directors
Philip Lawrence (Chairman)
Amanda Aldridge
Keith Edelman
Alison Littley
Date of
appointment
Date of
original letter
of appointment/
service agreement
Effective date of
current letter of
appointment/
service agreement
Next due
for re-election
2 December 1991
13 September 2017
n/a
n/a
3 March 2017
13 September 2017
22 May 2020
22 May 2020
1 June 2015
1 February 2018
1 October 2018
1 January 2019
18 June 2015
12 January 2018
15 August 2018
15 August 2018
26 October 2017
12 January 2018
15 August 2018
15 August 2018
22 May 2020
22 May 2020
22 May 2020
22 May 2020
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 ordinary resolution of the shareholders or by the Board. A Director appointed by the Board holds
office only until the next AGM of the Company after their appointment, at which they are then eligible to stand for election.
As noted elsewhere in this report, all Directors are subject to annual election by shareholders at the AGM in line with the provisions of the Code.
Directors’ Powers
Subject to the Company’s Articles of Association, the Act 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, whether relating to the management of the
business of the Company or otherwise. The matters reserved for the Board are detailed in a specific schedule, which is reviewed annually and is
available on the Company’s website, www.headlam.com.
Change of control
The Group has entered into certain agreements that may take effect, alter or terminate upon a change of control of the Company following a
successful takeover bid. The significant agreements in this respect are the Group’s banking facility 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 Group. 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.
Headlam Group plc Annual Report and Accounts 2019
99
GovernanceFinancial StatementsStrategic ReportOverview
Other Statutory Disclosures continued
Substantial interests in voting rights
Notifications of the following voting interests in the Company’s ordinary share capital had been received by the Company (in accordance with
Chapter 5 of the DTR), with the information received from the discloser stated to be correct at the time of disclosure.
As at and up to 31 December 2019, the persons set out in the table below have notified the Company, pursuant to DTR 5.1, of their interests in
the voting rights in the Company’s issued share capital.
Ordinary shares of 5p each
Franklin Templeton Institutional, LLC
FIL Limited
Heronbridge Investment Management LLP
Investec Asset Management Limited
Aggregate of Standard Life Aberdeen plc affiliated management entities
Rathbone Brothers plc
Canaccord Genuity Group Inc
Aggregate total
voting rights1
% of total voting
rights2
Indirect/direct
9,222,208
4,635,824
4,209,552
4,248,163
4,189,429
4,070,078
2,770,314
10.86
5.46
5.04
5.02
4.95
4.87
3.27
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
1 Represents the number of voting rights last notified to the Company by the respective shareholder in accordance with DTR 5.1.
2 Based on the Total Voting Rights in the Company as at the notification date.
Between 1 January 2020 and 5 March 2020 the following change in respect of the interests in voting rights in the Company’s issued share
capital have been notified to the Company:
Franklin Templeton Institutional, LLC
1 Represents the number of voting rights last notified to the Company by the respective shareholder in accordance with DTR 5.1.
2 Based on the Total Voting Rights in the Company as at the notification date.
Aggregate total
voting rights1
% of total voting
rights2
Indirect/direct
8,364,908
9.85
Indirect
Rights under employees’ share schemes
As at 31 December 2019, Kleinwort Hambros, as trustee of the Headlam Group Employee Trust Company Limited (‘Trust’) held 711,747 shares,
approximately 0.8% of the issued share capital of the Company (excluding treasury shares) for the purpose of satisfying options and awards
under the various employee share schemes operated by the Company. Kleinwort Hambros waives dividends due on all but 0.01p per share of
their total holding.
Details of employee share schemes are set out in note 22 to the Financial Statements. Details of long-term incentive schemes for the Directors
are shown in the Remuneration Report on pages 76 to 97.
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.
Directors’ interests and indemnity arrangements
During the year, no Director held any material interest in any contract of significance with the Company or any of its subsidiary undertakings,
other than service agreements between each Executive Director and the Company. In addition, 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 Scheme, 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
agreements, and interests in the shares of the Company are set out in the Directors Remuneration Report.
Overseas Branches
The Company operates through statutory entities overseas and they are listed on page 160.
Anti-Corruption and Bribery
It is the Company’s policy to conduct all business in an honest and ethical manner. The Company takes a zero-tolerance approach to bribery
and corruption and is committed to acting professionally, fairly and with integrity in all business dealings and relationships. The policy which is
detailed on the Company’s website, www.headlam.com, applies to all employees, directors, officers, agency workers, seconded workers,
volunteers, interns, agents, contractors, external consultants, third-party representatives and business partners. Any individual who breaches
the policy will face action, which in the case of employees could result in dismissal for gross misconduct.
100
Modern Slavery Act
The Board fully supports the aims of the Modern Slavery Act and the
Company has a zero tolerance approach to slavery and human
trafficking. Any new suppliers in higher risk areas are assessed for
modern slavery and human trafficking purposes prior to establishing a
business relationship.
During the year the Company conducted an audit of its supply chain
and assessed the risk of modern slavery for each supplier taking into
consideration their country of operation as well as other matters. Each
supplier assessed as higher risk was required to complete a tailored
modern slavery and human trafficking questionnaire, the results of
which were assessed by the Company Secretary and Commercial
Director and any follow-up actions and requests for additional
information taken as appropriate.
Full information can be found in the Company’s annual Modern Slavery
Statement which is published on the Company’s website and which
details the actions undertaken to prevent slavery and human
trafficking in both the Company’s organisation and its supply chain.
Human Rights
We support the United Nations’ Universal Declaration of Human
Rights and have policies and processes in place to ensure that we act
in accordance with our cultural values which encompass areas such as
equal opportunities, diversity, inclusion and respect, anti-corruption
and bribery, whistleblowing and fraud. We do not believe this to be a
material issue in our business.
Employment of Disabled persons
It is our policy that people with disabilities should have full and fair
consideration for vacancies within the Group having regard for their
aptitudes and abilities. Where existing employees become disabled, it
is the Company’s policy, wherever practicable to provide continuing
employment under normal terms and conditions and to provide
training career development wherever appropriate.
Employee Involvement and Communication
We are committed to communicating matters of importance to our
employees. Communication is however not just one way and we
actively encourage feedback from our employees, either through
formal channels such as our Employee Forum (page 40) and our
bi-annual employee survey, or more informal methods of feedback. In
addition to our Employee Forum, we additionally hold champions
meeting in our businesses and specific departmental group meetings
where we get together those with specific job roles to share best
practice and learn from the ideas and practices of others.
We are proud that our employees are committed and loyal to the
Company and listening to their ideas through formal and informal
channels helps to inform company decision-making.
Environmental policy and mandatory greenhouse gas
emissions reporting
The Company’s policy towards the environment, actions being
undertaken to mitigate its environmental impact, and all required
regulatory disclosures can be found within the Strategic Report on
pages 50 to 51.
Engagement with suppliers, customers and other stakeholders
The directors understand the need to develop good business
relationships with its suppliers, customers and other stakeholders and
the success with which this is achieved is paramount to business
success. Further information on the Company’s approach to
engagement with its stakeholders can be found on page 40.
Directors’ and auditor’s responsibilities
A statement by the Directors on their responsibilities in respect of the
Annual Report and Accounts is given on page 102 and a statement by
the Auditor on their responsibilities is given on page 109.
Political donations and expenditure
The Company’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 (2018: £nil).
Charitable donations
Details are given on page 53 of the Strategic Report.
Amendments to the Articles of Association
The Company’s Articles of Association may only be amended by a
special resolution at a general meeting of shareholders.
Financial instruments
The disclosures required in relation to the use of financial instruments
by the Group together with details of our treasury policy and
management are set out in note 24 to the financial statements on
pages 150 to 157.
Going concern
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out in
the Strategic Report. The financial position of the Group is described
in the Financial Review on page 24. In addition, note 24 to the financial
statements on pages 150 to 157 includes the Group’s objectives,
policies and processes for managing its exposures to interest rate risk,
foreign currency risk, counterparty risk, credit risk and liquidity risk.
The Board has a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future. Accordingly, the financial statements set out on pages 110 to
160 have been prepared on the going concern basis.
External auditor
PricewaterhouseCoopers LLP have indicated their willingness to
continue as Auditor and their reappointment has been approved by
the Audit Committee. Resolutions to reappoint them and to authorise
the Directors to determine their remuneration will be proposed at the
2020 AGM.
AGM
This year’s AGM will be held at the Company’s distribution hub in
Coleshill on Friday, 22 May 2020 at 10.00am. The notice convening this
meeting is in a separate document to this Annual Report and
Accounts along with the explanatory notes regarding the resolutions
that will be proposed at the meeting.
This report was approved by the Board and signed on its behalf by:
Karen Atterbury
Company Secretary
5 March 2020
Company registration number: 00460129
Headlam Group plc Annual Report and Accounts 2019
101
GovernanceFinancial StatementsStrategic ReportOverview
Statement of Directors’ Responsibilities
in respect of the financial statements
The directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulation.
Directors’ confirmations
The directors consider that the annual report and accounts, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group and
parent company’s position and performance, business model and
strategy.
•
Each of the directors, whose names and functions are listed in Annual
report and accounts confirm that, to the best of their knowledge:
the parent company financial statements, which have been
•
prepared in accordance with IFRSs as adopted by the European
Union, give a true and fair view of the assets, liabilities, financial
position and profit of the company;
the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and
profit of the group; and
the Strategic Report includes a fair review of the development and
performance of the business and the position of the group and
parent company, together with a description of the principal risks
and uncertainties that it faces.
In the case of each director in office at the date the Directors’
Report is approved:
•
•
• so far as the director is aware, there is no relevant audit information
of which the group and parent company’s auditors are unaware;
and
they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit
information and to establish that the group and parent company’s
auditors are aware of that information.
•
For and on behalf of the Board
Steve Wilson
Director
5 March 2020
Chris Payne
Director
5 March 2020
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared the
group financial statements in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the European Union and
parent company financial statements in accordance with IFRSs as
adopted by the European Union. Under company law the directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the group
and parent company and of the profit or loss of the group and parent
company for that period. In preparing the financial statements, the
directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable IFRSs as adopted by the European Union
have been followed for the group financial statements and IFRSs
as adopted by the European Union have been followed for the
company financial statements, subject to any material departures
disclosed and explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and parent
company will continue in business.
The directors are also responsible for safeguarding the assets of the
group and parent company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and parent
company’s transactions and disclose with reasonable accuracy at any
time the financial position of the group and parent company and
enable them to ensure that the financial statements and the
Directors’ Remuneration Report comply with the Companies Act
2006 and, as regards the group financial statements, Article 4 of the
IAS Regulation.
The directors are responsible for the maintenance and integrity of the
parent company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
102
Streamlined Energy & Carbon Reporting (‘SECR’)
Disclosure
Executive Summary
This Executive Summary alongside and in conjunction with the information contained with the Environment section on page 50 summarises
the energy usage, associated emissions, energy efficiency actions and energy performance for Headlam Group plc under the government
policy Streamlined Energy & Carbon Reporting (‘SECR’), as implemented by the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018.
This Executive Summary, and full supporting report, has been prepared by Net Zero Compliance (a division of Inspired Energy PLC) for Headlam
Group plc by means of interpreting the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018 as they apply to information supplied by Headlam Group plc and its energy suppliers.
Annual Reporting Figures
The total consumption (kWh) figures for energy supplies reportable by Headlam Group plc are as follows:
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Natural Gas (Scope 1)
Transportation (Scope 1)
Total
2019 Consumption
(kWh)
8,252,552
5,055,888
91,911,413
105,219,853
2018 Consumption
(kWh) (for
illustrative
purposes*)
7,265,231
5,020,115
90,066,828
102,352,174
The total emission (tCO2e) figures for energy supplies reportable by Headlam Group plc are as follows. Conversion factors utilised in these
calculations are detailed below:
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Natural Gas (Scope 1)
Transportation (Scope 1)
Total
2019 Consumption
(tCO2e)
2,109
930
22,423
25,462
2018 Consumption
(tCO2e) (for
illustrative
purposes*)
1,857
923
22,018
24,798
Intensity Metric
An intensity metric of tCO2e per £m revenue has been applied for the annual total emissions of the Company that is related to the operation of
facilities i.e. grid-supplied electricity and natural gas. The methodology of the intensity metric calculations are detailed below, and results of this
analysis is as follows:
Utility and Scope
tCO2e/£m revenue
2019 Intensity
Metric
2018 Intensity
Metric
41.7
41.0
* 2018 consumption and emission figures have been provided for illustrative purposes from data collated for the Phase 2 compliance activities with the Energy Savings Opportunity Scheme
(‘ESOS').
Reporting Methodology
Scope 1 and 2 consumption and CO2e emission data has been calculated in-line with the 2019 UK Government environmental reporting
guidance. The following Emission Factor Databases consistent with the 2019 UK Government environmental reporting guidance have been
used: Database 2019, Version 1.01.
Estimations undertaken to cover missing billing periods were calculated on a kWh/day pro-rata basis at meter level. Where data was not
available for the entirety of the reporting period, an average of similar meter classes were taken and applied to the properties with no available
data.
Intensity metrics have been calculated utilising the UK 2019 revenue figure of £610,242,000, and applying to the whole estate’s carbon
emissions.
Headlam Group plc Annual Report and Accounts 2019
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GovernanceFinancial StatementsStrategic ReportOverview
Independent Auditors’ Report
to the members of Headlam Group plc
Report on the audit of the financial statements
Opinion
In our opinion, Headlam Group plc’s group financial statements and company financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2019 and of the group’s profit and the
group’s and the company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and,
as regards the company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article
4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and Accounts 2019 (the “Annual Report”), which comprise: the
Group and Company Statements of financial position as at 31 December 2019; the Consolidated income statement and Consolidated
statement of comprehensive income, the Group and Company Cash flow statements, and the Group and Company Statements of changes in
equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
group or the company.
Other than those disclosed in note 3 to the financial statements, we have provided no non-audit services to the group or the company in the
period from 1 January 2019 to 31 December 2019.
Our audit approach
Overview
• Overall group materiality: £2.0 million (2018: £2.0 million), based on 5% of underlying profit before tax (2018: 5%
of profit before tax).
• Overall company materiality: £1.9 million (2018: £1.9 million), based on 0.75% of total assets.
Materiality
• The Group financial statements are a consolidation of a number of reporting components, comprising the
group’s operating businesses, centralised functions and non-trading entities.
• We performed full scope audits on the financial information of four UK reporting components: HFD Limited,
MCD Limited, Domus Group of Companies and Headlam Group plc (the company) due to their size and risk
characteristics. These UK reporting components comprise 84% of consolidated revenue and 87% of
consolidated underlying profit before tax.
In addition, we targeted significant balances in components outside of full scope. These were identified as
other interest-bearing loans and borrowings within the components of Headlam BV and LMS, and cash
balances within Headlam BV and Belcolor.
•
• All work was performed by the group team and no reliance was taken on component auditors.
• Finally, we performed analytical procedures on insignificant trading components for group reporting purposes.
Audit scope
Key audit
matters
• Supplier arrangements
•
Impairment of Domus goodwill
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
104
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to employment regulation and health and safety legislation, and we considered the extent to which non-compliance might have a material
effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial
statements such as the Companies Act 2006, the Listing Rules, tax legislation and pension legislation. We evaluated management’s incentives
and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the
principal risks were related to posting inappropriate journal entries and management bias in accounting estimates. Audit procedures performed
by the group engagement team included:
• Discussions with management, including consideration of known or suspected instances of non-compliance with laws and regulations,
and fraud;
• Reading key correspondence with regulatory authorities, such as the Competition and Markets Authority (CMA);
• Review of correspondence with legal advisors;
• Challenging assumptions and judgements made by management in their significant accounting estimates; and
• Testing of journals posted to revenue, rebates and cash that have unusual account combinations.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Supplier arrangements
Refer to the Audit Committee Report on page 72
and the use of estimates and judgements in the
Accounting Policies on page 124.
The group has a significant number of rebate
agreements with suppliers. These agreements can
contain multiple terms or tiered arrangements
based on the volume of goods purchased.
Consequently, the calculation of these rebates can
be complex and requires accurate inputs and
calculations to be made.
The majority of agreements are co-terminus with
the financial year, meaning that, although the
calculation of the rebate does not rely on estimates
of future purchases, there are significant amounts
of rebates receivable subject to recovery at the
year end.
How our audit addressed the key audit matter
We tested a sample of rebate balances by requesting confirmations from the
counterparty. For those balances where no counterparty confirmation was received,
we recalculated the amount due, based on the supporting purchase agreements
and tested the calculation inputs back to underlying financial records. No material
inconsistencies or exceptions were noted.
For those balances subject to testing, we agreed post year end settlements back to
evidence of cash receipt or credit notes received, to provide comfort over the
recoverability of the balances.
In addition, in order to assess management’s ability to accurately calculate rebates
receivable balances, we compared cash receipts received during the year against
balances accrued at the previous year end. No material inconsistencies or
exceptions were noted.
Headlam Group plc Annual Report and Accounts 2019
105
GovernanceFinancial StatementsStrategic ReportOverview Independent Auditors’ Report continued
to the members of Headlam Group plc
Key audit matter
How our audit addressed the key audit matter
Impairment of Domus goodwill
Refer to the Audit Committee Report on page 72
and the use of estimates and judgements in the
Accounting Policies on page 121 and note 12 to the
financial statements on page 137.
During the financial year, the performance of the
Domus trading subsidiary has declined, with the
business achieving an operating profit of £1.0 million
in FY19 (FY18 - £1.9 million). This decline represents
an impairment trigger in respect of goodwill.
At 31 December 2019 the group had a net balance
of £20.9 million (2018: £23.0 million) of goodwill in
respect of Domus, following management’s
decision to record an impairment of £2.1 million
during the year ended 31 December 2019.
Management believe the decline in performance is
because of the depressed market conditions in
London and the South East over the last two years,
and expect the business’ performance to recover to
pre-acquisition levels by 2023.
Consequently, the carrying value of goodwill is
contingent on an improvement in the future cash
flows of the business and there is a risk that the
goodwill could be further impaired if these revenue
growth rates do not meet the
company’s expectations.
We obtained management’s model supporting the impairment of £2.1 million and
tested its integrity and accuracy. Our work highlighted the two most sensitive
assumptions to be revenue growth and the discount rate.
We agreed the revenue and cash flows used as the basis of the model back to Board
approved 5 year forecasts and held discussions with management to determine
whether the rationale behind the expected recovery is of sound logic.
We reviewed the historical performance of the business to determine whether it has
previously experienced fluctuations in performance and whether it has a track
record of recovering from previous declines. In addition, we performed
benchmarking against independent market indices, and noted a correlation between
the Domus revenue levels and wider macro-economic indicators.
We also reviewed post year-end financial data which shows early evidence of a year
on year increase in order intake, supporting management’s forecasts.
We engaged independent valuation experts to review and benchmark the discount
rate calculated by management and concluded that it lay within our expected range.
We reviewed management’s impairment sensitivity disclosures and concluded these
adequately reflect ‘reasonably possible’ changes in key assumptions.
As a result of these procedures, we consider the directors’ assessment of the
carrying value of goodwill to be supportable.
We determined that there were no key audit matters applicable to the company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which
they operate.
The Group operates as a supplier and distributor of floorcovering products and has two operating segments; the UK and Continental Europe.
The Group financial statements are a consolidation of a number of reporting companies, comprising the group’s operating businesses,
centralised functions and non-trading group companies.
In establishing the overall approach to the group audit, we identified four UK reporting components which, in our view, required an audit of their
complete financial information both due to their size and risk characteristics: HFD Limited, MCD Limited, Domus Group of Companies and
Headlam Group plc (the Company). These reporting components were audited by the group engagement team.
In addition, we targeted significant balances in components outside of full scope. These were identified as other interest-bearing loans and
borrowings within the components of Headlam BV and LMS, and cash balances within Headlam BV and Belcolor.
Finally, we performed analytical procedures on insignificant trading components for group reporting purposes.
The work on these four components, together with additional procedures performed at the Group level, including analytical procedures and
specific testing of the consolidation, gave us the evidence we needed for our opinion on the Group financial statements as a whole.
106
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£2.0 million (2018: £2.0 million).
Group financial statements
How we determined it
Rationale for
benchmark applied
5% of underlying profit before tax
(2018: 5% of profit before tax)
In the current year we have revised our benchmark to
be based on underlying profit before tax. Based on the
benchmarks used in the annual report, underlying
profit before tax is the primary measure used by the
shareholders in assessing the performance of the
group, and is a generally accepted auditing benchmark.
Company financial statements
£1.9 million (2018: £1.9 million).
0.75% of total assets.
We believe that total assets is the primary measure
used by the shareholders in assessing the performance
of the Company, and is a generally accepted
auditing benchmark.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £239,000 and £1,900,000. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £100,000 (Group audit)
(2018: £100,000) and £100,000 (Company audit) (2018: £100,000) as well as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or
draw attention to in respect of the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the directors’
identification of any material uncertainties to the group’s and
the company’s ability to continue as a going concern over a
period of at least twelve months from the date of approval of
the financial statements.
We are required to report if the directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the group’s and company’s ability
to continue as a going concern. For example, the terms of the United
Kingdom’s withdrawal from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the group’s trade,
customers, suppliers and the wider economy.
We have nothing to report.
Headlam Group plc Annual Report and Accounts 2019
107
GovernanceFinancial StatementsStrategic ReportOverview
Independent Auditors’ Report continued
to the members of Headlam Group plc
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK)
and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below
(required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for
the year ended 31 December 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity
of the group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 73 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 37 of the Annual Report as to how they have assessed the prospects of the group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding of the group and company and their environment obtained in the course of
the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 102, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the group’s and company’s position and performance,
business model and strategy is materially inconsistent with our knowledge of the group and company obtained in the course of performing
our audit.
• The section of the Annual Report on page 71 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006. (CA06)
108
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 102, the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior
consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
•
the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 20 May 2016 to audit the financial statements
for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the
years ended 31 December 2016 to 31 December 2019.
Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
5 March 2020
Headlam Group plc Annual Report and Accounts 2019
109
GovernanceFinancial StatementsStrategic ReportOverview Consolidated Income Statement
For the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance income
Finance expenses
Net finance costs
Profit before tax
Taxation
Profit for the year attributable to
the equity shareholders
Earnings per share
Basic
Diluted
Ordinary dividend per share
Interim dividend for the
financial year
Final dividend proposed for the
financial year
Underlying
2019
£000
719,237
(489,825)
229,412
(135,738)
(51,520)
42,154
821
(3,515)
(2,694)
39,460
(6,877)
Non-underlying
(Note 3)
2019
£000
–
–
–
–
(3,885)
(3,885)
–
(406)
(406)
(4,291)
277
Total
2019
£000
719,237
(489,825)
229,412
(135,738)
(55,405)
38,269
821
(3,921)
(3,100)
35,169
(6,600)
Underlying
2018
£000
708,423
(479,349)
229,074
(134,316)
(50,485)
44,273
709
(1,593)
(884)
43,389
(7,750)
Non-underlying
(Note 3)
2018
£000
–
–
–
–
(2,942)
(2,942)
–
–
–
(2,942)
807
Total
2018
£000
708,423
(479,349)
229,074
(134,316)
(53,427)
41,331
709
(1,593)
(884)
40,447
(6,943)
32,583
(4,014)
28,569
35,639
(2,135)
33,504
38.8p
38.6p
34.0p
33.8p
42.5p
42.2p
7.55p
17.45p
40.0p
39.6p
7.55p
17.45p
Note
2
2
6
6
3
7
9
9
23
23
All Group operations during the financial years were continuing operations.
110
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Profit for the year attributable to the equity shareholders
Other comprehensive income/(expense
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
Other comprehensive income for the year
Total comprehensive income attributable to the equity shareholders for the year
Note
21
2019
£000
2018
£000
28,569
33,504
917
(159)
758
(549)
(549)
209
28,778
8,562
(1,628)
6,934
540
540
7,474
40,978
Headlam Group plc Annual Report and Accounts 2019
111
GovernanceFinancial StatementsStrategic ReportOverview Statements of Financial Position
At 31 December 2019
Note
Group
2019
£000
2018
£000
Company
2019
£000
2018
£000
Assets
Non-current assets
Property, plant and equipment
Investment properties
Right of use assets
Intangible assets
Investments in subsidiary undertakings
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Bank overdraft
Other interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Income tax payable
Non-current liabilities
Other interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Employee benefits
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium
Other reserves
Retained earnings
Total equity
10
10
11
12
13
14
15
16
17
17
18
11
19
8
18
11
19
20
14
21
23
23
114,573
–
43,865
48,514
–
692
207,644
132,474
123,705
33,385
289,564
497,208
(10)
(222)
(13,921)
(181,845)
(5,037)
(201,035)
(6,201)
(30,734)
–
(2,299)
(7,608)
(4,263)
(51,105)
102,048
–
–
50,924
–
516
153,488
132,704
119,007
44,005
295,716
449,204
(221)
(236)
–
(181,300)
(6,730)
(188,487)
(6,805)
–
(2,592)
(2,249)
(8,063)
(5,888)
(25,597)
15,958
79,957
656
–
122,024
–
218,595
–
21,316
17,548
38,864
476
81,647
–
–
121,380
–
203,503
–
23,491
12,573
36,064
257,459
239,567
–
–
(6)
(40,287)
(1,302)
(41,595)
–
(658)
–
–
(5,216)
(2,174)
(8,048)
–
–
–
(34,226)
(394)
(34,620)
–
–
(2,007)
–
(5,487)
(2,561)
(10,055)
(44,675)
194,892
4,268
53,512
13,364
123,748
194,892
(252,140)
(214,084)
245,068
235,120
(49,643)
207,816
4,273
53,512
1,334
185,949
245,068
4,268
53,512
185
177,155
235,120
4,273
53,512
15,106
134,925
207,816
The notes on pages 116 to 160 are an integral part of these consolidated financial statements.
The Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement,
however the profit for the year attributable to the equity shareholders is £31,238,000 (2018:£34,350,000).
These financial statements were approved by the Board of Directors on 5 March 2020 and were signed on its behalf by
Steve Wilson
Director
Chris Payne
Director
Company Number: 00460129
112
Statement of Changes in Equity – Group
For the year ended 31 December 2019
Balance at 1 January 2018
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
Consideration for purchase of own shares
Current tax on share options
Deferred tax on share options
Deferred tax on income and expenses recognised
directly in equity
Dividends to equity holders
Total contributions by and distributions to equity
shareholders
Balance at 31 December 2018
Balance at 1 January 2019
Change in accounting policy (note 1c & 11)
Restated total equity at 1 January 2019
Profit for the year attributable to the equity
shareholders
Other comprehensive (expense)/income
Total comprehensive income for the year
Transactions with equity shareholders,
recorded directly in equity
Share-based payments
Share options exercised by employees
Ordinary shares issued
Effect of movement on foreign exchange on
current taxation
Current tax on share options
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to
equity shareholders
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
4,268
53,512
88
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,268
4,268
–
4,268
53,512
53,512
–
53,512
–
–
–
–
–
5
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88
88
–
88
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2019
4,273
53,512
88
Special
reserve
£000
Translation
reserve
£000
Treasury
reserve
£000
Restated*
Retained
earnings
£000
Total
equity
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
469
–
–
–
–
469
469
6,859
(4,056)
157,903
218,574
–
540
540
–
–
–
33,504
6,934
40,438
33,504
7,474
40,978
–
–
–
–
–
–
–
–
7,399
7,399
–
7,399
–
(549)
(549)
–
–
–
(44)
–
–
–
–
2,579
(5,825)
–
–
1,478
(1,518)
–
38
(169)
1,478
1,061
(5,825)
38
(169)
–
–
(46)
(20,969)
(46)
(20,969)
(3,246)
(21,186)
(24,432)
(7,302)
177,155
235,120
(7,302) 177,155
(216)
–
235,120
(216)
(7,302) 176,939
234,904
–
–
–
28,569
758
28,569
209
29,327
28,778
–
1,273
–
807
(448)
–
807
825
474
–
–
–
–
–
20
245
(20,941)
(44)
20
245
(20,941)
(44)
1,273
(20,317)
(18,614)
6,806
(6,029) 185,949
245,068
* Retained earnings for the group were restated by a change in accounting policy arising from the adoption of IFRS 16 at 1 January 2019, see note 1c and 11.
Headlam Group plc Annual Report and Accounts 2019
113
GovernanceFinancial StatementsStrategic ReportOverview Statement of Changes in Equity – Company
For the year ended 31 December 2019
Balance at 1 January 2018
Restatement for discounting on inter-company receivable
Restated balance at 1 January 2018
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
Consideration for purchase of own shares
Current tax on share options
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to equity shareholders
Balance at 31 December 2018
Balance at 1 January 2019
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
Ordinary share issues
Current tax on share options
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to equity shareholders
Share
capital
£000
Share
premium
£000
4,268
53,512
–
4,268
–
–
–
53,512
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,268
4,268
–
–
53,512
53,512
–
–
–
–
–
5
–
–
–
5
–
–
–
–
–
–
–
–
Capital
redemption
reserve
£000
Special
reserve
£000
Treasury
reserve
£000
Restated*
Retained
earnings
£000
Restated*
Total
equity
£000
88
–
88
–
–
–
–
–
–
–
–
–
–
88
88
–
–
–
–
–
–
–
–
–
–
20,578
(4,056)
105,128
179,518
–
20,578
–
–
–
–
–
–
–
–
–
–
20,578
20,578
–
–
–
(1,601)
(1,601)
(4,056)
–
–
103,527
34,350
6,887
(177,917)
34,350
6,887
–
41,237
41,237
–
2,579
(5,825)
–
–
–
1,478
(1,518)
–
29
(36)
(20,969)
1,478
1,061
(5,825)
29
(36)
(20,969)
(3,246)
(21,016)
(24,262)
(7,302)
123,748
194,892
(7,302) 123,748
31,238
306
–
–
194,892
31,238
306
–
–
31,544
31,544
–
–
469
–
–
–
469
–
1,273
–
–
–
–
807
(448)
–
1
214
(20,941)
807
825
474
1
214
(20,941)
1,273
(20,367)
(18,620)
Balance at 31 December 2019
4,273
53,512
88
21,047
(6,029) 134,925
207,816
* Retained earnings for the Company were restated when an inter-company loan was discounted in accordance with IFRS 9 see note 1.
114
Cash Flow Statements
For the year ended 31 December 2019
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation of property, plant and equipment, amortisation and impairment
Depreciation of right-of-use asset
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
Additional contributions to defined benefit plan
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Acquisition of subsidiaries, net of cash acquired
Repayment of acquired borrowings on acquisition
Acquisition of property, plant and equipment
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from the issue of treasury shares
Payment to acquire own shares
Drawdown of borrowings
Repayment of borrowings
Principal elements of lease payments
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
Cash and cash equivalents at 31 December
Note
3
11
6
6
3
22
21
25
10
11
23
Group
2019
£000
Company
2018
£000
2019
£000
2018
£000
35,169
40,447
31,883
33,977
8,898
15,260
(821)
3,921
(60)
807
63,174
(572)
(4,725)
(1,916)
55,961
(3,407)
(8,289)
–
7,038
–
(709)
1,593
(50)
1,478
49,797
1,563
12,524
(13,878)
50,006
(1,426)
(7,789)
(747)
1,692
21
(803)
1,109
–
163
34,065
–
5,581
(100)
39,546
(799)
146
–
1,688
–
(691)
985
–
739
36,698
–
(2,170)
(10,357)
24,171
(765)
(590)
(747)
44,265
40,044
38,893
22,069
130
857
(4,448)
–
(15,777)
403
601
(9,141)
(435)
(4,384)
–
314
(1,137)
–
(12,967)
(19,238)
(12,956)
(13,790)
–
258
–
–
(667)
(409)
825
–
45,000
(45,229)
(14,880)
(20,941)
1,061
(5,825)
45,443
(45,232)
–
(20,969)
825
–
45,000
(45,000)
(12)
(20,941)
1,061
(5,825)
45,000
(45,000)
–
(20,969)
(35,225)
(25,522)
(20,128)
(25,733)
(10,198)
43,784
(211)
17
33,375
1,566
42,030
188
43,784
4,975
12,573
–
17,548
(4,073)
16,646
–
12,573
Headlam Group plc Annual Report and Accounts 2019
115
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements
1 Presentation of the Financial Statements and Accounting Policies
Reporting entity
Headlam Group plc (the ‘Company’) is a company incorporated and domiciled in the UK. The address of its registered office is PO Box 1,
Gorsey Lane, Coleshill, Birmingham, B46 1LW.
Statement of compliance
Both the Company’s 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 IFRSs’). 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 5 March 2020.
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 a 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 and liabilities, both of which are stated at fair value.
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 a period no shorter than
12 months from the date of approval of the financial statements.
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 on page 12 and Chief Executive’s Review on pages 14 to 16.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 24 to
31. In addition, note 24 to the financial statements includes 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. As highlighted in note 18 to the financial
statements, the Group has maintained two separate agreements with Barclays Bank PLC and HSBC Bank Plc and these include both Sterling
and Euro term facilities. The Group’s Sterling committed facilities are £68.5 million and its Euro committed facilities are €9.6 million. The Group
also has short term uncommitted facilities which continue at £25 million, and €7.3 million and are renewable on an annual basis.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for a period no
shorter than 12 months from the date of approval of the financial statements. Thus they continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
b) Use of accounting estimates and judgements
Estimates
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.
116
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
• Supplier arrangements
The group has a number of rebate agreements with suppliers. These agreements can contain multiple terms or tiered arrangements based
on the volume of goods purchased. Consequently, the calculation of these rebates require accurate inputs and calculations to be made. The
majority of agreements are co-terminus with the financial year, meaning that, although the calculation of the rebate does not rely on
estimates of future purchases, there are significant amounts of rebates receivable subject to recovery at the year-end.
• Inventory
Inventories are valued at the lower of cost and net realisable value. Cost is the invoiced cost of materials less any supplier discounts received
and overheads incurred in bringing inventory to its present condition and location. This includes management’s best estimates of overheads
to be absorbed into the cost of inventory and discounts likely to be received from suppliers.
Provisions to write down stock to its net realisable value are calculated based on the ageing profile and consideration of inventory sold for
less than its carrying value.
• 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.
Sensitivities in respect of these assumptions are detailed in note 21.
• Leases (IFRS 16)
Estimates are made in determining the use of an internal borrowing rate (“IBR”). The IBR is estimated and used for the purpose of
discounting cashflows to their present value when the interest rate implicit within a lease cannot be determined. It comprises the risk free
rate attributed to government bonds relevant to the economic environment in which the asset is being used, a credit worthiness adjustment
based on a synthetic Headlam credit rating and the incremental cost of borrowing, the latter being the rate of interest that the Group would
have to pay on borrowings to obtain an asset of similar value to that of the right of use asset. Further details on the incremental borrowing
rates supplied are outlined in note 11.
• Impairment of goodwill
The Group determines whether goodwill is impaired on an annual basis unless there is an indication of impairment at an earlier date. This
requires an estimation of the value in use of the cash generating units to which they are allocated. Estimating the value in use requires the
Group to make an estimate of the expected future cash flows from the cash generating unit and also to choose a suitable discount rate in
order to calculate the present value of those cash flows. During the year management have recognised an impairment of £2.1 million against
goodwill in respect of the Domus business. Further details on the impairment, the assumptions used in determining the value in use
calculations, and their associated sensitivity analysis can be found in note 12.
Judgements
Judgements made by the Directors, in the application of these accounting policies that have a significant effect on the financial statements are
as follows:
• Acquisition accounting
Assets and liabilities must also be recognised at fair value on acquisition. The identification and measurement of contingent liabilities and
intangible assets are key areas of judgement.
The Group made one acquisition during the year which is detailed in note 25. As part of this acquisition the Group has performed a purchase
price allocation review and has assessed the fair value of the assets and liabilities acquired. Using assumptions regarding the performance of
the acquired entity, management have identified additional intangibles relating to brand names, customer relationships and supply
agreements which have been recognised and amortised over their expected useful economic life. The fair value of intangibles at the date of
acquisition are calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset,
discounted at the appropriate discount rate. Key assumptions in valuing the intangibles were royalty rates, discount rates, and future cash
flows which have been assessed by the directors and where appropriate bench-marked against the market. Any excess of the purchase
consideration over the estimated fair values of acquired net identified assets is recorded as goodwill in the balance sheet and is allocated to
an appropriate business segment. Any changes in the underlying assumptions or life of the determined assets and liabilities would alter the
goodwill and amortisation charges included within the financial statements.
Headlam Group plc Annual Report and Accounts 2019
117
GovernanceFinancial StatementsStrategic ReportOverview Notes to the financial statements continued
1 Presentation of the Financial Statements and Accounting Policies continued
Judgements continued
• Leases (IFRS 16)
Judgements are made in determining the lease term when applying IFRS 16. In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not
terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment
and that is within the control of the lessee.
• Non-underlying items
In order to illustrate the underlying trading performance of the Group, presentation has been made of performance measures excluding
those items which it is considered would distort the comparability of the Group’s results. These non-underlying items are defined as those
items that by virtue of their nature, size or expected frequency, warrant separate additional disclosure in the financial statements in order to
fully understand the underlying performance of the Group. Consequently, the classification of these items requires judgement. Further
details can be found in Note 3.
(c) Impact of newly adopted accounting standards
The Group and Company has adopted a new accounting standard in 2019 and this is detailed below:
International Financial Reporting Standard (IFRS) 16 ‘Leases’ (replacing IAS 17).
This new standard eliminates the classification of leases over 12 months in length as either operating or finance leases and introduces a single
lessee accounting model whereby all leases are accounted for on balance sheet, unless of low-value. The standard therefore requires that the
Group’s leased assets are recorded within non-current assets on the balance sheet as ‘right of use assets’ with a corresponding lease liability
which is based on the discounted value of the cash payments required under each lease. The income statement is affected by the replacement
of the operating lease expense with a depreciation charge and a finance expense.
The lease liability has been measured at the present value of the remaining lease payments, discounted using the incremental borrowing rate at
transition. All right-of-use assets have been measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease
expenses). Transition recognition exemptions relating to short-term and low value leases have been applied and a single discount rate has been
applied to a portfolio of leases with reasonably similar characteristics, to simplify the transition process.
The group has applied the standard from its mandatory adoption date of 1 January 2019 using the modified retrospective approach. Under this
approach, the cumulative effect of adopting IFRS 16 is recognised as an adjustment to the opening balance of retained earnings on 1 January
2019, with no restatement of comparative information. The impact this change in the Group’s accounting policy has had on the financial
statements is detailed further in note 11 below.
The Group and Company adopted two new accounting standards in 2018 and these are detailed below:
IFRS 9 – Financial Instruments
IFRS 9 replaced the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 Financial Instruments
from 1 January 2018 resulted in changes in accounting policies but did not have a significant impact on the financial statements. The new
accounting policies are set out in note 1 below. In accordance with the transitional provisions in IFRS 9(7.2.15) and (7.2.26), comparative figures
have not been restated.
There was no material impact on the group’s retained earnings as at 1 January 2018 arising from the transition but the Company’s retained
earnings were affected as follows:
In accordance with IFRS 9 the value of inter-company receivables were reviewed as at 31 December 2018. Headlam Group plc has an inter-
company balance with Headlam (European) Limited, which is supported by Headlam (European) Limited’s investment in the Group’s French
entities. The inter-company loan is due on demand and it has been valued by reference to the net present value of the future cash flows
accruing to Headlam (European) Limited from its investment in the French entities and discounted at an appropriate discount rate.
Retained earnings
Restatement due to discounting
Restated retained earnings
118
Restated
1 January 2018
£000
105,128
(1,601)
103,527
IFRS 15 – Revenue from Contracts with Customers
The Group adopted IFRS 15 ‘Revenue from Contracts with Customers’ at 1 January 2018.
This standard uses a five-step model to be applied to all sales contracts. The key principle of the standard is that revenue is recognised when
control of the goods or services passes to customers at an amount that reflects the consideration to which an entity expects to be entitled in
exchange for those goods or services.
A detailed assessment of the impacts of the new standard was undertaken in 2018 including a review of the Group’s performance obligations,
treatment of variable consideration and the timing of revenue recognition. This assessment showed there were no material impacts on
revenue for the Group.
(d) IFRS not yet applied
There are no other new standards, amendments to existing standards, or interpretations that are not yet effective that would be expected to
have a material impact on the Group.
e) Accounting Policies
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 power over an entity, is exposed or has rights to variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in UK sterling
currency units (£), which is Headlam Group plc’s functional and presentational currency.
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the Statement of Financial Position date are translated at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are
measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Financial statements of foreign operations
The assets and liabilities of foreign subsidiaries are translated at foreign exchange rates ruling at the Statement of Financial Position date.
The revenues, expenses and cash flows of foreign subsidiaries are translated at an average rate for the period where this rate approximates to
the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign subsidiaries are taken directly to the translation reserve and reflected as a
movement in the statement of comprehensive income.
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 initially
recognised at fair value on the date that a derivative contract is entered into, and they are subsequently remeasured to their fair value at the end
of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged. The group designates certain derivatives as either:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges);
• hedges of a particular risk associated with the cash flows of recognised assets and liabilities and highly probable forecast transactions (cash
flow hedges); or
• hedges of a net investment in a foreign operation (net investment hedges).
Headlam Group plc Annual Report and Accounts 2019
119
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
1 Presentation of the Financial Statements and Accounting Policies continued
Derivative financial instruments continued
At inception of the hedge relationship, the group documents the economic relationship between hedging instruments and hedged items,
including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items.
The group documents its risk management objective and strategy for undertaking its hedge transactions.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more
than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading
derivatives are classified as a current asset or liability.
The Group enters into forward exchange contracts and the fair value 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.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash
flow hedge reserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within other
gains/(losses).
Where option contracts are used to hedge forecast transactions, the group designates only the intrinsic value of the options as the hedging
instrument. Gains or losses relating to the effective portion of the change in intrinsic value of the options are recognised in the cash flow hedge
reserve within equity. The changes in the time value of the options that relate to the hedged item (‘aligned time value’) are recognised within
other comprehensive income (OCI) in the costs of hedging reserve within equity.
When forward contracts are used to hedge forecast transactions, the group generally designates only the change in fair value of the forward
contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot
component of the forward contracts are recognised in the cash flow hedge reserve within equity. The change in the forward element of the
contract that relates to the hedged item (‘aligned forward element’) is recognised within OCI in the costs of hedging reserve within equity. In
some cases, a Group company might designate the full change in fair value of the forward contract (including forward points) as the hedging
instrument. In such cases, the gains or losses relating to the effective portion of the change in fair value of the entire forward contract are
recognised in the cash flow hedge reserve within equity.
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.
Further information about the derivatives used by the Group is provided in note 24 below.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
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 in order to depreciate assets to their residual value over their useful
economic lives. Assets begin to be depreciated from the date they become available for use. The annual rates applicable are:
Land and buildings
Freehold and long leasehold properties
Plant and equipment
Motor and commercial vehicles
Office and computer equipment
Warehouse and production equipment
Land is not depreciated.
The residual balances are reviewed annually.
– 2%
– 10% – 25%
– 10% – 33.3%
– 10% – 20%
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the
carrying amount of property, plant and equipment and are recognised in the income statement.
Assets under construction are reported within Property, plant and equipment. These assets are stated at cost and are not depreciated until
they are complete and utilised by the group. 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.
120
Investment properties
Investment properties are stated at cost less accumulated depreciation and impairment losses.
Depreciation is charged to the income statement on a straight-line basis in order to depreciate assets to their residual value over their useful
economic lives. The annual rate applicable is:
Freehold and long leasehold properties
– 2%
The residual balances are reviewed annually.
Right-of-use assets
Right-of-use assets are measured at cost comprising the following:
the amount of the initial measurement of lease liability
•
• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
•
restoration costs.
Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The annual
depreciation rates are determined on the same basis as the group’s property, plant and equipment shown above.
Goodwill and other intangible assets
Goodwill
All business combinations are accounted for by applying the purchase method. Goodwill arises when a company acquires another business and
represents the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and contingent
liabilities acquired.
Following the requirements of IFRS 3 revised, transaction costs associated with acquisitions and movements in contingent consideration are
recognised in the income statement.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but
tested annually for impairment, or more frequently when there is an indicator that the unit may be impaired.
In respect of acquisitions prior to 1 January 2004, goodwill is included on the basis of its deemed cost, which represents the amount recorded
under UK GAAP which was broadly comparable save that only separable intangibles were recognised and goodwill was amortised. This is in
accordance with IFRS 1.
Other intangible assets
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. Other intangible assets are amortised from the date they are available for use.
Amortisation
Amortisation is charged to the income statement and is split over the estimated useful lives of each separately identifiable intangible asset
unless such lives are indefinite. Amortisation occurs on brand names, order book, non-compete agreements and customer relationships and is
charged to administrative expenses in the income statement. The estimated useful lives are assessed to be:
Brand names
Order book
Non-compete agreements – 1 – 3 years
– 5 – 10 years
Customer relationships
– 10 – 15 years
– 1 – 36 months
Headlam Group plc Annual Report and Accounts 2019
121
GovernanceFinancial StatementsStrategic ReportOverview
Notes to the Financial Statements continued
1 Presentation of the Financial Statements and Accounting Policies continued
Financial assets
Financial assets are no longer recognised when the rights to receive cash flows from the financial assets have expired or have been transferred
and the group has transferred substantially all the risks and rewards of ownership.
At initial recognition, the group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or
loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried
at FVPL are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether
their cash flows are solely payment of principal and interest.
There are three measurement categories under IFRS 9 into which debt instruments may be classified, these are;
• Amortised cost;
• Fair value through other comprehensive income (FVOCI);
• Fair value through the profit and loss (FVPL)
All material financial assets of the Group are held at amortised cost. Financial assets that are held for collection of contractual cash flows where
those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial
assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in
profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as
separate line item in the statement of profit or loss.
Trade and other receivables
Trade receivables are recognised at the transaction price (as defined in IFRS 15) if the trade receivables do not contain a significant financing
component. Other receivables are measured at fair value on initial recognition.
In line with the principles of IFRS 9, the Group assesses, on a forward-looking basis, the expected credit losses associated with its trade and
other receivables carried at amortised cost and fair valued through other comprehensive income (FVOCI). The impairment methodology
applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified approach
permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. See note 24.
Where specific receivables are known to be ‘bad’ or it becomes apparent that payment is ‘doubtful’ then a credit loss allowance of 100%
is applied.
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. This includes management’s best estimate of
overheads to be absorbed in the cost of inventory and discounts to be received from suppliers. 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 relate to cash balances held. Bank overdrafts that are repayable on demand and form an integral part of cash
management of both the Company and Group are included as a component of cash and cash equivalents for the purpose only of the Cash
Flow Statement.
Impairment
The carrying amounts of the Group’s assets, other than financial assets, 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 asset’s recoverable amount
is estimated. Financial assets are assessed using an expected credit loss model.
Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment 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 in the income statement whenever the carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount.
122
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 post-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
The recoverable amount of the Group’s receivables carried at amortised cost is calculated as the present value of estimated future cash flows,
discounted at the original effective interest rate, i.e. the effective interest rate computed at initial recognition of these financial assets.
Receivables with a short duration are not discounted.
Reversals of impairment
An impairment loss in respect of goodwill is not reversed.
In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there had
been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s 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.
Provisions
Provisions are recognised in accordance with IAS 37 ‘Provisions, Contingent Assets and Contingent Liabilities’. Provisions are recognised when
the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to
settle the obligation and the amount can be reliably estimated. Provisions are made for property dilapidations for the estimated costs of the
repairs over the period of the tenancy where a legal obligation exists.
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.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan
assets. The cost is included in employee benefit expense in the income statement.
Headlam Group plc Annual Report and Accounts 2019
123
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
1 Presentation of the Financial Statements and Accounting Policies continued
Employee benefits continued
Guaranteed Minimum Pensions (GMPs) were required to be equalised across males and females, and as a result of clarity in legislation the
Company added 1.1% to the liabilities as at 31 December 2018. No further adjustment was necessary as at 31 December 2019. The 2018
adjustment was an approximate scheme-specific allowance calculated by the scheme actuaries, which takes into account high-level summary
data of the Scheme. The Company allowed for the additional liability in respect of GMP equalisation as a past service cost, which went through
the income statement for the year ended 31 December 2018.
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, 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 76 to 97.
The fair value of options granted is recognised as an employee expense with a corresponding increase in equity over the period that the
employees unconditionally become entitled to the award. The fair value is measured at grant date and spread over the period during which the
employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model,
taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to
reflect the actual number of share options that vest except where forfeiture is due only to market conditions such as share prices not achieving
the threshold for vesting.
When options are granted to employees of subsidiaries of the Company, the fair value of options granted is recognised as an employee
expense in the financial statements of the subsidiary undertaking together with the capital contribution received. In the financial statements of
the Company, the options granted are recognised as an investment in subsidiary undertakings with a corresponding increase in equity.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, net of any tax effects, is recognised as a
deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury
shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the
transaction is transferred to or from retained earnings.
Own shares held by Employee Benefit Trust
Transactions of the Group sponsored Employee Benefit Trust are included in the Group financial statements. In particular, the Trust’s
purchases of shares in the Company are debited directly to equity.
Revenue
Revenue from the sale of floorcoverings is measured at the fair value of the consideration and excludes intra-group sales and value added and
similar taxes. The primary performance obligation is the transfer of goods to the customer. Revenue from the sale of floorcoverings is
recognised when control of the goods is transferred to the customer (which is typically the point at which goods are received by the customer),
at an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods. Provision for returns,
discounts and other allowances are reflected in revenue at the point of recognition.
Supplier arrangements
Rebates received from suppliers comprise volume related rebates on the purchase of inventories. Volume related discounts are accrued as
units are purchased based on the percentage rebate applicable to the forecast total purchases over the rebate period, where it is probable the
rebates will be received and the amounts can be estimated reliably. Rebates relating to inventories purchased but still held at the balance sheet
date are deducted from the carrying value so that the cost of inventories is recorded net of applicable rebates. Rebates received for the
financial year are deducted from cost of sales. Rebates recoverable at the end of the financial year are accrued within other debtors.
124
Lease payments
As explained in note 11 below, the group has adopted IFRS 16 Leases retrospectively from 1 January 2019, but has not restated comparatives
for the 2018 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments
arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019. The new accounting policies are
disclosed below.
Until 31 December 2018, leases were classified as finance leases whenever the lease transferred substantially all the risks and rewards of
ownership to the group and all other leases were treated as operating leases.
Assets held under finance leases were 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 was included in financial liabilities. The
finance charge element of rentals was charged to the income statement at a constant period rate of charge on the outstanding obligations.
Payments made under operating leases were recognised in the income statement on a straight-line basis over the term of the lease. Lease
incentives received were recognised in the income statement as an integral part of the total lease expense.
Following the adoption of IFRS 16 from 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the group.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities for the group include the net present
value of the following payments:
fixed payments, less any lease incentives receivable
•
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• amounts expected to be payable by the group under residual value guarantees
•
• payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.
the exercise price of a purchase option if the group is reasonable certain to exercise that option, and
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease, or the lessee’s incremental borrowing rate if that rate cannot be
readily determined.
Lease payments are allocated between principal and finance cost. The finance cost is charged to the profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Payments associated with short-term leases of equipment and all leases of low-value assets are recognised on a straight-line basis as an
expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise mainly of IT
equipment, for example; printers and photocopiers.
Net financing costs
Net financing costs comprise interest payable, interest on lease liabilities, 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.
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
Paid
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.
Received
The Company receives dividends from its UK and Continental European subsidiaries. Dividends are recognised in the financial statements
when they have been received by the Company.
Headlam Group plc Annual Report and Accounts 2019
125
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
1 Presentation of the Financial Statements and Accounting Policies continued
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.
Non-underlying items
In order to illustrate the underlying trading performance of the Group, presentation has been made of performance measures excluding those
items which it is considered would distort the comparability of the Group’s results. These non-underlying items are defined as those items that,
by virtue of their nature, size or expected frequency, warrant separate additional disclosure in the financial statements in order to fully
understand the underlying performance of the Group.
2 Segment reporting
As at 31 December 2019, the Group had 62 operating segments in the UK and four 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. The key economic indicators
considered by management in assessing whether operating segments have similar economic characteristics are the products supplied, the
type and class of customer, method of sale and distribution and the regulatory environment in which they operate.
As each operating segment is a trading operation wholly aligned to the sales, marketing, supply and distribution of floorcovering products,
management considers all segments have similar economic characteristics except for the regulatory environment in which they operate, which
is determined by the country in which the operating segment resides.
The Group’s internal management structure and financial reporting systems differentiate the operating segments on the basis of the differing
economic characteristics in the UK and Continental Europe and accordingly present these as two separate reportable segments. This
distinction is embedded in the construction of operating reports reviewed by the Group Chief Executive, the Board and the executive
management team and forms the basis for the presentation of operating segment information given below.
Revenue
External revenues
UK
2019
£000
Continental Europe
Total
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
610,242
604,150
108,995
104,273
719,237
708,423
Reportable segment underlying operating profit
41,253
45,163
3,524
488
44,777
45,651
Reportable segment assets
Reportable segment liabilities
329,002
(205,530)
304,645
(168,184)
47,229
(29,057)
42,591
376,231
(25,219) (234,587)
347,236
(193,403)
During the year there were no inter-segment revenues for the reportable segments (2018: £nil).
126
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total underlying operating profit for reportable segments
Non-underlying items
Unallocated expense
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit for the year
Assets
Total assets for reportable segments
Unallocated assets:
Properties, plant and equipment
Right of use assets
Deferred tax assets
Cash and cash equivalents
Total assets
Liabilities
Total liabilities for reportable segments
Unallocated liabilities:
Lease liabilities
Employee benefits
Income tax payable
Deferred tax liabilities
Total liabilities
2019
£000
2018
£000
44,777
(3,885)
(2,623)
38,269
821
(3,921)
35,169
(6,600)
28,569
2019
£000
45,651
(2,942)
(1,378)
41,331
709
(1,593)
40,447
(6,943)
33,504
2018
£000
376,231
347,236
102,081
656
692
17,548
497,208
88,879
–
516
12,573
449,204
(234,587)
(193,403)
(645)
(4,263)
(5,037)
(7,608)
–
(5,888)
(6,730)
(8,063)
(252,140)
(214,084)
Other material items 2019
Capital expenditure
Depreciation
Depreciation of right of use assets
Non-underlying items (excluding finance expenses)
Other material items 2018
Capital expenditure
Depreciation
Non-underlying items
UK
£000
1,969
2,225
13,226
1,687
2,579
2,058
1,262
Continental
Europe
£000
Reportable
segment total
£000
Unallocated
£000
Consolidated
total
£000
841
693
2,013
98
1,139
751
466
2,810
2,918
15,239
1,785
3,718
2,809
1,728
15,484
2,456
21
2,100
666
2,466
1,214
18,294
5,374
15,260
3,885
4,384
5,275
2,942
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.
Headlam Group plc Annual Report and Accounts 2019
127
GovernanceFinancial StatementsStrategic ReportOverview
Notes to the Financial Statements continued
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:
UK
2019
£000
Continental Europe
Total
2018
£000
2019
£000
2018
£000
2019
£000
2018
£000
397,008
213,234
400,710
203,440
60,981
48,014
57,046
47,227
457,989
261,248
457,756
250,667
610,242
604,150
108,995
104,273
719,237
708,423
2019
£000
5,374
15,260
3,524
(60)
2018
£000
5,275
–
1,763
(50)
–
–
11,923
3,566
2019
£000
2,100
1,424
686
(325)
406
–
–
4,291
2018
£000
–
1,763
513
(1,384)
–
836
1,214
2,942
2019
£000
101
250
9
360
2018
£000
111
276
–
387
Revenue
Residential
Commercial
3 Profit before tax
The following are included in profit before tax:
Depreciation on property, plant and equipment
Depreciation of right of use assets
Amortisation and impairment of intangible assets
Profit on sale of property, plant and equipment
Operating lease rentals
Plant and machinery
Land and buildings
Non-underlying items of £4,291,000 relate to the following:
Impairment of goodwill (note 12)
Amortisation of acquired intangibles
Acquisitions related fees
Movements in deferred and contingent consideration
Finance costs on deferred and contingent consideration
Non-recurring people costs
GMP equalisation
The related tax on these cost is £277,000.
Auditor’s remuneration:
Audit of these financial statements
Amounts received by the Auditor and their associates in respect of:
Audit of financial statements of subsidiaries of the Company
Corporate finance services
128
4 Staff numbers and costs
The average number of people employed, including Executive Directors, during the year, analysed by category, was as follows:
Number of employees
Group
Company
2019
2018
2019
2018
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 (note 22)
Social security costs
Pension costs (note 21)
2,555
20
2,575
2,352
223
2,575
2,593
22
2,615
2,401
214
2,615
–
20
20
–
20
20
Group
Company
2019
£000
87,197
807
11,080
4,348
2018
£000
84,147
1,478
10,775
6,839
103,432
103,239
–
22
22
–
22
22
2018
£000
2,801
739
445
1,967
5,952
2018
£000
1,653
638
2,291
2019
£000
3,251
163
607
98
4,119
2019
£000
1,750
355
2,105
5 Emoluments of key management personnel
Executive and Non-Executive Directors are considered to be the key management personnel of the Group.
Short-term employee benefits
Equity settled share-based payment expense
Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year. Further details on
Directors’ remuneration, share options and long-term incentive schemes are disclosed in the Remuneration Report on pages 76 to 97.
6 Finance income and expense
Interest income:
Bank interest
Other
Finance income
Interest expense:
Bank loans, overdrafts and other financial expenses
Interest on lease liability
Net interest on defined benefit plan obligations (note 21)
Finance costs on deferred and contingent consideration
Other
Finance expenses
Finance costs on deferred and contingent consideration are reported within non-underlying items (see note 3).
2019
£000
817
4
821
(1,454)
(1,688)
(80)
(406)
(293)
(3,921)
2018
£000
709
–
709
(1,331)
–
(232)
–
(30)
(1,593)
Headlam Group plc Annual Report and Accounts 2019
129
GovernanceFinancial StatementsStrategic ReportOverview
Notes to the Financial Statements continued
7 Taxation
Recognised in the income statement
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expense:
Origination and reversal of temporary differences
Adjustments for prior years
Total tax in income statement
Tax relating to items credited/(charged) to equity
Current tax on:
Income and expenses recognised directly in equity
Translation reserve
Deferred tax on:
Share options
Income and expenses recognised directly in equity
Deferred tax on other comprehensive income:
Defined benefit plans
Total tax reported directly in reserves
2019
£000
2018
£000
7,909
(642)
7,267
(745)
78
(667)
6,600
8,775
(810)
7,965
(938)
(84)
(1,022)
6,943
2019
£000
2018
£000
(20)
44
24
(245)
–
159
(86)
(62)
(38)
–
(38)
169
46
1,628
1,843
1,805
Factors that may affect future current and total tax charges
The UK headline corporation tax rate for the period was 19% (2018: 19%). The UK tax rate is expected to be reduced to 17% with effect from
1 April 2020 which was enacted during 2016. The majority of the deferred tax balance in respect of UK entities has therefore been calculated at
17% (2018: 17%) on the basis that most of the balances will materially reverse after 1 April 2020.
In addition, a reduction in the French corporation tax rate to 25% by 2022 was enacted in December 2017 which has also been taken into
account in the calculation of the related deferred tax balance.
130
Reconciliation of effective tax rate
Profit before tax
Tax using the UK corporation tax rate
Effect of change in UK tax rate
Effect of change in overseas tax rate
Recognition of tax losses
Non-deductible expenses
Goodwill impairment
Effect of tax rates in foreign jurisdictions
Adjustments in respect of prior years
Total tax in income statement
Add back tax on non-underlying items
Total tax charge excluding non-underlying items
Profit before non-underlying items
Adjusted effective tax rate excluding non-underlying items
2019
%
19.0
0.1
–
(1.6)
1.9
1.1
(0.2)
(1.5)
18.8
£000
35,169
6,682
30
–
(555)
682
401
(76)
(564)
6,600
277
6,877
39,460
17.43%
2018
%
19.0
0.0
(0.9)
–
1.3
–
0.0
(2.2)
17.2
£000
40,447
7,685
20
(382)
–
516
–
(2)
(894)
6,943
807
7,750
43,389
17.86%
8 Current tax liabilities
The Group’s current tax liability of £5,037,000 (2018: £6,730,000) represents the amount of income tax payable in respect of current and prior
year periods which exceed any amounts recoverable. The Company’s current tax liability of £1,302,000 (2018: £394,000) represents the
amount of income tax payable in respect of current and prior year periods which exceed any amounts recoverable.
At 31 December 2019, the Group held a current provision of £999,086 (2018: £1,726,859) in respect of uncertain tax provisions. Liabilities
relating to these open and judgmental matters are based on an assessment as to whether additional taxes will be due, after taking into account
external advice where appropriate. The Group expects this uncertain tax provision to decrease in the next 12 months.
9 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
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
Weighted average number of ordinary shares for the purposes of diluted earnings per share
Earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
2019
£000
32,583
28,569
2018
£000
35,639
33,504
2019
2018
83,971,792
83,862,658
83,971,792
536,952
83,862,658
674,621
84,508,744
84,537,279
34.0p
33.8p
38.8p
38.6p
40.0p
39.6p
42.5p
42.2p
At 31 December 2019, the Company held 1,260,396 shares (2018: 1,523,370) in relation to treasury stock and shares held in trust for satisfying
options and awards under employee share schemes. These shares have been disclosed in the treasury reserve and are excluded from the
calculation of earnings per share.
Headlam Group plc Annual Report and Accounts 2019
131
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
10 Property, plant and equipment
Group property, plant and equipment
Cost
Balance at 1 January 2018
Acquisitions
Additions
Disposals
Reclassification
Effect of movements in foreign exchange
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Disposals
Reclassification
Effect of movements in foreign exchange
Balance at 31 December 2019
Depreciation and impairment
Balance at 1 January 2018
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2018
Balance at 1 January 2019
Depreciation charge for the year
Disposals
Reclassification
Effect of movements in foreign exchange
Balance at 31 December 2019
Net book value
At 1 January 2018
At 31 December 2018 and 1 January 2019
At 31 December 2019
Land and
buildings
£000
Plant and
equipment
£000
Under
construction
£000
119,867
1,021
396
(272)
–
447
121,459
121,459
194
(981)
(77)
(528)
120,067
27,753
2,466
–
199
30,418
30,418
2,454
(981)
(71)
(302)
31,518
92,114
91,041
88,549
37,138
300
3,514
(931)
90
221
40,332
40,332
2,627
(3,683)
77
(428)
38,925
27,710
2,809
(850)
130
29,799
29,799
2,920
(3,613)
71
(329)
28,848
9,428
10,533
10,077
Total
£000
157,094
1,321
4,384
(1,203)
–
669
162,265
162,265
18,294
(4,664)
–
(956)
174,939
55,463
5,275
(850)
329
60,217
60,217
5,374
(4,594)
–
(631)
60,366
89
–
474
–
(90)
1
474
474
15,473
–
–
–
15,947
–
–
–
–
–
–
–
–
–
–
–
89
474
15,947
101,631
102,048
114,573
At 31 December 2019, the cost less accumulated depreciation of long leasehold property held by the Group was £7,069,000 (2018: £7,250,000).
132
Company investment properties and plant and equipment
Cost
Balance at 1 January 2018
Additions
Disposals
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Balance at 31 December 2019
Depreciation
Balance at 1 January 2018
Depreciation charge for the year
Disposals
Balance at 31 December 2018
Balance at 1 January 2019
Depreciation charge for the year
Balance at 31 December 2019
Net book value
At 1 January 2018
At 31 December 2018 and 1 January 2019
At 31 December 2019
Investment
properties
£000
103,396
190
–
103,586
103,586
–
103,586
20,253
1,686
–
21,939
21,939
1,690
23,629
83,143
81,647
79,957
Plant and
equipment
£000
Under
construction
£000
–
474
–
474
474
15,473
15,947
–
–
–
–
–
–
–
10
2
(3)
9
9
11
20
8
2
(3)
7
7
2
9
2
2
Total
£000
10
476
(3)
483
483
15,484
15,967
8
2
(3)
7
7
2
9
–
474
2
476
11
15,947
15,958
The Company obtains a valuation triennially, and this is always by an external valuer. Investment properties were last valued by an independent
professional valuer on 9 January 2020. This valuation of the investment properties, not including those under construction at 31 December
2019, was £101.4 million, however the Company has chosen to hold them at cost. .
11 Leases
In adopting IFRS 16, the Group and Company has used the modified retrospective approach, and as such there has been no restatement of the
comparatives for the 2018 reporting period as permitted under the specific transitional provisions in the standard. The reclassifications and the
adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 January 2019.
Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’
under the principles of IAS 17 leases. These liabilities were measured at the present value of the remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental borrowing rate applied to the lease
liabilities on 1 January 2019 ranged from 2.70% to 3.77% depending on the leased asset.
Operating lease commitments as disclosed as at 31 December 2018
Additional operating lease liabilities on implementation of IFRS 16*
Discounting effect using the lessee’s incremental borrowing rates of between 2.7% and 3.77%
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
Lease liability recognised as at 1 January 2019
Group
2019
£000
50,436
4,065
54,501
(4,673)
49,828
13,930
35,898
49,828
Company
2019
£000
1,937
–
1,937
(1,261)
676
16
660
676
* Operating lease commitments as at 31 December 2018 were restated by £4,065,000 to correct for omissions identified during the transition to IFRS16. The restatement relates to the
disclosure note only and there is no impact on the Consolidated Income Statement or Consolidated Statement of Financial Position.
Headlam Group plc Annual Report and Accounts 2019
133
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
11 Leases continued
Adjustments recognised on adoption of IFRS 16 continued
Right of use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the balance sheet as at 31 December 2018. The adjustment for accrued lease payments relating to the
leases recognised on this date was a decrease of £216,000. Consequently retained earnings on 1 January 2019 were reduced by this amount.
(i) Amounts recognised in the statement of financial position
The balance sheet shows the following amounts relating to leases:
Right-of-use assets
Properties
Non-property
Group
Company
31 December
2019
£000
15,883
27,982
43,865
1 January
2019
£000
18,692
30,920
49,612
31 December
2019
£000
1 January
2019
£000
652
4
656
661
15
676
The right-of-use assets are shown as non-current assets in the balance sheet. The non-property right-of-use assets relate mainly to
commercial and motor vehicles.
Lease liabilities
Current
Non-current
Group
Company
31 December
2019
£000
13,921
30,734
44,655
1 January
2019
£000
13,930
35,898
49,828
31 December
2019
£000
6
658
664
1 January
2019
£000
16
660
676
The lease liabilities are split on the balance sheet between current and non-current. In the previous year, the Group only recognised lease
liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17. At 31 December 2018 the Group had operating leases
amounting to £54.7 million (restated) and no finance leases.
Additions to the right-of-use assets in the group during the 2019 financial year were £9,513,000 which include £533,000 for contract
modifications. There were no additions in the Company.
(ii) Amounts recognised in the income statement
The statement of profit or loss shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
Properties
Non-property
Interest expense
Expense relating to IFRS 16 cost
Expense relating to IAS 17 cost previously included in administrative expenses
Net impact on the income statement
Group
Company
31 December
2019
£000
31 December
2019
£000
4,509
10,751
15,260
1,688
(16,375)
573
9
11
20
25
(37)
8
134
(iii) Impact on segment disclosures and earnings per share
The segment assets and liabilities for 31 December 2019 all increased as a result of the change in accounting policy. Lease liabilities are now
included in segment liabilities. The impact on the following segments was as follows:
Reportable segment assets
Reportable segment liabilities
UK
£000
38,095
(38,717)
Continental
Europe
£000
5,770
(5,938)
Total
£000
43,865
(44,655)
Earnings per share decreased by 0.6p per share, from 34.6p to 34.0p, for the twelve months to 31 December 2019 as a result of the adoption of
IFRS 16
(iv) The group’s leasing activities and how these are accounted for
The group leases various properties and commercial vehicles and cars. Rental contracts are typically made for fixed periods of 5 to 10 years and
3 to 7 years respectively, but might have extension options. Lease terms are negotiated on an individual basis and contain a wide range of
different terms and conditions. The lease agreements do not impose any covenants, but leased assets cannot be used as security for
borrowing purposes.
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.
Right of use assets are depreciated over the shorter of the assets useful life and the lease term on a straightline basis. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for
each period, this being the amortised cost method.
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the
following lease payments:
•
• variable lease payment that are based on an index or a rate;
• amounts expected to be payable by the lessee under residual value guarantees;
•
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
The lease payments are discounted using the Group’s incremental borrowing rate as it has been difficult to determine the interest rate implicit
in the lease for existing leases.
the amount of the initial measurement of lease liability;
Right-of-use assets are measured at cost comprising the following:
•
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
•
restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income
statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of
office furniture.
(v) Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the group. These terms are used to
maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held, are exercisable only by
the group and not by the respective lessor.
Headlam Group plc Annual Report and Accounts 2019
135
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
12 Intangible assets – group
Cost
Balance at 1 January 2018
Addition (note 25)
Balance at 31 December 2018
Balance at 1 January 2019
Addition (note 25)
Balance at 31 December 2019
Impairment and Amortisation
Balance at 1 January 2018
Amortisation charge for the year
Balance at 31 December 2018
Balance at 1 January 2019
Impairment/amortisation charge for the year
Balance at 31 December 2019
Net book value
At 31 December 2018 and 1 January 2019
At 31 December 2019
Goodwill
£000
Order book
£000
Customer
relationships
£000
Brand
names
£000
Non-
compete
£000
Supply
agreements
£000
36,981
4,427
41,408
41,408
258
41,666
3,197
–
3,197
3,197
2,100
5,297
6,202
272
6,474
6,474
–
6,474
5,690
650
6,340
6,340
125
6,465
5,443
1,345
6,788
6,788
217
7,005
45
659
704
704
726
4,996
1,950
6,946
6,946
471
7,417
28
450
478
478
559
1,430
1,037
38,211
36,369
134
9
6,084
5,575
6,468
6,380
–
31
31
31
–
31
–
4
4
4
10
14
27
17
Total
£000
53,622
8,025
61,647
61,647
1,114
62,761
8,960
1,763
10,723
10,723
3,524
14,247
50,924
–
–
–
–
168
168
–
–
–
–
4
4
–
164
48,514
Cumulative impairment losses recognised in relation to goodwill is £5,297,000 (2018: £3,197,000).
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
Domus Group of Companies Limited
Mitchell Carpets Limited
McMillan Flooring
CECO (Flooring) Limited
Dersimo BV
Ashmount Flooring Supplies Limited
Rackhams Limited
Telenzo
Other
Reported
segment
UK
UK
Continental Europe
UK
UK
UK
UK
Continental Europe
UK
UK
UK
UK
2019
£000
4,348
1,369
3,342
20,855
345
96
2,240
1,313
437
400
258
1,366
36,369
2018
£000
4,348
1,369
3,342
22,955
345
96
2,240
1,313
437
400
–
1,366
38,211
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 Domus Group of Companies Limited CGU (“Domus”) of £2,100,000 (2018: no impairment).
Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU on a basis consistent with
2018, and applying the following key assumptions.
136
Key assumptions
Cash flows were projected based on actual operating results, the approved 2020 business plan and management’s assessment of planned
performance in the period to 2024. For the purpose of impairment testing the cash flows were assumed to grow into perpetuity at a rate of
2.0% beyond 2024.
The main assumptions within the operating cash flows used for 2020 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 post-tax weighted average cost
of capital of 8.5% (2018: 10.7%) has been used for impairment testing adjusted to 9.5% (2018: 11.6%) for Continental Europe to reflect the
differing risk profile of that segment. The post-tax discount rate has been applied to the post-tax cash flows, the equivalent pre-tax discount
rates for the UK and Continental Europe are 10.5% (2018:13.0%) and11.5% (2018:14.0%).
The CGUs in the UK, excluding Domus 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. Domus has different characteristics to the rest of the CGUs in
the UK and therefore a post-tax discount rate of 9.4% has been deemed more appropriate, the equivalent pre-tax rate being 11.4%.
Sensitivity analysis
The Group has applied sensitivities to assess whether any reasonable possible changes in these key assumptions could cause an impairment
that would be material to these Consolidated Financial Statements. With the exception of the goodwill attributed to the Domus Group of
Companies Limited CGU which was impaired by £2,100,000 during the year, sensitivity analysis has been carried out and did not identify any risk
of material impairment.
Domus
The Directors performed sensitivity analysis on the estimated recoverable amounts and found that the excess of the recoverable amount over
the revised carrying amount of the Domus goodwill would be reduced to nil as a result of a reasonably possible change in the key
assumptions of:
i)
ii)
sales growth in the cash flow forecasts and
the post tax discount rate used to convert the cash flow forecasts to present values.
The Directors do not consider that changes in these assumptions will have a material effect on other key assumptions made. The values
assigned to the sales growth assumptions in 2021 through to 2024 are 9%, 8%, 7% and 5% respectively. If the sales growth were to be reduced
by 1% across each of the forecasting periods, the value in use would be reduced by £4,000,000. The value assigned to the discount rate is 9.4%.
If the discount rate were to be increased by 1%, the value in use would be reduced by £4,000,000.
13 Investments in subsidiaries
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2018
Share options granted to employees of subsidiary undertakings
Acquisitions (note 25)
Balance at 31 December 2018
Balance at 1 January 2019
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2019
Carrying value
At 1 January 2018
At 31 December 2018
At 31 December 2019
£000
120,640
740
–
121,380
121,380
644
122,024
120,640
121,380
122,024
A full list of the Group’s subsidiaries are listed on page 160. There were no impairments recognised on the Company’s investments in
subsidiaries in the year ended 31 December 2019.
Headlam Group plc Annual Report and Accounts 2019
137
GovernanceFinancial StatementsStrategic ReportOverview 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:
Assets
Liabilities
2019
£000
–
–
1,340
290
–
1,630
(938)
692
2018
£000
–
–
1,315
–
–
1,315
(799)
516
1 January
2019
£000
(6,146)
(2,399)
1,315
–
(317)
(7,547)
2019
£000
(5,988)
(2,341)
–
–
(217)
(8,546)
938
(7,608)
Opening
reserves
IFRS 16
£000
–
–
–
–
23
23
2018
£000
(6,146)
(2,399)
–
–
(317)
(8,862)
799
(8,063)
Net
2019
£000
(5,988)
(2,341)
1,340
290
(217)
(6,916)
–
(6,916)
2018
£000
(6,146)
(2,399)
1,315
–
(317)
(7,547)
–
(7,547)
Brought in on
acquisition
£000
Recognised
in income
£000
Recognised
in equity
£000
31 December
2019
£000
–
(145)
–
–
–
(145)
158
203
(52)
290
68
667
–
–
77
–
9
86
(5,988)
(2,341)
1,340
290
(217)
(6,916)
1 January
2018
£000
Brought in on
acquisition
£000
Recognised in
income
£000
Recognised
in equity
£000
31 December
2018
£000
(7,552)
(2,097)
2,892
558
(6,199)
–
(614)
–
87
(527)
1,406
315
220
(919)
1,022
–
(3)
(1,797)
(43)
(1,843)
(6,146)
(2,399)
1,315
(317)
(7,547)
Assets
Liabilities
2019
£000
–
821
9
830
(830)
–
2018
£000
–
647
38
685
(685)
–
2019
£000
(6,046)
–
–
(6,046)
830
(5,216)
2018
£000
(6,172)
–
–
(6,172)
685
(5,487)
Net
2019
£000
(6,046)
821
9
(5,216)
–
(5,216)
2018
£000
(6,172)
647
38
(5,487)
–
(5,487)
Property, plant and equipment
Intangible assets
Employee benefits
Tax losses
Other items
Tax (liabilities)/assets
Set-off of tax
Movement in deferred tax during the year
Property, plant and equipment
Intangible assets
Employee benefits
Tax losses
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Intangible assets
Employee benefits
Other items
Company
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Employee benefits
Other items
Tax (liabilities)/assets
Set-off of tax
138
Movement in deferred tax during the year
Property, plant and equipment
Employee benefits
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
Other items
1 January
2019
£000
Recognised
in income
£000
Recognised
in equity
£000
31 December
2019
£000
(6,172)
647
38
(5,487)
1 January
2018
£000
(6,287)
1,795
54
(4,438)
126
22
(29)
119
–
152
–
152
(6,046)
821
9
(5,216)
Recognised
in income
£000
Recognised
in equity
£000
31 December
2018
£000
115
299
(16)
398
–
(1,447)
–
(1,447)
(6,172)
647
38
(5,487)
Unrecognised deferred tax assets and liabilities – Group and Company
At 31 December 2019, the Group and Company has unused capital losses of £11,197,000 (2018: £11,197,000) available for offset against future
chargeable gains. In addition the Group has an unrecognised deferred tax asset in respect of tax losses in France of £1,187,000 (2018
£1,376,000). The Directors have considered the probability that the deferred tax asset will be recoverable within the foreseeable future and
concluded that no deferred tax asset should be recognised at this time.
15 Inventories
Goods for resale
Balance as at 31 December
Cost of sales consists of the following:
Material cost
Processing cost
Group
2019
£000
2018
£000
132,474
132,704
Group
2019
£000
2018
£000
486,159
3,666
475,701
3,648
489,825
479,349
Company
2019
£000
–
Company
2019
£000
–
–
–
2018
£000
–
2018
£000
–
–
–
The cost of inventories within cost of sales stated above includes movements in the provision for obsolete inventory of £132,000 release
(2018: £211,000 release).
Headlam Group plc Annual Report and Accounts 2019
139
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
16 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
Group
Company
2019
£000
91,788
5,839
26,078
–
2018
£000
89,100
4,924
24,983
–
123,705
119,007
2019
£000
–
334
246
20,736
21,316
2018
£000
–
274
213
23,004
23,491
Other receivables include balances totaling £145,000 that fall due after more than 1 year (2018: £145,000).
Amounts due from subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
£1,469,000 (2018: £1,281,000) 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
Further details on the impaiment of trade receivables is provided in note 24.
17 Cash and cash equivalents
Cash
Bank overdrafts
Cash and cash equivalents per Statement of Financial Position
2019
£000
1,099
370
1,469
2018
£000
1,009
272
1,281
Group
2019
£000
2018
£000
33,385
(10)
44,005
(221)
33,375
43,784
Company
2019
£000
17,548
–
17,548
2018
£000
12,573
–
12,573
18 Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s and Company’s interest-bearing loans and borrowings.
On 5 August 2019, the Group completed a refinancing of its existing banking facilities to extend their term from 14 December 2021 to 30 April 2023.
The Group has maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc, but decreased the level of Sterling committed
facilities from £72.5 million to £68.5 million and increased its euro committed facilities from €8.6 million to €9.6 million. The Group also has short
term uncommitted facilities which continue at £25 million, and are renewable on an annual basis. The total banking facilities available to the
Group at 31 December 2019 were £109,671,000 (2018: £112,779,000).
For more information about the Group’s and Company’s exposure to interest rate and foreign currency risk, see note 24.
Current liabilities
Bank overdraft
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
Group
Company
2019
£000
10
222
232
2018
£000
221
236
457
6,201
6,201
6,805
6,805
2019
£000
2018
£000
–
–
–
–
–
–
–
–
–
–
The interest-bearing loans relate to the euro committed facilities that have been drawn by the Group’s European subsidiaries. LMS SA has
drawn £4.2 million and Headlam Holdings BV has drawn £2.2 million, £0.2 million of this is shown within current liabilities as it makes repayments
each year.
140
The Group has undrawn borrowing facilities at 31 December 2019, which amounted to £103,238,000 (2018: £105,518,000). The facility
conditions for drawdown had been met during the period. The facility is unsecured and there is a cross guarantee in place between the
Company and its UK, French and Dutch subsidiaries. There is a downstream guarantee from the Company in relation to its borrowing facility in
the Netherlands and France. Covenant calculations have been prepared for the year ending 31 December 2019 and there were no breaches.
The undrawn borrowing facilities are as follows:
UK
Netherlands
France
Switzerland
Interest
rate
%
1.80
1.93
1.30
1.50
2019
£000
93,500
2,452
3,389
3,897
103,238
Interest
rate
%
1.80
1.98
1.30
1.50
2018
£000
97,500
1,563
2,472
3,983
105,518
All the borrowing facilities above bear interest at floating rates. The Swiss facility may be drawn as an overdraft or fixed rate loan with different
rates depending on the term and amount.
Changes in net funds
Cash at bank and in hand
Bank overdraft
Debt due within one year
Debt due after one year
19 Trade and other payables
Current
Trade payables
Taxation and social security
Non-trade payables and accrued expenses
Amounts due to subsidiary undertakings
Derivative liabilities used for economic hedging:
Other derivatives at fair value
At
1 January 2019
£000
44,005
(221)
43,784
(236)
(6,805)
36,743
Cash flows
£000
Reclassification
£000
(10,403)
205
(10,198)
229
–
(9,969)
–
–
–
(228)
228
–
Foreign
exchange
movements
£000
At
31 December
2019
£000
(217)
6
(211)
13
376
178
33,385
(10)
33,375
(222)
(6,201)
26,952
Group
2019
£000
140,869
15,045
25,583
–
2018
£000
142,382
17,069
21,826
–
Company
2019
£000
3,840
628
5,458
30,307
2018
£000
788
2,114
4,424
26,900
348
23
54
–
181,845
181,300
40,287
34,226
Amounts due to subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.
Non-current
Non-trade payables and accrued expenses
Group
Company
2019
£000
–
–
2018
£000
2,592
2,592
2019
£000
–
–
2018
£000
2,007
2,007
There are no non-current non-trade payables and accrued expenses as at the year ending 31 December 2019. Non-current non-trade
payables and accrued expenses for the Group in 2018 relate to discounted deferred consideration for Domus Group of Companies Limited and
Betu Holdings Limited, the holding company of CECO (Flooring) Limited, see note 25. A discounted amount of deferred consideration in
respect of Domus Group of Companies Ltd is due for payment in 2020 of £1,654,000 and this is disclosed within current non-trade payables
and accrued expenses.
Headlam Group plc Annual Report and Accounts 2019
141
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
20 Provisions
Balance at 1 January
Acquired on acquisition
(Credited)/charged to the income statement:
Additional provisions
Utilisation of provisions
Balance at 31 December
The property provisions relate to property dilapidations.
Property
2019
£000
2,249
–
50
–
2,299
2018
£000
2,048
224
–
(23)
2,249
21 Employee benefits
During the year, the Group operated UK and Swiss defined benefit plans 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. 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.
There have been no amendments, curtailments or settlements made to the plan during 2019.
The plan holds a number of annuity policies which match a portion of the pensions in payment.
The plan 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 2017 and revealed a funding deficit of £2,388,000.
The main annual rate assumptions at 31 March 2017 used by the actuary for the 2017 valuation were: increase in salaries 4.69%; increase of
pensions in payment 3.19%; discount rate before retirement 3.66%; discount rate after retirement 1.91%; and inflation 3.19%. Assets were
taken at their market value at the valuation date.
Under the schedule of contributions dated 10 May 2018, Company contributions were fixed at 51.6% of pensionable salaries each month. The
Company expected to pay contributions of £258,000 over the next accounting period for the accrual of benefits on the basis that accrual in the
plan ceases with effect from 31 March 2020.
In accordance with the recovery plan dated 26 March 2015, payments were made to the plan during 2018 of £747,000 towards the deficit. There
were no payments made to the plan during 2019 towards the deficit under this recovery plan.
Under the recovery plan dated 10 May 2018, the Company is not expected to pay any additional contributions over the next year.
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 19 years.
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 5.2% for the part beyond the mandatory part. The minimum interest rate on old age savings has legally been fixed.
142
The Company is affiliated to the Collective Foundation Sammelstiftung berufliche Vorsorge Swiss Life, Sammelstiftung mit Anlagerisiko. The
pension plans remained unchanged. 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 Swiss Life. Its members include employer and employee representatives from a wide range of occupations and companies of different sizes.
The collective foundation is reinsured for risk benefits with Swiss Life insurance company.
There have been no amendments, curtailments or settlements made to the plan during 2019.
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 scheme funding valuation of the plan was as at 31 December 2018 and revealed that the plan was overfunded. This overfunding is
appropriate to Swiss legislation and cannot be considered in the context of IAS 19R. According to Swiss rules there is no need to evaluate the
scheme using assumptions for future changes of salary increase, benefit increase or inflation.
As at 1 January 2020, the plans have been amended. The old age credits will increase and the coordination amount will be disestablished. The
plan amendment leads to a past service credit of £841,000 to be recognised in the income statement for 2019.
The last IAS 19 valuation at year-end 2019 revealed a funding deficit of £1,744,000 (2018: £2,964,000). The Group is expected to pay £501,000
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 19.45 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.
Group
2019
£000
2018
£000
Company
2019
£000
Present value of funded defined benefit obligations
Fair value of plan assets
Net obligations
Other long-term employee benefits
Total employee benefits
Analysed as:
Current liabilities
Non-current liabilities
Total employee benefits
Movements in present value of defined benefit obligation
At 1 January
Current service cost
Past service costs
Interest cost
Net remeasurement losses/(gains) – financial
Net remeasurement (gains)/losses – demographic
Net remeasurement (gains)/losses – experience
Benefits paid
Contributions by members
Effect of movements in foreign exchange
At 31 December
(129,481)
125,563
(125,101)
119,576
(3,918)
(345)
(4,263)
–
(4,263)
(4,263)
Group
2019
£000
125,101
1,617
(841)
3,086
10,867
(5,761)
(307)
(4,399)
400
(282)
129,481
(5,525)
(363)
(5,888)
–
(5,888)
(5,888)
2018
£000
139,048
2,254
1,214
3,063
(14,874)
(1,005)
281
(5,914)
370
664
125,101
2018
£000
(111,592)
109,031
(2,561)
–
(116,654)
114,480
(2,174)
–
(2,174)
(2,561)
–
(2,174)
(2,174)
–
(2,561)
(2,561)
Company
2019
£000
111,592
975
–
2,969
10,110
(5,761)
47
(3,398)
120
–
116,654
2018
£000
126,308
1,462
1,214
2,966
(14,464)
(1,006)
553
(5,577)
136
–
111,592
Headlam Group plc Annual Report and Accounts 2019
143
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
21 Employee benefits continued
Movements in fair value of plan assets
At 1 January
Interest income on plan assets
Return on assets, excluding interest income
Contributions by employer:
Past service deficit contributions
Contributions by members
Benefits paid
Effect of movements in foreign exchange
At 31 December
The fair value of the plan assets were as follows:
Equities
Government debt
Corporate bonds
Annuities
Hedge funds
Other
Group
2019
£000
119,576
3,006
5,716
1,487
–
400
(4,399)
(223)
125,563
2018
£000
126,709
2,831
(7,036)
1,351
747
370
(5,914)
518
119,576
Company
2019
£000
109,031
2,914
4,765
1,048
–
120
(3,398)
–
114,480
Group
Company
2019
£000
50,078
27,180
25,012
1,387
3,910
17,996
2018
£000
36,557
18,244
19,209
4,870
22
40,674
2019
£000
47,157
27,180
20,566
1,387
3,910
14,280
2018
£000
116,560
2,753
(6,619)
1,031
747
136
(5,577)
–
109,031
2018
£000
33,577
18,244
14,829
4,870
22
37,489
125,563
119,576
114,480
109,031
Expense recognised in the income statement relating to defined benefit obligation
Service cost
Net interest on the net defined benefit liability (note 6)
Total
Group
2019
£000
776
80
856
2018
£000
3,468
232
3,700
Service costs, including past service costs and net interest are charged to Administration expenses and Net finance costs respectively.
Included within the service cost for 2018 was an amount of £1,214,000 for guaranteed minimum pensions (‘GMP') equalisation, this was
included within non-underlying costs. GMPs must be equalised across males and females, and as a result of clarity in legislation the Company
added 1.1% to the liabilities as at 31 December 2018. No adjustment was required for the year ended 31 December 2019.
Remeasurement of the net defined benefit liability in the Statement of Comprehensive Income:
Group
2019
£000
(5,716)
10,867
(5,761)
(307)
(917)
2018
£000
7,036
(14,874)
(1,005)
281
(8,562)
Return on assets, excluding interest income
Net remeasurement – financial
Net remeasurement – demographic
Net remeasurement – experience
144
Swiss
2019
%
0.3
2.0
–
2.0
–
2018
%
0.8
2.0
–
2.0
–
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
2019
%
2.0
3.1
3.1
3.1
2018
%
2.7
3.4
3.4
3.4
AC00 (Ultimate)
table
AC00 (Ultimate)
table
96%(M)/98%(F) of the S2PA tables
with future improvements from
2007 in-line with the CMI _2018
projections model with the initial
addition to mortality improvements
parameter of 0.2% and a long-term
rate of improvement of 1.5%
per annum.
96%(M)/98%(F) of the S2PA tables
with future improvements from
2007 in-line with the CMI _2018
projections model with the initial
addition to mortality improvements
parameter of 0.2% and a long-term
rate of improvement of 1.5%
per annum.
96%(M)/98%(F) of the S2PA tables with
future improvements from 2007 in-line
with the CMI mortality projections
model CMI_2017 with the default
smoothing parameter and a long-term
rate of improvement of 1.5% per
annum.
96%(M)/98%(F) of the S2PA tables with
future improvements from 2007 in-line
with the CMI mortality projections
model CMI_2017 with the default
smoothing parameter and a long-term
rate of improvement of 1.5% per
annum.
Swiss scheme
–
–
BVG 2015
BVG 2015
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
2019
£000
24.2
22.5
26.1
24.2
2018
£000
24.1
22.4
26.0
24.2
2019
£000
24.2
22.5
26.1
24.2
2018
£000
24.1
22.4
26.0
24.2
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.
UK defined benefit plan
Effect in £millions
Discount rate
Rate of inflation (RPI)*
Salary increases
Assumed life expectancy
Change in assumption
Increase
Decrease
Increase
Decrease
Impact on scheme liabilities 2019
Impact on scheme liabilities 2018
0.25% movement
0.25% movement
0.25% movement
one year movement
(5.3)
4.8
1.1
5.5
5.7
(4.7)
(1.1)
(5.5)
(5.3)
4.8
1.1
5.3
5.6
(4.5)
(1.1)
(5.3)
* With corresponding changes to the salary and pension increase assumptions.
The figures in the table as at 31 December 2019 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 2018 have been calculated by applying the same
percentage increase or decrease as at 31 December 2019.
Extrapolation of the sensitivity analysis beyond the ranges shown may not be appropriate.
Headlam Group plc Annual Report and Accounts 2019
145
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
21 Employee benefits continued
Swiss defined benefit plan
Effect in £millions
Discount rate
Rate of inflation (RPI)*
Salary increases
Assumed life expectancy
Change in assumption
Increase
Decrease
Increase
Decrease
Impact on scheme liabilities 2019
Impact on scheme liabilities 2018
0.25% movement
0.25% movement
0.25% movement
one year movement
(0.6)
0.5
0.1
0.2
0.7
–
(0.1)
(0.1)
(0.6)
0.5
0.1
0.1
0.7
–
(0.1)
(0.1)
* With corresponding changes to the salary and pension increase assumptions.
The figures in the table as at 31 December 2019 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 2018 have been calculated by applying the same
percentage increase or decrease as at 31 December 2019.
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
2019
£000
(129,481)
125,563
(3,918)
2019
£000
(116,654)
114,480
(2,174)
2018
£000
(125,101)
119,576
(5,525)
2018
£000
(111,592)
109,031
(2,561)
2017
£000
(139,048)
126,709
(12,339)
2017
£000
(126,308)
116,560
(9,748)
2016
£000
(141,947)
119,339
(22,608)
2016
£000
(128,002)
109,719
(18,283)
2015
£000
(115,849)
97,167
(18,682)
2015
£000
(102,766)
86,601
(16,165)
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 2019 is
£345,000 (2018: £363,000). This is reported as other long-term employee benefits within the employee benefits disclosure.
Total Group pension costs
Included within the total staff costs as disclosed in note 4 are costs relating to the Group’s defined contribution plans. The pension cost for the
year represents contributions payable by the Group to the plans and amounted to £3,572,000 (2018: £3,371,000). Contributions amounting to
£188,000 (2018: £175,000) in respect of the December 2019 payroll were paid in January 2020.
The total Group cost of operating the plans during the year was £4,348,000 (2018: £6,839,000) and, at 31 December 2019, there was an
amount of £352,000 (2018: £346,000) owed to the plans, being employer and employee contributions due for December 2019, which was paid
in January 2020.
22 Share-based payments
Group and Company
Executive Directors and executive management currently participate in executive share option schemes. 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.
146
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 3 May 2019 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 76
to 97.
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares:
Grant date/employees entitled
Five-year Sharesave scheme granted to other
employees 8 May 2014
Three-year Sharesave scheme granted to
other employees 5 May 2015
Five-year Sharesave scheme granted to other
employees 5 May 2015
Number of instruments
2019
787
2018
52,347
Vesting conditions
Contractual life
of options
Continuous service
01/07/19 – 01/01/20
–
6,404
Continuous service
01/07/18 – 01/01/19
135,157
166,036
Continuous service
01/07/20 – 01/01/21
Headlam Group Co-Investment Plan 2008
granted to key management 6 May 2016*
21,860
162,647 If the real earnings per share growth
is over 3% p.a. – 50% vesting, over
6% – 100% vesting.TSR – if
Company is ranked at median or
above – 50%, upper quartile –
100%
07/05/19 – 07/05/26
Three-year Sharesave scheme granted to
other employees 4 May 2016
Five-year Sharesave scheme granted to other
employees 4 May 2016
Headlam Group Performance Share Plan 2008
granted to key management 5 July 2017*
Three-year Sharesave scheme granted to
other employees 3 May 2017
Five-year Sharesave scheme granted to other
employees 3 May 2017
Headlam Group Performance Share Plan 2008
granted to key management 9 April 2018*
Three-year Sharesave scheme granted to
other employees 1 May 2018
Five-year Sharesave scheme granted to other
employees 1 May 2018
6,290
176,048
Continuous service
01/07/19 – 01/01/20
29,658
36,701
Continuous service
01/07/21 – 01/01/22
239,045
239,045
Awards will vest between 25% and
100% for performance between
‘threshold’ performance and
‘maximum’ performance
06/07/20 – 06/07/27
75,913
104,064
Continuous service
01/07/20 – 01/01/21
15,612
19,157
Continuous service
01/07/22 – 01/01/23
328,596
328,596
Awards will vest between 25% and
100% for performance between
‘threshold’ performance and
‘maximum’ performance
10/04/21 – 08/04/24
375,708
504,141
Continuous service
01/07/21 – 01/01/22
59,706
75,549
Continuous service
01/07/23 – 01/01/24
Headlam Group Performance Share Plan 2008
granted to key management 10 April 2019*
304,260
Three-year Sharesave scheme granted to
other employees 3 May 2019
415,721
–
–
Awards will vest between 25% and
100% for performance between
‘threshold’ performance and
‘maximum’ performance
11/04/22 – 09/04/25
Continuous service
01/07/22 – 01/01/23
Total share options
2,008,313
1,870,735
*
Further details are provided on pages 76 to 97 of the Remuneration Report.
Headlam Group plc Annual Report and Accounts 2019
147
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
22 Share-based payments continued
Group and Company continued
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted
average
exercise
price (pence)
2019
230.1
377.2
266.6
294.4
221.4
398.0
Number
of options
2019
1,870,735
(262,974)
764,273
(363,721)
2,008,313
28,937
Weighted
average
exercise
price (pence)
2018
249.3
203.2
238.6
391.1
230.1
340.0
Number
of options
2018
1,736,812
(525,905)
1,007,865
(348,037)
1,870,735
6,404
The weighted average share price for options exercised during the year was 474.3p (2018: 455.4p).
The options outstanding at the year-end have an exercise price in the range of 0.0p to 499.0p and a weighted average contractual life of
1.65 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 2019 are shown below:
2019
Number of options granted
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
Details of share options granted during 2018 are shown below:
2018
Number of options granted
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
148
EPS 80% & TSR 20%
Three-year
Performance
Share Plan
2008
304,260
Three-year
Sharesave
scheme
460,013
–
383.8p
535.0p
–
58.0%
three years
5.2% p.a.
0.7% p.a.
156.9p
–
535.0p
359.0p
58.0%
three years
5.2% p.a.
0.8% p.a.
EPS 80% & TSR 20%
Three-year
Performance
Share Plan
2008
328,596
–
374.9p
410.0p
–
66.1%
three years
5.4% p.a.
0.9% p.a.
Three-year
Sharesave
scheme
582,621
167.9p
–
410.0p
354.0p
66.1%
three years
5.4% p.a.
0.8% p.a.
Five-year
Sharesave
scheme
96,648
156.2p
–
410.0p
354.0p
56.9%
five years
5.4% p.a.
1.1% p.a.
The total expenses recognised for the year arising from share-based payments are as follows:
Total expense recognised
23 Capital and reserves
Share capital
Number of shares
Authorised
In issue at 1 January and 31 December
Fully paid
In issue at 1 January
Issued during the year
In issue at 31 December
Allotted, called up and fully paid
Ordinary shares of 5p each
Shares classified in Shareholders’ funds
Group
Company
Subsidiaries
2019
£000
807
2018
£000
1,478
2019
£000
163
2018
£000
739
2019
£000
644
2018
£000
739
Ordinary shares
2019
2018
107,840,000 107,840,000
85,363,743
88,350
85,363,743
–
85,452,093
85,363,743
2019
£000
4,273
4,273
4,273
4,273
2018
£000
4,268
4,268
4,268
4,268
At 31 December 2019, the Company held 1,260,396 shares (2018: 1,523,370) in relation to treasury stock and shares held in trust for satisfying
options and awards under employee share schemes. These shares 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 and trust represented 1.5% (2018:
1.8%) of the issued share capital as at 31 December 2019 with a nominal value of £63,020 (2018: £76,169).
In the period from 1 January 2020 to 5 March 2020 no shares were 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 2018 of 7.55p paid 2 January 2019
Final dividend for 2018 of 17.45p paid 1 July 2019
Interim dividend for 2017 of 7.55p paid 2 January 2018
Final dividend for 2017 of 17.25p paid 6 July 2018
2019
£000
6,322
14,619
–
–
20,941
2018
£000
–
–
6,372
14,597
20,969
Interim dividends for 2019 of 7.55p per share (2018: 7.55p per share) are not provided for at 31 December 2019, but are recognised in the
financial statements when the dividend is paid. The dividend was paid on 2 January 2020 and totalled £6,331,000.
The final proposed dividend of 17.45p per share (2018: 17.45p per share) will not be provided for until authorised by shareholders at the
forthcoming AGM. There are no income tax consequences. The cost of the final proposed dividend will be £14,633,000.
The total value of dividends proposed but not recognised at 31 December 2019 is £20,964,000 (2018: £20,941,000).
Headlam Group plc Annual Report and Accounts 2019
149
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
23 Capital and reserves continued
Reserves
Other reserves
Other reserves as disclosed on the Statement of Financial Position comprise the capital redemption reserve, translation reserve, cash flow
hedging reserve, treasury reserve and special reserve.
Capital redemption reserve
The capital redemption reserve represents the nominal value of shares repurchased and cancelled during 2007.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of
foreign subsidiaries.
Treasury reserve
The treasury reserve comprises the cost of the Company’s shares held by the Group.
Special reserve
The special reserve (merger reserve) arose on the issuance of shares in connection with acquisitions made by the Company, During 2019,
shares were issued as part of the deferred consideration of the acquisition of Domus Group of Companies Limited and £469,000 was
transferred to this reserve.
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 arises from cash and cash equivalents, contractual cash flows of debt investments carried at amortised cost, at fair value through
other comprehensive income (FVOCI) and at fair value through profit or loss (FVPL), favourable derivative financial instruments and deposits
with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables.
For Headlam Group plc 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.
150
Impairment of financial assets
The Group has trade receivables for sales of inventory as financial assets that are subject to the expected credit loss model. While cash and
cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
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
2019
£000
117,866
33,385
151,251
2018
£000
114,083
44,005
158,088
Company
2019
£000
20,982
17,548
38,530
2018
£000
23,217
12,573
35,790
The fair values of the above financial assets at both 31 December 2019 and 2018, are deemed to approximate to carrying value due to the
short-term maturity of the instruments.
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
2019
2018
Gross
£000
90,291
1,916
2,238
94,445
Impairment
£000
(306)
(408)
(1,943)
(2,657)
Gross
£000
85,822
2,851
3,417
92,090
Impairment
£000
(154)
(242)
(2,594)
(2,990)
All other receivables and derivative financial assets are not past due (2018: not past due).
The Company had trade receivables of £nil (2018 £nil).
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all
trade receivables.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2019 or 1 January 2019
respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.
The loss allowance provision as at 31 December 2019 is determined as follows;
31 December 2019
Expected loss rate
Gross carrying amount – trade receivables
Loss allowance
31 December 2018
Expected loss rate
Gross carrying amount – trade receivables
Loss allowance
Not past
due
Past due
0-30 days
Past due
31-120 days
Total
0.3%
90,291
306
Not past
due
0.2%
85,822
154
21.3%
1,916
408
Past due
0-30 days
8.5%
2,851
242
86.7%
2,238
1,943
Past due
31-120 days
75.9%
3,417
2,594
94,445
2,657
Total
92,090
2,990
Headlam Group plc Annual Report and Accounts 2019
151
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
24 Financial instruments continued
Impairment of financial assets 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
Company
2019
£000
80,171
11,617
91,788
2018
£000
76,640
12,460
89,100
2019
£000
–
–
–
2018
£000
–
–
–
During the year the Group’s impairment loss as a percentage of revenue amounted to 0.20% (2018: 0.19%).
The loss allowances for trade receivables as at 31 December reconcile to the opening loss allowances as follows:
Opening loss allowance at 1 January
Increase in loan loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectible
Acquired loss allowance
Effect of movement in foreign exchange
Closing loss allowance at 31 December
Group
Trade receivables
2019
£000
2,990
1,469
(1,796)
–
(6)
2,657
2018
£000
2,683
1,281
(1,089)
92
23
2,990
Company
Trade receivables
2019
£000
2018
£000
–
–
–
–
–
–
–
–
–
–
–
–
Trade receivables are written off where there is no reasonable expectation of recovery. It is the group’s policy wherever possible to engage the
debtor in a repayment plan to reduce the exposure to credit losses.
Impairment losses on trade receivables are presented as net impairment losses within operating profit. Subsequent recoveries of amounts
previously written off are credited against the same line item.
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 2019, cash and cash equivalents covered the amounts of borrowings maturing in the next
12 months with a net positive liquidity of £33,153,000 (2018: £43,548,000). Details of the total facilities that the Group has access to are given in
note 18.
152
The following are the contractual maturities of financial liabilities:
31 December 2019
Group
Non-derivative financial liabilities
Bank overdraft
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Other derivatives
31 December 2018
Group
Non-derivative financial liabilities
Bank overdraft
Unsecured bank loans
Trade and other payables
Derivative financial liabilities
Other derivatives
31 December 2019
Company
Non-derivative financial liabilities
Trade and other payables
Derivative financial liabilities
Other derivatives
31 December 2018
Company
Non-derivative financial liabilities
Trade and other payables
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1–2 years
£000
2–5 years
£000
10
6,423
166,452
(10)
(6,712)
(166,452)
(10)
(293)
(166,452)
348
(348)
(348)
173,233
(173,522)
(167,103)
–
(291)
–
–
(291)
–
(6,128)
–
–
(6,128)
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1–2 years
£000
2–5 years
£000
221
7,041
164,508
(221)
(7,335)
(164,508)
(221)
(313)
(164,508)
23
(23)
(23)
171,793
(172,087)
(165,065)
Carrying
amount
£000
Contractual
cash flows
£000
–
(310)
–
–
(310)
1 year
or less
£000
39,605
(39,605)
(39,605)
54
(54)
(54)
39,659
(39,659)
(39,659)
–
(6,712)
–
–
(6,712)
1–2 years
£000
–
–
–
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1–2 years
£000
32,112
(32,112)
(32,112)
–
The value of the Group’s and Company’s financial liabilities as detailed above at 31 December 2019 and 2018 were not materially different to the
carrying value. Fair values were calculated using market rates, where available. Where market values are not available, fair values have been
estimated by discounting expected future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are
valued at the exchange rate prevailing at the Statement of Financial Position date.
Headlam Group plc Annual Report and Accounts 2019
153
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
24 Financial instruments continued
Liquidity risk continued
The table below sets out the Group’s accounting classification of each class of financial assets and liabilities at 31 December 2019 and 2018.
31 December 2019
Cash and cash equivalents
Bank overdraft
Borrowings due within one year
Borrowings due after one year
Trade payables
Non-trade payables
Leasing liability
Trade receivables
Other receivables
Provisions
Derivative liability
31 December 2018
Cash and cash equivalents
Bank overdraft
Borrowings due within one year
Borrowings due after one year
Trade payables
Non-trade payables
Trade receivables
Other receivables
Provisions
Derivative liability
Fair value
through profit
or loss (FVPL)
£000
–
–
–
–
–
–
–
–
–
–
(348)
(348)
Fair value
through profit
or loss (FVPL)
£000
–
–
–
–
–
(416)
–
–
–
(23)
(439)
Amortised
cost
£000
33,385
(10)
(222)
(6,201)
(140,869)
(25,583)
(44,655)
91,788
26,078
(2,299)
–
Total
Carrying
Value
£000
33,385
(10)
(222)
(6,201)
(140,869)
(25,583)
(44,655)
91,788
26,078
(2,299)
(348)
(68,588)
(68,936)
Amortised
cost
£000
44,005
(221)
(236)
(6,805)
(142,382)
(24,002)
89,100
24,983
(2,249)
–
(17,807)
Total
Carrying
Value
£000
44,005
(221)
(236)
(6,805)
(142,382)
(24,418)
89,100
24,983
(2,249)
(23)
(18,246)
All derivative financial instruments not in a hedge relationship are measured at fair value through the profit or loss. 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.
154
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
2019
£000
2018
£000
2019
£000
2018
£000
33,385
(6,433)
44,005
(7,262)
26,952
36,743
17,548
–
17,548
12,573
–
12,573
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 2018.
31 December 2019
Variable rate instruments
31 December 2018
Variable rate instruments
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
270
367
(270)
(367)
–
–
–
–
175
126
(175)
(126)
–
–
–
–
Commodity risk
The Company and Group are exposed to the commodity risk of rising fuel prices. On 1 July 2019, in order to manage this risk, the Group entered
into a 12 month fixed price agreement. Under the agreement the group agreed to purchase a notional 450,000 litres per month, under which a
fixed diesel price of £0.43 pence per litre (Maximum Fixed Price Element) was paid monthly and the floating price according to BP was received.
The fair value of this diesel commodity contract is £32,000 in the Statement of Financial Position as at 31 December 2019, (2018: £nil).
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 at 31 December 2019 amounted to £316,000 (2018: liability of £23,000).
Derivatives
The group has the following derivative financial instruments in the following line items in the balance sheet:
Current liabilities
Foreign currency forwards – cash flow hedges
Commodity agreement
Total current derivative financial instrument liabilities
Derivatives are only used for economic hedging purposes and not as speculative investments.
Group
Company
2019
£000
316
32
348
2018
£000
23
–
23
2019
£000
54
–
54
2018
£000
7
–
7
Headlam Group plc Annual Report and Accounts 2019
155
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
24 Financial instruments continued
Derivatives continued
The movements in respect of derivative financial instruments were as follows:
Opening balance 1 January 2019
Less: charge to profit or loss
Closing balance 31 December 2019
Foreign currency forwards
£000
(23)
(293)
(316)
Hedge ineffectiveness
Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to
ensure that an economic relationship exists between the hedged item and hedging instrument. For hedges of foreign currency purchases, the
Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item.
The Group therefore performs a qualitative assessment of effectiveness. If changes in circumstances affect the terms of the hedged item such
that the critical terms no longer match exactly with the critical terms of the hedging instrument, the Group uses the hypothetical derivative
method to assess effectiveness. In hedges of foreign currency purchases, ineffectiveness may arise if the timing of the forecast transaction
changes from what was originally estimated, or if there are changes in the credit risk of Headlam Group plc or the derivative counterparty.
The Group now enters into forward rate agreements containing a delivery period in which the entity can drawdown the currency as they
require it, subject to a final delivery date. This has enabled the Group to match the forward rate agreements to the hedged item with accuracy.
For the 12-month period to 31 December 2019, 9.2% (2018: 1.2%) of the Group’s operating profit was derived from overseas subsidiaries and at
31 December 2019, 20.01% (2018: 17.5%) 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.
The exposure to foreign currency risk was as follows:
2019
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2018
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£000
109
1,043
(3,087)
(1,935)
Euro
amount
£000
336
2,791
(7,569)
(4,442)
Group
Other
amount
£000
31
147
(1,105)
(927)
Group
Other
amount
£000
3
38
(1,324)
(1,283)
Total
£000
140
1,190
(4,192)
(2,862)
Total
£000
339
2,829
(8,893)
(5,725)
Euro
amount
£000
–
588
–
588
Euro
amount
£000
–
244
–
244
Company
Other
amount
£000
–
–
–
–
Company
Other
amount
£000
–
–
–
–
Total
£000
–
588
–
588
Total
£000
–
244
–
244
Sensitivity analysis
A 10% weakening of sterling against the following currencies at 31 December would have (decreased)/increased 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 2018.
Euro
Other
Group
Company
2019
£000
(194)
(93)
2018
£000
(444)
(128)
2019
£000
59
–
2018
£000
24
–
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.
156
Fair values hierarchy
The financial instruments carried at fair value are categorized 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 entered into a diesel commodity contract on 1 July 2019, which was fair valued in accordance with level 2 for the year ended
31 December 2019 and forward currency contracts which were fair valued in accordance with level 2 (2018: level 2).
Fair values
The carrying amounts shown in the Statement of Financial Position for financial instruments are a reasonable approximation of 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 1.6 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.
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 5 August 2019, the Group completed a refinancing of its existing banking facilities to extend their term from 14 December 2021 to 30 April 2023.
The Group has maintained its two agreements with Barclays Bank PLC and HSBC Bank Plc, but decreased the level of Sterling committed
facilities from £72.5 million to £68.5 million and increased its euro committed facilities from €8.6 million to €9.6 million. The Group also has short
term uncommitted facilities which continue at £25 million, and are renewable on an annual basis. The total banking facilities available to the
Group at 31 December 2019 were £109,671,000 (2018: £112,779,000).
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 2019 and 31 December 2018.
Headlam Group plc Annual Report and Accounts 2019
157
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
25 Acquisitions
On 18 October 2019, a subsidiary company of Headlam Group plc completed the acquisition of all the trade and assets of Edel Telenzo Carpets
Ltd. (‘Telenzo’). Telenzo is the UK distribution company for Edel Carpets, a modern carpet producer from Genemuiden, in the Netherlands.
Telenzo is renowned for its 100% wool and wool blend tufted carpets and high quality man-made fibre carpets for residential and commercial
use, and distributes its products nationwide.
The acquired business contributed revenue of £1.7 million and an operating profit of £0.3 million to the group for the year ended 31 December
2019. If the acquisitions had occurred on 1 January 2019, pro-forma revenue and operating profit for the year ended 31 December 2019 would
have increased to £725.7 million and £39.8 million respectively.
Details of the acquisition are provisional and are shown below:
Acquiree’s provisional net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Deferred tax
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration
Satisfied by:
Cash
Analysis of cash flows:
On completion
Acquiree’s
book value
£000
Fair value
adjustments
£000
Acquisition
amounts
£000
–
11
1,400
(272)
–
1,139
856
(11)
–
–
(145)
700
856
–
1,400
(272)
(145)
1,839
258
2,097
2,097
2,097
Professional fees of £72,000 were incurred in relation to acquisition activity and have been expensed to the income statement within
non-underlying administration expenses.
The book value of receivables given in the table above represents both the gross contracted and fair value of amounts receivable. At the
acquisition date, the entire book value of receivables was expected to be collected.
Goodwill of £258,000 arose on the acquisition, there were also intangible assets on acquisition of £856,000 which were attributed to brand
names, customer relationships and supply agreements. During the year £25,000 of intangibles have been amortised to the income statement.
The residual goodwill reflects the significant benefit the acquisitions will have on the Group by bringing further geographic coverage, offering
an expanded product range, developing a more sophisticated customer route to market, providing an additional avenue for growth and a
different order profile.
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.
Prior year acquisitions
In the prior year the Group acquired Dersimo BV (‘Dersimo’), BETU Holdings Limited (a non-trading holding company) the parent company of
CECO (Flooring) Limited (‘CECO'), Ashmount Flooring Supplies Limited (‘Ashmount’), Rackhams Limited (‘Rackhams’), and the business and
certain assets of Garrod Bros Ltd (‘Garrod Bros’).
The fair values of the assets and liabilities acquired have been reconsidered as part of the hindsight period, but no adjustment was considered
necessary. In relation to CECO, the contingent consideration has been paid in full earlier than planned as a result of profitability exceeding
management expectations. This has led to a reversal of part of the discounting applied on the original acquisition.
The acquired businesses contributed revenues of £13.7 million and an operating profit of £0.6 million to the Group for the year ended
31 December 2018. If the acquisitions had occurred on 1 January 2018, pro-forma revenue and operating profit for the year ended
31 December 2018 would have increased to £717.7 million and £42.0 million respectively.
158
Deferred and contingent consideration
The acquisition of Domus Group of Companies Limited was financed by initial cash consideration of £24.2 million paid on completion and satisfied
from the Group’s existing cash and debt facilities; a deferred consideration of £3.3 million, payable in cash and Ordinary shares of 5 pence each in the
capital of the Company (‘Ordinary Shares’), of which £1.6 million was payable on 7 December 2019 and £1.7 million is payable on 7 December 2020;
and a further maximum contingent consideration of £2.7 million, payable in cash based on Domus achieving certain EBITDA targets over the
three-year period ending 31 December 2020.
The deferred and contingent consideration were discounted back and reported at present value at the date of the acquisition. Management have
written down the contingent consideration each year based on their assessment of the probability of it being paid. At 31 December 2019 the
contingent consideration amount was fully written down with no payments expected on this, however the Group has a current liability for discounted
deferred consideration of £1,654,000 which is due on 7 December 2020.
26 Capital commitments
Group
During the year ended 31 December 2019, the Group entered into commitments to purchase property, plant and equipment for £10,249,000
(2018: £743,000). These commitments are expected to be settled in the following financial year.
Company
At 31 December 2019, the Company had commitments to purchase property, plant and equipment of £4,219,000 (2018: £nil). These commitments
relate to the Company’s Ipswich building project and are expected to be settled in the following year.
27 Related parties
Group and Company
Identity of related parties
The Group has a related party relationship with its subsidiaries and with its Directors and executive officers.
Transactions with key management personnel
The Group annually re-evaluates its interpretation of key management personnel and considers that this relates to the Executive and
Non-Executive Directors of the Group as identified on pages 54 and 55.
As at 31 December 2019, Directors of the Company and their immediate relatives controlled 0.8% of the total voting rights of the Company
(2018: 0.9%).
Non-Executive Directors receive a fee for their services to the Board.
Other than as disclosed in the Remuneration Report, there were no other transactions with key management personnel in either the current or
preceding year. The cost charged to administrative expenses relating to share plans of key personnel amounted to £355,000 (2018: £638,000).
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
2019
£000
24,605
20,735
(30,308)
(30,308)
Highest
during
the year
£000
24,605
(26,900)
Balance at
31 December
2018
£000
24,605
(26,900)
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
For year
ended
31 December
2019
£000
8,897
29,681
2,932
284
For year
ended
31 December
2018
£000
7,971
32,208
3,380
379
Headlam Group plc Annual Report and Accounts 2019
159
GovernanceFinancial StatementsStrategic ReportOverview Notes to the Financial Statements continued
28 Subsequent events
Management has 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 has concluded that there are no material adjusting or non-adjusting events to be disclosed in these financial
statements, with the exception of the acquisition of Supertex Furnishing Limited. On 1 March 2020, HFD Limited, a group subsidiary company
acquired 100% of the issued share capital of Supertex Furnishing Limited, a floorcovering distribution business based in Leyland, Lancashire, for
a consideration of £1.3 million, subject to finalising the net assets position.
29 Group subsidiaries
Company
HFD Limited
MCD Group Limited
CECO (Flooring) Limited
Domus Tiles Limited
Rackhams Limited
Headlam BV
Dersimo BV
LMS SA
Belcolor AG
Headlam (European) Limited
Betu Holdings Limited
Headlam Holdings BV
Headlam SAS
Domus Group of Companies Limited
Tileco (2012) Bidco Limited
Tileco Group (2007) Limited
Tileco Group Limited
Yourfloors Plc
Crossforge Limited
Headlam Group Employee Trust Company Limited
Headlam Group Pension Trustees Limited
Mercado Group Limited
NCT (International) Limited
Mitchell Carpets Limited
Tileco Limited
Surface Tiles Limited
Ashmount Flooring Supplies Limited
Type
Place of incorporation
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Great Britain*
Great Britain*
Great Britain******
Great Britain*
Great Britain*
Netherlands**
Netherlands*****
France***
Switzerland****
Great Britain*
Great Britain******
Netherlands**
France***
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
The ordinary share capital of 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.
*
**
***
****
*****
******
Registered address for UK subsidiaries: PO Box 1, Gorsey Lane, Coleshill, Birmingham, B46 1LW, UK.
Registered address for these Dutch subsidiaries: Bettinkhorst 4, 7207 BP Zutphen, the Netherlands.
Registered address for French subsidiaries: 7/14 Rue Du Fosse Blanc, 92230, Gennevilliers, France.
Registered address for Swiss subsidiaries: Zücherstrasse 493, 9015 St. Gallen, Switzerland.
Registered address for this Dutch subsidiary: Noordzee 12, 3144 DB, Maassluis, the Netherlands.
Registered address for these UK subsidiaries: Unit 5 Carryduff Business Park, Comber Road Carryduff, Belfast, County Down, BT8 8AN.
160
Financial Record
Trading results
Revenue
Gross profit
Overheads
Underlying profit before net financing costs
Net financing costs
Underlying profit on ordinary activities before tax
Taxation
Underlying profit on ordinary activities after taxation
Profit before tax
Shareholder value
Earnings per share
Underlying earnings per share
Paid interim and final dividend per share
Paid special dividend per share
Proposed dividend per share
Net assets
Non-current assets
Property, plant and equipment
Right of use assets***
Intangible assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Bank overdraft
Other interest-bearing loans and borrowings
Lease liabilities***
Trade and other payables
Employee benefits
Income tax payable
Non-current liabilities
Other interest-bearing loans and borrowings
Lease liabilities***
Trade and other payables
Provisions
Deferred tax liabilities
Employee benefits
2019
£000
2018
£000
719,237
229,412
(187,258)
708,423
229,074
(184,801)
Restated**
2017
£000
692,540
218,104
(174,321)
43,783
(665)
43,118
(7,976)
35,142
40,719
39.1p
41.7p
22.55p
8.00p
24.8p
101,631
–
44,662
648
146,941
131,566
127,976
42,030
301,572
448,513
–
(233)
–
(190,299)
(2,235)
(6,339)
Restated*
& **
2016
£000
Restated*
& **
2015
£000
677,722
210,205
(169,133)
639,260
198,693
(161,916)
41,072
(966)
40,106
(7,601)
32,505
38,179
36.8p
38.7p
20.70p
6.00p
22.55p
102,934
–
10,388
1,138
114,460
126,037
128,934
59,343
314,314
428,774
(4)
(224)
–
(183,304)
(2,169)
(6,824)
36,777
(1,153)
35,624
(7,213)
28,411
35,624
33.8p
33.8p
17.50p
–
20.70p
104,677
–
10,388
629
115,694
118,165
120,300
63,932
302,397
418,091
–
–
–
(171,375)
(2,171)
(6,974)
44,273
(884)
43,389
(7,750)
35,639
40,447
40.0p
42.5p
24.8p
–
25.0p
102,048
–
50,924
516
153,488
132,704
119,007
44,005
295,716
449,204
(221)
(236)
–
(181,300)
–
(6,730)
(188,487)
(199,106)
(192,525)
(180,520)
(6,805)
–
(2,592)
(2,249)
(8,063)
(5,888)
(25,597)
(6,519)
–
(4,938)
(2,048)
(6,847)
(10,481)
(30,833)
(6,493)
–
–
(1,531)
(4,077)
(20,781)
(32,882)
(20,000)
–
–
(1,087)
(4,533)
(16,843)
(42,463)
42,154
(2,694)
39,460
(6,877)
32,583
35,169
34.0p
38.8p
25.0p
—
25.0p
114,573
43,865
48,514
692
207,644
132,474
123,705
33,385
289,564
497,208
(10)
(222)
(13,921)
(181,845)
—
(5,037)
(201,035)
(6,201)
(30,734)
—
(2,299)
(7,608)
(4,263)
(51,105)
Total liabilities
Net assets
(252,140)
(214,084)
(229,939)
(225,407)
(222,983)
245,068
235,120
218,574
203,367
195,108
* The balance sheet for 2015 was restated in order to: align certain accounting policies of overseas companies; better reflect
the net value of certain inventory product lines; reassess deferred tax in relation to property; and to reclassify certain
balances in order to present them in a consistent manner with subsequent years. This is fully described in the Annual Report
and Accounts for the year ended 31 December 2016.
** The Condensed Consolidated Interim Income Statement for the years ended 31 December 2017, 2016 and 2015 have been
restated to reclassify a number of items between revenue, cost of sales, and operating expenses in order to more
appropriately reflect their nature. Consequently, these adjustments mean the earlier periods are presented in a consistent
manner with the years ended 31 December 2019 and 2018.
*** IFRS 16 adopted from 1 January 2019.
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9
Headlam Group plc
PO Box 1
Gorsey Lane
Coleshill
Birmingham
B46 1LW
UK
Tel: 01675 433 000
Fax: 01675 433 030
Email: headlamgroup@headlam.com
Sat Nav: B46 1JU
www.headlam.com
Company number: 00460129