HEADLAM GROUP PLC ANNUAL REPORT AND ACCOUNTS 2021
GROWTH
from strong foundations
EUROPE’S LEADING FLOORCOVERINGS DISTRIBUTOR
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www.headlam.com
GROWTH AND
VALUE CREATION
from leading position and strong foundations
Headlam is Europe’s leading
floorcoverings distributor,
providing the channel
between suppliers and trade
customers of floorcoverings.
Go to www.headlam.com for more information
KEY READS
About Us
Strategy in Action
Transport
Integration
Network
Consolidation
Trade
Counters
– Read more on pages 4
– Read more on pages 10
Transport
Integration
Network
Consolidation
Trade
Counters
Ecommerce/
Digitalisation
Sales Force
Effectiveness
Customer
Propositions
/ Multiple
Retailers
ESG
Strategy
Overview
2
4
6
Overview
About Us
Investment Case
Strategy, and Values
Strategic Report
8
10 Strategy in Action
12 Chairman’s Statement
13 Capital Allocation
15 Chief Executive’s Review
19 Financial Review
30 Business Model
32 Key Performance Indicators
34 Risk Management, Principal Risks
and Uncertainties
39 Viability Statement
40 Stakeholder Engagement and
Section 172 Statement
43 Marketplace
44 ESG Report
51 Task Force on Climate-related
Financial Disclosures
Ecommerce/
Digitalisation
56 SECR Disclosure
57 Non-Financial Information Statement
Sales Force
Effectiveness
ESG
Strategy
Customer
Propositions
/ Multiple
Retailers
Governance
58 Board of Directors and Executive Team
62 Chairman’s Introduction to Governance
64 Corporate Governance Report
79 Nomination Committee Report
86 Audit Committee Report
96 Directors’ Remuneration Report
121 Other Statutory Disclosures
126 Statement of Directors’ Responsibilities
~
Transport
Integration
Network
Consolidation
Trade
Counters
Ecommerce/
Digitalisation
Sales Force
Effectiveness
Customer
Propositions
/ Multiple
Retailers
ESG Report
ESG
Strategy
– Read more on pages 44
Independent Auditors’ Report
Financial Statements
127
134 Consolidated Income Statement
135 Consolidated Statement of
Comprehensive Income
136 Statements of Financial Position
137 Statement of Changes in Equity – Group
138 Statement of Changes in Equity – Company
139 Cash Flow Statements
140 Notes to the Financial Statements
194 Financial Record
Additional Information
196 Advisers
Headlam Group PLC Annual Report and Accounts 2021
1
OverviewCorporate GovernanceStrategic ReportFinancial Statements 2021 OVERVIEW
2021 FINANCIAL HIGHLIGHTS
Revenue
£667.2m
+15.4%
(2020: £578.1m)
692.5
708.4
719.2
667.2
578.1
Statutory basic earnings/(loss) per share
23.5p
+213.5%
39.1
40.0
34.0
23.5
(20.7)
2017
2018
2019
2020
2021
(2020: 20.7p loss)
2017
2018
2019
2020
2021
Underlying* operating profit
Total ordinary dividend**
£37.3m
+114.4%
(2020: £17.4m)
Statutory operating profit £29.1m
(2020: £12.2m loss)
43.8
44.3
42.2
16.4p
(2020: 0.0p)
37.3
17.4
24.8
25.0
25.0
16.4
0.0
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
Underlying* profit before tax
Average net funds/(debt)***
£35.8m
+132.5%
(2020: £15.4m)
43.1
43.4
39.5
35.8
15.4
2017
2018
2019
2020
2021
£38.3m
+545.3%
(2020: £8.6m net debt)
Statutory profit/(loss) before tax
£19.9m
+214.4%
(2020: £17.4m loss)
40.7
40.4
35.2
Net funds/(debt)****
£17.7m
+113.3%
(2020: £8.3m)
19.9
(17.4)
(Net
funds)
9.2
38.3
(Net
funds)
(16.9)
(3.3)
(8.6)
2017
2018
2019
2020
2021
35.3
36.7
17.7
(Net
debt)
(17.6)
8.3
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
The financial results for 2020 and 2021 represent continuing operations only and exclude the contribution from the Swiss business, Belcolor AG,
in 2020 and 2021 following its disposal in May 2021.
*
Underlying is before non-underlying items, which includes i) amortisation of acquired
intangible assets, ii) impairment of goodwill and intangible assets, iii) impairment of
property, plant and equipment and inventory (following a fire) iv) property disposal profit,
and v) business restructuring costs.
**
Total ordinary dividend for 2021 includes the 2.0p nominal dividend announced in March 2021
*** Average net funds / (debt) is calculated by aggregating the net debt position, excluding
lease liabilities, for each business day and dividing by the total number of business days.
**** Net funds / (debt) is as at 31 December, and includes lease liabilities following adoption of
IFRS 16 on 1 January 2019.
2
Headlam Group PLC Annual Report and Accounts 2021
2021 OPERATIONAL HIGHLIGHTS
Able to largely mitigate the industry
wide issues, including supply issues, with
inventory position maintained and levels of
availability preserved. Testament to long-
established supplier relationships, and scale
(see Chief Executive’s Review on page 15)
Business change strategy focused on
substantial revenue growth opportunities
and efficiency now largely embedded, with
benefits increasingly evident. Disposal of
Swiss operations allowing greater focus
on more meaningful growth opportunities
(see Chief Executive’s Review on page 15)
Success already being demonstrated from
the active targeting of a larger share of the
overall £3 billion UK market, and improved
customer service propositions. New
customer wins in Multiple Retailer customer
segment, with substantial scope to develop
the revenue opportunity (see Strategy in
Action on page 10)
Good progress in developing the ESG
Strategy following the initial report in 2021,
including: announcement of net zero
emissions ambition; ESG Committee
being established in 2022; locally focused
community programme; and strategy
planning to enhance diversity (see ESG Report
on page 44)
Headlam Group PLC Annual Report and Accounts 2021
3
OverviewCorporate GovernanceStrategic ReportFinancial Statements Years operating
30
Businesses
66
Customer accounts
24,830
ABOUT US
UNIQUE
proposition
1 UK
2 France
3 Netherlands
Operating since 1992, Headlam works with
suppliers across the globe manufacturing
a diverse range of floorcovering products,
and provides them with a cost efficient and
effective route to market for their products into
the highly fragmented trade customer base.
To maximise customer reach, Headlam
operates 66 businesses across the UK
and Continental Europe (France and the
Netherlands). Each business operates under
its own trade brand and utilises individual sales
teams while being supported by the group’s
network, central teams and resources.
The Company’s extensive customer base
covers both the residential and commercial
sectors, with principal customer groups
being independent retailers and smaller
flooring contractors alongside other customer
segments such as larger (multiple) retailers,
housebuilders, specifiers, and larger contractors
(including local government / authorities).
2021 Revenue
Residential sector
68.5%
Commercial sector 31.5%
UK
87.8%
Continental Europe 12.2%
Supplier accounts
220
SKUs
39,000
All data as at 31 December 2021
4
Headlam Group PLC Annual Report and Accounts 2021
Headlam provides customers with a market
leading service through:
• the broadest product offering;
• unrivalled product knowledge and
tailored solutions;
• sales team and marketing support;
• ecommerce support and digital applications;
• nationwide delivery; and
• trade counter and collection service.
In 2021, the Company fulfilled nearly 5 million*
customer orders, with this capability enabled
by its extensive distribution network, material
handling and processing capabilities, customer
service and delivery expertise.
A key part of the Company’s Strategy (page 8) is
the capturing of a larger share of the £3 billion**
UK market through continuing to improve the
service propositions for all customer segments,
and the roll-out of new servicing offerings
particularly focused on customer segments
where the Company is underweight (page 10).
Transport
Integration
Network
Consolidation
Commercial fleet (HGV)
Network
Consolidation
Transport
Integration
Trade
Counters
Distribution hubs
and centres
Sales Force
Effectiveness
Ecommerce/
Digitalisation
358
21
Customer
Propositions
/ Multiple
Retailers
ESG
Strategy
Transport
Integration
Network
Consolidation
Trade
Counters
Ecommerce/
Digitalisation
Sales Force
Effectiveness
Customer
Propositions
/ Multiple
Retailers
ESG
Strategy
Trade counters (UK)
Ecommerce/
Digitalisation
Trade
Counters
* Excluding discontinued operations in the year
** Source: LEK Consulting, 2020, calculated at distributors’
selling price and inclusive of sales direct from
manufacturers
53
Sales Force
Effectiveness
Customer
Propositions
/ Multiple
Retailers
ESG
Strategy
Headlam Group PLC Annual Report and Accounts 2021
5
OverviewCorporate GovernanceStrategic ReportFinancial Statements
OVERVIEW
INVESTMENT CASE
and competitive advantage
Market Leader
Largest Scale
Growth Opportunities
Significantly larger than closest
peer, most established with
30 year track record
• Most able to support customers
(highest levels of product
knowledge, customer support,
processing expertise)
• Able to provide customers
with a full service and points
of differentiation
Multiple businesses and
nationwide operations, deliveries
and collection service
• Most comprehensive offering
for customers (both locally
and nationally)
• Multiple opportunities to capture
revenue across broadest
customer base
Significant scope to capture
larger share of marketplace
• Opportunity to outperform
the market and take share
• Growth projects already
demonstrating success
and additional revenue
6
Headlam Group PLC Annual Report and Accounts 2021
Demonstrated financial
and operating strength,
cash generative
• Security for stakeholders,
including in the fulfilling of
customer orders
• Solid foundations to pursue
growth and continue
creating value
• Able to provide increasing returns
and benefits for all stakeholders
Large inventory position
and long-established supplier
relationships
• Greatest product offering, and
availability, for customers
• Volume-related financial and
other benefits from leveraging
of group scale
Improvements and additions
made to the service propositions
for all customer segments
• More convenient ways of doing
business, with lower cost to serve
• Positive feedback from both
customers and employees
Newly launched curated
suite of digital products
and applications
• Industry-leading digitalisation (big
differentiator in the marketplace)
• Increased opportunity to
capture additional revenue
through different avenues
and customer segments
Focused on improving
operating and financial
performance
• Improvements to both operating
margin and working practices
• Significant cost savings,
higher drop-through rate
on additional revenue
High levels of corporate
governance demonstrated
over many years
• Focus on risk mitigation and
long-term sustainability
• Provides high degree of
comfort for stakeholders
• Engagement with all key
stakeholders, and consideration
of interests
Increasing Digitalisation
Change Strategy Delivering
Developing ESG Strategy
Increasing digitalisation
and modernisation across
the group
• Reduces the overall cost to serve
• Customers benefit from more
efficient and convenient ways
of doing business with Headlam
• Remaining relevant to customers’
changing needs
Increasing investment
in the network
(estate and systems)
• Improved working environment
and customer service
• Supports long-term sustainable
growth for the benefit of all
stakeholders
Comprehensive strategy,
with active focus on its
development and delivery
• Opportunities identified alongside
risk mitigation
• Provides advantage against peers
(stakeholder relationships,
recruitment, and winning new
business)
Headlam Group PLC Annual Report and Accounts 2021
7
OverviewCorporate GovernanceStrategic ReportFinancial Statements
STRATEGY
OUR PURPOSE
to provide the distribution channel between
suppliers and trade customers of floorcoverings
Our Mission
Provide our customers with a market
leading service with unparalleled
product knowledge and solutions
across the broadest range of
floorcoverings by working as a team,
and in partnership with our suppliers.
Our Vision
To build on our market leading position
by offering excellent customer service
and solutions across all areas of the
floorcoverings industry, continually.
Investing in our people, working with
suppliers to support the marketing
of innovative and sustainable
products, and provide increasing
returns to shareholders.
Our Values
Service
Teamwork
We go the extra
mile to deliver
excellent customer
service
We work together
and support
each other
ple and Culture
o
e
P
P
r
o
d
u
c
t
O
f
e
r
i
n
g
E
S
n i c R e v e n u e
G r o w t h
a
g
r
O
Modernisation an
Digitalisation
d
Increasing sustainability
for long-term benefit of
all stakeholders
C
u
s
t
o
m
e
r
S
e
r
v
i
c
e
y
c
n
e
i
c
f
g E
tin
a
er
p
O
G S
trate
gy
p lie rs a n d Buying
p
u
S
Corporate Gover n a n c e
Safety
We keep
people safe
Partnerships
Innovation
Support
We build long-term
partnerships with
our customers
and suppliers
We provide
customers with a
choice of innovative
products and
solutions
We offer
unparalleled
product knowledge
and expertise
8
Headlam Group PLC Annual Report and Accounts 2021
STRATEGIC OBJECTIVES
Organic
Revenue
Growth
• Improved service
propositions for all
customer segments
• Specific growth
projects: multiple
retailers targeting;
trade counter roll out
• Group collaborative
approach, support
from central teams
Modernisation
and
Digitalisation
• Curated suite of
digital products to
provide competitive
advantage
• Applications to
support larger and
smaller customers
• Internal digitalisation
Customer
Service
• Increased customer
engagement
• New service
offerings
and tailored
propositions
• Digital applications
• Product launches
and promotions
Operating
Efciency
• Collaboration
across the group
• Restructuring
of network
• Investment in
the network
• Development
of internal
management
performance
measures
Suppliers and
Buying
• Partnership
approach, including
increasing supply
chain efficiencies
• Improved inventory
management
• Engagement on
sustainability and
risk assessment
Corporate
Governance
• Continued focus on
risk management and
internal control
• Focus on specific
areas to advance,
including Diversity,
Equity and Inclusion
strategy
• Development of
ESG Strategy
ESG
Strategy
• Reduce internal
emissions, and
engage with
the industry on
sustainability
• Support and
invest in people
• Localised
community-based
programme
Product
Ofering
• Product
development,
innovation and
exclusivity
• Relaunches /
rebrandings
• Promotion
of sustainable
products
People and
Culture
• Engagement and
communication
• Improved safe and
inclusive working
environment
• Investment in people,
including training
and enhanced reward
/ benefits
Headlam Group PLC Annual Report and Accounts 2021
9
OverviewCorporate GovernanceStrategic ReportFinancial Statements STRATEGY IN ACTION
DRIVING GROWTH
and performance
A key part of the strategy is growth and the
capturing of a larger share of the £3 billion*
UK market.
The UK market is comprised of seven identified
trade customer segments (see below), with
each having differing interaction, ordering and
fulfilment preferences which continue to evolve.
While Headlam is a market-leader with
high penetration in certain segments, it is
underweight / very underweight in others
which it has traditionally not actively targeted.
Through improving and developing the service
propositions for all of the customer segments,
and rolling-out new servicing offerings
particularly focused on underweight segments,
the Company will capture an increased share
of the overall market.
Trade Customer Segments
Traditional
Retailers
Mix of large
and small
warehouse
style physical
stores and
traditional
carpet / flooring
shops, plus
some online
retailers with a
salesforce
Tradespeople
and fitters
who supply
Flooring fitters
or other trades
who supply and
fit on occasions,
often as part of
a larger project
(i.e. kitchen).
May be
self-employed
without a
delivery address
or premises
Progressive
Retailers
Showroom
style stores,
more interior
design and
lifestyle
focused with
less volume of
product on
display than
traditional
retailer, and
may sell other
home décor
products
Contractors
(including
government)
Large contracting
companies with
employees and
premises.
Undertake large
scale projects
which might
include
government
contracts, hotels,
office and retail
refurbishments,
care homes
Major Multiple
Retailers
Mix of flooring
specialists and
generalists
selling flooring
with multiple
premises,
typically in
several regions
or nationwide
Larger
Housebuilders
Typically
national
housebuilding
companies,
responsible
for multiple
developments
across the UK
Online
Website the
only selling
channel, with
no other means
of selling (i.e.
no physical
premises)
Good weighting
Underweight
Very underweight
Nationwide deliveries and collection service
Broadest product offering – availability, expertise, innovation, and exclusive products
Sales teams/reps, marketing and technical support
B2B websites
myheadlam app
Trade counters
Key accounts team / customer service teams
Tailored service propositions
Transport management system
Online systems integration
* Source: LEK Consulting, 2020, calculated at distributors’ selling price and inclusive of sales direct from manufacturers
10
Headlam Group PLC Annual Report and Accounts 2021
Trade counter business is heavily skewed
towards commercial, with trade counters
having particular appeal for tradespeople/
fitters and smaller flooring contractors who
don’t have a delivery address or retail premises.
The business plan is to grow the trade counter
network from the current 53 sites, to 90 new
and improved sites by 2025. The new ‘blueprint’
for the sites meets the needs of a broader
range of customers to capture greater market
share, and offers pre-ordered collections
and a greater range of stocked products. An
own-branded flooring product has also been
launched which is available exclusively to trade
counter customers. Through this improved
offer and expansion of the national footprint,
the Company is targeting revenue growth in
this area from approximately £80 million in 2021
to £200 million. The performance of the first
trade counters under the ‘blueprint’ has been
very pleasing, with an accelerating roll-out of
new and improved sites nationwide.
TRADE
COUNTERS
Accelerating roll-out of new
and improved sites nationwide
DIGITAL AND
ECOMMERCE
B2B websites relaunched and
new app launched
A curated suite of digital products and
applications were launched / relaunched in
2021 to increase revenue opportunities across
different customer segments, as well as increase
efficiency and reduce Headlam’s overall cost
to serve. Customers benefit from an improved
service offering and more convenient ways of
doing business with Headlam. Of particular note
was the launch of the brand new myheadlam app,
an industry-leading fully transactional mobile app
allowing customers to trade with all their Headlam
accounts ‘on the go’, in a quick and easy way.
Customers are able to search for products, check
real-time availability / prices, place orders, review
order history, and track live orders. The app also
features a ‘Room Visualiser’, an innovative tool to
showcase products in room settings. In the four
months following its launch, over £1.4 million of
sales had been received via the app, with 1,600
customer registrations. Further enhancements
to the app are planned for 2022.
KEY
ACCOUNTS
TEAM
Actively targeting Multiple
Retailers and other larger
customers
The Multiple Retailers opportunity is worth
approximately £1 billion (see table below), or
one-third of the UK market, with Headlam
having just approximately £60 million of
revenue in this area in 2021. Having not
traditionally targeted this area, the Company
is now actively focused on enlarging its share
and has established a dedicated centralised
team, developed tailored propositions, and
put in place digital support and enabling work.
Headlam is able to provide Multiple Retailers
with an exceptional service through: product
insight; competitive purchase rates; supply
chain management; stockholding / storage
solutions; processing expertise; and national
distribution (any number of locations /
frequency). Good progress has been made
in winning initial orders with a number of new
customers, with substantial scope to increase
the number of SKUs with each and develop the
revenue opportunity.
Multiple Retailers
c £1 billion market
Flooring
Retailers
DIY
Builders
Merchants
Homeware
Retailers
Supermarkets
Garden
Centres
Online
Retailers
Headlam Group PLC Annual Report and Accounts 2021
11
OverviewCorporate GovernanceStrategic ReportFinancial Statements CHAIRMAN’S STATEMENT
BENEFITS
flowing through
Philip Lawrence Non-Executive Chairman | 9 March 2022
12
Headlam Group PLC Annual Report and Accounts 2021
2021 was a very positive year for the Company
on a number of fronts. Financial performance
rebounded strongly from 2020, when the first
half was materially impacted by the emergence of
COVID-19; industry wide issues including supply
issues were able to be largely mitigated; and
significant progress was made in implementing
the Company’s business change strategy. It is
important to say upfront that none of these
achievements would have been possible without
the commitment and support of the Company’s
people, and the Board wishes to express its
thanks to them, as well as to all its stakeholders.
Some challenges and disruptions arose from
the implementation of certain actions under the
business change strategy described in the Chief
Executive’s Review, and the Company would
like to thank its people and customers affected.
Additionally, a fire at one of the Company’s sites
in December 2021 caused significant disruption
for the people and business based there and
its customers, albeit pleasingly order taking and
deliveries were quickly restored, and the Company
wishes to thank everyone for their support.
During the year, many of the actions under the
business change strategy were completed or
integrated, with benefits flowing through both
operationally and financially. Of particular note was
the simplification and efficiency improvements
through group restructuring, network and delivery
consolidations, and the many improvements made
to customer service propositions. This took the
form of investment in the network, digitalisation,
and creation of dedicated customer service
and sales teams. There was also an increased
collaborative approach across the group to better
leverage the group’s scale.
As a result of these actions, the Company is now
more efficient with a strong foundation to focus
on growth.
The Company’s strategy is meaningful
organic revenue growth from an efficient and
modernised operating base, and the Company
is now actively targeting a larger share of the
overall £3 billion UK market with success already
being demonstrated. New customers have
been won in the Multiple Retailer segment of
the market where the Company is underweight;
the performance of new and improved Trade
Counter sites under the roll-out programme
are exceeding initial expectations; and there
has been a pleasing customer response to the
Company’s enhanced digital offer, in particular
the recently launched industry-leading
mobile app.
Actions under the business change strategy
contributed to an improved operating
margin during the year, demonstrating good
progress towards the Company’s stated 7.5%
underlying operating margin target during
2023. As referenced in January 2022’s Pre-
Close Trading Update, the Company’s net
funds position is comfortably above current
capital requirements despite increased levels
of investment, and the Company is now
announcing a surplus capital return alongside
the proposed final ordinary dividend. Full
details of the return are given within the Chief
Executive’s Review, and in summary the
Company is taking a blended approach and
returning a total of £30 million to shareholders
via a special dividend and share buyback
programme to provide both income and value
accretion. For the time being an element of
capital is being retained on the balance sheet
to allow for further investment in the business
should the Company wish to accelerate growth
projects, to provide flexibility including on the
financing of any potential M&A, and also as a
prudent precaution against unforeseen events.
The detailed Environmental, Social and
Governance (‘ESG’) Report within the 2021
Annual Report and Accounts builds on the
Company’s initial report published in May 2021.
The ESG strategy supports the long-term
sustainability of the business with the Board
committed to progressing its development,
and will establish a new ESG Board Committee
in 2022 to support this. Addressing the
environmental challenge is much broader than
reducing carbon emissions and will require
close collaboration across the industry. The
transition to a circular economy is a longer term
challenge for the floorcoverings industry as
there are both technical and market dynamic
obstacles to overcome, with the Company
prepared to work with partners to lead change.
As a basis for its long term ambitions, the
Company now has a net zero emissions
ambition for 2035, with detailed planning to
commence and details of a costed transition
plan to be provided within the ESG Report in
next year’s 2022 Annual Report. Additionally,
the Board believes that business has a positive
role to play in society, and as detailed in the
Chief Executive’s Review has now embarked
on a programme to support a more diverse
workforce and the benefits that brings to the
Company, as well as launching a locally focused
community programme.
A number of changes have been made at Board
level to support the effective implementation
of all the Company’s strategic and corporate
objectives. The Non-Executive Director
appointments of Simon King and Stephen Bird
during 2021 brought highly relevant skills and
experience on to the Board, with both having
extensive executive experience leading growth
and customer-led strategies.
CAPITAL
ALLOCATION
PRIORITIES
Summary (in order of priority):
• Maintain strong balance sheet
Targeted average net debt during
a financial year of not more than
0.75x EBITDA (unless exceptional /
unforeseen circumstances prevail)
•
Investment in the business
Investment, both opex and capex, in the
core distribution business to optimise
performance and growth, and in line
with strategic requirements
• Ordinary dividend income for shareholders
Provide income to shareholders through
a bi-annual ordinary dividend distribution
paid out of cash, with a targeted cover
ratio of 2x earnings for the total annual pay
out (higher weighting to final dividend)
• Funding of potential M&A
Potential investment in acquisition
opportunities aimed at growing the
Company’s position, including in new
/ underweight product categories and
customer segments
• Potential return of surplus capital
After applying the priorities above and
taking into consideration all factors, return
surplus capital to shareholders, and
consider the most effective mechanism
to do so. A surplus capital return
was announced on 9 March 2022 by
way of a special dividend and share
buyback programme (see Chairman’s
Statement on page 12)
Headlam Group PLC Annual Report and Accounts 2021
13
OverviewCorporate GovernanceStrategic ReportFinancial Statements
CHAIRMAN’S STATEMENT
In October 2021, Steve Wilson left the Company as Chief Executive
following an extensive executive career with the group, with Chris
Payne, Chief Financial Officer, acting as Interim Chief Executive and
subsequently being appointed as permanent Chief Executive, as
announced on 8 March 2022. Steve Wilson was instrumental in the
Company’s success throughout his 30 years with Headlam, including
instigating the business change strategy, and the Board offers its
heartfelt gratitude for his contribution to the Company.
The Board is delighted to welcome Chris as Chief Executive. Following
an extensive independent search process, the Board believe that Chris
is the best person to drive delivery of the business change strategy
which as above is focused on substantial revenue growth opportunities
across a broader segment of the market from a more efficient operating
base following the actions taken during the last two years. In the five
years since he joined the Company, Chris has been a highly effective and
commercial Chief Financial Officer, and a key architect of the business
change strategy. The Company has commenced the independent
search process for a new Chief Financial Officer and intends to appoint
an Interim Chief Financial Officer shortly while the search process
is ongoing.
Also as announced on 8 March 2022, I shall be stepping down at
the AGM in May 2022 having served seven years with the Company.
During the last four years as Chairman, I have overseen the planning,
implementation, and considerable development of the business change
strategy, the strengthening of oversight and governance, and initiation of
a comprehensive ESG strategy. I will leave the Company in a significantly
better place to grasp the opportunities of organic growth and scale. It is
the Board’s intention to also appoint a new Independent Non-Executive
Director, and will commence this search later in the year.
As a result of all these actions and progress so far, the Company enters
2022 a far more focused, capable and modern business, with greater
opportunity and competitive advantage to support customers and
grow financial performance. While the current inflationary environment
may impact some end-consumer spending in the coming months, the
Company is confident in its current expectations and the delivery of its
strategy which should be able to mitigate any potential market softening
in the residential sector, and looks forward to demonstrating further
progress in 2022.
Philip Lawrence
Non-Executive Chairman
9 March 2022
14
Headlam Group PLC Annual Report and Accounts 2021
CHIEF EXECUTIVE’S REVIEW
POSITIVE YEAR
with lots of progress
Chris Payne Chief Executive and Chief Financial Officer | 9 March 2022
The following financial results represent continuing
operations only, and exclude the contribution from
the Swiss business Belcolor AG (‘Belcolor’) in the year,
and the comparator year(s), following its disposal in
May 2021 (as detailed in the Financial Review and in
Note 7 to the Financial Statements).
Like-for-like revenue is calculated based on constant
currency from activities and businesses that made a
full contribution in both the 2021 and 2020 periods
and is adjusted for any variances in working days.
Underlying is before non-underlying items, which
includes i) amortisation of acquired intangible assets,
ii) impairment of goodwill and intangible assets, iii)
property disposal profit, iv) business restructuring
costs, and v) impairment of property, plant and
equipment and inventory (following a fire).
The Company has given detail within the Financial
Review and accompanying appendix where it has
used Alternative Performance Measures (‘APMs’), the
description of, and why it believes in each instance
they are a more appropriate measure of performance
than a corresponding IFRS measure.
Introduction
As described in the Chairman’s Statement, 2021
was a very positive year with lots of progress
made, not least in the increasing realisation of
benefits from the business change strategy,
expanded upon below. There were a number of
external market effects and industry wide issues,
not least from the ongoing impact of COVID-19,
which the Company was largely able to mitigate
and operate successfully throughout. Product
supply issues during the year led to significant price
increases. However, these were passed directly
into the marketplace and absorbed owing to the
relative infrequency of consumer purchases and
proliferation of product at varying price points
providing huge choice at every level. Additionally,
through working closely with its suppliers, the
Company was able to maintain its inventory
position and preserve levels of availability.
Headlam Group PLC Annual Report and Accounts 2021
15
OverviewCorporate GovernanceStrategic ReportFinancial Statements CHIEF EXECUTIVE’S REVIEW
Outside of the industry wide issues, the Company experienced very
limited direct impact from COVID-19 during 2021, and operated
effectively and uninterruptedly throughout the year despite lockdowns
and restrictions. This is testament to the Company’s effective operating
procedures, but most of all to its people, customers and suppliers. Many
of the Company’s people, customers and suppliers have been part of
the Company for years or even decades, and they are the backbone of
the Company’s operating and financial performance. Heartfelt thanks
go to them, particularly in a year that gave rise to disruptions from the
implementation of some of the actions under the business change
strategy (notably arising from the network and delivery consolidations),
and also from a fire at one of the Company’s sites (detailed below) which
occurred alongside ongoing COVID-19 related issues.
Underlying operating profit and underlying profit before tax was £37.3
million and £35.8 million respectively (2020: £17.4 million; £15.4 million
respectively). There was a relatively small amount of non-underlying
items in the year compared with 2020, which as detailed was materially
impacted by COVID-19. Non-underlying items are detailed in the
Financial Review, with the largest contributor relating to a fire at one of
the Company’s sites in December 2021 detailed below, although this
had little impact on overall underlying business performance. Another
item relates to the Company’s Northern Ireland based business CECO
which continued to experience challenges due to COVID-19 impacting
its business which is largely focused on bigger, commercial projects, and
it was further impaired in the year. Statutory profit before tax in the year
was £27.6 million (2020: £14.3 million loss).
I am delighted to have now been appointed permanent Chief Executive.
Over my five years with the Company, I have been heavily involved with
operations and the business change strategy in addition to my role as
Chief Financial Officer. I have seen many of our actions now come to
fruition, and believe the Company is poised for greater success in the
future, and I intend to drive through all the opportunities available.
The ongoing delivery of the Company’s strategy detailed below will
allow for further improvement in financial performance, not least from
substantial revenue growth opportunities particularly in the areas of
Trade Counters and Multiple Retailers. Incremental revenue is expected
to benefit from an operational gearing effect to create higher margin on
the partially fixed cost base.
Financial Performance
Revenue rebounded strongly from 2020 which was materially impacted
by COVID-19 related temporary closures of the Company’s operations
during the first half, and was 15.4% higher at £667.2 million (2020:
£578.1 million). Within this, the UK and Continental Europe both traded
well and performed strongly compared with 2020, up 16.1% and 10.9%
respectively, and supported by the Company’s business change strategy.
Against 2019, the UK performance was slightly down and Continental
Europe performance slightly up.
A noticeable impact of COVID-19 has been on the relative fortunes
of the residential and commercial sectors. While the residential sector
has been a strong beneficiary of COVID-19 and its knock-on impact on
consumer spending habits, the commercial sector has suffered, although
it recovered to a degree during 2021. During 2021, residential sector
revenue was up 2.9% and commercial sector revenue down 15.0%
against 2019 on a like-for-like basis. Against 2020, 2021 residential sector
revenue was up 15.3%, and commercial sector revenue was up 18.5%.
Underscoring the strength of the residential sector, between 2019 and
2021 the proportion of revenue accounted for the residential sector
increased from 64.2% to 68.5%.
Belcolor, the Company’s Swiss operations, was disposed of in the year
allowing a greater focus on operations that present more meaningful
organic growth opportunities and leveraging of group scale in line with the
Company’s strategy. Detail on the disposal is given in the Financial Review
and Note 7 to the Financial Statements, with Belcolor only accounting for
5.1% of revenue in 2020.
Gross margin rose to a record 33.0% in the year (2020: 30.8%) owing
to the inflationary environment evident through much of the year,
coordinated buying initiatives across the group, improved inventory
management, and contribution from the higher-margin residential
sector. This, combined with other actions taken under the business
change strategy, helped deliver an improved underlying operating margin
of 5.6% (2020: 3.0%).
Strategy and Operations
The Company’s business change strategy* is now largely embedded
in the business, with benefits increasingly evident. The strategy is
now focused on revenue growth and modernisation, with operational
efficiency through cost control remaining important. The latter has been
most noticeably enacted through network and delivery consolidations,
which has enabled a reduction in headcount, sites and fleet numbers
while maintaining or improving the service proposition, albeit with some
disruption to service from implementation experienced during the year.
Increased investment has been made in the network and systems to
optimise performance as well as support revenue growth.
In support of revenue growth, the Company has focused on improving
the service propositions to various customer segments within the overall
£3 billion UK market, and actively targeting those where it has historically
been underweight. As part of the improvements, the Company has
developed a suite of industry-leading digital products and applications,
and commenced work on product and brand development. The main
drivers of revenue growth and modernisation are: Trade Counter roll-out;
Multiple Retailers focus; Digital and Ecommerce applications; and Product
and Brand development.
Trade Counter roll-out
As announced at the Capital Markets Day held in July 2021, a plan has
been developed to grow the existing trade counter network from 53 sites
to over 90 new and improved sites by 2025. The accompanying new site
‘blueprint’ is designed to meet the needs of a broader range of customers
(with trade counter businesses heavily skewed towards commercial) and
capture greater market share. The sites offer pre-ordered collections, a
larger selection of stocked products, as well as a newly launched own-
branded flooring range exclusive to trade counter customers. Through the
improved offer and expansion to additional sites, the Company is targeting
revenue growth in this area of approximately £120 million upon the plan’s
maturity (from approximately £80 million in 2021). To date, 11 sites are now
operating under the new ‘blueprint’, and their performance has been very
pleasing with early achievement of financial targets and positive feedback
from both customers and employees. In line with the accelerating roll-out,
nine new sites / relocations are already scheduled for 2022, in addition to at
least 11 refits, with a good pipeline of prospective new sites.
16
Headlam Group PLC Annual Report and Accounts 2021
Multiple Retailer focus
The Multiple Retailers opportunity is worth approximately one-third of
the £3 billion UK market, with the Company currently being significantly
underweight in this customer segment, and having only approximately
£60 million of 2021 revenue in this area. Having not traditionally targeted
this area, the Company is now actively focused on enlarging its share.
During 2021, the Company established a dedicated ‘key accounts’ team,
developed tailored propositions, and put in place digital support and
enabling work for customers. The Company is able to provide Multiple
Retailer customers with a highly compelling often bespoke service
through: product insight and exclusivity; competitive pricing; supply chain
management; stockholding / storage solutions; processing expertise; and
national distribution. Good progress has been made in winning initial orders
with a number of new customers, with substantial scope to increase the
number of SKUs with each and develop the revenue opportunity in 2022
and beyond. An example of a new customer is Oak Furnitureland, who
has partnered with Headlam to launch its new engineered wood flooring
proposition. Headlam is the sole supplier to Oak Furnitureland on a range
of exclusive, premium engineered wood products after its customers
expressed interest in a unique flooring offering following market research
completed by the retailer. Oak Furnitureland now has dedicated flooring
areas within four of its 70 stores.
Digital and Ecommerce applications
Ecommerce and digital applications were launched in 2021 to increase
revenue opportunities across different customer segments, as well as
increase efficiency and reduce the Company’s overall cost to serve.
Customers benefit from an enhanced service offering and more
convenient ways of doing business with Headlam. Of particular note was
the launch of the brand new myheadlam app, an industry-leading fully
transactional mobile app allowing customers to trade with all their Headlam
accounts ‘on the go’, in a quick and easy way. Customers are able to search
for products, check real-time availability / prices, place orders, review
order history, and track live orders. Over £1.4 million of sales have already
been received via the app since its full launch in November 2021. Further
enhancements are planned for the app, as well as the Company’s B2B
websites, during 2022, and the Company has an ambitious target of 30%
of sales coming from digital channels (Jan 2022: 22%; 2019: 11%).
Product and Brand development
A key objective for 2022 is the investment in product development, with
the refocusing of some of the Company’s recognised product brands to
keep them fresh, relevant, and increase the sales opportunity. There has
also been investment in a dedicated team at one of the Company’s main
sites to support the product and brand development initiative.
In support of promoting sustainable products and increasing consumer
awareness, the Company launched a sustainable ‘Wool Britannia’ product
range in 2021 with the support of the British Wool Association which has
been very well received.
Supplier Engagement and Buying
The Company’s strong partnerships with its suppliers was demonstrated
in the year through its ability to effectively mitigate the industry wide
supply issues. Levels of engagement have continued to increase,
including through more strategic and centralised ranging discussions,
and on sustainability considerations as detailed in ESG Strategy below.
The two substantial revenue stream opportunities of Trade Counters and
Multiple Retailers also present opportunity to expand on the Company’s
current strategic conversations with suppliers.
Fire at MCD Kidderminister
In a devastating incident in which thankfully no one was hurt, the
Company suffered a fire at its MCD Kidderminster business in December
2021, completely destroying the building. Colleagues and customers
were quickly provided with support, and colleagues and operations
transferred to the Company’s main distribution hub in Coleshill. Within
four days, MCD Kidderminster customers were again receiving deliveries
from MCD Kidderminster which is testament to the Company’s business
continuity planning, and network, systems and collaborative approach.
Great thanks and appreciation go to those colleagues affected by the
fire and the strength of character they showed in the face of adversity.
In early January 2022, a temporary site was opened in Kidderminster
with longer term options currently being examined. Notwithstanding
the non-underlying items associated with the fire, there was no material
impact from the fire on overall 2021 revenue and underlying profit, nor
is there anticipated to be in 2022. Detail on the write-down of MCD
Kidderminster PPE and inventory within non-underlying items and
totalling £7.3 million is given within the Financial Review.
ESG Strategy
The Company published its first ESG Strategy Report in 2021, which
outlined the Company’s sustainability ambitions, and tangible progress
has been made since the initial report. The 2021 Annual Report and
Accounts being published shortly contains the Company’s first full-form
ESG Report, and the Company is committed to providing an update on
ESG actions and future consideration on a bi-annual basis, with metrics,
indicators, and targets to enable measurement of progress.
Through collaboration with its people and external stakeholders, the
Company has identified three core focuses under its ESG strategy:
• Reduce the Company’s contribution to greenhouse gas (‘GHG’)
emissions and climate change;
•
•
Become a more sustainable business, including through cultural
development and by increasing oversight of ESG related risks and
opportunities; and
Increase the sustainability of the overall floorcoverings industry
through engagement and example, and support the future transition
to a circular economy.
Outlined below are the Company’s main actions to date to address these
focuses under the ‘Environmental’, ‘Social’ and ‘Governance’ pillars and
also under ‘People and Culture’, all of which are expanded upon fully with
the full-form ESG Report.
Environmental
Per the Chairman’s Statement, the Board now has a net zero emissions
(Scope 1 and Scope 2) ambition for 2035, a new and major milestone for
the Company. This will require various steps including a transition strategy
and interim targets which will be expanded upon within the Company’s
forthcoming bi-annual updates, with progress and measurement metrics
documented. The Company already has a number of actions to reduce
its emissions, which arise predominately from its transportation activities
(both commercial and non-commercial fleet). These include::
• Roll-out of the ‘Transport Integration’ consolidation project resulting
in more efficient delivery fleet (commercial vehicle) utilisation, and
associated reduction in fleet number (currently a 32 reduction to 356);
Headlam Group PLC Annual Report and Accounts 2021
17
OverviewCorporate GovernanceStrategic ReportFinancial Statements CHIEF EXECUTIVE’S REVIEW
•
Increasing the availability of plug-in hybrid and low emission vehicles across
non-commercial fleet, with the near-term target of 50% of the fleet being
plug-in hybrid or low emission by end of 2022 (13.5% in 2021);
• Promotion of digital and trade counters developments thereby
reducing the proportion of carbon intensive ordering and delivery
options;
• Good energy behaviours’ to be promoted across the group; and
• Auditing and upgrading of sites with more energy efficient
technologies and equipment.
Social
As part of a wider societal focus, the Company is launching an annual,
centrally funded but locally focused community programme, with each
site across the group allocated a certain monetary amount per employee
on site, and each site donating to a voted-upon local cause.
Governance
One of the material ESG issues identified through consultation with
stakeholders was ‘Supply Chain Risk’, and it forms an area of key near-term
focus. Actions to mitigate risk in this area include the commencement of an
engagement programme with suppliers on industry sustainability issues,
including on changes to regulation and potential sustainability partnerships.
Additionally, the Company has signed a contract with an independent party
to conduct a full Supply Chain Risk Assessment, with the target of the top
50 suppliers (accounting for approximately 80% of purchases) assessed
under the independent Supply Chain Risk Assessment by the end of
2022. The latter part of 2022 will see the implementation of a Supplier
Sustainability Procurement Charter, which includes defining a common set
of minimum standards and principles.
Dividends and Surplus Capital Return
Dividends
Following a period of recovery from the impact of COVID-19 and as a
sign of confidence in future trading prospects, the Company resumed
dividend payments and announced a 2.0 pence per share nominal
ordinary dividend in March 2021. This was followed by a 2021 interim
ordinary dividend of 5.8 pence per share after a longer period of
recovered trading.
The Company is now proposing a 2021 final ordinary dividend of 8.6
pence per share for approval at May’s Annual General Meeting (‘AGM’),
giving a total annual pay-out for the interim plus final of 14.4 pence, being
equivalent to a 2x earnings cover ratio and in line with the Company’s
published Capital Allocation Priorities, with the 2.0 pence nominal
dividend being an additional payment on top.
Surplus Capital Return
As signposted in the January 2022 Pre-Close Trading Update, and
confirmed within the Chairman’s Statement, the Company is now
announcing a surplus capital return in addition to the aforementioned
ordinary dividends. Having recourse to the Company’s Capital Allocation
Priorities, and taking into account current and future considerations as
described in the Chairman’s Statement, the Company is returning a total
of £30 million to shareholders. Having considered the most appropriate
method of returning capital, the Company is returning £15 million in
the form of a special dividend of 17.7 pence per share to shareholders
alongside the ordinary dividend, with a further £15 million being directed
towards a share buyback programme (‘SBB’). It is the intention that this
£15 million SBB will be completed within approximately 12 months, and
commence on 10 March 2022.
Importantly, the new Non-Executive Director appointments have
increased evaluation and oversight of governance (including risk
management), strategy, and corporate objectives, and in 2022 a new ESG
Committee is being established.
People and Culture
The Company is focused on investing in and improving the support to
its people, including through cultural development, engagement, and
review of rewards and benefits. As part of this, various consultations
and planning work took place in 2021, alongside workshops and training.
Changes and improvements being implemented in 2022 include:
• Moving to one pension for all employees (Master Trust Pension,
effective 1 April 2022), providing a more generous and flexible
contribution structure, and creating consistency and fairness across
the group;
•
Introduced a common approach to bonus provisions for senior
management and sales leadership roles, driving a more collaborative
and ‘group success’ approach;
Post Period-End and Current Trading
Trading in January and February 2022, the Company’s quietest
trading months, was in line with plan, and pleasingly the strong margin
performance in 2021 has been maintained into 2022. In addition, as
referenced above, progress on driving additional revenue opportunities
from multiple retailers and the trade counter activity is encouraging.
The industry wide issues of product supply and price increases are
expected to persist in 2022, though as before, the Company believes
it will be able to continue to largely mitigate them. However, the
continuing inflationary environment may impact some end-consumer
spending, leading to potential softening in the residential sector in the
coming months. Early signs of recovery in the commercial sector from
its severely impacted position in 2021 may help partially offset this.
Notwithstanding this backdrop, the Company is confident in its current
expectations and the delivery of its strategy, which provides additional
revenue growth which would help mitigate any market weakness.
• Enhanced and harmonised holiday entitlement;
• Equal sick pay for all colleagues; and
• Cost of living pay increase for all employees.
Chris Payne
Chief Executive
9 March 2022
Diversity, Equity and Inclusion (‘DEI’) is an integral part of the Company’s
objective of providing a safe and inclusive working environment
where people are engaged, recognised and rewarded. The Company
has partnered with a specialist consultancy who are carrying out an
independent review (encompassing an employee survey, focus groups and
interviews) before establishing a plan to enhance DEI across the Company
18
Headlam Group PLC Annual Report and Accounts 2021
*Prior to the business change strategy, the Company referred to the Operational Improvement
Programme (‘OIP’). The business change strategy replaced the OIP, being broader in scope,
including encompassing significant revenue growth opportunities, changes to how the
group operates as a whole going forward, and business restructuring which has now been
completed.
FINANCIAL REVIEW
STRONG
performance against 2o2o
Chris Payne Chief Financial Officer and Chief Executive | 9 March 2022
The following financial results represent continuing
operations only, and exclude the contribution from
the Swiss business Belcolor AG (‘Belcolor’) in the year,
and the comparator year(s), following its disposal in
May 2021 (as detailed in the Financial Review and in
Note 27 to the Financial Statements).
Revenue
As detailed in the Chief Executive’s Review,
total revenue was £667.2 million (2020: £578.1
million), 15.4% higher than 2020 which was
impacted by COVID-19 related temporary closure
of operations. Both the UK and Continental
Europe performed strongly against 2020. The
UK accounted for 87.8% of total revenue (2020:
87.3%), and was up £81.1 million (16.1%) on
2020 at £585.8 million (2020: £504.7 million).
Continental Europe revenue was up £8.0 million
(10.9%) at £81.4 million (2020: £73.4 million) and
accounted for 12.2% of total revenue (2020:
12.7%). On a like-for-like¹ revenue basis, the UK
and Continental Europe were up 16.5% and 15.1%
respectively against 2020.
The residential sector continued to account for a
higher proportion of revenue when compared with
pre-COVID-19 levels. This is owing to the strong
spend on home improvements since the impact of
the pandemic, with the commercial sector being
impacted by COVID-related closures and deferrals.
During 2021, the residential sector accounted for
68.5% of total revenue compared with 64.2% in
2019 (2020: 69.1%)) and the commercial sector
31.5% (2020: 30.9%). The residential sector
accounted for 69.5% of UK revenue (2020: 70.2%),
and 61.1% of Continental Europe revenue (2020:
61.2%), the balance being commercial sector.
Headlam Group PLC Annual Report and Accounts 2021
19
OverviewCorporate GovernanceStrategic ReportFinancial Statements FINANCIAL REVIEW
Revenue for the year ended 31 December 2020
UK
Continental Europe
Incremental items during the 12-month period to 31 December 2021
UK:
Like-for-like¹
Changes in working days
Acquisitions
Continental Europe:
Like-for-like¹
Changes in working days
Translation effect
Total movement
Revenue for the year ended 31 December 2021
UK
Continental Europe
£M
%
£M
%
504.7
73.4
87.3
12.7
82.5
(2.0)
0.6
11.0
(0.3)
(2.7)
16.3
(0.4)
0.1
15.0
(0.4)
(3.7)
585.8
81.4
87.8
12.2
578.1
100.0
81.1
16.0
8.0
89.1
10.9
15.4
667.2
100.0
³ Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2021 and 2020 periods, and is adjusted for any variances in
working days.
No acquisitions were made during the year. ‘Acquisitions’ in the table above refers to the full year effect of the one acquisition made in 2020, Supertex.
Gross Margin
Gross margin increased 220 basis points in the year to 33.0% (2020: 30.8%), primarily due to the inflationary environment, as well as inventory
management and product mix change due to the strength of the higher-margin residential sector.
Expenses
Underlying distribution costs and administrative expenses totalled £183.2 million in the year (2020: £160.7 million), an increase of £22.5 million on the
prior year. When stripping out the prior year governmental job retention scheme (‘furlough’) grants, the increase was only £11.5 million (7.2% increase
year on year) with 2020 additionally having reduced expenses due to the COVID-19 related closures. Benefits from the business change strategy
during the year were able to offset wage inflation and performance related bonus payments. These benefits will increase in 2022 due to full period
contributions, and help mitigate cost inflation in 2022. Pleasingly, underlying distribution costs and administrative expenses expressed as a proportion
of revenue was steady at 27.5% (2020: 27.8%) despite the one off benefit of furlough receipts in 2020. The relative proportions of underlying
distribution costs and administrative expenses as a percentage of total underlying expenses were 68.7% and 31.3%, respectively (2020: 70.9% and
29.1%). Statutory distribution costs and administrative expenses totalled £ 191.4 million in 2021 (2020: £190.3 million), with the increase in underlying
expenses described above largely offset by the decrease in non-underlying items, as below.
Business restructuring costs of £2.3 million were incurred in the year, classified as non-underlying items due to being deemed out of the ordinary
course of business, and defined below. No further additional costs are anticipated in 2022 in relation to the business change strategy currently in place.
The Company has maintained a prudent level of bad and doubtful debts provision at £6.7 million, being 1.0% of total revenue (31 December 2020: £8.1
million, 1.4% of total revenue but which includes £1.1 million attributable to Belcolor). This approach has been taken despite strong cash collections
throughout 2021 as the impact of current inflationary and energy cost pressures on the economic environment, and the withdrawal of certain
government support schemes, might cause this collection experience to lessen.
20
Headlam Group PLC Annual Report and Accounts 2021
Alternative Performance Measures
The Company uses alternative performance measures (‘APMs’) to assess its financial, operational and social performance towards the achievement of
its strategy. Such measures may either exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable
statutory measure (where one exists), calculated and presented in accordance with IFRS. Such exclusions or inclusions give in the Company’s opinion
more normalised performance measures, and the Company believes that these APMs are also used by investors, analysts and other interested parties
in their analysis.
The APMs have limitations and may not be comparable to other similarly titled measures used by other companies. They should not be viewed in
isolation, but as supplementary information.
An explanation of each APM is provided on page 26 and a reconciliation of the adjustments made to the Income Statement to derive underlying
profit measures is shown on page 28. Underlying items are calculated before charges associated with the acquisition of businesses and other items
which by virtue of their nature, size or/and expected frequency require adjustment to show the performance of the Group in a consistent manner
which is comparable year on year. These underlying measures are relevant to investors and other stakeholders, as supplementary information, to fully
understand the underlying performance of the business. A limitation of underlying profit measures is that they exclude the recurring amortisation of
intangible assets acquired in business combinations but do not similarly exclude the related revenue.
Non-underlying items
Non-underlying items before tax totalled £8.2 million during the year, much reduced from 2020 (£29.7 million) which had a significant level of non-cash
items as a direct consequence of the impact of COVID-19.
The below table details the individual non-underlying items:
Non-underlying items
Impairment of goodwill and intangibles
Amortisation of intangibles
Impairment of property, plant and equipment and inventory (following a fire, detailed below)
Movements and finance costs for deferred and contingent consideration
Non-underlying non-cash items
Property disposal profit
Business restructuring costs
Acquisitions related fees
GMP equalisation
Non-underlying cash items
Non-underlying items before tax
2021
£M
2.1
1.6
7.3
–
11.0
(5.1)
2.3
–
–
(2.8)
8.2
2020
£M
24.7
1.6
–
–
26.3
–
2.4
0.7
0.3
3.4
29.7
In December 2021 a fire completely destroyed the MCD Kidderminster distribution centre and, therefore, the property, plant and equipment and
inventory at the site totalling £7.3 million has required a full write-down. An insurance claim is currently in progress. Any refunds cannot be recognised
until they are virtually certain, so any credit would be recognised in non-underlying items in the year the claim is closed, hoped by the Company to be
2022. A contingent asset has been disclosed relating to the insurance claim.
The cash items relate to the profit on the disposal of two freehold properties under network consolidation activities (£5.1 million), offset by £2.3 million
of business restructuring costs under the business change strategy and other events. The business restructuring costs related to material alignment
of headcount with seasonal trading patterns and also with evolving customer servicing, along with executive settlement agreements. Cumulative non-
underlying business restructuring costs since their initiation as part of the business change strategy amount to £4.7 million (all cash in nature), and
cover the period July 2020 to December 2021. No further business restructuring costs are currently anticipated for 2022. Costs associated with the
fire at MCD Kidderminster, disposal of properties and business restructuring do not reflect trading performance and, therefore, have been adjusted to
ensure consistency between periods.
Headlam Group PLC Annual Report and Accounts 2021
21
OverviewCorporate GovernanceStrategic ReportFinancial Statements FINANCIAL REVIEW
Operating Profit and Profit Before Tax
The Company has reported an underlying operating profit of £37.3 million (2020: £17.4 million), which equates to an underlying operating margin of
5.6% (2020: 3.0%), and an underlying profit before tax of £35.8 million (2020: £15.4 million). After including the non-underlying items above, this gives a
statutory operating profit of £29.1 million (2020: £12.2 million loss) and a statutory profit before tax of £27.6 million (2020: £14.3 million loss).
Operating profit/(loss) 2020
Gross margin movement in 2021:
Expense changes
Volume
Furlough grants
Bad debt provision
People costs (including pay increases and performance-related bonus payments)
Effect of acquisitions
Other
Total increase
Operating profit/(loss) 2021
Underlying
£M
Non-underlying
£M
17.4
42.4
(3.1)
(11.0)
6.7
(9.6)
0.4
(5.9)
19.9
37.3
(29.6)
–
–
–
–
–
–
21.4
21.4
(8.2)
Total
£M
(12.2)
42.4
(3.1)
(11.0)
6.7
(9.6)
0.4
15.5
41.3
29.1
Tax
The Company’s consolidated underlying effective tax rate for 2021 was 25.8% (2020: 24.7%), which is higher than the standard rate of corporation tax
in the UK of 19% primarily due to the effect of restating the opening UK deferred tax liability to reflect the change in the UK tax rate from 19% to 25%,
from April 2023, which was substantively enacted in the year.
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 within a level of tax
compliance risk that is rated as ‘low’ (2020: ‘low’).
Dividend and Surplus Capital Return
The proposed final ordinary dividend of 8.6 pence per share, as outlined in the Chief Executive’s Review, if approved by shareholders at the forthcoming
AGM, will be payable on 27 May 2022 to shareholders on the register as at 6 May 2022, and equates to a cash outflow of £7.3 million. As additionally
outlined in the Chief Executive’s Review, as part of the return of surplus capital to shareholders, the Company has also declared a special dividend of
17.7 pence per share (not subject to shareholder approval) which will be paid alongside the final ordinary dividend to shareholders on the register as at
the same date, namely 6 May 2022. This special dividend payment equates to a cash outflow of £15.0 million.
The other component of the surplus capital return is a share buyback programme (‘SBB’) which will be enacted by the Company’s corporate brokers,
and permits a cash outflow of up to a maximum of £15.0 million.
Investments
Total capex in the year was £6.9 million (2020: £15.0 million), and primarily focused on the Trade Counter network improvement and roll-out, and
replacing or upgrading warehouse equipment. 2020 was disproportionately high as it included the final tranche of spending on the Ipswich distribution
centre (£9.7 million) which opened in 2020 on top of annual maintenance capex.
Investment in 2022 is estimated to be in excess of £15 million, with Trade Counters investment expected to be approximately £7 million as part of
the accelerating roll-out which will see a total capital investment of approximately £18 million by the end of 2024 to reach the targeted 90 sites. The
balance of the investment will be focussed on improving and replacing warehouse and material-handling equipment.
22
Headlam Group PLC Annual Report and Accounts 2021
Cash Flows and Banking Facilities
During the year, the Company generated net cash inflows of £1.0 million (2020: £27.0 million) as shown in the table below.
Cash flows from operating activities
Profit / (loss) before tax
Adjustments for:
Depreciation, amortisation and impairment
Finance income and expense
Change in inventories
Change in receivables
Change in payables
(Profit) / loss on sale of property, plant and equipment
Loss on sale of subsidiary
Share-based payments
Cash generated from the operations
Interest and Tax
Disposal proceeds
Capital investment
Lease payments
Dividends
Other
Net cash flows
2021
£M
33.4
30.0
1.5
(26.6)
(16.6)
5.4
(11.1)
0.1
1.2
17.3
(3.5)
16.2
(6.9)
(15.0)
(6.6)
(0.5)
1.0
2020
£M
(17.1)
52.0
2.1
15.3
23.2
(4.8)
0.1
–
(0.1)
70.7
(8.2)
0.1
(15.0)
(15.7)
(6.3)
1.4
27.0
Working capital movements generated a cash outflow of £37.8 million (2020: £33.7 million inflow), largely due to increasing inventory levels as trade
returned to pre-pandemic levels, and also to mitigate any impact from industry supply issues by elevating levels of fastest moving products. During
2020, following the impact of COVID-19, the Company had limited product purchasing and utilised existing inventory to satisfy demand, before
beginning to elevate purchasing levels in the second half. The Company’s inventory position at 31 December 2021 was £130.9 million, similar to the
£132.5 million at 31 December 2019 of which £4.9 million was attributable to Belcolor.
Cash collections were strong in the year but working capital saw a return to pre COVID-19 levels with a normalisation in receivables (resulting in an
outflow) and payables (inflow) respectively.
The other main drivers of cash flow movements in the year were capital investment (£6.9 million), lease payments (£15.0 million) and disposal
proceeds (£16.2 million). The disposal proceeds include the proceeds from the sale of two freehold properties under the network consolidation
(£7.0 million) as well as proceeds from the disposal of Belcolor. Full detail on the Belcolor disposal is contained in Note 27 to the Financial Statements.
The 2021 cash outflow in respect of dividends relates to the nominal ordinary dividend, totalling £1.7 million paid in May 2021, and the 2021 interim
ordinary dividend, totalling £4.9 million paid in November 2021.
As at 31 December 2021, the Company had a net funds position of £17.7 million (1 January 2021: £8.3 million). The net funds position excluding lease
liabilities was £53.7 million (1 January 2021: £51.6 million).
Headlam Group PLC Annual Report and Accounts 2021
23
OverviewCorporate GovernanceStrategic ReportFinancial Statements FINANCIAL REVIEW
Cash at bank and in hand
Debt due within one year
Debt due after one year
Net funds excluding lease liabilities
Lease liabilities
Net funds
At
1 January 2021
£M
Non-cash
Items
£M
Cash flows
£M
Disposal of
subsidiary
£M
Foreign exchange
movements
£M
60.8
(2.0)
(7.2)
51.6
(43.3)
8.3
–
–
–
–
(13.0)
(13.0)
4.5
1.2
–
5.7
15.0
20.7
(3.5)
–
–
(3.5)
5.5
2.0
(0.6)
0.2
0.3
(0.1)
(0.2)
(0.3)
At
31 December
2021
£M
61.2
(0.6)
(6.9)
53.7
(36.0)
17.7
Average net funds in the year (excluding lease liabilities) were £38.3 million, a strong rebound from the 2020 net debt position caused by COVID-19
(2020: £8.6 million average net debt).
As at 31 December 2021, the Company had total committed banking facilities available of £76.6 million, of which £69.8 million was undrawn.
At 31 December 2021, the Company had a sterling committed facility of £68.5 million and a euro committed facility of €9.6 million. The Group also had
short term uncommitted facilities of £25.0 million in the UK and €3.8 million in Continental Europe. The total banking facilities available to the Group
at 31 December 2021 were £104.8 million (2020: £110.3 million). During the year, the disposal of Belcolor led to a reduction in the euro uncommitted
facilities in Continental Europe of €5.0 million.
Following the year end, on 17 January 2022, the Company completed a refinancing of its banking facilities and now has an increased committed
sterling facility with Barclays Bank, Bank of Ireland and Credit Industriel Et Commercial for £81.5 million, with the euro committed facilities now
cancelled. The new facility matures in October 2026, with a one year extension exercisable (with the agreement of the banks) on the first anniversary.
An additional uncommitted facility of €1.0 million was agreed in Continental Europe in January 2022. The Company’s other uncommitted facilities
remain unchanged, but will reduce by £10.0 million in May 2022.
Belcolor Disposal
On 28 April 2021, the Group entered into a sale agreement to dispose of its Swiss business, Belcolor. On 29 April 2021, as a condition of the sale
agreement, Belcolor undertook a sale and leaseback of its property for gross proceeds of £12.4 million and paid a dividend of £11.1 million to its parent
company, Headlam Group plc. Cash consideration before costs of £0.9 million was received on sale of the subsidiary.
The subsidiary was sold on 28 April 2021, with effect from 17 May 2021, and is reported for the year ending 31 December 2021 as a discontinued
operation, with the sale and leaseback treated as a discrete pre-disposal transaction.
Pensions
The accounting valuation for the legacy UK defined benefit pension scheme showed a surplus of £12.1 million as at December 2021. However, as the
Company does not have an unconditional right to a surplus refund, the pension scheme is recorded as a deficit of £4.3 million as at 31 December 2021
reflecting the level of UK deficit recovery plan payments that the Company committed to following the last actuarial valuation as at 31 March 2020.
The Company no longer has a liability for the Swiss pension scheme following the disposal of Belcolor.
24
Headlam Group PLC Annual Report and Accounts 2021
Viability and Going Concern
Updated principal risks and uncertainties, to those published in the 2020 Annual Report and Accounts, are detailed on pages 34 to 38 of the 2021
Annual Report and Accounts. No new Principal Risks have been identified. The level of risk of two Principal Risks is considered to have changed,
detailed below.
The Board reviewed the Company’s resilience to the principal risks and uncertainties by considering stress testing forecasts through
adverse scenarios, which involve a reduction in market demand – (A) a sustained recessionary environment characterised by a long period of
underperformance throughout the assessment period, and (B) an economic crisis with a sharp decline in demand in the first year before a recovery.
The testing indicated that the Company would be able to operate within its current facilities and meet its financial covenants in both scenarios. A
further, less likely, not plausible, more severe scenario (reverse stress test) was also considered, where the Company experiences a revenue year on
year decline of 23% in 2022. In 2020 when the Company had COVID-19 related temporary closures of operations, revenue in the year only declined by
15% against 2019. In this scenario, the Company would be able to operate within its current facilities and meet its financial covenants. However, should
the reduction in revenue be greater than this, the Board would need to take mitigating actions to remain within its banking covenants.
Mitigating actions, which are within the Board and management’s control, include a reduction in the cost base to better align it with market demand
and revenue performance, suspension of ordinary dividend(s), and a freeze on non-critical capital spend. These actions are not included in any of the
scenarios modelled, but were effectively implemented during 2020 following the initial impact of COVID-19, and therefore proven to be enacted.
As above, as at 31 December 2021 the Company had a net funds position excluding lease liabilities of £53.7 million, and as at 2 March 2022 has an
undrawn refinanced banking facility of £109.7 million. The Board was, therefore, comfortable that the Company would maintain resilience in the
event such scenarios occurred and concluded that there was a reasonable expectation that the Company would continue to operate and meet its
liabilities over a three year period. Based on the results from these scenarios, and having considered the available mitigating actions, the Board can
have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period
of this assessment. In particular, 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 twelve 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.
Principal Risks
The level of risk of two Principal Risks is considered to have changed as compared with the 2020 Annual Report and Accounts, summarised below.
No new Principal Risks have been identified, and none of the existing removed.
• Healthy and safety – level of risk: decreased – as a result of the mitigating actions undertaken during 2021, the level of risk has been judged to have
decreased.
• Environmental (incorporating climate change) – level of risk: increased – given the increasing regulation / legislation in relation to the environment,
and increased focus on climate change (including regulatory disclosures in relation to climate-related risks and opportunities), the level of risk has
been judged to have increased.
Chris Payne
Chief Financial Officer and Chief Executive
9 March 2022
Headlam Group PLC Annual Report and Accounts 2021
25
OverviewCorporate GovernanceStrategic ReportFinancial Statements APPENDIX
ALTERNATIVE
Performance Measures ('APMs')
Glossary of Alternative Performance Measures
Closest equivalent statutory measure Definition and purpose
Underlying administrative expenses
Administrative expenses
Underlying operating profit
Operating profit
Underlying operating margin
None
Underlying profit before tax
Profit before tax
Underlying profit after tax
Profit after tax
Underlying basic earnings per share
Basic earnings per share
Underlying diluted earnings per share
Diluted earnings per share
Net funds / debt
None
26
Headlam Group PLC Annual Report and Accounts 2021
Calculated as administrative expenses before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance
of the Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Calculated as operating profit before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance
of the Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Calculated as underlying operating profit divided by revenue. This measure
is used to assess how effective the Group is at converting revenue into
underlying operating profit.
Calculated as profit before tax before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance
of the Group in a consistent manner which is comparable year-on-year.
Underlying profit before tax is used in the determination of Executive
Directors’ annual bonuses.
See Adjusted Results Reconciliation below.
Calculated as profit after tax before charges associated with the acquisition
of businesses and other items which by virtue of their nature, size and
expected frequency require adjustment to show the performance of the
Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Calculated as basic earnings per share before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance
of the Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Calculated as diluted earnings per share before charges associated with the
acquisition of businesses and other items which by virtue of their nature,
size and expected frequency require adjustment to show the performance
of the Group in a consistent manner which is comparable year-on-year.
See Adjusted Results Reconciliation below.
Calculated as cash and cash equivalents less other interest-bearing
loans and borrowings and less lease liabilities. This is used as a measure
of liquidity.
Glossary of Alternative Performance Measures
Closest equivalent statutory measure Definition and purpose
Net funds / debt excluding
lease liabilities
None
Calculated as cash and cash equivalents less other interest-bearing loans
and borrowings.
Average net funds / debt
None
Like for like revenue growth
None
Underlying selling, general
and administrative costs
None
Return on capital employed
None
Cash conversion
None
This is provided for use by investors, who used this metric before the
adoption of IFRS16 and continue to do so.
Calculated by aggregating the net funds / debt position excluding lease
liabilities for each business day and dividing by the total number of business
days. This is used as a measure of liquidity maintained throughout the year.
Calculated as year-on-year revenue growth, expressed as a percentage
and adjusted to normalise currency and for consistent working days,
for businesses making a full year’s contribution. This allows a consistent
measure of year-on-year performance.
Calculated as distribution costs and underlying administrative expenses
divided by revenue and expressed as a percentage. This measure shows
how effective the Group is at converting gross profit into underlying
operating profit.
Calculated as underlying operating profit measured as a percentage
of average capital employed, being total equity less non-current other
interest-bearing loans and borrowings less cash and cash equivalents.
This demonstrates the relative level of profit generated by the
capital employed.
Calculated as cash generated from the operations divided by operating
profit and expressed as a percentage.
This cash conversion measure demonstrates the success of the Group
in converting profit to cash, which underpins the quality of earnings and
reflects the effectiveness of working capital management.
Headlam Group PLC Annual Report and Accounts 2021
27
OverviewCorporate GovernanceStrategic ReportFinancial Statements APPENDIX
Adjusted Results Reconciliation
31 December 2021
Impairment of
goodwill and
intangibles
£M
Total Results
£M
Impairment of
property, plant
and equipment
and inventory
following fire
£M
Amortisation
of acquired
intangibles
£M
Business
restructuring
£M
Property
disposal
£M
Profit from
discontinued
operation
£M
Adjusted
Results
(underlying)
£M
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit/(loss)
Finance income
Finance expenses
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) from continuing
operations
Profit/(loss) from discontinued
operation
Profit/(loss) for the year
attributable to the equity
shareholders
Earnings/(loss) per share for profit
from continuing operations
Basic
Diluted**
Earnings/(loss) per share for profit
from discontinued operations
Basic
Diluted**
667.2
(446.7)
220.5
(125.9)
(65.5)
29.1
0.4
(1.9)
(1.5)
27.6
(7.7)
19.9
4.5
24.4
23.5p
23.5p
5.3p
5.2p
–
–
–
–
2.1
2.1
–
–
–
2.1
(0.2)
1.9
–
1.9
2.3p
2.3p
–
–
–
–
–
–
7.3
7.3
–
–
–
7.3
(1.0)
6.3
–
6.3
7.5p
7.4p
–
–
–
–
–
–
1.6
1.6
–
–
–
1.6
0.2
1.8
–
1.8
2.2p
2.2p
–
–
–
–
–
–
2.3
2.3
–
–
–
2.3
(0.4)
1.9
–
1.9
2.2p
2.2p
–
–
–
–
–
–
(5.1)
(5.1)
–
–
–
(5.1)
(0.1)
(5.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.4)
667.2
(446.7)
220.5
(125.9)
(57.3)
37.3
0.4
(1.9)
(1.5)
35.8
(9.2)
26.6
0.1
(5.2)
(4.4)
26.7
(6.2)p
(6.2)p
–
–
31.5p
31.1p
–
–
(5.1)p
(5.0)p
0.2p
0.2p
28
Headlam Group PLC Annual Report and Accounts 2021
Adjusted Results Reconciliation
31 December 2020 (re-presented)
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit/(loss)
Finance income
Finance expenses
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) from continuing operations
Profit/(loss) from discontinued operation
Profit/(loss) for the year attributable to the
equity shareholders
Earnings/(loss) per share for profit
from continuing operations
Basic
Diluted**
Earnings/(loss) per share for profit
from discontinued operations
Basic
Diluted**
Total Results
£M
Impairment of
goodwill
£M
Amortisation
of acquired
intangibles
£M
Acquisitions
related fees
£M
Business
restructuring
£M
Adjusted
Results
(underlying)
£M
Other
£M
578.1
(400.0)
178.1
(113.9)
(76.4)
(12.2)
0.8
(2.9)
(2.1)
(14.3)
(3.1)
(17.4)
(2.9)
–
–
–
–
24.7
24.7
–
–
–
24.7
(0.1)
24.6
3.3
(20.3)
27.9
(20.7)p
(20.7)p
29.1p
29.2p
(3.4)p
(3.4)p
3.9p
3.9p
–
–
–
–
1.6
1.6
–
–
–
1.6
(0.1)
1.5
–
1.5
1.9p
1.9p
–
–
–
–
–
–
0.7
0.7
–
–
–
0.7
–
0.7
–
0.7
0.7p
0.7p
–
–
–
–
–
–
2.4
2.4
–
–
–
2.4
(0.5)
1.9
–
1.9
2.3p
2.3p
–
–
–
–
–
–
0.2
0.2
–
0.1
0.1
0.3
–
0.3
–
0.3
0.4p
0.3p
–
–
578.1
(400.0)
178.1
(113.9)
(46.8)
17.4
0.8
(2.8)
(2.0)
15.4
(3.8)
11.6
0.4
12.0
13.7p
13.7p
0.5p
0.5p
Other comprises: movements in deferred and contingent consideration (£0.1m credit within total administrative expenses); finance costs on deferred and contingent
consideration (£0.1m cost within total finance expenses); and GMP equalisation (£0.3m cost within total administrative expenses).
Headlam Group PLC Annual Report and Accounts 2021
29
OverviewCorporate GovernanceStrategic ReportFinancial Statements BUSINESS MODEL
BUSINESS MODEL
provides the distribution channel between suppliers
and customers
INPUTS
Suppliers
We work with suppliers across the
globe who manufacture a diverse
range of floorcovering products,
and provide them with an
unparalleled route to market
for their products.
Sales
Our extensive customer base
spans both the residential and
commercial sectors, with each of
our businesses having their own
trade brand and sales team to
maximise customer reach.
Customer Service
Our service proposition is centred
on supporting and assisting our
customers’ growth, including
through providing the broadest
product offering, unparalleled
product knowledge and nationwide
delivery and collection.
Processing
Our ability to process a high
volume of orders is enabled by our
extensive distribution network, and
long-established 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 nationwide
delivery and/or collection.
30
Headlam Group PLC Annual Report and Accounts 2021
Y
R
E
D E LI V
SU
P
P
LIE
Delivering
long-term value for all
stakeholders
P
R
O
C
E
S
S
I
N
G
CUSTOMER S E R V I C E
R
S
S
E
L
A
S
OUTPUTS
Suppliers
Suppliers benefit from the most cost efficient and
effective route to market for their products. Utilisation of an
outsourced distribution channel enables them to focus on
manufacturing, benefit from sales expertise and support,
and reduces the costs associated with distribution.
Headlam works in partnerships with suppliers to market
their products, increase supply chain efficiencies, and
address sustainability issues (including changes in
regulation / legislation) (See ESG Report on page 44).
Customers
Customers benefit from marketing and technical
support, extensive product offering, nationwide delivery,
trade counter and collection service.
Headlam is continually looking at improving its service
propositions for the benefit of its customers, including
tailored solutions and making dealings quicker and more
effective (see Strategy in Action on page 10).
People
People benefit from the Company’s focus on supporting
and investing in its people, and the provision of a safe and
inclusive working environment.
Headlam is focused on cultural development to better
support its people, and making improvements to rewards
and benefits (See People on page 49).
Shareholders
Shareholders benefit from the Company’s strong
corporate governance and financial controls, and proven
track-record in providing dividend income.
Headlam is delivering on its strategic objectives to improve
both operational and financial performance, and is focused
on the development of its ESG Strategy to further enhance
the long-term sustainability of the Company.
Headlam Group PLC Annual Report and Accounts 2021
31
OverviewCorporate GovernanceStrategic ReportFinancial Statements Like-for-like*
revenue growth
Gross profit
margin
Underlying**
selling,
general and
administrative
costs
Underlying**
operating
profit margin
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. Commentary on the Company’s use of Alternative Performance
Measures (‘APMs’) alongside International Financial Reporting Standards (‘IFRS’) Measures is given within the Financial Review on pages 19 to 29, and below.
The financial results for 2020 and 2021 represent continuing operations only and exclude the contribution from the Swiss business, Belcolor AG, in
2020 and 2021, following its disposal in May 2021.
FINANCIAL
Measurement
Why it’s important and relevant
Allows a consistent measure of year-on-
year performance.
Performance
(3 years)
Initiatives and actions
for improvement
16.3%
Organic revenue growth is a key strategic
objective with specific projects to support
its delivery (see Strategy on page 8 and
Strategy in Action on page 10).
0.7%
(17.2)%
Year-on-year revenue
growth, expressed as a %
and adjusted to normalise
currency and for consistent
working days, for businesses
making a full year’s
contribution.
APM1
Measured as a % of revenue.
Shows the effectiveness of gross profit
generation from revenue
2019 2020
2021
31.9%
30.8%
33.0%
Ongoing pricing discipline, and product
ranging.
Measured as a % of revenue.
Shows how effective the Company is at
converting gross profit into operating
profit. Underlying** is used to show the
underlying performance of the business
without exceptional costs / items.
APM1
Measured as a % of revenue.
APM1
Shows the effectiveness of sustainable
operating profit generation from revenue.
Underlying** is used to show the
underlying performance of the business
without exceptional costs / items.
Statutory basic
earnings/(loss)
per share (’EPS’)
Profit after tax divided by
average weighted number
of shares.
Shows the level of profit per share
attributable to shareholders.
Return on capital
employed
(’ROCE’)
Measured as underlying**
operating profit as a % of
capital employed.
APM1
Cash conversion Measured as a % of
operating profit.
Demonstrates the relative level of profit
generated by the capital employed.
Underlying** is used to show the
underlying performance of the business
without exceptional costs / items.
Cash conversion measures the success
of the Company in converting operating
profit to cash, which underpins the
quality of the earnings and reflects
the effectiveness of working capital
management.
APM1
2019
2020 2021
27.8%
27.5%
26.0%
Restructuring activities, and focus on
operating efficiency to ensure cost
increases remain below revenue growth.
2019
2020
2021
5.9%
5.6%
3.0%
2019 2020 2021
34.0p
23.5p
(20.7)p
2019
2020
2021
20.3%
21.7%
9.1%
2019
2020
2021
146%
59%
(580)%
2019
2020 2021
Business change strategy improving
operating and financial performance (see
Chief Executive’s Review on page 15).
In-line with statutory profit performance.
Focus on efficient use of capital. May be
offset in the short-term by investment
in the network (estate and systems) with
period of maturity i.e. trade counter roll-
out (see Strategy in Action on page 10).
Should typically be held above 90% to
ensure profit growth is cash generative.
It is anticipated that the focus on
improved inventory management and
hence inventory turn will also lead to
improvements in cash conversion %.
32
Headlam Group PLC Annual Report and Accounts 2021
1 Commentary on the Company's use of these APMs is given within the
Financial Review on page 26
NON-FINANCIAL
Inventory turn
Employee
retention
Reportable
incidents
(’RIDDOR
Reports’)
Recycled
packaging
Deliveries
per commercial
vehicle
Measurement
Why it’s important and relevant
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).
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.
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.
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.
Average deliveries per
commercial vehicle per day
in area following Transport
Integration (delivery
consolidation) project
implementation (against
2019 all deliveries average
prior to implementation).
A higher inventory turn is an indicator of
efficient revenue generation, reduced
risk of inventory obsolescence and more
effective utilisation of distribution centre
capacity.
Retention demonstrates the Company’s
ability to retain employees. The
Company’s is to continue developing
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.
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 in control of
premises to report specified workplace
incidents.
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.
The Transport Integration project results
in more deliveries per commercial vehicle
which reduces the Company’s impact
on the environment through a reduced
number of vehicles needed to serve local
areas.
Performance
(3 years)
Initiatives and actions
for improvement
3.6x
3.4x
3.7x
2019
2020
2021
82%
73%
72%
Automated stock reordering system
utilised across all sites. Product
purchasing more aligned to customer
demand, with focus on fastest-moving
products.
Move strategic group-level approach to
product purchasing and ranging. This will
reduce the number of SKUs and improve
inventory turn.
Focus on people and culture, including
investing in people through training and
enhanced reward / benefits (see ESG
Report on page 44).
2019
2020
2021
23
19
12
2019
2020
2021
96%
95%
86%
Implementation and embedding of
the recommendations arising from
a commissioned independent audit.
Dedicated health and safety team
enhancing cultural awareness, with
regular audits (see ESG Report on page
44).
Group procurement approach in place
for all UK sites to be using regranulated
polythene packaging manufactured from
100% recycled polythene.
2019 2020 2021
16
15
12
Completion of the roll-out of the
Transport Integration project, and
continuous improvement.
2019
2020
2021
*
Like-for-like revenue is calculated based on constant currency from activities and businesses
that made a full contribution in both the 2021 and the comparator year(s), and is adjusted for
any variances in working days.
**
Underlying is before non-underlying items, which includes i) amortisation of acquired
intangible assets, ii) impairment of goodwill and intangible assets, iii) impairment of property,
plant and equipment and inventory (following a fire) iv) property disposal profit, and v) business
restructuring costs.
Headlam Group PLC Annual Report and Accounts 2021
33
OverviewCorporate GovernanceStrategic ReportFinancial Statements RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES
Overview
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.
The table on pages 36 to 38 summarises 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.
The Risk Heat Map shows the Board’s assessment
of the level of risk for each of these Principal Risks as
of the date of this Annual Report and Accounts. The
change in the level of risk for certain of the Principal
Risks as compared with the 2020 Annual Report and
Accounts, as detailed on the Map, is judged against
the events of the year, both macro and micro, and
takes into account events specific to the Company
and the mitigating actions detailed in the table on
pages 36 to 38.
No new Principal Risks have been identified. The level
of risk of two Principal Risks is considered to have
changed. Additionally, the previously titled ‘Supply
Chain (incorporating Brexit)’ risk has been renamed
‘Supply Chain’ reflecting the passage of time since
Britain’s exit from the EU and the limited disruption
to product flow from the EU experienced by the
Company as a consequence.
34
Headlam Group PLC Annual Report and Accounts 2021
Risk Governance
Risk is encountered as part of the pursuit of the Company’s strategic
objectives as detailed on page 9 which are established to create long-
term value for all its stakeholders. The Board has overall responsibility for
the stewardship of risk management and for ensuring that the Company
maintains the appropriate level of risk management to support the
achievement of its strategic objectives. The Principal Risks faced by the
Company could have a material adverse effect on its business, financial
performance, or reputation, either alone or in combination, so the
management of such risks through appropriate review, monitoring and
control is important to the Company’s long-term sustainable success.
Changes to the trading environment can also affect the likelihood and
impact of risks and may give rise to new risks.
Risk Monitoring Structure
Risk Identification
Risk Management
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
e
c
n
a
r
u
s
s
a
l
a
n
r
e
t
x
e
t
n
e
d
n
e
p
e
d
n
I
Executive Risk Committee
Senior Leadership Team
Group functions
Business management
Assesses strategic risks identified
Overall responsibility for corporate
by management capable of
governance, internal control and
threatening the business model,
risk management and for setting
future performance, solvency or
risk appetite taking into account
liquidity in the context of the
Company’s strategy and the
the expectations of stakeholders
and feedback received from
interests of stakeholders and
engagement activities.
market context.
Audit Committee receives updates
from Executive Risk Committee
on key risks (including information
security and cyber risks) and
assesses adequacy of controls and
risk classification and identification
processes.
Other Committees consider risk
management as it relates to their
role and priorities.
Assesses risks and mitigating
Reviews operation and design of
controls using a specified scoring
internal controls to ensure risks
system based on likelihood and
remain within appetite.
impact and reports into the Audit
Committee.
Use knowledge of best practice,
Responsible for ensuring that risk
business and market in which we
management is embedded within
operate to assess changes in
key risks.
the business and appropriate
actions are taken to manage risk.
Applies local knowledge to identify
Applies local knowledge to identify
and assess operational risk.
and assess operational risk.
The Board is supported in its risk management responsibilities and in
reviewing the effectiveness of the risk management framework by the
Audit Committee and the Executive Risk Committee.
The Executive Risk Committee is advised by an external risk
management specialist, and meets quarterly to assess the centralised
risk register, the adequacy of and any changes in controls, and to
undertake continuous identification of emerging risks. During 2021, the
Executive Risk Committee expanded its remit to include monitoring of
ESG risks and consideration of risk appetite in relation to the Company’s
Principal Risks. The work of the Executive Risk Committee is considered
by the Audit Committee at each of its four scheduled meetings, and
informs the Audit Committee’s risk management discussions which
include annual review of the risk management framework and oversight
of internal and third-party assurance relating to the Principal Risks and
over key financial controls. Setting risk appetite and consideration of
strategic and emerging risks is performed by the Board. In line with good
governance, the Board carries out an assessment of the Company’s
Principal Risks and Uncertainties and identifies any emerging risks, at
least annually.
The Audit Committee, on behalf of the Board, also monitors the
Company’s system of risk management and internal control and
conducts a review of its effectiveness at least once a year. The review
entailed detailed consideration of the current risk assurance framework
and planned adjustments for 2022. Detailed discussion also took place
on the Company's risk and mitigating actions.
Risk Monitoring Structure
Risk Identification
Risk Management
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
e
c
n
a
r
u
s
s
a
l
a
n
r
e
t
x
e
t
n
e
d
n
e
p
e
d
n
I
Executive Risk Committee
Senior Leadership Team
Group functions
Business management
Assesses strategic risks identified
by management capable of
threatening the business model,
future performance, solvency or
liquidity in the context of the
Company’s strategy and the
interests of stakeholders and
market context.
Assesses risks and mitigating
controls using a specified scoring
system based on likelihood and
impact and reports into the Audit
Committee.
Overall responsibility for corporate
governance, internal control and
risk management and for setting
risk appetite taking into account
the expectations of stakeholders
and feedback received from
engagement activities.
Audit Committee receives updates
from Executive Risk Committee
on key risks (including information
security and cyber risks) and
assesses adequacy of controls and
risk classification and identification
processes.
Other Committees consider risk
management as it relates to their
role and priorities.
Reviews operation and design of
internal controls to ensure risks
remain within appetite.
Use knowledge of best practice,
business and market in which we
operate to assess changes in
key risks.
Responsible for ensuring that risk
management is embedded within
the business and appropriate
actions are taken to manage risk.
Applies local knowledge to identify
and assess operational risk.
Applies local knowledge to identify
and assess operational risk.
RISK HEAT MAP
High
4
6
7
1
3
2
9
8
5
High
= 2020
= 2021
Low
Impact
1 Market demand
2 Competitor risk
3 IT resilience and cyber
security
4 People
5 Health and safety
6 Supply chain
7 Legislation and regulation
8 Environmental
(incorporating climate
change)
9 Change and decision making
Headlam Group PLC Annual Report and Accounts 2021
35
d
o
o
h
i
l
e
k
L
i
58OverviewCorporate GovernanceStrategic ReportFinancial Statements
PRINCIPAL RISKS AND UNCERTAINTIES
Increased
Decreased
Unchanged
Area of risk
Potential impact
Mitigating actions
Risk
change
1
Market
demand
Market demand for products
supplied by the Company
is typically influenced by
economic conditions, and
consumer and business
confidence.
Customer ordering and
interaction preferences
continue to evolve, with a
range of preferences across
different customer groups.
2
Competitor
risk
The emergence of a
competitor or market
disruptor with a strong
business model could
undermine the Company’s
growth and financial
performance.
The Company closely monitors market activity on a daily basis at both an individual business and
Company level. This visibility allows the Company to take prompt action in response, including in
the areas of sales activity, inventory position, and cash management.
One of the Company’s strategic objectives is to broaden its presence in the industry through
growing in underweight product categories, customer groups and market segments which will
allow it to capture an increased proportion of overall market demand.
The Company closely monitors market activity on a daily basis at both an individual business and
Company level. A KPI dashboard and balanced scorecard was introduced in 2021 providing detailed
insight into the performance of each business on a standalone and comparative basis. This visibility
allows the Company to take prompt action in response at both a regional or group level, including in
the areas of sales activity, operational efficiency, inventory position, and cash management.
The Company’s Strategy (page 9) details its activities, particularly in the areas of i) ‘Organic Revenue
Growth’ (capturing a larger share of the marketplace); ii) ‘Modernisation and Digitalisation’; and iii)
‘Customer Service’, that will enable it to mitigate and outperform any variances in market demand,
including any caused by COVID-19.
The Company seeks to sustain its competitive position by maintaining close relationships with
its supplier and customer base, and continually improving its customer service propositions. The
Company has increased its customer engagement and feedback activities to have greater insight
into customer preferences to ensure its service proposition and offering remains competitive.
Through the ‘Modernisation and Digitalisation’ objectives of its Strategy, the Company has
introduced a curated suite of digital products to provide a competitive advantage. Additionally, the
Company is increasing the investment in its network and systems to improve operating efficiency
and performance both internally and for customers.
Given its importance, any
prolonged system failure has
the potential to adversely
affect business performance.
3
IT resilience
and
cyber security
Investment in IT is increasing year on year, with an ongoing investment programme incorporating
spend on infrastructure and IT security to underpin the Company’s resilience.
All critical recommendations arising from an independent security assessment following a cyber
incident in 2020 have been completed. No formal regulatory action was taken by the Information
Commissioner’s Office as a result of the incident (notwithstanding their right to revisit the matter if
anything further comes to light).
A further independent security assessment of IT systems (penetration testing) was conducted
in 2021 with no material actions recommended. Penetration testing is now being conducted
annually. All servers and PCs have 24-hour Alert Logic monitoring.
On line employee training using a third-party has been rolled out across the group, including
monthly training to increase employees’ ability to identify and reduce cyber security risks.
Board briefings on IT resilience and cyber security have increased, with three specific briefings
by senior management in 2021. This will increase to four in 2022. The two new Non-Executive
Director appointments during 2021 have enlarged the Audit Committee which has direct oversight
of IT resilience and cyber security, and have added additional knowledge and experience.
36
Headlam Group PLC Annual Report and Accounts 2021
Area of risk
Potential impact
Mitigating actions
Risk
change
4
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.
The Company is focused on improving the support to its workforce, including through cultural
development, engagement, and review of rewards and benefits. During 2021, ‘Values and
Behaviours’ and ‘Leading through Change’ workshops were rolled out across the group, as well as
conferences and training held on projects forming part of the Strategy (page 8). Enhancements
to rewards and benefits have been implemented from the beginning of 2022 along with a locally
focused community programme. Information is given within the ESG Report (page 44).
5
Health and
safety
If the Company were to
breach health and safety
laws and/or regulations it
could have a material adverse
effect on reputation, business
performance and the welfare
of its people.
6
Supply chain
7
Legislation and
regulation
The Company operates an
international supply chain, with
purchases made across EU
borders. There are numerous
regulations, and ongoing
changes to regulation.
Product supply issues
resulting from upstream raw
material shortages, like those
experienced during 2021, may
impact the Company’s ability
to service customers.
Additionally, any wrongdoing
found in its supply chain could
cause serious reputational risk
for the Company and loss of
stakeholder support.
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.
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
has improved its retention and succession plans further in 2021, particularly in job categories
where recruitment has become more competitive. Additionally, the Company is focused on
developing its Diversity, Equity and Inclusion strategy. See People on page 49.
Health and safety is a standing agenda item at Board Meetings. The Company has implemented
the recommendations arising from a commissioned independent audit, and continues to enhance
cultural awareness throughout the group including through its dedicated health and safety team
and regular audits. ISO 45001 audits have been undertaken across all the UK’s main sites as part of
the Company’s ongoing certification.
Further information on health and safety is given within the ESG Report (page 44).
As a result of the actions taken, the level of risk has been judged to have decreased.
The Company has long standing partnerships with a diverse supplier base across the globe,
and low supplier concentration. Additionally, the Company typically holds a significant inventory
position which would fulfill customer demand for a relatively long duration if there were supply
chain issues.
During 2021, the Company worked closely with its suppliers on product availability, and was able to
largely mitigate the industry wide supply issues and associated inflationary pressures, and maintain
its inventory position,
In 2021, the Company commenced an engagement programme with key suppliers, including
consideration of upcoming changes to regulation, and engaged an independent party to conduct a
full Supply Chain Risk Assessment commencing early 2022.
The Company manages its obligations through a framework of policies and procedures and, where
appropriate, engages the services of specialist third-party advisers which helps to support the
assurance process. See Audit Committee Report page 92.
During 2021, an on line compliance training portal was implemented with courses related to Anti-
Bribery, Modern Slavery and Human Trafficking, Cyber Security and Social Media Awareness being
rolled out to appropriate staff members. Further courses will be rolled out 2022.
Headlam Group PLC Annual Report and Accounts 2021
37
OverviewCorporate GovernanceStrategic ReportFinancial Statements PRINCIPAL RISKS AND UNCERTAINTIES
Increased
Decreased
Unchanged
Area of risk
Potential impact
Mitigating actions
Risk
change
8
Environmental
(incorporating
climate
change)
Ineffective response
and management of the
Company’s and overall
industry’s impact on the
environment and climate
change could lead to:
accelerating climate change;
reputational damage; loss of
stakeholder support; reduced
demand for products and
financial performance; and
financial penalties.
Since the publication of its first ESG Strategy Report in May 2021, which set out initial focuses and
broader ambitions in sustainability and ESG, the Company has focused on its development and
provided updates on its actions, including in the area of the environment, namely how it will:
i)
reduce its contribution to Greenhouse Gas (‘GHG’) emissions and climate change;
ii) become a more sustainable business; and
iii)
increase the sustainability of the overall floorcoverings industry through engagement and
example, and support the future transition to a circular economy.
Full details are given within the ESG Report (page 44), which includes the Company’s Task Force on
Climate-related Financial Disclosures (‘TCFD’).
The Board has primary oversight of ESG, including environmental approach and actions.
Given the increasing regulation / legislation in relation to the environment, and increased
focus on climate change (including regulatory disclosures in relation to climate-related risks
and opportunities), the level of risk has been judged to have increased.
9
Change and
decision
making
The Company has been
implementing a business
change strategy across the
group, which has increased
the level of change and
decision making in the
organisation. This change
strategy must be sustained
without impact on underlying
business performance.
Certain projects under the business change strategy were largely enacted during 2021, with others
becoming more embedded across the group and ‘business as usual’.
During 2021 ‘Leading through Change’ workshops were rolled-out across the group, as well as
conferences and training being held for employees on strategic projects. Additionally, expertise
was brought into the group to support existing employees and project implementation. There has
been an increased focus on internal communications, and also regular communication with other
stakeholder groups effected by proposed and implemented changes. See further information
within Stakeholder Engagement and Section 172 Statement on page 42.
The Board has direct oversight of strategy, and the projects supporting its delivery, with the new
Board appointments during 2021 increasing oversight and adding additional expertise.
Emerging Risks
Of the emerging risks facing the Company, only one has been assessed as being of any significance, ‘Impact of digitalisation’, albeit not currently
material and not judged in any way a Principal Risk. The ‘Impact of digitalisation’ refers predominately to changes in end-consumer ordering
preferences and their use of online only retailers instead of the Company’s more traditional customer base. However, online only retailers make up
a very small proportion of the market, and this is not anticipated to increase materially due to the technical expertise needed to assess and fit the
majority of floorings, and end-consumers wishing to interact and physically see products before engaging with a third-party to fit their flooring.
38
Headlam Group PLC Annual Report and Accounts 2021
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 2024, was chosen for the
purpose of the viability assessment, consistent with prior years and
consistent with the Company’s three year rolling strategy plan, which
includes investment opportunities and which is used to evaluate liquidity.
Scenario B – Economic Crisis
Scenario B is modelled on the basis of a V-shaped economic crisis and
then recovery, similar to the overall impact of COVID-19 observed in 2020
and 2021, such that revenues decrease 15% year-on-year followed by a
recovery in following years. The majority of the 2022 decline is modelled to
be recovered in 2023, with year-on-year revenue growth of 13%, and the
remainder recovered in 2024.
In this scenario, even in the absence of any significant mitigating actions,
the Group continues to operate within its current banking facilities, as
detailed below, and the covenant restrictions set out therein.
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 groupwide
principal risks as set out in the Risk Management, Principal Risks and
Uncertainties section on page 34.
In light of the Group’s competitive position, corporate governance
controls, mitigating actions and factors within its control, it is the
Board’s opinion that it is unlikely that any of the individual risks other
than market demand could compromise the Group’s viability in the
assessment period.
The identified principal risks included that related to environmental
(including climate change). It is the Board’s opinion that environmental
risks are unlikely to compromise the Group’s viability over the assessment
period, including due to the timing of any new potential legislation, or
significant changes in consumer preferences towards more sustainable
products that cannot be mitigated by the Company reflecting this in its
product offering. The actions the Company is taking in relation to the
environment are detailed on page 38.
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.
The Board considers that there are two severe but plausible scenarios
which have the potential to threaten the viability of the Group: a
sustained recessionary environment, characterised by a long period of
underperformance throughout the assessment period; and an economic
crisis with a sharp decline in demand in the first year before a recovery.
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
in 2022 decline 4.0% compared with 2021 and then remain flat during
2023 and 2024. This scenario is judged severe against a base model that
assumes growth over the assessment period.
In this scenario, even in the absence of any significant mitigating actions,
the Group continues to operate within its current banking facilities, as
detailed below, and the covenant restrictions set out therein.
Reverse Stress Test
The Directors have also considered a less likely, not plausible, more
severe scenario where the Company experiences a revenue year-on-
year decline of 23% in 2022 (reverse stress test). In 2020, when the
Company had COVID-19 related temporary closures of operations,
revenue in the year only declined 15% against 2019. In this scenario,
the Group continues to operate within its current banking facilities,
as refinanced on 17 January 2022 and detailed below, and covenant
restrictions. However, should the reduction in revenue be greater than
this, the Board would need to take mitigating actions to remain within its
banking covenants.
Mitigating actions, which are within the Board and management’s control,
include a reduction in the cost base to better align it with market demand
and revenue performance, suspension of ordinary dividend(s), and a
freeze on non-critical capital spend. These actions are not included in any
of the scenarios modelled, but were effectively implemented during 2020
following the initial impact of COVID-19.
Banking Facilities and Headroom
As at 31 December 2021, the Company had a net funds position
excluding lease liabilities of £53.7 million, and had total banking facilities
available of £104.8 million, including £76.6 million of committed facilities,
and of which £97.3 million was undrawn.
On 17 January 2022 the Company refinanced and extended its banking
facilities, which now expire in October 2026. At 2 March 2022, the Company
had total banking facilities available of £110.5 million, including £81.5 million of
committed facilities, and of which £109.7 million was undrawn. Cash outflows
relating to the final ordinary dividend payment in May 2022 of £7.3 million and
surplus capital return as detailed in page 18 will reduce the net funds position
by a total of £37.3 million.
Based on the 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.
Confirmation of Longer-Term Viability
Based on the results from these 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.
Headlam Group PLC Annual Report and Accounts 2021
39
OverviewCorporate GovernanceStrategic ReportFinancial Statements STAKEHOLDER ENGAGEMENT
AND SECTION 172 STATEMENT
Introduction
The Directors of the Company are required by Section 172 of the
Companies Act 2006 to act in a way that promotes the success of the
Company for the benefit of stakeholders as a whole and in doing so, they
must also have regard to wider expectations of responsible business
behaviour, specifically:
• the likely consequences of any decision in the long term;
• the interests of the Company’s people;
• the need to foster the Company’s business relationships with
suppliers, customers and others;
• the impact of the Company’s operations on the community and the
environment;
• the desirability of the Company maintaining a reputation for high
standards of business conduct; and
• the need to act fairly as between members of the Company.
Key stakeholders and stakeholder engagement
The Board understands the importance of engagement with its key
stakeholders as only through engagement can it truly understand their
needs and concerns to support its decision making, and the likely impact
of those decisions on each stakeholder group. The Company uses a
variety of methods to engage, both formally and informally, believing that
much can be gained from personal interaction.
The Board acknowledges that situations may arise where stakeholder
groups have conflicting priorities. In these circumstances the Board
seeks to understand the needs and priorities of each group, and assess
them individually and collectively from the perspective of achieving
its strategic objectives and the long-term sustainable success of the
business.
The Board considers the stakeholders most relevant to the Company’s
Business Model (page 30) and delivery of its Strategy (page 8) to be (in
no particular order): its people; customers; suppliers; and shareholders
(collectively the ‘key stakeholders’).
People
The knowledge, expertise and commitment of the Company’s
people supports the customer service proposition, and ultimately the
profitability and success of the business. The methods the Company
uses to engage with its people is detailed within the ESG Report (page
44). The Board receives regular updates from these engagements at
Board Meetings, including from the Employee Forum which has Board
representation. Additionally, Board members engage in more informal
site visits, where they interact with the Company’s people to understand
their views in person.
Customers
Customers are at the heart of the Company’s business as without
them there would be no business to operate. Through providing
customers with market leading service and solutions, the Company is
best placed to achieve long-term sustainable growth. The methods the
Company uses to engage with its customers include regular customer
surveys, focus groups, and dedicated customer teams. The results of
these engagement methods are reported to the Board for their wider
understanding and decision making process.
Suppliers
The Company’s relationships with suppliers are key to ensuring the
Company can supply the right product at a competitive price in a timely
manner to meet its customers’ needs. The methods the Company
uses to engage with its suppliers is detailed within the ESG Report (page
44) and the Company’s Modern Slavery Statement (available at www.
headlam.com), and includes physical meetings at both the Company’s
and supplier’s sites. In 2021, the Company engaged with suppliers on
a number of key areas, including: joint business plans and supply chain
efficiencies; changes to regulation (including upcoming); sustainability
ambitions; and supply chain risk assessment.
Shareholders
Shareholders own the Company through their ownership of shares in the
Company. It is important that the Board is aware and evaluates their views
on the operation, and strategic and corporate objectives, of the Company.
The methods the Company uses to engage with its shareholders is
detailed with the Corporate Governance Report (page 62).
Engagement on Key Strategic Decisions
Detailed in the table on pages 41 and 42 are, in the Board’s opinion, the
top six key strategic decisions taken in the year; the strategic rationale for
those decisions; how the Company engaged with and sought to consider
the key stakeholders most directly impact; and outcomes. The Board,
together with the Executive Team, has responsibility for setting strategy
and monitoring its delivery.
All the key strategic decisions were considered at Board level, and taken
to support delivery of the Company’s Purpose and Strategy (page 8) and
which can be encapsulated by the fundamental aims of:
• Market leading customer service propositions
• Organic revenue growth outperformance against historic levels
•
Improved operating efficiency, and achievement of stated 7.5% UK
underlying operating margin run-rate in 2023
• Supporting its people, including through cultural development,
engagement, and investment.
40
Headlam Group PLC Annual Report and Accounts 2021
P – People C – Customers S – Suppliers Sh – Shareholders
Key strategic decision
(no particular order)
Strategic rationale for
decision
Key stakeholders most
directly impacted
Organic Revenue
Growth
Actively target a larger
share of overall £3 billion*
UK market
Board Changes
Changes and additions to
the Board
C – Compelling and
tailored service
propositions for a larger
proportion of the market.
P – New teams and
processes put in place
to support delivery.
Utilising an increased
group approach to
customer targeting.
All – The Company’s
strategic and corporate
objectives, and delivery of,
impact all key
stakeholders.
Presents significant
organic revenue growth
opportunities which have
not previously been
actively pursued.
Opportunity to
outperform.
To be delivered through
various concurrent
projects, including:
multiple retailers
targeting, trade counter
network roll out, and
digitalisation strategy.
To bring further skills on to
the Board to increase the
evaluation and oversight
of the Company’s
strategy and corporate
objectives, and their
timely delivery.
Independent search
process instigated for a
new Chief Executive to
drive delivery of the
strategy, and focus on
maximising the
opportunities available.
Modernisation and
Digitalisation
Modernisation of systems
and processes, and launch
of digital products
To improve servicing and
offering to customers.
Make operations more
efficient, and lowering of
the cost to serve.
Enhancement and launch
of a curated suite of digital
products to support
revenue growth and
provide competitive
advantage.
C – Benefit from more
efficient way of doing
business with the
Company, with additional
tools to support their own
businesses.
P – New teams, systems
and processes put in
place to support the
digital strategy.
Engagement with,
and consideration of,
those most impacted
Improved service
propositions for all
customer groups,
including established
groups. New app
launched and trade
counter ‘blueprint’
developed based on
customer feedback.
Expertise brought in to
provide support, with
conferences and training
on revenue growth
projects.
Considered feedback
from shareholders on
Board composition,
including most relevant
skills and experience.
New Board members
engaging with a wide
variety of key stakeholder
groups, including through
Capital Markets Day held
in 2021 and increased site
visits.
Chief Financial Officer
becoming Interim Chief
Executive to ensure
continuity.
Trialling, and user testing
before launch(es), making
changes based on
customer feedback.
Expertise brought in to
provide support, with
conferences and training.
Outcome(s)
Good feedback from both
customers and the Company’s
people.
Initial new customer wins in
multiple retailers customer
group. Good take up of app,
and initial data confirming
‘blueprint’ trade counters
outperforming.
Two new independent
Non-Executive Directors
appointed, both with extensive
executive experience leading
growth and customer-led
strategies.
Appointments assist in the
continued development of
internal controls, including risk
management.
Good customer feedback and
take up of digital products.
See Chief Executive’s Review
(page 15)
*Source: LEK Consulting, 2020, calculated at distributors’ selling price and inclusive of sales direct from manufacturers
Headlam Group PLC Annual Report and Accounts 2021
41
OverviewCorporate GovernanceStrategic ReportFinancial Statements STAKEHOLDER ENGAGEMENT
AND SECTION 172 STATEMENT
Key strategic decision
(no particular order)
Strategic rationale for
decision
Key stakeholders most
directly impacted
ESG Strategy
Publication and
implementation of a
formalised ESG Strategy
To increase the
sustainability of the
Company to support its
long-term success for the
benefit of all stakeholders.
To have an established
approach to capturing
opportunity and
managing risk.
To remain a viable
investment proposition.
Reward / Benefits
and Culture
Changes to certain
rewards and benefits.
Focus on delivering
cultural development.
Restructurings
Both business and
infrastructure
restructurings.
Associated headcount
reductions.
Changes made, including
to pension and bonus
provisions, to: i) engender
a more collaborative and
‘group success’ approach;
ii) create consistency and
fairness across the group;
and iii) move to best
practice.
Delivering cultural change
will better support people,
and the successful
delivery of the strategy.
To improve the efficiency
of the business, giving rise
to cost savings and
offsetting of cost inflation.
Consolidation of delivery
operations and network
(including through
property disposals).
Move effectively aligning
headcount with seasonal
trading patterns, and
customer servicing
requirements /
preferences.
Sh – Increasing
sustainability and
regulations likely to lead to
ESG related increases in
costs.
S – Sustainability
requirements and new
regulations likely leading
to more complex
operational dealings, but
scope to deepen
partnership approach.
P – i) Likely more complex
operational dealings, ii)
increasing training
requirements, and iii)
additional working
environment
considerations.
P – Recent employee
surveys and workshops
signalled that feeling
valued and rewarded was
most important to the
Company’s people.
Additionally, it was felt
there was an absence of
communication.
Any change to reward /
benefits is an emotive
subject for people.
P – People have been
through a period of
considerable change due
to both implementation
of the business change
strategy and impact and
consequences of
COVID-19.
Outcome(s)
Stakeholder groups signalling
approval of the Company’s
initial ESG strategy, and actions.
However, certain groups
requesting increased level of
disclosure and target setting,
as addressed in the ESG
Report (pages 44 to 56)
Investment in internal
communications, training and
workshops.
Improvements to rewards /
benefits coming into effect in
2022 include: i) enhanced and
harmonised holiday
entitlement; ii) equal sick pay;
and iii) cost of living pay
increase.
No further restructurings
currently anticipated under the
business change strategy, with
that communicated
throughout the business.
Close dialogue with business
leaders concerning their
trading performances and
resourcing requirements.
Engagement with,
and consideration of,
those most impacted
Consultation with both
internal and external
stakeholders on most
material ESG issues.
Increased communication
with all stakeholders on
ESG matters, including
suppliers on activity in
relation to sustainability
and regulation.
Increased training for
people, and
communications
programme to explain and
embed ESG throughout
the business.
Consultation with
affected people allowing
for evaluation of
feedback. Support and
mitigation put in place for
those most affected by
changes.
Emphasis placed on
communications, and
utilisation of various
channels including the
‘Myhub’ employee
engagement portal
launched in 2021.
‘Values and Behaviours’
and ‘Leading through
Change’ workshops
across the group.
External expertise and
training / workshops to
support people in relation
to changes, including to
delivery operations
(‘Transport Integration’).
Consultation with people
affected by restructurings,
allowing for feedback to be
evaluated.
Sought to fill existing
vacancies, where possible,
with those affected by
restructurings.
42
Headlam Group PLC Annual Report and Accounts 2021
P – People C – Customers S – Suppliers Sh – Shareholders
MARKETPLACE
RESPONDING
to industry issues
KEY FEATURES OF THE
MARKETPLACE IN 2021
Operating largely unafected by COVID-19
Despite the ongoing impact of COVID-19 and related issues, including
further lockdowns and closure of UK non-essential retail businesses from
January to April 2021, the Company and its customer base managed to
operate effectively throughout the year with minimal interruption.
Headlam’s overall revenue performance in 2021 was remarkably
unaffected by COVID-19, having rebounded strongly from the first
half of 2020 which was significantly impacted by COVID-19, with a
subsequent recovery to pre-pandemic levels. However, for Headlam and
the marketplace generally, the commercial sector performed poorly and
the Company’s overall revenue performance was maintained through a
robust residential sector and inflationary environment (described below)
helping to offset a persistently weak commercial sector. Commercial
sector activity – characterised by larger-scale projects, longer lead-
times, and private / public subsidies – has a greater tendency to be
deferred or meaningfully reduced due to economic backdrops or
forecasts. Conversely, residential sector activity is largely comprised
of a high volume of very small, mostly discretionary spend, orders by
end-consumers. During 2021, the residential sector continued to be
a beneficiary of COVID-19 as end-consumers continued to focus on
home-improvements, albeit its positive performance softened in the
second half of the year.
Increased engagement on sustainability
The issue of sustainability became ever more prevalent and discussed
within the industry during 2021 as participants increasingly focused
on efforts to move themselves and the industry as a whole towards a
more sustainable position. Headlam increased its engagement with
all its stakeholders on sustainability matters and its specific ambitions
(as detailed in the ESG Report on page 44). Due to the collaborative
approach needed to support change in the industry, engagement
with suppliers on sustainability is key, and the Company’s areas of
engagement with suppliers during the year included:
• Changes in UK regulations (implemented and forthcoming)
• Promotion of sustainable products into the industry
• Environmental impact (emissions and recycling / product
take-back schemes)
• Supply chain risk (including ensuring free from modern slavery and
human trafficking)
• Joint business plans and improving supply chain efficiencies
In relation to customers, feedback from Headlam’s bi-annual customer
survey of which sustainability is a part continued to indicate that a
large proportion of the market and customer base was yet to assign a
premium to recyclable products, with low interest, particularly among
residential sector customers, in paying a premium for sustainable flooring
options. However, this is anticipated to change over the medium-term,
with a steadily growing interest supported by changes in regulation and
advances in technology reducing price points.
Industry-wide supply issues
Product supply issues as a result of upstream material shortages, some
of which were caused or exacerbated by COVID-19 related issues, were
a particular feature of the marketplace in 2021. These supply issues
gave rise to significant double digit price increases for certain product
categories. However, as is typical of the industry, these price increases
are passed directly into the marketplace, with them being absorbed
as demand for floorcoverings tends to be inelastic to price increases
due to the relative infrequency of purchase by the end-consumer and
proliferation of product at all price points. A positive of the inflationary
environment was that it enabled Headlam to maintain its overall
revenue performance in the year by offsetting volume weakness in the
commercial sector.
Through working closely with its suppliers on product availability, Headlam
was able to largely mitigate the supply issues and maintain its inventory
position. Having the broadest product offering in the marketplace is a key
competitive strength, however, product duplication and proliferation is
a feature of the industry, and leads to an unnecessarily large number of
SKUs. During the last three years Headlam has been focused on improving
the profile of its inventory to give it a greater source of competitive and
financial advantage for the benefit of its stakeholders. This includes:
reducing the proportion of slow-moving stock and associated risk of
obsolescence; improving the capacity for and availability of fastest-
moving products; more efficient product category plans with suppliers;
and more effective overall working capital management.
Headlam Group PLC Annual Report and Accounts 2021
43
OverviewCorporate GovernanceStrategic ReportFinancial Statements
ESG REPORT
TANGIBLE PROGRESS
being made
Introduction
Headlam published its first ESG (Environmental, Social and Governance)
Strategy Report in 2021, which outlined the Company’s initial
sustainability ambitions. The following is the Company’s first full-form
ESG Report.
Through collaboration with its people and external stakeholders, the
Company has identified three core focuses under its ESG strategy:
• Reduce the Company’s contribution to greenhouse gas (‘GHG’)
emissions and climate change;
• Become a more sustainable business, including through cultural
development and by increasing oversight of ESG related risks and
opportunities; and
•
Increase the sustainability of the overall floorcoverings industry
through engagement and example, and support the future transition
to a circular economy.
Outlined on pages 46 to 48 are the Company’s actions to-date to
address these focuses, with metrics, indicators, and targets provided
to enable measurement of progress. The Company is committed to
providing an update on ESG actions and future considerations on a bi-
annual basis, with a full-form update being published alongside Annual
Report and Accounts.
Foundational to the initiation and development of the Company’s ESG
strategy was the Materiality Assessment which was first published in
March 2021, and has been reviewed and updated for this Report (see
page 45). It has identified the Company’s most material sources of ESG
risk and opportunity (‘material issues’), and provided the platform for
the Company to develop action plans against the issues and establish
indicators to measure progress. Detail on the key material issues, and
the current main actions and future considerations in relation to each,
are given on pages 46 to 48 of this Report. Of the six key material issues,
the Company is considered to have a high influence and / or operational
control over three. During 2021, multiple actions were focused on these
‘high influence’ issues alongside the progression of important scoping
work on the other three issues where a collaborative approach with other
industry participants is required to effect change (namely ‘End-of-life
disposal’, ‘Supply chain risk’ and to a lesser degree ‘Emissions: internal’).
Much has been done in the area of protecting and supporting the
Company’s people, covering the broad spectrum of health and safety,
cultural development, engagement, training, and rewards and benefits.
Details are given within People on page 49, with diversity, equity and
inclusion (‘DEI’) to be an area of prominent focus in 2022 as described on
page 84.
Governance and Net Zero Ambition
As detailed in the Company’s first TCFD disclosure on page 51, the
Board has primary oversight and ultimate responsibility for delivery of
the ESG strategy. Reflecting its importance, ESG is considered quarterly
by the Board and during 2022 the Company is additionally proposing to
establish an ESG Committee to assist with the more detailed aspects of
its ESG agenda.
Aligned with the commitment to developing the ESG strategy, the Board
is pleased to announce within this Report a net zero emissions* ambition
for 2035, a major milestone for the Company. In support of this, during
2022 the Company will be undertaking associated transition planning
work and next year’s full-form ESG Report will provide some detail on a
costed transition plan. Interim targets will also be expanded upon within
the Company’s bi-annual updates.
44
Headlam Group PLC Annual Report and Accounts 2021
*Scope 1 and Scope 2
TANGIBLE PROGRESS
being made
Materiality Assessment and Key Material Issues
The Materiality Assessment below follows accepted reporting
frameworks including SASB and the Global Reporting Initiative (‘GRI’).
Changes to that published in 2021 are shown, with changes to the
positioning of an issue reflecting a composite of likelihood and potential
impact of ‘raw’ ESG risk (i.e. not considering risk mitigation actions
undertaken by the Company during the last twelve months). The key
material issues previously identified have not changed, and remain:
1. Emissions: internal
2. Health and safety
3. End-of-life disposal
4. Supply chain risk
5. Governance
6. IT resilience and cyber security
One new issue of ‘Local communities’ has been added, although not
ranked amongst the key material issues. The addition reflects both its
importance and the Company’s intention to increase its actions in this
area with a locally focused community programme to be implemented
in 2022 which will build on the current Charitable Donations Policy
which supports locally focused charitable giving and involvement.
Further information is given on page 125. All of the issues identified by
the Materiality Assessment continue to be monitored, and subject to
various actions as appropriate, as part of the overall ESG strategy, with
some of them described in this Report.
High
Product
packaging
Energy management
Management of
chemicals in products
Fair business
and complicance
Emissions: lifecycle
Governance
IT resilience
and cyber
security
Consumer behaviour
Supply
chain risk
Emissions: internal
End-of-life disposal
Health and safety
Positioning
Unchanged
Changed
New
l
s
r
e
d
o
h
e
k
a
t
s
l
a
n
r
e
t
x
e
o
t
e
c
n
a
t
r
o
p
m
I
Training and education
Workforce culture
Diverse and equal opportunities
Labour practices and human rights
Local communities
Low
Importance to Headlam
Headlam’s current
influence over issue
High
Moderate
Low
Key issue
High
Headlam Group PLC Annual Report and Accounts 2021
45
OverviewCorporate GovernanceStrategic ReportFinancial Statements
Headlam’s current influence over issue
Positioning
High
Low
Moderate
Key ESG issue
Unchanged
Changed
Key Material Issues – Actions to Address
1. Emissions: internal (Captured under/as part of ‘Environmental’ Principal Risk)
GHG emissions from transportation activities (commercial and non-commercial fleet), and natural gas usage and electricity consumption
at sites
Main actions
• Transport Integration project resulting in more efficient delivery fleet (commercial vehicle) utilisation and associated
reduction in fleet number
Increasing the availability of plug-in hybrid and low emission vehicles across non-commercial fleet
•
• Promotion of energy saving actions (‘good energy behaviours’) across the group
• Auditing of sites, and upgrading of sites with more energy efficient technologies and equipment
• Promotion of less carbon intensive ordering and delivery options (i.e. sales force realignment, online ordering, trade counter
network. See Chief Executive’s Review on page 15)
A full list of the Company’s actions in relation to reducing its internal emissions are given within its publicly available
Environmental Policy (www.headlam.com)
Measurement
of progress
• Transportation (Scope 1) emissions¹ per £ of revenue (tCO2e)
p 2021: 33; 2020: 29; 2019: –
• Deliveries per commercial vehicle (see KPI on page 33)
• Target of 50% of non-commercial fleet plug-in hybrid or low emission by end of 2022 (2021: 13.5%)
Future
considerations
Initial reduction target for internal emissions
•
• Net zero emissions ambition for 2035, with associated transition planning work.
• No viable options currently to move commercial fleet to electric powered vehicles, but will continue to actively monitor the
situation
2. Health and safety (Captured under/as part of ‘Health and safety’ Principal Risk)
Safety and protection of its people, customers and necessary visitors to site. Best practice low accident rates, and leading occupational
health
Main actions
Implementing the recommendations arising from a commissioned independent audit
•
• Enhancing cultural awareness, including through the dedicated health and safety team, training and regular audits
•
• Removal from sale of certain hazard products
• Progressing of work towards achieving ISO 14001 environmental accreditation
ISO 45001 audits undertaken across all the UK’s main sites as part of the Company’s ongoing certification
The Company’s risk mitigation actions in relation to health and safety are given within Principal Risks and Uncertainties on
page 36.
Measurement
of progress
• Number of incidents (‘RIDDORs’) (see KPI on page 33)
• Number of road traffic accidents (‘RTAs’) where ‘at fault’
p 2021: 201; 2020: 197; 2019: 122 2
• Target of achieving ISO 14001 environmental accreditation by Q1 2023
Future
considerations
•
Increasing number of mental health first-aiders at all main sites
• Development of internal management performance measures
1Defined as emissions from the Company’s UK distribution commercial vehicles. Scope 1 emissions published for the first time in 2020.
2From May 2019 when accident management was introduced.
46
Headlam Group PLC Annual Report and Accounts 2021
3. End-of-life disposal (Captured under/as part of ‘Environmental’ Principal Risk)
Support the promotion of sustainable products, with associated reduction in industry waste. Through engagement and example, increase
the sustainability of overall industry, and support future transition to a circular economy
Main actions
• Working with suppliers to promote more sustainable products into the industry, and increase awareness by the
end consumer
• Supporting and engaging with industry bodies and suppliers focused on the recyclability / recycling of floorcovering
products, and reduction of floorcovering waste to landfill (including membership of Carpet Recycling UK and Recoflor)
• Bi-annual customer survey to better understand sustainability requirements and preferences
• Using only recycled plastic packaging for product across operations (i.e. all locations using regranulated polythene packaging
manufactured from 100% recycled polythene)
• Reusing of other product protective packaging (poles and wooden pallets)
A full list of the Company’s actions in relation to reducing its waste, and supporting increased sustainability in the
floorcoverings industry, are given within its publicly available Environmental Policy (www.headlam.com)
Measurement
of progress
• Recycled protective plastic packaging (see KPI on page 33)
• Launch of sustainable ‘Wool Britannia’ product range, with further launches in 2022
Future
considerations
• Review of office waste management options across the group
• Enlarged sustainable product offering, and education of sales teams
• Following advances and identification of viable solutions, investment to support recycling technologies and infrastructure
(including in relation to EPR² scheme, see TCFD on page 51)
2Extended Producer Responsibility
4. Supply chain risk (Captured under/as part of ‘Supply chain’ Principal Risk)
Ensuring supply chains are free from modern slavery and human trafficking. Engaging on industry issues (including changes in regulation
and sustainability). Capturing opportunity through strategic partnerships and improving supply chain efficiencies
Main actions
• Engagement programme with suppliers on industry sustainability issues, including changes to regulation and potential
sustainability partnerships
• Supply Chain Risk Assessment being conducted by an independent party
• Working closely with suppliers to mitigate the industry wide supply issues evident in 2021 and 2022 (as of the date of this
Report)
Improved inventory management
Increasing supply chain efficiencies, including through joint business plans, buying and deliveries
•
•
The Company’s risk mitigation actions in relation to Supply chain are given within Principal Risks and Uncertainties on page 36
Measurement
of progress
• Target of the top 50 suppliers3 assessed under the independent Supply Chain Risk Assessment by end of 2022
•
Inventory turn (see KPI on page 33)
Future
considerations
•
Implementation of a Supplier Sustainability Procurement Charter (includes defining a common set of minimum standards
and principles)
• Updated Scope 3 assessment (includes engagement with suppliers on their Scope 1 and 2 emissions, sustainability actions
and ambitions)
³By purchases, and accounting for approximately 80% of the Company’s spend with suppliers
Headlam Group PLC Annual Report and Accounts 2021
47
OverviewCorporate GovernanceStrategic ReportFinancial Statements ESG REPORT
Headlam’s current influence over issue
Positioning
High
Low
Moderate
Key ESG issue
Unchanged
Changed
5. Governance (Captured under/as part of ‘Legislation/regulation’ Principal Risk)
Strong governance and oversight, with effective structures for communicating throughout the business. Robust processes in place to both
limit any potential risks to the business and operate as effectively as possible. Openness and transparency in all dealings and communications
Main actions
• Continued focus on, and improvements to, risk management and internal control (see Risk Management on page 34)
•
Increased evaluation and oversight of governance, strategic and corporate objectives though new Non-Executive Director
appointments
• Multiple actions focused on all the identified key material issues (as detailed in this Report)
•
Increased oversight and development of ESG strategy, with timetables articulated on certain disclosures (see TCFD on
page 51)
• Third-party expert appointed to conduct a full diversity review, including a Board debate, and subsequent engagement with
internal stakeholders (see Nomination Committee Report on page 84)
• Shareholder engagement on areas including remuneration and capital allocation
A full list of the Company’s actions in relation to corporate governance are given within Corporate Governance and the
Committee Reports on pages 62 to 120
Measurement
of progress
• ESG Committee to be established in 2022 to assist the Board with the implementation of ESG strategy
• Delivery on stated strategic and corporate objectives (see pages 8 and 9)
Future
considerations
• Emission targets and commitments, and climate-related scenarios under TCFD (see TCFD on page 51)
•
•
Introduction of ESG metrics into Executive Directors flexible remuneration (see Remuneration Report on page 96)
Improve diversity at Board level and devise a Diversity, Equity and Inclusion strategy for the wider business.
6. IT resilience and cyber security (Captured under/as part of ‘IT resilience and cyber security’ Principal Risk)
Robust and flexible infrastructure to ensure protection whilst also providing operational gains. Digital enhancements and enablers to capture
customer opportunity
Main actions
Independent security assessments, with recommendations completed
Increased Board and Committee briefings and / or oversight
•
•
• New online employee training, including increasing the ability to identify and reduce cyber security risks, +1,300 individual
courses completed through online portal since launch in April 2021
• Relaunched B2B websites, with improved functionality
• Launch of new industry-leading app (see Strategy in Action on page 10)
Measurement
of progress
The Company’s risk mitigation actions in relation to IT resilience and cyber security are given within Principal Risks and
Uncertainties on page 36.
• Percentage of orders placed online, with target of 30% for digital channels (B2B websites and app)
p 2021: 22%; 2020: 19%; 2019: 11%
• Number of reportable cyber incidents
p 2021: 0; 2020: 1; 2019: 0
Future
considerations
• New functionality added to digital products
• Further digital support and enablers, including Order Management System (‘OMS’)
48
Headlam Group PLC Annual Report and Accounts 2021
People
The Company is focused on improving the support to its people,
including through cultural development, engagement, and review of
rewards and benefits. During 2021, investment was made in internal
communications, training and workshops. ‘Values and Behaviours’ and
‘Leading through Change’ workshops were rolled out across the group,
as well as conferences and training held on projects forming part of the
Strategy (page 8). These workshops and new performance management
training will continue throughout 2022, with a target of all line managers
having received training by end of Q1 2022.
Importance was placed on utilising and promoting the ‘MyHub’
engagement portal that was launched in 2021, and considering all the
feedback available to the Company including from the established
Employee Forum which acts as the formal workforce advisory panel to
the Board and met five times in 2021 (as detailed on page 68).
Throughout 2022, several changes and improvements to rewards and
benefits for the Company’s people will be implemented, including:
• Moving to one pension for all employees (Master Trust Pension,
effective 1 April 2022), providing a more generous and flexible
contribution structure, and creating consistency and fairness across
the group;
•
Introduced a common approach to bonus provisions4 for senior
management and sales leadership roles, driving a more collaborative
and ‘group success’ approach;
• Enhanced and harmonised holiday entitlement;
• Equal sick pay for all colleagues; and
• Cost of living pay increase for all employees (effective 1 January 2022).
Alongside the rewards and benefits above, the Company continues
to provide death in service benefits through the Headlam Group Life
Assurance scheme, a HM Revenue & Customs approved Save-As-
You-Earn Sharesave scheme (‘SAYE’) and an Employee Assistance
Programme which includes mental health support. The Company will
also review National Living Wage (‘NLW’) in line with the 2022 rise, and
anticipates it will only be necessary to increase a very small number of its
peoples’ base pay.
A key focus for 2022 is developing a Diversity, Equity and Inclusion
Strategy. As detailed in the Nomination Committee Report on page 79,
in order to increase diversity the Committee has appointed a third-party
expert to conduct a comprehensive baseline review across the Company
during the first half of 2022. Outcomes of this review will be discussed
by the Board, and a strategy put in place to address areas where
improvement is needed. The below table shows the gender diversity of
the Company as at 31 December 2021:
Table showing gender diversity:
Employees
Male
Female
Number of
employees at
31 December 2021
Executive
Directors
Executive
Team Managers
Other
Total
1
0
1
1
3
4
249
61
1,499
425
1,750
489
310
1,924
2,239
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 2021 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 1.8% (national average: 15.4%)
• The proportion of men and women receiving bonuses:
– HFD – men 88.9%, women 81.2%
– MCD – men 97.2%, women 93.6%
– PLC – men 0.0%, women 0.0%
495% of the workforce have a performance-related bonus opportunity available to
them without subscription, and bonus opportunities cover areas including sales and
operating profit
Headlam Group PLC Annual Report and Accounts 2021
49
OverviewCorporate GovernanceStrategic ReportFinancial Statements Local Communities
It is proposed that each site across the group will be allocated a certain
monetary amount per employee on site by the Company, with the
total to be donated to a local cause from a voted-upon shortlist, and
that this will be replicated annually. In addition to monetary donations,
charitable giving will also continue to be undertaken through donations of
floorcovering products to identified local good causes.
ESG REPORT
RIDDOR Detail
None of the 19 RIDDORs in 2021 (see KPI on page 33) resulted in serious
or ongoing life-changing injury. The below table details the type of
incidents in 2021, and the prior year.
Type of Incident
Handling
Struck by moving vehicle
Slip, trip, fall
Struck by stationary object
Fall from height
Other
Total
RIDDORs
2021
2020
6
5
4
–
4
–
3
2
6
–
–
1
19
12
As an indicator of the Company’s performance against an industry
standard, below is the Company’s RIDDORs incidence rate and frequency
rate compared against an HSE benchmark:
• Headlam’s RIDDOR incidence rate – 950 RIDDORs per 100,000
employees (compared against an HSE benchmark (from 2020/21) of
1,104 RIDDORs per 100,000 employees for ‘Warehousing and support
activities for transportation’)
• Headlam’s RIDDOR frequency rate – 4.86 RIDDORs for every
1,000,000 hours worked (compared against a HSE benchmark of 3.77
RIDDORs per 1,000,000 hours worked in ‘Transportation and storage’)
Source: www.hse.gov.uk
50
Headlam Group PLC Annual Report and Accounts 2021
Environment
Task Force on Climate-related Financial Disclosures (‘TCFD’)
This TCFD disclosure forms part of the Company’s full-form ESG Report as set out on pages 44 to 55. The table below and on pages 52 to 54 details
Headlam’s responses in alignment with the TCFD recommendations. The Company has provided responses across the TCFD pillars, and aims
to advance the maturity of its climate-related actions and disclosures on an annual basis. In this regard, the Company anticipates providing a full
qualitative scenario analysis within its next full-form ESG Report published alongside the 2022 Annual Report and Accounts, followed by a quantitative
scenario analysis published alongside the 2023 Annual Report and Accounts.
Governance
Disclosure
The Board’s oversight of
climate-related risks and
opportunities
The Board has primary oversight and ultimate responsibility for ESG strategy and performance, which includes the approach and
actions in relation to climate-related issues. ESG is considered quarterly by the Board, and four discussions took place at Board
Meetings during 2021. During 2022, the Company is proposing to establish a ESG Committee to assist the Board with the more
detailed aspects of its ESG agenda, and to hold management to account on the implementation of the ESG strategy approved by the
Board.
While ultimate responsibility for risk governance sits with the Board, the Audit Committee assists in risk oversight (as described
within Risk Management on page 34 of the 2021 Annual Report and Accounts). During 2022, ESG material issues will be reported
to the Audit Committee by the Executive Risk Committee (detailed below) and discussed at each of their quarterly meetings, with
management’s approach to mitigating risk and capturing opportunity challenged appropriately.
Management’s role in
assessing and managing
climate-related risks and
opportunities
The Company has an established Executive Risk Committee which meets quarterly and comprises the Chief Financial Officer,
members of the Executive Team, senior managers and heads of departments (including from operations and finance). Its role
is to review identified risks, including the likelihood and potential impact of each risk, establish and monitor the effectiveness of
mitigating and opportunistic actions, and consider emerging risk. During 2021, the Committee, which is supported by an external risk
management specialist, expanded its remit to include monitoring of ESG material issues (including climate-related).
During 2021, an ESG Working Group was also established. The Working Group meets monthly and is comprised of members of
the Executive Team, senior managers and department heads, with representatives reporting to the Chief Executive on outputs. Its
principal activity is the day-to-day management and delivery of projects in relation to the Company’s ESG strategy, with projects
covering actions to both mitigate climate risk and capture opportunity. The projects related to climate are detailed in the Company’s
ESG Report (pages 44 to 55).
Strategy and Risk
Management
Disclosure
The organisation’s processes
for identifying and assessing
climate-related risks
The Company’s risk governance and management processes are detailed within Risk Management, and Principal Risks and
Uncertainties on page 36 of the 2021 Annual Report and Accounts. Additionally, the Company publishes an annually updated
Materiality Assessment (on page 45 of this ESG Report). Its preparation includes a qualitative assessment of ESG risks, inclusive of
climate-related, on the composite bases of likelihood and potential impact of ‘raw’ risk. Risks considered include Transition Risks, such
as market, policy and legal (both existing and emerging), technology, and reputation, and Physical Risks (both acute and chronic). This
process allows the Company to both identify climate-related risks and opportunities and determine their relative significance to the
business.
Headlam Group PLC Annual Report and Accounts 2021
51
OverviewCorporate GovernanceStrategic ReportFinancial Statements
ESG REPORT
Strategy and Risk
Management
continued
How processes for
identifying, assessing and
managing climate-related
risks are integrated into the
organisation’s overall risk
management
The climate-related risks and
opportunities the organisation
has identified over the short,
medium and long term
The impact of climate-related
risks and opportunities on the
organisation’s business(es),
strategy and financial planning
The organisation’s processes
for managing climate-related
risks
*Extended Producer Responsibility
Disclosure
Climate-related risks are considered as part of the identified ‘Environmental (incorporating climate change)’ Principal Risk and,
therefore, integrated into the Company’s overall risk management process. However, notwithstanding the Company’s considered
relatively low exposure in the medium-term to climate-related risk as set-out in the risk table below, the Company recognises there is
more that can be done to assess and integrate specific climate-related risks into its risk management, and will undertake work in this
regard during 2022.
The below table details the Company’s key climate-related risks. Risks have been categorised in alignment with the TCFD
recommendations and with associated time horizons. Time horizons have been defined by the Company as short term (< 2 years),
medium term (2–5 years), and long term (> 5 years) for the purpose of this TCFD disclosure.
This is the Company’s first TCFD disclosure, and in future years the Company aims to explore the financial materiality of identified risks
in greater detail. Currently only the ‘Transition: Policy and Legal: EPR* scheme’ risk listed below is judged to potentially have any material
financial impact when taking into account all factors, including likelihood and potential impact.
Risk categories
Description
Impact
Mitigation actions
Transition: Market
Transitioning to more
sustainable business and
operating practices.
Time horizon: short /
medium term
Likelihood: high
Impact: low
Transition: Policy
and Legal
Financial impact of potential
new legislation / regulation.
Time horizon: medium /
long term
Likelihood: high
Impact: high
Introduces transition risk into
the business, including through
implementing new ways of
operating.
A large proportion of the ‘change’
projects are already underway,
with a number resulting in
operating efficiencies and
associated cost savings which
will help offset any related costs,
although not material.
Implementation of a potential
EPR* scheme on bulky waste
could reduce the profitably for
the Company of certain products
it sells. Likely the government will
undertake a consultation within
the next five years (although it
is considered unlikely that the
scheme would be implemented
within that period).
Dedicated internal team and control
framework in place that oversees
change projects in the business.
Actions required to implement ESG
strategy considered as part of the
annual budgeting process.
List of projects include changes to
commercial and non-commercial
fleet and operations to reduce GHG
emissions (see ESG Report).
Likely increase in sustainable
products available, and ongoing
advances in recycling technologies
and infrastructure, increasing the
proportion of products able to be
recycled over the next few years. With
associated lowering of recycling-
related costs.
Company able to use its scale and
network to be the preferred strategic
partner for suppliers, and defray costs.
52
Headlam Group PLC Annual Report and Accounts 2021
Strategy and Risk
Management
Disclosure
continued
Risk categories
Description
Impact
Mitigation actions
Transition: Market
Changing consumer
preferences.
Time horizon: medium /
long term
Likelihood: high
Impact: medium
Physical: Chronic
and Acute
Supply chain disruption.
Time horizon: long term
Likelihood: medium
Impact: medium
Low current interest among a
large proportion of consumers in
paying a premium for sustainable
flooring products, with
sustainable products making-
up a small proportion of overall
offering. This is anticipated to
change over the coming years.
Potential increase in demand for
‘hard’ flooring as a result of rise in
climate temperature.
Potential raw material shortages
due to effects of climate change,
with knock-on impact on product
supply / availability.
Physical: Chronic
and Acute
Asset damage.
Damage to physical assets as a
result of storm or flooding.
Time horizon: long term
Likelihood: low
Impact: low
Working closely with suppliers on
examining and promoting sustainable
product offerings.
Due to leading position, the
Company is best placed to promote
suppliers’ products into the market,
and can quickly alter its offering to
reflect consumer preferences.
Scale and close strategic
partnerships with suppliers should
enable the Company to preserve
levels of availability (as demonstrated
during the recent period of industry
wide supply issues).
Proliferation and homogeneous
nature of certain products allowing
for substitution options.
The Company’s assets are not
expected to be exposed to high
physical climate-related risk due to
geographies it operates in. Issue to
continue to be monitored.
As referenced above, a number of the risk mitigation actions can translate into opportunities for the Company, for example: cost
savings from efficiency-related ‘change’ projects; exclusive sustainable product offerings; ability to manage costs due to network and
scale; and being the preferred strategic partner for suppliers and other industry bodies (including recycling technology providers) due
to market leading position.
Resilience of the
organisation’s strategy, taking
into consideration different
climate-related scenarios
The Company’s main focus to date has been on the fundamentals of risk identification and development of associated mitigating
actions. Given this focus, alongside resource requirements and the considered relatively low exposure in the medium-term to climate-
related risk per the risk table disclosure above, climate-related scenarios have not been considered for this first TCFD disclosure. The
Company will continue to develop its reporting and anticipates providing a full qualitative scenario analysis within its next full-form ESG
Report published alongside the 2022 Annual Report and Accounts, followed by a quantitative scenario analysis published alongside the
2023 Annual Report and Accounts.
Headlam Group PLC Annual Report and Accounts 2021
53
OverviewCorporate GovernanceStrategic ReportFinancial Statements ESG REPORT
Task Force on Climate-related Financial Disclosures (‘TCFD’) continued
Metrics and Targets
Disclosure
Metrics used by the
organisation to assess
climate-related risks and
opportunities
Scope 1, Scope 2 and Scope
3 greenhouse (‘GHG’)
emissions, and the related
risks
Targets used by the
organisation to manage
climate-related risks
and opportunities and
performance against targets
To provide a tool to assess the Company’s progress in relation to climate-related risks and opportunities, certain KPIs and targets have
been introduced within the ESG Report. These are:
KPI
• Recycled protective plastic packaging usage (page 33)
• Deliveries per commercial vehicle (with associated reduction in fleet number) (page 33)
• Transportation (Scope 1) emissions** per £ of revenue (page 56)
Target
• Net zero emissions ambition for 2035
• Percentage of non-commercial fleet plug-in hybrid or low emission (page 46)
•
• 30% of sales coming from digital channels (less carbon intensive ordering method) (page 48)
ISO 14001 environmental accreditation (page 46)
An intensity metric is additionally given within the Company’s SECR Disclosure (page 56 of the 2021 Annual Report and Accounts).
Further KPIs and targets will be introduced in subsequent full-form ESG Reports.
The Company’s Scope 1, 2 and 3 emissions are summarised on page 55 of the ESG Report, giving comparative years where available.
The targets introduced by the Company to date are detailed above, with further targets to be introduced in subsequent ESG Reports.
The Company anticipates introducing an initial reduction target for direct internal (Scope 1 and Scope 2) GHG emissions, as well as a
costed decarbonisation transition plan to support the net zero emissions ambition, with its next ESG Report to be published alongside
the 2022 Annual Report and Accounts.
**Defined as emissions from the Company’s UK distribution commercial vehicles
54
Headlam Group PLC Annual Report and Accounts 2021
GHG emissions
As detailed within the Streamlined Energy and Carbon Reporting (‘SECR’)
disclosure on page 56 which details the Company’s Scope 1 and Scope
2 GHG (direct internal) emissions, over 80% of the Company’s internal
emissions arise from fuel sources used in its transportation commercial
fleet, with the remainder mainly accounted for by natural gas usage and
electricity consumption at sites.
Scope 3 emissions are GHG emissions that the Company is indirectly
responsible for outside its own operations – from the goods the
Company purchases to the disposal of floorcoverings once sold. In
2021, the Company conducted its first Scope 3 emissions assessment
following the GHG Protocol Corporate Value Chain (Scope 3) Accounting
Standard methodology in conjunction with its top 15 suppliers. The
assessment is available to view at www.headlam.com and is summarised
below. From this assessment the Company estimates that the sources
of its indirect GHG emissions were: 1) Manufacture of purchased goods
and services (70%); 2) End-of-life sold products (23%); and 3) Other plus
Upstream transport (7%). Also from this assessment alongside the SECR
disclosure, the Company’s indirect emissions far exceed its direct internal
emissions:
• Scope 3: 97.3% of total emissions*
• Scope 1 and 2: 2.7% of total emissions*
The Company will next engage with suppliers on a Scope 3 emissions
assessment in late 2022, and this will be performed annually thereafter.
Undertaking this work is a valuable tool to understand supply chain
emissions, and importantly engage with individual suppliers on their own
environmental / sustainability ambitions and supply chain efficiencies.
It serves as an important framework, amongst other forms of
engagement, to deepen the partnership approach with suppliers most
able to demonstrate responsible business conduct and supply chain
efficiencies.
Water
The Company is not a large consumer of water, which it primarily uses for
cleaning its commercial vehicles, and is engaged in limiting usage where
possible. Water consumption in 2021 was 31,422 cubic metres** (2020:
36,640 cubic metres).
Scope 3 emissions*:
End-of-life
sold products:
23%
Upstream
transport:
4%
Other:1
3%
Manufacture of
purchased goods
and services
70%
1 Waste generated in operation, employee commuting, capital goods, and fuel-related
activities not included in Scope 1 and 2.
Category percentages re-stated to remain consistent with reclassification of grey fleet
within Scope 3.
Headlam’s Scope 1, 2 and 3 emissions*:
Scope 1: 2.4%
Scope 2: 0.3%
Scope 3: 97.3%
Key
* Scope 1 and 2 emissions data is 2021 re-stated to remain consistent with re-classification
of grey fleet within Scope 3. Scope 3 is 2020 data, also re-stated for consistency.
Scope 3
**Excludes water consumption by the Swiss operations disposed of in 2021.
Scope 2
GHG emissions generated from purchased electricity at
Headlam’s sites
Indirect GHG emissions produced outside Headlam’s
own operations
Scope 1
Direct GHG emissions, predominantly arising from Headlam’s
transportation activities
Headlam Group PLC Annual Report and Accounts 2021
55
OverviewCorporate GovernanceStrategic ReportFinancial Statements SECR DISCLOSURE
Summary
This disclosure alongside and in conjunction with the information
contained within the ESG Report on pages 44 to 55 summarises
the energy usage, associated emissions, energy efficiency actions
being undertaken and energy performance for Headlam Group plc’s
UK operations under the government policy Streamlined Energy
and Carbon Reporting (‘SECR’), as implemented by the Companies
(Directors’ Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018. This disclosure also summarises
the methodologies utilised for all calculations related to the elements
reported under Energy and Carbon. With the energy efficiency actions
detailed in the ESG report, this disclosure fully complies with the
reporting regulations.
This disclosure, and full supporting report, has been prepared by Net
Zero Compliance (a division of Inspired Energy PLC) in conjunction
with members of Headlam’s Executive Team 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. The following figures demonstrate year on year changes in
consumption and resulting emissions for Headlam Group plc for 2021
and 2020.
Scope 1 consumption and emissions relate to the direct combustion of
natural gas, and fuels utilised for transport operations associated with
the commercial fleet. This year, to improve the granularity of Headlam’s
GHG reporting and reflect transportation emissions associated with
the grey fleet in alignment with the GHG Protocol, these emissions will
now be grouped under Scope 3 emissions (business travel). Here the
grey fleet describes the use of private vehicles for business purposes.
To ensure consistency, the previous year’s emissions have been re-
stated in alignment with this approach, and will continue to be disclosed
using this categorisation in future years. Scope 2 consumption and
emissions relate to emissions associated with purchased electricity in
day to day business operations.
Totals (UK)
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)
2021
Consumption
(kWh)
2020
Consumption
(kWh)
7,010,536
6,965,268
5,473,079
5,597,780
Transportation commercial fleet (Scope 1)
53,596,932
50,819,475
Transportation grey fleet (Scope 3)
23,693
144,414
Total
66,104,240
63,382,522
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)
2021
Consumption
(tCO2e)
2020
Consumption
(tCO2e)
1,488.55
1,002.45
1,623.88
1,029.26
Transportation commercial fleet (Scope 1)
12,694.87
12,191.07
Transportation grey fleet (Scope 3)
5.49
33.92
Total
15,191.36
14,878.07
Intensity Metric (UK)
An intensity metric of tCO2e per £m revenue has been applied for the
annual total emissions of Headlam Group plc and chosen to align with
best practice as set out by UK Government environmental reporting
guidelines. The methodology of the intensity metric calculations are
detailed below, and results of this analysis is as follows:
Intensity Metric
tCO2e/£m revenue
2021 Intensity
Metric
2020 Intensity
Metric
25.93
29.5
Reporting Methodology
Scope 1 and 2 consumption and CO2e emission data has been calculated
in line with the 2019 UK Government environmental reporting guidance.
To maintain continuity with the GHG reporting undertaken before the
implementation of SECR, only UK consumption and emissions are
included within the emissions reporting, as the majority operational base
of the Group. The intensity metric therefore is also calculated utilising the
UK revenue figure, and not the consolidated group revenue.
The following Emission Factor Databases consistent with the 2019
UK Government environmental reporting guidance have been used,
utilising the current published kWh gross calorific value (CV) and
kgCO2e emissions factors relevant for reporting year 01/01/2021 –
31/12/2021. We note that between 2020 and 2021, emissions factors
related to electricity consumption have reduced due to the increasing
decarbonisation of the grid. As such, Headlam’s carbon emissions
associated with Scope 2 have decreased between 2020 and 2021.
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 reported 2021 UK
revenue figure, and tCO2e for both individual sources and total emissions
were then divided by this figure to determine the tCO2e per metric.
The Group does not currently report its Scope 1 and 2 consumption and
CO2e emission data for its Continental European operations. The Group
disposed of its Swiss subsidiary in 2021, and the remaining French and
Dutch operations only accounted for 12.2% of total revenue in 2021
(excluding any contribution in the year from the
Swiss operation).
The ESG Report on pages 44 to 55 details the Company’s Scope 3
emissions, as well as the intention to set an initial reduction target for
Scope 1 and Scope 2 emissions, and the Company’s net zero direct
emissions (Scope 1 and Scope 2) ambition for 2035.
56
Headlam Group PLC Annual Report and Accounts 2021
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
People
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
ESG Report (page 44)
SECR Disclosure (page 56)
Corporate Governance Report (page 64)
Stakeholder Engagement and Section 172 Statement (page 40)
ESG Report (page 44)
Corporate Governance Report (page 64)
Stakeholder Engagement and Section 172 Statement (page 40)
ESG Report (page 44)
Corporate Governance Report (page 64)
Other Statutory Disclosures (page 124)
Corporate Governance Report (page 64)
Audit Committee Report (page 86)
Other Statutory Disclosures (page 121)
Business Model (page 30)
ESG Report (page 44)
Corporate Governance Report (page 64)
Audit Committee Report (page 86)
Risk Management, and Principal Risks and Uncertainties (page 34)
Key Performance Indicators (page 32)
ESG Report (page 44)
This Strategic Report was approved by the Board on 9 March 2022
and signed on its behalf by:
Chris Payne
Chief Executive
9 March 2022
Headlam Group PLC Annual Report and Accounts 2021
57
OverviewCorporate GovernanceStrategic ReportFinancial Statements BOARD OF
DIRECTORS
Committees
Audit Nomination Remuneration Denotes Chair
• Two Non-Executive Director appointments during 2021 adding extensive
experience, including developing and leading growth and customer-led strategies.
• Continued development of the risk management and internal control framework
led by the Audit Committee.
Philip Lawrence
Non-Executive
Chairman
Chris Payne
Chief Executive
and Chief Financial Officer
Keith Edelman
Independent Non-Executive Director
and Senior Independent Director
Philip was appointed a Non-Executive Director in
June 2015 and became Non-Executive Chairman on
1 June 2018, having been assessed as independent
on appointment. As announced on 8 March 2022,
Philip will step down from the Board at the AGM in
May 2022.
Philip is currently Non-Executive Chairman of
Airband Community Internet Limited, which is
majority owned by the global investment company
abrdn, 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. He helped lead the Coal
Authority into a circular economy through recovery of
waste products, and thermal energy extraction.
Board Director who has accountability for ESG.
Committees
Chris joined the Company as Chief Financial Officer in
2017, and was appointed Chief Executive on 8 March
2022. An independent search process is underway
for a Chief Financial Officer.
Previously Chris was at Biffa plc, the UK integrated
waste management company, where he was
Group Commercial Finance Director, a member
of the Group Executive Team with responsibilities
for the operational finance teams and divisional
Finance Directors, commercial pricing and leading
the M&A function. Prior to that, Chris held finance
and commercial director positions at several listed
businesses. 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 chairs the Company’s Executive Risk
Committee, and as part of this remit has lead
oversight of the identified risks relating to IT,
change and decision making.
Board Director who has accountability for health and
safety, IT resilience and cyber security, and diversity.
Keith was appointed a Non-Executive Director
in October 2018 and was appointed Senior
Independent Director on 1 January 2019. Keith will
become Non-Executive Chairman upon shareholder
approval at the AGM in May 2022
Keith is currently Non-Executive Chairman
of Revolution Bars Group Plc, and a recent
Non-Executive Director of the London Legacy
Development Corporation having stepped down in
September 2021 after 11 years. 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
public company Non-Executive roles, including
Superdry Plc, Safestore Plc, Goals Soccer Centres
plc, JE Beale Plc, Thorntons Plc, Pennpetro Energy
Plc and Altitude Group 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
58
Headlam Group PLC Annual Report & Accounts 2021
•
In line with best practice, Audit Committee comprised of only independent
Non-Executive Directors, and no Executive presence on Nomination Committee.
• Board have primary oversight of ESG strategy, including cultural development,
with commitment to furthering its scope and implementation.
Amanda Aldridge
Independent
Non-Executive Director
Simon King
Independent
Non-Executive Director
Stephen Bird
Independent
Non-Executive Director
Amanda was appointed a Non-Executive Director in
February 2018, and Chair of the Audit Committee on
1 June 2018. Amanda is currently a Non-Executive
Director and Chairs the Audit Committee of two
other listed companies, Impact Healthcare REIT plc
and The Brunner Investment Trust PLC. She also
chairs the Audit Risk and Assurance Committee
of The Low Carbon Contracts Company, an entity
owned by BEIS. Amanda spent her executive career
of some 30 years with KPMG (as a partner for 20
years) before retiring from the firm in 2017. During
this time she held a number of strategic and line
management roles. She is a Fellow of the Institute of
Chartered Accountants in England and Wales.
In addition to her non-executive experience, Amanda
has significant experience as an external auditor,
working predominately with quoted clients in the
retail and distribution sectors, and has advised
quoted companies on corporate transactions and
the assessment and remediation of internal controls.
Committees
Stephen was appointed a Non-Executive Director in
September 2021. Stephen is Group Chief Executive
of The Vitec Group plc (LSE: VTC), the international
provider of premium branded hardware products and
software solutions to the growing content creation
market, having held the position since 2009. He
was previously a Non-Executive Director of Dialight
plc (LSE: DIA), the global leader in sustainable LED
lighting for industrial applications, having stepped
down in September 2021 after nearly nine years on
the Board.
Stephen has extensive executive experience
developing successful, customer-led growth
strategies to help businesses grow and adapt to
changing markets, including leading transformational
digitalisation and customer service programmes.
Prior to joining The Vitec Group plc, Stephen was
Managing Director of Weir Oil & Gas, part of Weir
Group plc, and has held senior roles at Danaher
Corporation, Black & Decker, Unipart Group,
Hepworth plc and Technicolor Group.
Committees
Simon was appointed a Non-Executive Director in
May 2021, and is a representative on the Company’s
Employee Forum*. Simon will become Senior
Independent Director upon shareholder approval at
the AGM in May 2022.
Simon has over 35 years of executive experience.
He was most recently an Executive at Travis Perkins
plc where he held the position CEO of Wickes, one
of the UK’s leading home improvement retailers,
until 2019. Prior to that, Simon held a number of
CEO and COO positions in businesses including
Walmart, Savola Group in the Middle East, and Tesco’s
businesses in Continental Europe and Asia. Simon is a
Non-Executive Director of SIG plc, a leading supplier
of specialist building materials to trade customers,
having joined their Board in 2020. He also holds an
advisory role for the online horticulture business
Garden on a Roll.
Simon has highly relevant skills and experience in the
areas of B2B and B2C distribution, and workforce
engagement through his time managing a workforce,
and of modernising businesses for digital success.
Board Director who has accountability for Workforce
Engagement.
Committees
*The Employee Forum acts as the formal workforce
advisory panel to the Board.
Headlam Group PLC Annual Report & Accounts 2021
59
OverviewCorporate GovernanceStrategic ReportFinancial Statements EXECUTIVE
TEAM
Adrian Harris
UK Managing Director
Catherine Miles
Director of Investor Relations
and ESG
Karen Atterbury
Company Secretary
Adrian was appointed UK Managing 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 change 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 Executive Committees dedicated to
Sustainability (incorporating ESG) and Risk.
Catherine was appointed Director of Investor
Relations and 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. Prior to this she was
Communications Director and Company Secretary
at an AIM listed company, and initially worked in the
Financial PR industry.
Catherine is highly involved in both external and
internal stakeholder engagement activities, and
regulatory compliance and reporting. She heads up
the ESG function, being the day-to-day overseer
of ESG strategy, activity and reporting, and is a
member of the Executive Committees dedicated
to Sustainability (incorporating ESG) and Risk.
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 plc. 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
is a member of the Executive Risk Committee and a
trustee of the Company pension schemes.
A recruitment process is currently underway for a
People Director who will join the Executive Team
upon appointment
60
Headlam Group PLC Annual Report & Accounts 2021
Headlam Group PLC Annual Report & Accounts 2021
61
OverviewCorporate GovernanceStrategic ReportFinancial Statements CHAIRMAN’S
INTRODUCTION
to the Corporate Governance Report
Philip Lawrence Non-Executive Chairman
Good corporate governance is the
ethical conduct of business and the
foundation of success, providing a
solid base from which we build our
strategic vision and purpose
62
Headlam Group PLC Annual Report & Accounts 2021
I am pleased to present the approach your Board has taken on
Corporate Governance for the year under review. As we charted
a course through the continuing COVID-19 restrictions in 2021,
the Board has strengthened its monitoring and oversight of
the implementation of its approved strategy and operational
objectives. It takes its responsibility to ensure the necessary
resources are in place for the Company to meet its objectives
very seriously.
Board Changes in 2021
Successful companies are those led by an effective Board
comprised of directors with appropriate and compatible
skills, which are harnessed to optimise strategy, oversee
its implementation and promote long-term sustainable
success. Getting this right will generate value for shareholders
over the long-term and contribute to the wider society as a
whole. Following detailed review of our skill mix and future skill
requirements, we have taken a number of steps to strengthen the
Board during the year under review.
Following 30 years of service, Steve Wilson stepped down from
the Board, and as Chief Executive, on 6 October 2021. Over the
years Steve was fundamental to the success of the Company and
we offer him our gratitude for his dedication and contribution,
and wish him all the very best for his future success. Steve leaves
a business with more opportunity than ever before and the
Nomination Committee has led a robust and transparent search
for Steve’s successor. Chris Payne, supported by the Board and
the finance and operational teams, has provided important
continuity by agreeing to act as Interim Chief Executive in
addition to his role as Chief Financial Officer whilst a search was
undertaken.
Following a thorough search, I am delighted to confirm that the
Board has appointed Chris Payne to the role of Chief Executive
on a permanent basis. The Board believes that Chris is the best
person to drive delivery of the business change strategy as
outlined in the Strategic Report and that he will be at the forefront
of its enthusiastic implementation. We have now commenced an
independent search process for a new Chief Financial Officer.
During the year we agreed to broaden the skills and experience
on the Board and strengthen the oversight of executive
management through the addition of a further Non-Executive
Director. Alison Littley stepped down from the Board on 31
March 2021 and Keith Edelman assumed the position of Interim
Remuneration Committee Chair. We subsequently appointed
two new Independent Non-Executive Directors. Simon King
joined the Board on 14 May 2021 and brings with him a wealth
of executive retail experience, latterly as CEO of Wickes. In
addition to attending our Employee Forum, Simon has agreed to
undertake the newly created role of designated Non-Executive
Director for workforce engagement and will be a key driver in shaping its
duties over the next year. Stephen Bird joined the Board on 13 September
2021 and is currently Chief Executive of The Vitec Group plc. Stephen
has extensive executive experience developing successful, customer-
led growth strategies to help businesses grow and adapt to changing
markets, including experience of leading digital transformations and
customer service programmes. Both Simon and Stephen have already
made significant contributions to the workings of the Board and their
respective expertise and strengths will ably assist the Company in
delivering future success.
Board Changes in 2022
As announced on 8 March, we are also intending to make further changes
to the Board during 2022. After seven years at the Company, supporting
and then leading significant change in the Boardroom, the business is in a
significantly better place to grasp the opportunities of organic growth and
scale. It is my intention to step down from the Board with Keith Edelman
taking the role of Chairman from the conclusion of the AGM. Keith will
become Chair of the Nomination Committee and Simon King will take on
the roles of Senior Independent Director and Chair of the Remuneration
Committee. Simon has served on the Headlam Remuneration
Committee since appointment and previously served on a remuneration
committee for over 12 months. All of these changes will take effect
from the date of the Company’s Annual General Meeting. We have also
announced that we will look to appoint a Non-Executive Director later in
the year.
Board Evaluation
The timing of the Board changes in 2021 influenced the method by
which the Board evaluation was carried out as the Board adapted to the
circumstances. In 2020 the Board undertook a full externally facilitated
interview-based board evaluation. Given the timing of the Board changes
towards the end of the year, it was considered more appropriate to allow
the Board to properly adjust before a similar review was conducted. An
on line questionnaire-based evaluation of the Board and its committees
was therefore performed. The evaluation was externally facilitated by
the independent consultancy, Independent Audit Limited, who provided
an assessment of the results in the context of the outcomes of their
2020 review. This enabled consistency with the previous year’s review
and a more accurate reflection of achievements during the year to be
acknowledged. Further information on the process and outcomes are set
out on page 77.
Key Areas of Focus in 2021
The following have been key areas of focus for the Board during the year:
Board development and succession planning
The Board changes have refocused the skills and experience on the
Board, providing additional executive, business transformation and digital
experience in customer-centric businesses. Implementing business
development and modernisation, in addition to considering our key
stakeholders (customers being one), are key strategic objectives and
the strengthening of these skills on the Board will help with driving this
change. The Nomination Committee has discussed succession planning
for the Board and Executive Team. With our two new additions to the
Board, a new Chief Executive appointed, and the Board changes to take
place in 2022, we believe that we will have a strong Board to take the
opportunities to drive Company performance for long-term sustainable
success as they present themselves.
Strategic priorities
The Board has developed, agreed and acted in accordance with its
strategic priorities. These included developing Group strategy; driving
business performance; demonstrating leadership of cultural change;
and providing leadership on ESG. Each of these has been driven by the
Board during the year under review and further information can be found
throughout this Report. The strategic priorities for 2022 have been
developed by the Board and will focus on: continued development of
the Company’s executive leadership; refinement of Group strategy and
oversight mechanisms; leadership of ESG strategy and practice; and
cultural change.
Diversity
As a Board, we recognise the benefits that diversity of gender, ethnicity
and background can bring to the decision-making process and we are
monitoring the reports being released on this subject, including the
report prepared by the FTSE Women Leaders Review and the report by
the FRC in conjunction with the London Business School. Until 31 March
2021, the Company’s Board consisted of 1/3 female representation. With
the departure of Alison Littley and the appointment of Simon King and
Stephen Bird, female representation on the Board has reduced to 17%
(one out of six directors). When making the decision to appoint Simon
and Stephen, the Nomination Committee agreed to do so due to the
outstanding quality of both candidates.
The Board has a number of appointments to make in 2022 and through
those will improve diversity around the Board table. Further information is
outlined in the Nomination Committee Report on page 79.
Leading culture
We understand the importance of the Board leading by example and
promoting the desired culture throughout the organisation. All Board
members are expected to act with honesty and integrity and actively
promote the Group’s values and behaviours which have been rolled
out throughout the organisation during the year. A full cultural strategy
has previously been developed and approved by the Board, and its
implementation is being monitored regularly. More information is set out
on page 66.
Headlam Group PLC Annual Report & Accounts 2021
63
OverviewCorporate GovernanceStrategic ReportFinancial Statements
CORPORATE GOVERNANCE REPORT
Environmental, Social and Governance
Environmental, Social and Governance (‘ESG’) has been a major focus
during 2021. We issued our first ESG strategy report in May 2021 having
worked with our external specialist, prepared our materiality assessment,
and issued an update on our progress in November 2021. We have
committed to updating our stakeholders every six months on the
Company’s progress in ESG matters. I am delighted to include within the
ESG Report, the Company’s first reporting against TCFD guidelines.
We recognise that ESG is more than reducing carbon emissions and
requires collaboration with our key stakeholders. However, we have for
the first time announced a net zero emissions ambition by 2035. This
underlines our commitment to our corporate responsibilities.
The ESG Report is provided on pages 44 to 55.
Risk management framework
We have continued to develop our risk management framework with the
extension of the remit of the Executive Risk Committee to include the
ongoing monitoring of Principal Risks and those associated with ESG.
New terms of reference for the Executive Risk Committee have been
drafted and approved. The Board has overseen the implementation of all
critical recommendations received from the external specialist’s review
of our IT and cyber security, which was undertaken following a cyber
incident in November 2020. Further information on cyber security is
available on page 36.
Stakeholder engagement
At Headlam we recognise the importance to the business of
understanding our stakeholders. We are dedicated to bringing their views
into our decision-making process and are focussed on improvement in
this area. During the year, we have continued to operate our Employee
Forum. We have engaged with our Forum on executive pay with the results
of such engagement being reported back to the Board and Remuneration
Committee. We also engage actively with our other key stakeholders
(customers, suppliers and shareholders). Further information is outlined in
our Stakeholder Engagement and Section 172 Statement on page 40.
Key Areas of focus for 2022
We exited 2021 excited by the opportunities that lay ahead for the long-
term sustainable success of the Group. We will continue our focus on
the governance improvements we are making, especially with respect
to cultural change, diversity and the evolution of our ESG strategy and
KPI reporting which will enable us to seize opportunities as they present
themselves. We are building a culture where everyone’s contribution and
ideas are valued and then, as an organisation, we will be nimbler, more
accepting of change and consequently more successful.
I am confident that we have the correct strategy and governance
arrangements in place and your Board is looking forward to the future
with excitement and confidence.
Philip Lawrence
Non-Executive Chairman
9 March 2022
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Headlam Group PLC Annual Report & Accounts 2021
Board Leadership and
Company Purpose
Our Board is ultimately responsible
for the strategy, management,
performance and long-term
sustainable success of the Group.
Good governance is simply good
business practice and how we
underpin the achievement of our
strategic goals.
Compliance Statement
It is the Board’s view that, throughout the financial year
ended 31 December 2021, 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’) with the exception of provision 36.
Provision 36 of the Code states that the Remuneration
Committee, “should develop a formal policy for post-
employment shareholding requirements encompassing
both unvested and vested shares”. As intended and set out
in the Directors’ Remuneration Report for the year ended
31 December 2020 such a policy was developed as part
of the Remuneration Policy review and implemented and
adopted from the date of the 2021 AGM but was not applied
retrospectively. The Policy is fully outlined in the Remuneration
Committee Report on page 99.
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 121 to 125. 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.
The Corporate Governance section of this Annual Report and
Accounts explains how the Code principles have been applied.
Implementation of the Principles of the Code
Board leadership and company purpose
The Board is responsible for:
• Promoting the long-term sustainable success of the Company and establishing the Company’s
purpose, values and strategy (ensuring that its culture is aligned).
• Ensuring the necessary resources are in place to meet objectives and measure performance against
them within a framework of effective controls.
• Engaging with stakeholders to inform decisions and ensuring that workforce policies and practices
are consistent with the Company’s values and support long-term success.
Board of Directors – page 58
Leadership and purpose – page 64
Board activities during the year – page 73
Succession planning – page 83
Considering stakeholders in decision
making – page 40.
Division of responsibilities
The Chair leads the Board and is responsible for its overall effectiveness in driving the Company.
Board Roles – page 71
There is clear division of responsibilities between the leadership of the Board and the executive
leadership of the business.
The Non-Executive directors dedicate sufficient time to meet their responsibilities and provide
constructive challenge, strategic guidance, specialist advice and hold management to account.
Board policies and processes are in place to ensure that the Board functions effectively.
Division of responsibilities – page 68
Nomination Committee report – page
79
Dealing with Directors’ conflicts of
interest – page 68
Composition, succession and evaluation
Formal, rigorous and transparent procedures are in place to support Board appointments, led by the
Nomination Committee, which considers the importance of diversity in decision making.
Nomination Committee report – page
79
The Nomination Committee regularly reviews composition of the Board and Committees to ensure
appropriate combination of skills, experience and knowledge and to plan for the progressive refreshing
of the Board.
Annual evaluation of the Board’s composition, diversity and effectiveness.
Appointments to the Board – 82
Diversity Policy – page 84
Board composition – page 84
Board evaluation – page 76
Audit, risk and internal control
The Board has established formal and transparent policies and procedures to ensure the integrity of
the independence of the Group’s external audit, and to satisfy itself of the integrity Group’s financial
statements and to confirm that they represent a fair, balanced and understandable assessment of the
Company’s position and prospects.
Procedures have been established to manage risk, oversee the internal control framework and
determine the nature and extent of the principal risks the Company is willing to take in order to achieve
its long-term strategic objectives.
Audit Committee report – page 86
Fair, Balanced and Understandable
statement – page 94
Risk Management and Internal Control –
pages 34 to 38 and page 92
Remuneration
The Board, through its Remuneration Committee, determines Director and Senior Management
remuneration policies and practices and ensures they align to the Company’s purpose, values, and
promote the successful delivery of the Company’s long-term strategy.
Each element of performance related pay allows for the independent exercise of judgement and
discretion when authorising remuneration outcomes.
Controls have been implemented to ensure that no Director is involved in deciding their own
remuneration.
Remuneration Overview – page 98
Directors’ Remuneration Policy – page
99
Directors’ Annual Report on
Remuneration – page 109
Statement of implementation of
Remuneration Policy in 2022 – page 118
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements CORPORATE GOVERNANCE REPORT
Leadership and Purpose
The Board is the Company’s principal decision-making body and is
responsible for promoting the long-term sustainable success of the
Group, including generating value for shareholders and contributing
to wider society. This responsibility includes: setting the Company’s
purpose, values and strategy; reviewing and promoting the desired
organisational culture; ensuring the necessary resources are available
to meet agreed objectives; and ensuring that all of these elements are
aligned. The Company’s purpose is detailed on page 8.
A strategy day was held in September 2021 at which the Board and senior
management examined Group strategy and its vision and mission in
detail along with those members of senior management responsible for
its implementation. Not only did this allow the Board to discuss strategy
with appropriate managers in a formal setting but it also allowed for a full
question and answer session and debate.
Culture
The Board is responsible for monitoring and assessing culture. The
Chair sets the culture for the Board ensuring it is operating appropriately,
effectively and with integrity. This in turn forms the culture which the
Chief Executive, supported by the Chief Financial Officer and the
Executive Team, is responsible for embedding throughout the business.
The Board recognises that people are key to business success and
every colleague is encouraged to voice their opinion and contribute
ideas. Culture is an important element of every strategic and operational
discussion held within the boardroom or elsewhere in the business.
The performance of the Group has and will be improved by realigning
the Group’s businesses towards a much more collaborative and unified
approach. The Board wishes to preserve the local, customer focused
attributes of the culture, whilst encouraging collaboration between the
Group’s businesses with a centralised approach where it makes sense
to do so to leverage scale. To this end, various cross business interest
groups have been set up to help with the dissemination of best practice,
including forums which are job related.
Following the bottom-up culture capture exercise that was carried out
during 2020, the Board has approved a detailed people and culture
strategy which includes initiatives spanning the next three years. Board
oversight of this strategy includes a detailed update on progress every six
months with KPIs reported to the Board at each meeting from January
2022 as the culture strategy implementation gets underway. Two key
elements of the culture strategy are: the embedding of the Company’s
values and behaviours; and developing change management capability
across the site management community.
In last year’s Annual Report, we noted that we had work to do to find more
accessible and modern ways of communication with our staff. During
the year we have implemented a new employee engagement portal
(‘MyHub’) for our UK colleagues as referenced in People on page 49.
The Board has influenced Group culture in a variety of ways:
•
Increasing the focus on the health, safety and working practices of our
colleagues;
• Reviewing and revising remuneration structures for senior
management;
•
Implementing an absolute requirement to observe good business
practice and abide by applicable laws and legislation;
• Approving the people and culture strategy, and monitoring its
implementation;
• As part of the decision-making process, ensuring a focus on risk,
opportunity and the effect of decisions on stakeholders;
• Ensuring a sound system of internal controls including a fully
implemented delegation of authority matrix which details responsibility
for decision-making;
• Undertaking 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. During the year the Audit Committee requested the
strengthening of the Whistleblowing Policy with the addition of an
externally managed helpline to allow truly anonymous reports to
be filed. This will be implemented in 2022.
The Board is pleased to report that the values and behaviours have
been fully rolled out throughout the business during the year, through
workshops with management and colleagues. The members of the
Executive Team have also completed a roadshow to all site leaders
to further embed and emphasise the Company’s purpose, mission
and vision.
The Board continues to monitor culture in a number of ways in addition to
its annual cultural strategy review. During 2022, it will continue to consider
employee retention figures, health and safety performance and progress
towards its cultural aims, including KPIs, at each Board meeting. More
detailed updates will also be provided by members of the Executive Team
on specific items and from the Employee Forum following each meeting.
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Headlam Group PLC Annual Report & Accounts 2021
Environmental, Social and Governance Responsibilities
The Board is ultimately responsible for climate related issues and takes
its commitment to wider ESG matters very seriously. The past year has
seen significant progress in this area of its responsibility, noting that day
to day responsibility for ESG matters has been assigned to the Director of
Investor Relations and ESG. Working with an external specialist, the Board
has approved and overseen the development of the ESG strategy and
the preparing of a materiality assessment and has held deep dives into
various items within the wider ESG programme in addition to approving
the progress update released in November 2021.
The Board has released a full form ESG Report within this document
(page 44) and has reported its first disclosures in line with the
recommendations of the Task Force for Climate-related Financial
Disclosures (‘TCFD’) page 51. These disclosures detail our areas of
priority in relation to ESG.
During the year it has reconsidered and approved its Environmental Policy
(the ‘Policy’) which is available on the Company’s website (www.headlam.
com). The Policy sets out the Company’s ambition and approach to each
of the Company’s major areas of impact. The Company has initiatives
in place to minimise its impact in each area as detailed in the ESG
Report (page 46).
Over the next year the Board will oversee further developments in ESG,
including evolving its approach to climate-related risks. The Board will fulfil
its oversight responsibilities through detailed reports on a bi-annual basis
with any additional ad-hoc topics for discussion as arise during the year.
Philip Lawrence, the Non-Executive Chairman, is accountable for
overseeing ESG matters (including climate change), and the Board will
continue to monitor progress in this area.
During 2022, the Company will establish an ESG Committee to assist
with the more detailed aspects of its ESG agenda and to implement the
ESG strategy approved by the Board.
Relations with shareholders
Information on stakeholder, including shareholder, interaction is
contained within the Stakeholder Engagement and Section 172
Statement of the Strategic Report on pages 40 to 42.
The Board places considerable importance on communication with
shareholders. Ongoing engagement with shareholders and the wider
investment community, including analysts and investors who are
not currently shareholders, is essential to investors’ understanding
of the Company and their ability to appraise its performance and
management and consider it as an investment proposition. The principal
communication methods used to provide information to shareholders
are: regulatory announcements (including results announcements);
investor presentations; webcasts; and the Annual General Meeting
(‘AGM’). The Company offers its larger shareholders, either directly or
via its stockbrokers, face-to-face meetings or calls on a bi-annual basis
at a minimum, to present and discuss performance, strategy and other
matters. Feedback is subsequently sought and considered by the Board
after these interactions. These meetings are typically hosted by the
Executive Director(s) and the Director of Investor Relations and ESG.
The Company also retains a Financial PR and IR adviser, alongside its two
brokers, to further facilitate interaction and support its communication
with the investment community.
The Company offers larger shareholders meetings at Company locations
to help with a fuller understanding of the business and to introduce other
members of the Executive and senior teams. A Capital Markets Day for
the Company’s larger institutional shareholders was hosted by the Board
at the new Ipswich facility in July 2021. The event, which Non-Executive
Directors attended, featured presentations from managers responsible
for projects under the Company’s business change strategy on such
items as revenue growth opportunities and efficiency improvements.
Visitors also received a tour of the facility. A webcast of the event was
made available to view by all on the Company’s website along with
the presentational materials used. During 2021, the Company also
participated in events and presentations aimed specifically at private
investors.
Non-Executive Directors, including the Chairman, attend either in person
or virtually certain meetings, events and briefings where shareholders
are present in addition to the AGM, as illustrated by the Capital Markets
Day. 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. The Senior Independent Director
additionally makes himself available to meet with shareholders as and
when requested.
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 and
actions.
Annual General Meeting
In 2021, the Company recommended that shareholders did not attend
the Annual General Meeting (‘AGM’) in person due to the continuing
pandemic, but that instead shareholders should vote by proxy and follow
proceedings of the AGM remotely. Whilst the 2021 AGM was held onsite
with the Chairman, Chief Executive and Company Secretary attending
in person, all other Board members attended via video conference. The
Company made available arrangements for shareholders to engage in a
question and answer session prior to the formal business of the meeting.
Additionally, arrangements were made to allow shareholders to submit
questions by email in advance of the AGM and receive a written answer
in respect of frequently asked questions. Both of these facilities were put
in place to encourage shareholder engagement and enable questions
to be asked of the Board on the running of the Company. Voting on all
resolutions was conducted by poll.
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements CORPORATE GOVERNANCE REPORT
The Company is looking forward to being able to again welcome
shareholders physically to its 2022 AGM. The Chairman of the Board
and the Chairs of each Board Committee will be available at the meeting
location to answer shareholders’ questions which can be asked either
in person or via the online platform. The Company is again offering
shareholders the opportunity to follow the business of the meeting
remotely. More information on how to attend and ask questions, is set
out in the Notice of AGM issued as a separate document to this report,
and which is also available on the Company’s website. All shareholders
present at the AGM will have the opportunity to communicate directly
with the Board at the AGM. There will also be an opportunity to meet with
the Directors after the meeting.
Dealing with Directors’ conflicts of interest
Procedures are maintained by the Board whereby potential conflicts of
interest are reviewed regularly and upon appointment to the Board or
prior to taking on an external appointment. A review of these procedures
was undertaken during the year and it was agreed that they remained
appropriate and effective and were therefore re-approved. The operation
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 will be identified and, where appropriate, dealt with in
accordance with the Companies Act 2006 and the Company’s Articles
of Association.
A resolution on each substantially separate item will be proposed and
voting on each resolution will be taken by a poll as the Board considers
that this continues to be more representative of shareholders’ voting
intentions. 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 as soon as practicable.
Employee Forum
The Board is keen to understand the views of its stakeholders, which
importantly includes its people. Every day invaluable knowledge is
amassed by our people that we, as a business, need to understand to
inform our strategy and service propositions. It is equally important that
the Board understands the views of its colleagues on areas that directly
affect them. As a direct result of the focus we place on gathering this
information, and the involvement of our workforce in decision-making,
we continued to run our workforce advisory forum (‘Employee Forum’)
remotely throughout 2021. We will look to resume holding this in person
as soon as practicable.
The Forum, which is chaired by the Chief Executive, has proved to be an
invaluable opportunity to: discuss business plans, strategy and ideas;
assist with the dissemination of information throughout the workforce;
and keep colleagues up to date. In addition, members of the Employee
Forum are called upon to be involved in groupwide projects. Following
each meeting, an update is provided to the Board by the Non-Executive
Director who attends the Forum. The Employee Forum has been
engaged in discussions on: the new colleague communication and
benefits platform; buying and sales strategy; approach to ESG; the
alignment of executive remuneration with wider pay policy and strategy;
network and transport consolidation; business website updates; trade
counter development and the development of the myheadlam app,
amongst other things.
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 both included on a register which is maintained by the Company
Secretary and reviewed annually as it was in 2021. 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.
During the appointment process for both Simon King and Stephen Bird,
their other commitments were considered in addition to whether or
not a conflict or potential conflict would exist with the interests of the
Company. In each case, it was agreed that no potential conflict existed
and that the interests of either candidate would allow sufficient time
to be dedicated to their role with the Company. Both Directors were
subsequently appointed to the Board.
The Board does not consider that any of its Directors are overboarded.
Division of Responsibilities
The Board operates within a corporate governance framework designed
to support the achievement of long-term sustainable success. This
governance framework consists of the Board which has reserved matters
to its own judgement and delegated responsibilities to its committees
and management. The schedule of matters reserved for the Board has
been reviewed during the year and is available from the Governance
section of the Company’s website, www.headlam.com. It includes
matters relating to strategy and management, structure and capital,
financial reporting and controls, risk management and internal controls,
contracts, board membership and delegation of authority, 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.
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Headlam Group PLC Annual Report & Accounts 2021
Board and Committee structure
Group Board
Responsible for setting the Group strategy, including ESG strategy, and provides effective and entrepreneurial leadership within an
environment of strong corporate governance, culture, ethics, values, and effective risk management and 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 79
Audit Committee
To assist the Board in fulfilling
its obligations relating to the
Group’s financial reporting
practices, internal control
and risk management
framework, and its external
audit and other assurance
processes.
Page 86
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 96
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.
Executive Risk
Committee
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.
The Executive Directors are responsible for the detailed implementation
of the strategic 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.
Board balance
Until the departure of the Chief Executive in October 2021, the Board
consisted of the Non-Executive Chairman, two Executive Directors and
four Non-Executive Directors (one of whom was the Senior Independent
Director). As such, at least half the Board, excluding the Chairman, were
Non-Executive Directors in accordance with the Code. Temporarily only
one Executive Director serves on the Board, as Chris Payne performs
the dual role of, Chief Executive (previously Interim) and Chief Financial
Officer whilst the recruitment process for a new Chief Financial Officer
takes place. The Board has ensured that suitable expertise and resources
are in place to support Chris during this time and intends to appoint
an Interim Chief Financial Officer shortly while the search process
is ongoing.
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The Non-Executive Chairman and Non-Executive Directors do not
participate in any bonus, share option or pension scheme of the
Company, nor are they subject to minimum shareholding requirements.
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 stand for re-election
by shareholders annually and will do so at the 2022 AGM.
CORPORATE GOVERNANCE REPORT
The Board undertook a review of the size and balance of the Board and
confirmed that the balance achieved between Executive and Non-
Executive Directors was in compliance with the Code during the year
and, once a new CFO is appointed, appropriate to meet the business
and operational objectives. Decisions are made by the Board following
detailed consideration of the items under review and no one individual
or small group of individuals dominate the Board’s decision-making. The
Nomination Committee will keep this under review.
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 four Non-Executive Directors and, taking into account the Board’s
review of the Conflicts of Interests register, consider that all remain
independent in character and judgement and free from any business
or other relationship that could materially interfere with the exercise
of independent and objective judgement. None of the circumstances
outlined in the Code that may impair, or could appear to impair,
independence apply in the case of any Non-Executive Director. 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. Keith Edelman, who takes the role of Chairman after the
AGM was also independent upon appointment to the Board. 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.
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Headlam Group PLC Annual Report & Accounts 2021
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 in the table below:
Role
Responsibilities
Non-Executive Chairman
Philip Lawrence
• 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;
• Ensure effective communication with shareholders and other stakeholder groups;
• Participates in corporate relations activities, including with shareholders as appropriate; and
• Accountable for overseeing ESG matters and strategy.
Chief Executive
Chris Payne
• 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;
Chief Financial Ofcer
Chris Payne
(a recruitment process is
underway to fill this role on a
permanent basis)
Senior Independent
Director
Keith Edelman
• 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,
and compliance; and
• Responsible for health and safety and Group diversity initiatives.
• Responsibility for managing the Group’s financial affairs;
• Support the Chief Executive with his corporate relations responsibilities, including with shareholders;
• Chairs the Executive Risk Committee;
• Responsible for managing the Group’s I.T. department, infrastructure and cyber security;
•
In conjunction with the Executive Team and Executive Risk Committee, oversee the Group’s risk profile and risk
management process; and
• Responsible for implementing the Group’s corporate development strategy.
In addition to their 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.
Independent
Non-Executive Directors
Amanda Aldridge
Stephen Bird
Simon King
• Provide effective and constructive challenge;
• 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.
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OverviewCorporate GovernanceStrategic ReportFinancial Statements CORPORATE GOVERNANCE REPORT
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 fifteen 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, five working days prior to each meeting to allow adequate consideration of the matters
to be discussed. The Board’s meeting agenda is structured to ensure sufficient time is given to each item under consideration.
A record of Directors’ attendance at Board meetings held during the year is set out below. Committee meeting attendance is given in the relevant
Committee reports.
Directors
Philip Lawrence1
Amanda Aldridge
Stephen Bird
Keith Edelman
Simon King2
Chris Payne3
Former Directors
Alison Littley
Steve Wilson
Role
Non-Executive Chairman
Independent Non-Executive Director
Independent Non-Executive Director
Senior Independent Director
Independent Non-Executive Director
Chief Financial Officer
Independent Non-Executive Director
Chief Executive
Meetings
attended
Eligible to
attend
14
15
4
15
8
13
2
11
14
15
4
15
9
14
2
11
1 Philip Lawrence absented himself from one ad-hoc Board meeting during the year which was dealing with a matter upon which he was conflicted.
2 Simon King was unable to attend one single item ad-hoc board meeting held at short notice and submitted his views in advance of the meeting.
3 Chris Payne absented himself from one ad-hoc Board meeting during the year which was dealing with a matter upon which he was conflicted and additionally was unable to attend one
ad-hoc Board meeting held at short notice and submitted his views in advance of the meeting.
Additionally, an offsite strategy day was held with the Executive Team to
assist with the development of Group strategy and strategic objectives.
Other members of senior management responsible for certain areas
attended the strategy meeting and provided an update on various focus
areas within their remit. This provided the Board with an opportunity to
meet senior leaders in a more formal way and constructively challenge
the detailed direction of strategy implementation.
During the year under review, the Non-Executive Directors and the
Chairman regularly met without management present, usually before a
board meeting or after formalities had been concluded. Two additional
ad-hoc meetings of the Non-Executive Directors and the Chairman
took place to discuss items of importance. The Senior Independent
Director also held a meeting of the Non-Executive Directors without
management or the Chairman present.
The Board considers that it may be beneficial for the Executive Directors
to hold external directorships to broaden their experience and has
therefore approved a policy which would limit such appointments to one
Non-Executive Directorship or other significant appointment.
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Headlam Group PLC Annual Report & Accounts 2021
Board Activities in 2021
The key activities of the Board during 2021 are outlined in the following
table. The Board paid specific attention to assisting management in the
delivery of the Group’s strategic objectives and the approach taken in
relation to governance in general. Each Board meeting follows a tailored
agenda agreed in advance by the Chairman, Chief Executive, Chief
Financial Officer and Company Secretary. At each scheduled meeting,
the Board received updates from the Chief Executive, the Chief Financial
Officer in addition to reports on health and safety, specific agenda items
which included the consideration of the views of stakeholders (including
employees, suppliers, customers and shareholders) and Human
Resources. Other items are included on the Board agenda at each
meeting in accordance with the Board’s annual workplan such as culture
and ESG matters. The Board receives an update from the Company
Secretary on a quarterly basis including updates on matters of corporate
governance and ESG. Matters requiring attention between these
quarterly Company Secretarial updates are shared at the next meeting,
or between meetings as required.
Specific activities of the Board during the year under review included:
ESG and stakeholder
engagement
•
Interacted with shareholders and the
wider investment community;
• Reviewed investor relations
programme and feedback provided
by the Company’s investors,
stockbrokers and financial PR agency
plus reports on investor roadshows;
• Considered the findings of an
in-depth customer insight survey
and its impact on strategy and
operations;
• Discussed feedback from the
Employee Forum via the Chief
Executive and the NED who attends
the Forum;
• Conducted an ESG materiality
assessment; and
• Reviewed and approved the
Company’s ESG Strategy (see page
44) and Environmental Policy.
Governance and culture
• Approved a culture strategy in the
context of the Group’s strategic
aims and taking into account the
results of the culture capture
exercise;
• Participated in and reviewed the
results of an externally facilitated
Board and Committee self-
evaluation exercise and agreed
areas of focus for 2022;
• Approved the Statement of the
Responsibilities of the Chairman,
Chief Executive and Senior
Independent Director, the Schedule
of Matters Reserved for the Board
and the terms of reference of each
Board Committee;
• Reviewed and approved the Board’s
principal policies, including the
Modern Slavery Statement; and
• Reviewed the Company’s Register
of Conflicts.
Financial and performance
reporting
• Approved the Company’s annual and half-
year results;
• Reviewed the Company’s capital allocation
priorities;
• Reviewed and approved the Company’s
dividend policy;
• Approved the UK Tax Strategy;
• Reviewed the Company’s performance
against KPIs, 2022 budget, operating and
project milestones; and
• Reviewed and approved the Company’s
2022 budget.
2021 Board Activities
Operations and material
transactions
• Detailed review and approval of the
proposal to consolidate the Company’s
businesses in the South East and its
impact on stakeholders;
• Reviewed the Company’s overall business
change strategy and the planning,
trialling and roll out of each particular
project, including e-commerce approach,
transport integration, South East
consolidation and customer insight;
• Reviewed the Company’s trade counter
proposition;
• Considered post-implementation review
following the completion of operational
projects; and
• Conducted assessments of potential
acquisitions, whilst being cognisant of the
market, general economic background
and effect on (and views of) key
stakeholders.
Strategy and management
• Through detailed interaction
at Board meetings, review the
operational, people, cultural and
IT plans that underpin Company
strategy implementation;
• Approved the KPI dashboard to be
presented to each meeting; and
• Considered the impact of Company
culture on initiatives and projects.
Internal controls and risk
management
• Completed an assessment of the
Company’s emerging and principal
risks and risk appetite;
• Monitored health and safety
performance and implementation
of continual improvements to
procedures;
• Monitored the implementation of
recommendations arising out of the
external review of IT security and
ensured the completion of a further
penetration test;
• Approved the Company’s viability
statement and the timeframe over
which it should be measured;
• Approved the Company’s Anti-
Corruption and Bribery policy,
procedures on gifts & hospitality,
Fraud and Anti-Money Laundering
policy and Whistleblowing policy;
• Received and considered reports
on compliance with financial,
regulatory, corporate responsibility
and environmental commitments;
and
• Approved the Company’s insurance
programme.
Headlam Group PLC Annual Report & Accounts 2021
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Risk Management
The Board has overall responsibility for Group’s system of risk
management and internal control and for reviewing its effectiveness
and is supported in this regard by the Audit Committee and the
Executive Risk Committee.
The Executive Risk Committee meets quarterly to review and update
the centralised risk register and undertake ongoing identification of risks.
During the year the Executive Risk Committee has taken responsibility
for monitoring risks against risk appetite (which is set by the Board) and
the ongoing review of principal risks and risks relating to ESG (including
climate-related risks). The Executive Risk Committee reports on its
activities to the Audit Committee which reports to the Board following
each meeting. Response to and remediation actions in respect of any
significant control failings are considered by the Audit Committee and
reported to the Board as considered necessary. Under Board paper
guidelines implemented during the year, papers submitted to the Board
should include the risk and opportunities relating to each item under
review, allowing the Board to assess risks relating to each decision as it is
taken. The Board carries out an assessment of the Company’s principal
risks and uncertainties for the annual report and accounts and the
interim statement. This assessment includes a detailed review of each
of the Company’s principal risks including changes to the risk profile and
whether each risk is within appetite or not.
Emerging risks are considered by the Board at least annually. Further
information on the Company’s approach to risk management is available
in the strategic report on page 34 and in the Audit Committee report on
page 92.
The Directors confirm that they have carried out a robust assessment
of the principal risks and uncertainties and the emerging risks facing the
Group, including those that would threaten its business model, future
performance, solvency or liquidity. A description of these risks, together
with details of how they are managed or mitigated, is set out on pages
34 to 36. The Board considered detailed papers on the risk framework,
feedback from the Audit Committee and conducted blue-sky thinking to
identify significant new or emerging risks.
The system of risk management and internal control can only provide
reasonable and not absolute assurance against material error, loss, fraud
or breaches of laws and regulations. The system of internal control does,
however, provide reasonable assurance that potential material issues
can be identified promptly. The Audit Committee, on behalf of the Board,
monitors the Company’s system of risk management and internal control
with papers from the Executive Risk Committee at each of its meetings,
and conducts a review of its effectiveness at least once a year.
Information security risk
Information security is vital to protect Company data from loss, theft
and damage and to ensure the continuity of business operations. The
Company needs access to the data it holds in order to be able to service its
customers and run the business for the benefit of all stakeholders.
The Board has delegated to the Audit Committee responsibility for
oversight of assurance over information security as part of its risk
management oversight responsibilities. The Audit Committee is briefed
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Headlam Group PLC Annual Report & Accounts 2021
by senior management at each of its four meetings on the activities of
the Executive Risk Committee which has operational responsibility for
information security risk. The Board is also briefed regularly on information
security matters by senior management, both as part of its annual risk
management assessment and additionally as part of deep dive reviews.
During 2021, the Board was briefed three times on information security
matters. The Board has also approved an e-commerce and digital strategy
within which information security good practice is built in to the design and
delivery of projects to enhance our digital presence. An independent review
of the Company’s information security is undertaken every three years and,
in line with good practice, penetration testing is conducted annually with
the last penetration test carried out in June 2021.
The Company is mindful that many cyber attacks enter via the email
system. A monitoring solution has been implemented to limit exposure
to that form of attack and which additionally requires email recipients to
confirm on an ad-hoc basis if links are safe or not as part of their training.
Other training undertaken on cyber security includes an annual online
cyber security awareness course and regular monthly “bitesized” training.
External cyber security review
Following the cyber security incident in November 2020, the Company
engaged an external specialist to complete a review of its information
security systems. The implementation of the recommendations since
receiving the finalised report has been a focus for the Board which has
received regular updates on progress from senior management. The
Board is pleased to confirm that all critical recommendations have been
implemented successfully.
Compliance training
The Board has been monitoring the roll-out of the Company’s on
line compliance training portal. To date courses on Anti-Bribery and
Corruption, Social Media Awareness, Cyber Security and Modern Slavery
and Human Trafficking have been provided to appropriate personnel
throughout the business. Further courses will be made available during
2022. It is the intention that these courses be repeated by relevant
personnel at regular intervals.
Additionally, detailed data protection (‘GDPR’) training was delivered by
video-conference to management and other selected colleagues with
further on line awareness training to follow.
In accordance with its commitment to excellent health and safety
practice all General Managers and the Executive Team attended an IOSH
approved Safety for Executives and Directors course.
Board Oversight
Non-Executive Directors perform a key role in scrutinising and holding
management and individual Executive Directors to account against
agreed objectives. During the year the Board has continued to oversee
progress towards its operational and strategic objectives. It has
strengthened the reporting to the Board of key business KPIs and those
relating to its operational initiatives. During 2022, key ESG KPIs will
be presented to each meeting to assist with its oversight of progress
towards its ESG strategy.
The Board performs deep dives into areas of importance such as sales,
buying and e-commerce and digital, and conducts post implementation
reviews of its larger structural projects, the most recent being in relation to
South East network consolidation. At each meeting the Board challenges
management on pace and progress towards previously agreed targets.
In December, the Board considered in detail various operational initiatives,
noting the significant progress made during 2021 and the plans for
continued development in 2022. The Board challenged management
on the pace of implementation of projects with an overlay of business
risk and importance applied to each project in prioritising the various
activities. The Remuneration Committee has based the annual bonus
strategic targets partly on elements of the agreed 2022 operational plan,
reflecting the importance of achieving certain operational goals and
realising growth opportunities.
Board Induction and Training
The process for identifying and evaluating new candidates for Board
positions has been delegated to the Nomination Committee under its
terms of reference. Once a preferred candidate has been identified they
are recommended to the Board for appointment. Further information on
this process is outlined on page 82.
Induction
Upon 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 and colleagues 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 allround
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 senior colleagues, including other Directors and each member
of the Executive Team, in addition to advisers such as the Company’s
stockbrokers and auditor.
A comprehensive information pack is provided which includes (but is not
limited to):
• Background information about the Group and current strategy
documents;
• Briefings on Directors’ duties and responsibilities;
•
Information on Board meeting procedures;
• Board and committee minutes;
• Group policies;
• Matters reserved for the Board and Committee terms of reference;
• Financial budgets;
• Shareholder and other stakeholder feedback;
• Customer insights; and
• Relevant industry and financial reports.
Simon King – Induction
Describe your induction process
I followed a thorough induction process which was a combination of
meetings with Board members, senior management, site leaders and
external advisers. I was fully briefed on all aspects of strategy and
operations, including health and safety, investor and workforce
engagement, culture, governance and risk.
Who did you meet as part of your induction
process?
I spent time as part of the structured induction programme with all
Board members and members of the Executive Team to understand
strategy and areas of focus for the Group, in addition to Board
procedures and process. Outside the formal induction programme, I had
further meetings with the Company’s brokers and external audit
partner. I also met with various site leaders and other colleagues around
the business to understand the challenges they experience every day.
Did you visit any Group businesses as part of
your induction?
I visited various sites around the core distribution business, including
some of our larger sites at Ipswich, Coleshill, Mercado and Tamworth,
plus two smaller sites, Kidderminster and Thatcham. I also visited
various trade counters and our ceramics specification business, Domus.
What were your first impressions of our people?
We have some great people around the Group who are dedicated to
Headlam and to achieving excellent service for our customers. Many of
our people have dedicated themselves over many years to their local
businesses and there is a vast amount of knowledge of the flooring
industry which we as a Board are anxious to build into our decision-
making.
What specific induction did you receive for your
role on the Board Committees?
The Company Secretary provided an outline of the governance
framework including the roles and responsibilities of each of the Board
committees. I met with each of the Chairs of the Board Committees to
understand the priorities of each committee. For the Remuneration
Committee, I additionally met with FIT Remuneration Consultants LLP
(the independent adviser to the Remuneration Committee) and for the
Audit Committee, I met separately with the lead partner from the
External Auditor, PwC.
Which aspects of your induction did you find
particularly useful?
Visiting the sites around the business helped me understand the
challenges faced by the business every day and gave me a true insight
into the quality of our people and how we go about achieving our aims for
our stakeholders. Also, visiting our smaller customers on the high street
and listening to the sales team regarding relationships with multi-site
customers gave me an insight into the importance of providing a great
service and an appreciation of our customers’ views and requirements .
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The new Director is also provided with an explanation of the Company’s
financing structure and relevant statutory and regulatory guidance,
including the Code and FRC Board Effectiveness guidance.
Training and development
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.
development. Such courses included short webinars and conferences
in additional to longer term courses on items of importance including
sustainability strategies, remuneration and regulatory updates. Directors
additionally receive regular updates appropriate to the business throughout
the year as part of the Board meeting programme, which develops and
refreshes their knowledge and capabilities. During 2021, training also
included presentations by the Executive Team to the Board on items within
their remit, including ESG, branding, culture and cyber security. In addition,
the Company Secretary provides regular updates on developments in
Corporate Governance.
Training and development (as did the format of Board meetings until
later in the year) once again had to take into account the circumstances
of the continuing pandemic. Virtual seminars and on line courses run by
professional bodies on various commercial, operational and regulatory
matters were attended by the Directors as part of their ongoing
Composition, Succession and Evaluation
The Non-Executive Directors further enhance their understanding and
knowledge of the business and culture by spending time with the Executive
Directors, the Executive Team, other senior management
and colleagues.
Board Evaluation
Progress on 2020 evaluation
In the 2020 Annual Report and Accounts we reported on the external interview-based board evaluation that had been conducted by Independent
Audit Limited. The Board reviewed progress against these actions midway through the year to ensure they were being progressed and again at the end
of the year. Details of progress on the actions arising out of the 2020 evaluation are shown below:
2020 Outcomes, actions and progress
Risk Management and
non-financial controls
Culture and People
Succession Planning
Skills and Experience
2020 Outcomes
To further develop the risk
management framework and
processes.
To take a more holistic
approach to organisational
culture.
To continue the
focus on succession
planning.
To broaden the skills and
experience on the Board to
support the implementation of
future strategy.
Actions for 2021
To develop further the
conversation around strategic
risks (especially with respect to
ESG) and consider a broader
view of emerging risks.
Continue to oversee the
development of culture
and the implementation
of Group values and
behaviours.
To further develop the
Company’s approach
to succession
planning and talent
management.
Appoint an additional Non-
Executive Director with the
skills to support various
aspects of long-term Group
strategy.
Progress made
in 2021
The review of ESG related
risks has been assigned to the
Executive Risk Committee and
are subject to direct oversight
by the Audit Committee.
Emerging risks are also
considered at each Executive
Risk Committee with a further
annual review by the Board.
Group values and behaviours
have been implemented
with workshops held with
colleagues throughout
the business. The Board
has agreed and received
progress updates on its
cultural strategy.
Branch succession
plans have been
developed and senior
leader succession
plans updated.
Two new Non-Executive
Directors have been appointed
both chosen carefully for
their complimentary skills and
experience. This is already
evident in Board discussions.
A full Board skills assessment
was again completed during
the year.
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Headlam Group PLC Annual Report & Accounts 2021
2021 Board Evaluation
The Code recommends that there should be a formal and rigourous
annual evaluation of the performance of the Board and its Committees
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. Despite being outside
the FTSE350 index, the Board were in agreement to undertake an
externally facilitated self-evaluation in 2021 based on a confidential
online questionnaire. Following the successful 2020 externally facilitated
interview-based evaluation, and to maintain continuity with the
previous review, the Board again appointed Independent Audit Limited
(‘Independent Audit’) to manage the process. Independent Audit were
additionally asked to report on progress against the actions identified in
2020 and arising out of the 2021 evaluation. Independent Audit have no
other connection to the Company or its Directors.
Preparation for the evaluation included a scoping discussion between
Independent Audit and the Chairman together with the Company
Secretary. Evaluation questionnaires were approved in advance by
the Chairman and the Chairs of each Board Committee before being
circulated for completion. The questionnaire responses were anonymous
which helped to underpin their honest completion. The resulting report
was discussed in draft with the Chairman and Company Secretary,
prior to being submitted to the Board at its December 2021 meeting.
Each Committee reviewed the results of its own evaluation at their
next meeting and the Nomination Committee additionally reviewed
the results as they related to Board composition and size, diversity and
succession planning. Further detail on the Nomination Committee
deliberations can be found in the Nomination Committee report.
The effectiveness review noted the positive evolution in Board
performance in several key areas in addition to highlighting areas which
would benefit from further improvement. Following careful consideration
of the findings of the review, the Board and its committees noted a
number of strengths, including:
• financial oversight;
• committees have well-defined mandates, add value and support the
Board well in fulfilling its obligations; and
• keep up to date with governance and industry developments to stay
relevant and effective in its oversight of the business.
In line with the business and strategic plans of the Company, the
following areas were highlighted as opportunities to further enhance
Board performance:
2021 outcomes and actions
2021 Outcomes
Actions for 2022
Strategy
Culture and People
ESG
Diversity
To further the strategy
setting process,
underpinned by purpose
and values and improve
visibility of strategy
implementation.
To re-visit the purpose
and agree a method of
ongoing monitoring of its
implementation.
To further develop how the
Board considers people
and behaviours to support
the delivery of strategy.
To continue to develop
ESG approach (including
approach to climate
risk) and assimilate into
strategic decision-making.
To identify sources of
additional information on
culture and behaviours
and feed the information
into the decision-making
process.
To focus on ESG
leadership and oversight
and establish an ESG
Committee.
To continue work
to develop diversity
initiatives throughout the
organisation as a whole
and plan for diversity at
Board level.
To undertake a business-
wide diversity assessment
and develop a cohesive
plan for the furtherance of
diversity targets within the
business.
The Board discussed the report and agreed actions to take forward based on the suggestions in the report. The Company Secretary is responsible for
tracking these actions and reporting back to the Board periodically on the progress made.
Independent Audit have reviewed the disclosures made regarding the board evaluation exercise.
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements CORPORATE GOVERNANCE REPORT
Performance review of the Chairman
The Senior Independent Director, following results of the Board evaluation and consultation with other Directors, provided feedback to the Chairman
on his own performance. The output of the review noted that the Chairman was engaged and dedicated to his role. He strives to operate the Board in
a culture of trust, openness and debate, facilitating an atmosphere of challenge whilst encouraging the effective contribution of all Board members.
During the year he has been instrumental in clarifying the priorities of the Board, setting the cultural tone; and leading the development of the Board
and the induction of the new Directors.
Individual director performance reviews
As part of the annual effectiveness review of the Directors, the Chairman provided feedback to each Director on their own performance and discussed
training and development opportunities.
Following the results of the evaluation, the Board confirms that all Directors, including the Chair of the Board, continue to be effective and demonstrate
commitment to the role, including dedicating sufficient time to attend all necessary meetings and to carry out all other duties required of them.
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Headlam Group PLC Annual Report & Accounts 2021
NOMINATION COMMITTEE REPORT
Composition Succession and Evaluation continued
Chief Executive
After nearly 30 years of loyal service, Steve Wilson stepped down from
the Board as Chief Executive and Director on 6 October 2021. During the
last five years as Chief Executive, Steve pioneered the development of
our new strategy. In commencing the search for a new Chief Executive,
the Committee reviewed and updated its previously approved skills and
experience matrix required for the Chief Executive’s role and used this as
the basis for the candidate profile used in the search. Warren Partners,
who led the recruitment process, were instructed to present a diverse list
of candidates for the Committee’s consideration. Following a thorough
recruitment process, it was with great pleasure that the Nomination
Committee recommended to the Board that Chris Payne be appointed
as Chief Executive and the Board approved his appointment.
Non-Executive Director Changes
Alison Littley stepped down from the Board on 31 March 2021 by which
time an open and transparent external search process was underway
to bring an additional two Non-Executive Directors to the Board with
significant experience in related industries, developing customer led
growth strategies including leading digital transformations. Following
a robust external search carried out by Ridgeway Partners LLP, and
consideration of a diverse candidate list, the Committee was pleased to
recommend to the Board that Simon King, and subsequently Stephen
Bird, both be appointed to the Board, which it approved. Simon King and
Stephen Bird joined the Board on 14 May 2021 and 13 September 2021
respectively. Both Simon and Stephen have already made significant
contributions to the decision-making process and Board discussions.
Further information on the process undertaken for Board appointments
is shown later in this report.
Prior to and during the recruitment process, the Committee held a
full discussion on the need for gender and ethnic diversity, and we
acknowledge that while considered the best candidates, appointing
two male Non-Executive Directors has negatively affected the gender
balance on the Board. Following due and careful debate, it was considered
important to the creation of long term sustainable value for the Group
to ensure that the best candidates fitting the skill requirements were
appointed. Due to the quality of the two candidates remaining at the end
of the process, it was agreed that both should be appointed, as they each
have complimentary skills to assist the Board in driving strategy.
The Committee recognises the benefits of boardroom diversity of
gender and ethnicity and will improve diversity on the Board through the
appointments it intends to make during the year. Further information on
our approach to diversity is set out later in this Report.
Headlam Group PLC Annual Report & Accounts 2021
79
Philip Lawrence Non-Executive Chairman
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 2021. The
Nomination Committee continues to play a vital role in the stewardship
of the Company. During the year, we have taken significant decisions in
furthering our objective to strengthen the Board in pursuit of long-term
sustainable value for all stakeholders. In line with best practice, we have
amended the Committee’s membership such that the Chief Executive
is no longer a member, but attends at my invitation for appropriate items
of discussion. The Committee is therefore comprised solely of the Non-
Executive Directors with the Non-Executive Chairman as Chair.
Strengthening our Board
A key focus during the year was the performance of various evaluations of
the key skills required for the effective stewardship of the Group against
the skills present around the Board table. The Nomination Committee
has performed a leading role in the Board developments which are already
proving to have a significant impact on Board discussions.
OverviewCorporate GovernanceStrategic ReportFinancial Statements NOMINATION COMMITTEE REPORT
Priorities
In the 2020 Annual Report, we confirmed our priorities for 2021 which
helped to form our focus during the year and I am pleased to outline our
progress below:
Priorities for 2022
Over the coming year, our focus will be to:
•
• Strengthen the breadth and diversity of pipeline for Executive Team
Increase board level diversity;
and senior management succession;
• Produce a diversity plan for the business as a whole; and
•
Continue the emphasis on the Company’s succession planning, with a
focus on the development of key talent, including for board level roles
both executive and non-executive.
A year of change
This has been a year of positive Board change with more changes due
in the coming year. The Committee has performed its role making
significant decisions with the long-term success of the business and the
benefit of all stakeholders in mind. We will focus on Board composition
and ensuring appropriate development plans are in place to increase the
diversity and breadth of candidates available for senior positions. We will
strive to ensure that 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
9 March 2022
Skills
Given the importance of having the right mix of skills and experience to
achieving Group strategy, a skills review has been undertaken, including
specific assessments for each of the roles which have been recruited for
during the year. Further information on this assessment can be found
later in this report.
Succession
The succession plan for the executive directors and senior management
roles has been considered covering both contingency and long-term
succession planning. Additionally, development plans were discussed for
the internal candidates for Chief Executive succession.
By understanding our talent below senior management level, we can
more easily understand the quality of our people and how the business
supports their career development. In late 2020, the Committee
considered the succession plans in place for key operational roles.
Operational leadership and the People Director have continued to
identify talent and create development plans across the business. During
2021, the Board invited operational leads to its strategy day to experience
for itself the breadth and talent of our leadership team. This will be
supplemented in 2022 when the Board has scheduled two site visits and
presentations with senior site leadership.
Group-wide diversity
The Committee has conducted a detailed review of diversity indicators
across the business. In order to increase diversity and assist in providing
a more diverse pipeline for senior management roles, the Committee
has approved the appointment of a third-party expert to conduct a
full diversity review which will fully engage with internal stakeholders.
Following a detailed Board debate on its approach to diversity, the
outcome of this work will be a comprehensive plan to increase diversity
across the business. Developments in this area will be reported in the
2022 Annual Report.
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Headlam Group PLC Annual Report & Accounts 2021
Main Role and Key Responsibilities
The key areas of focus for the Committee are: to review the structure, size and composition of the Board (taking into consideration the outcome of the
Board evaluation exercise) 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 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.
Activities of the Nomination Committee during the year
The Nomination Committee agrees an annual workplan which is designed to cover its terms of reference across its meetings. The Committee confirms
that it has completed the items delegated to it during the year under review. In addition to matters relating specifically to its terms of reference, agendas
incorporate matters arising and topical items upon which the Nomination Committee has chosen to focus. The key activities of the Nomination
Committee during the year in discharging its principal areas of responsibility are shown below:
Skills assessment and succession
• Reviewed the skills and experience required
by the Chief Executive in the context of
wider business needs and culture, long-term
strategic objectives and stakeholder feedback;
• Assessed internal candidates for Chief
Executive succession and monitored the
implementation of development plans;
• Considered the appointment of a recruitment
agent and the candidate profile to fill the
vacancy of Chief Executive;
• Reviewed the skills and experience of
Non-Executive Directors to fully support
the achievement of the Group’s strategic
objectives;
• Reviewed succession plans for Board and
senior management;
• Conducted a thorough external review
for the appointment of two new Non-
Executive Directors and recommended their
appointment to the Board; and
• Assessed the tenure of the Non-Executive
Directors to inform the succession plan.
Reporting
• Considered and recommended to the Board
the Nomination Committee Report for
inclusion in the Annual Report and Accounts;
Nomination
Committee Activities
Governance
• Reviewed the structure, size and composition
of the Board and its Committees;
• Reviewed and updated the terms of reference
of the Committee and its annual plan;
• Reviewed the time commitment required
of Non-Executive Directors and evaluated
whether enough time was being committed to
fulfil their duties;
• Agreed that all Non-Executive Directors
(excluding the Chair) remain independent;
• Recommended the re-election of all directors
due to retire at the AGM;
• Reviewed the role descriptions of the
Chairman, Chief Executive and Senior
Independent Director;
• Commissioned a business-wide review
of diversity for 2022 with a view to a
comprehensive action plan to increase
diversity across the business; and
• Considered and reapproved the policy on
approving external appointments.
Evaluation
• Reviewed the results of the Board
effectiveness in relation to its own
performance; and
• the composition, size and diversity of the
Board and succession planning.
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements NOMINATION COMMITTEE REPORT
Membership and Attendance at Meetings Held in 2021
The Nomination Committee is chaired by Philip Lawrence. It comprises
a majority of Independent Non-Executive Directors as required
by the Code and their biographies are set out on pages 58 and 59.
Appointments to the Nomination Committee are made by the Board.
The standard procedure which the Committee has in place for
appointment to the role of Chairman or Non-Executive Director
positions, was followed during the recruitment process for the two new
Non-Executive Directors undertaken throughout the year. The procedure
is set out below:
The Nomination Committee met on nine occasions in order to fulfil its
responsibilities delegated to it by the Board (four of which were scheduled
meetings) and the table below set out its members and their attendance.
Members
Philip Lawrence
Amanda Aldridge
Stephen Bird1
Keith Edelman
Simon King1
Former Members
Alison Littley1
Steve Wilson1
Meetings
attended
Eligible to
attend
9
9
3
9
5
1
6
9
9
3
9
5
1
6
1 Stephen Bird and Simon King joined the Board on 13 September 2021 and 14 May 2021
respectively. Alison Littley and Steve Wilson stepped down from the Board on 31 March 2021
and 6 October 2021 respectively.
The Committee has reviewed its membership and has recommended
to the Board that the Committee membership consist entirely of the
Non-Executive Directors, with the Chief Executive no longer being a
member of the Committee. This composition continues to meet the
Code requirement that the majority of the members are independent
Non-Executive Directors and indeed removes all executive presence in
line with best practice.
Only members of the Nomination Committee are entitled to be present
at meetings but other Directors (including the Chief Executive), members
of the Executive Team and advisers may be invited to attend at the
discretion of the Chairman. The Company Secretary performs the role of
Secretary to the Committee.
No Director is involved in any decisions regarding their own continuation
in office, re-appointment or re-election, including the Chairman.
Board Changes and Appointment and Re-appointment
of Directors
The Committee has procedures in place for a formal, rigorous and
transparent process leading to 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.
• The Committee meets to confirm what additional skills and experience
would best support the achievement of the Company’s strategy and
agree a clear specification for the search agent, which takes into
account the outcome of that skills assessment;
• 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. In the case of the appointment of the Non-
Executive Directors in 2021, Ridgeway Partners LLP who had no other
connection to the Company or individual directors, were appointed to
manage the search process:
•
•
•
Each candidate was considered on merit against the comprehensive
candidate brief developed by the Committee;
Interviews and meetings were held with other directors;
The Committee meets to debate and if thought fit agree the
candidate(s) for recommendation to the Board; and
•
The Board discuss and confirms appointment.
With regards to the recruitment process for the new Chief Executive,
over and above the search process outlined above, the Nomination
Committee considered the possible internal candidates for appointment
and agreed that where appropriate, they should be invited take part in
the full external search process. This would ensure that the best person
for the job is appointed to this vital role. Warren Partners LLP, who had no
other connection to the Company or individual directors was appointed
to run the search process and were directed to present a diverse list of
candidates.
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 annual independence and effectiveness assessments by the
Committee and annual re-election by shareholders at the Annual General
Meeting. The letters of appointment of all Non-Executive Directors
(alongside the service contracts for the Executive Directors) are available
for inspection 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
Group’s business.
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Headlam Group PLC Annual Report & Accounts 2021
Committee Evaluation
The effectiveness of the Committee was evaluated as part of the Board
performance evaluation process (see page 76). The review found that
the Committee was operating effectively and that its role and remit
remained appropriate. The Committee discussed the output of the
Board evaluation exercise as it related to its own effectiveness and
priorities for 2022 were agreed. The Committee additionally discussed
any aspect of the 2021 Board evaluation as it related to Board size,
composition, succession planning and diversity. Cognitive / personal
strengths and board dynamics were all considered as part of the annual
board evaluation exercise. The evaluation identified succession planning
and diversity as opportunities for improvement.
Skills Assessment
The Committee leads the process to regularly assess whether there
is an appropriate blend of skills and experience on the Board to enable
the implementation of Group strategy. A formal skills assessment
has been undertaken during the year for the Chief Executive and
Non-Executive Director role holders. These are then considered by
the Committee to establish if any additional skills are required for the
successful implementation of Group Strategy as defined by the Board.
This assessment was further updated as the Committee was considering
the skills required by the additional Non-Executive Directors and at the
initiation of the search for a new Chief Executive.
The Committee, based on work completed and evidence from the Board
meetings, concluded that the skills and experience around the Board
table were generally sufficient for the implementation of Group strategy.
However, the recruitment of a Chief Executive remained a key focus.
Succession Planning
The Committee continues to believe that planning for succession is of
vital importance to ensure the long-term effectiveness and smooth
operation of the business. It additionally provides the opportunity
to further the Group’s diversity objectives through creating a truly
diverse pipeline of candidates for filling senior management positions.
Succession planning is therefore a key area of focus for the Committee
with detailed consideration 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 review of the contingency succession plan was
undertaken for Board and Executive Team roles. In addition, a discussion
was held at a meeting between the Chairman and the Non-Executive
Directors regarding their own succession plan.
The Nomination Committee considered in detail, contingency
succession planning for the Executive Directors and Executive Team,
following the departure of Steve Wilson. As part of contingent succession
planning, suitable individuals were identified who, either on their own or
together could effectively assume additional responsibilities until the
incumbent returned to their position or a successor was appointed.
Where there was no such internal candidate, plans were agreed to ensure
adequate coverage of the role could be achieved in the short-term.
The Committee is pleased to note that the contingency succession plan
was followed during the year with Chris Payne performing a dual role,
standing as Interim Chief Executive and CFO until his appointment as
Chief Executive on a permanent basis and the subsequent appointment
of a CFO.
Long-term succession planning
Executive Directors and the Executive Team
The Committee has performed a succession planning exercise for the
Executive Directors and Executive Team. 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 long-term basis.
Where no suitable internal candidate was identified, a plan was agreed as
to how the role would be filled.
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 to
Board membership over the previous three years; the departure of
the Chief Executive; the addition of two new Board members in 2021;
and the benefit of continuity following the appointment of the Chief
Financial Officer as Chief Executive. After seven years at the Company,
supporting and then leading significant change, the Chairman indicated
his intention to step down from the role. The Committee discussed the
succession of the Chairman and other Non-Executive Director roles.
Various discussions were held and it was agreed that the Chairman would
step down from the Board at the forthcoming AGM and various Board
roles would be re-allocated as announced on 8 March. Following these
changes, it was agreed that a further Non-Executive Director would be
appointed.
Succession planning throughout the organisation
The succession planning process in the broader organisation allows
active steps to be taken towards monitoring and increasing all forms of
diversity not just at board and senior management level. It additionally
provides the Committee with an insight into the strength and breadth
of talent throughout the organisation and how this is likely to affect the
ability to promote to board and senior management roles internally.
The Committee considers succession planning processes for key
operational roles and how talent was managed throughout the Group.
Following consideration in October 2020 of a detailed succession plan
for key operational roles, the Committee requested similar plans to be
developed and implemented across the business to identify talent and
create appropriate development plans.
Headlam Group PLC Annual Report & Accounts 2021
83
OverviewCorporate GovernanceStrategic ReportFinancial Statements
NOMINATION COMMITTEE REPORT
It was also agreed that opportunities would be provided for senior
management to present to the Board on items within their remit as
part of their development. This was difficult to achieve during the year
as the effects of the Covid pandemic continued. However, as meetings
began to be held face to face once again, senior managers were asked
to present to the capital markets day and to the Board at their strategy
day and additionally as part of regular Board meetings as the subjects
under discussion allowed. Additionally, key members of the finance team
attended Audit Committee meetings when invited. During the course
of 2022, the Board has committed to holding two visits (COVID-19
dependent) at which site management will be asked to give presentations
on their business and also be invited to have an informal lunch with the
Board. This will allow the Board to gain a greater understanding of the
breadth of talent across the business.
Succession planning as a 2022 focus area
The Committee has focused on succession planning over the past few
years and the 2021 Board Evaluation highlighted this as a continuing
area for development. The Committee will therefore continue to focus
on the Company’s talent management strategy by: reviewing the talent
management processes and initiatives across the UK business with the
new Chief Executive; reviewing succession planning processes and the
adequacy of the succession plans for Directors, senior management
and key operational roles; and strengthening performance management
processes throughout the business. The detailed, written succession
plan will assist in building diversity in the executive pipeline and strength of
management experience throughout the Group as a whole.
Board Size and Composition
The composition and performance of the Board and its Committees
was considered by the Nomination Committee as part of its annual
assessment and it was concluded that the Board and each Committee
continue to function effectively, with committee support being identified
as an area of strength in the Board evaluation. The vacancy for a
permanent Chief Executive (and following Chris Payne’s appointment
on a permanent basis, a Chief Financial Officer) was an area affecting
the usual balance of Executive to Non-Executive Directors on the Board.
The Chief Executive and Chief Financial Officer roles have both been
performed by Chris Payne since the departure of the previous Chief
Executive while recruitment for permanent replacements for these roles
was concluded. Chris Payne was appropriately supported by the Board
and his senior management team to minimise any effect.
The addition of a further Non-Executive Director to the Board has
increased Non-Executive presence and created additional expertise whilst
strengthening oversight and constructive challenge of the Executive.
The Committee has considered the size and composition of the Board.
Following due deliberation it was concluded that: the composition of
the Board is compliant with the provisions of the Code; is appropriate to
meet the business and operational objectives; and is sufficient to bring
a balanced and experienced view to the decision-making process. With
Philip Lawrence stepping down, it is the Board’s intention to appoint a new
Independent Non-Executive Director later in the year.
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Headlam Group PLC Annual Report & Accounts 2021
Diversity and Inclusion
The Company is committed to developing an inclusive culture with a
diverse workforce and equal opportunities for all. The Board recognises
the valuable contribution that diversity, including gender and ethnicity, can
bring to board discussions and the decision-making process. The role
of diverse perspectives in quality decision making is widely understood
by reducing the risk of groupthink and more closely reflects the wider
society in which the business operates. The Committee understands
that developing a more diverse executive pipeline throughout the
Group, is important in its aim to increase levels of diversity at senior
management and Board level. Further work will be undertaken in this
area during 2022. The Chief Executive is the champion of the Company’s
diversity and inclusion initiatives.
Board diversity policy
In accordance with DTR 7.2.3A, the Committee confirms that a Board
Diversity Policy is in place. It remains the policy that all appointments to
the Board and Executive Team should be made on merit and against
objective criteria, whilst addressing diversity considerations of the Board.
However, whilst adopting this approach, the Board’s diversity objective
is to have a broad range of age, gender, ethnicity, approach, skills,
experience and educational / professional backgrounds represented at
Board level and 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 candidates in order
to assist with the achievement of the Company’s diversity objectives,
including female candidates and candidates from ethnic minority
backgrounds.
Gender Diversity
The Company notes the increased target of 40% female representation
in board and senior leadership team positions recommended by the
Female Women Leaders Review in their report in February 2022. It also
notes the recommendation to have a female Director as either the
Chairman or Senior Independent Director, and / or as Chief Executive
or Finance Director. Whilst the Company is a constituent of the FTSE
SmallCap sitting below the FTSE 350 index and therefore not subject
to these targets, it confirms that as at 31 December 2021, 75% of the
Executive Team (excluding Executive Directors) and 42% of the Executive
Team and their direct reports were female. As at the 31 December 2021
17% of the Board was represented by female directors (1 out of 6 board
members) and this remains the same as at the date of this report.
The Board is committed to increasing gender diversity at Board level
and will act positively to seek to achieve this as part of the upcoming
recruitment of Board roles.
Following review, the Board, supported by the Nomination Committee,
is of the opinion that each Director continues to make an effective and
valuable contribution and demonstrates commitment to their role. It
therefore recommends that shareholders approve the resolutions to
be proposed to the forthcoming AGM relating to the re-election of
each Director.
Advice
The Nomination Committee has access to such information and
advice as it deems necessary, from either within the Company or
externally at the Company’s expense. This may include the appointment
of external executive search consultants or other expert advisers,
where appropriate.
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
9 March 2022
Ethnic diversity
The Committee is 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.
The Board does not currently have a director of colour or from an ethnic
minority background and does not publish specific targets on ethnicity.
However, as with gender diversity, it is fully supportive of increasing Board
level ethnic diversity and will act positively to seek to achieve this as part
of the upcoming recruitment of Board roles.
Diversity as a 2022 focus area
The Committee recognises that more can be achieved in relation to
diversity across the Group, including at Board level. The Board evaluation
exercise identified diversity as an area for development. The Committee
discussed this finding and agreed that diversity should be an area of focus
in 2022. It continues to believe that all appointments should be made on
merit and against objective criteria. However, in this context, the Board
has a number of appointments to make in 2022 and through those will
improve its diversity position during the year.
The Committee has reviewed diversity indicators across the business and
an external expert has been appointed to undertake a comprehensive
diversity review of the UK workforce. The outcome of the review will be
a comprehensive plan for improving diversity across the business and
the Committee will work with the Chief Executive and People Director
regarding its implementation.
Retirement and Re-election of Directors
The Company’s current Articles of Association provide that each
Director will retire from office and shall be eligible for re-election at the
third annual general meeting after the general meeting at which he or she
was appointed or last re-elected. In line with the 2021 AGM and the Code,
all Board members, with the exception of Philip Lawrence, will stand for
election or re-election at the 2022 AGM.
Each director has been subject to a performance evaluation and the
Committee has conducted its own annual review of the appropriateness
of the Directors’ skills and experience; their time commitment to the
Company; and their contribution to the Board during the year. As part of
this review, each Director has confirmed that they continue to allocate
sufficient time to discharge their responsibilities effectively and the
Committee evaluates their ability to do so taking into consideration
other external commitments in addition to their individual performance
throughout the year and their skills and experience (outlined on pages
58 and 59) set against agreed strategy. The Committee was particularly
pleased to note that during 2021 each Director made themselves
available to attend all pre-scheduled Board and Committee meetings to
oversee the Company’s continued response to the COVID-19 pandemic
and to attend to the changes to the membership of the Board despite
the increase in frequency and demands on their time. This helped to
support the assessment that no Director was or is overboarded.
Headlam Group PLC Annual Report & Accounts 2021
85
OverviewCorporate GovernanceStrategic ReportFinancial Statements AUDIT COMMITTEE REPORT
Audit, Risk and Internal Control
Bird who joined the Committee on 14 May 2021 and 13 September
2021 respectively. Both have extensive skills and experience that will
complement those of existing members. Alison Littley stepped down
from the Committee on 31 March 2021 and I would like to thank her for
her contribution during her time on the Committee.
You will be aware that the Chief Financial Officer (‘CFO’) assumed the
role of Chief Executive on an interim basis whilst the search for a new
Chief Executive was ongoing. At the time of appointing the CFO to
this additional position, consideration was given by the Non-Executive
Directors to the resources available to support the CFO in his finance, risk
and control responsibilities. In consultation with the CFO, the Committee
has ensured that sufficient financial and senior operational resource is in
place to adequately support him whilst performing this dual role. It was
therefore agreed that the additional responsibilities would not adversely
affect the control environment on a short-term basis. Following Chris
Payne’s appointment as Chief Executive he will continue to perform this
dual role until a new CFO is appointed.
We are aware of the BEIS consultation on restoring trust in audit and
corporate governance reporting and will monitor progress closely. We
specifically note the proposal for an Audit and Assurance Policy and
will consider how this is included in our processes once the finalised
requirements are issued. The work we have already commenced on the
oversight by the Committee of risks and controls at a granular level will
provide greater assurance over internal controls going forward.
Our Environment, Social and Governance (‘ESG’) strategy was first issued
in May 2021 and this has been a focus area for the business throughout
the year. We understand the seriousness of the impact that risks
relating to ESG matters can have on the business model and long-term
prospects of the business. In order to ensure adequate oversight, ESG
risks are now managed directly by the Executive Risk Committee and
assurance over ESG risks and their associated controls will be presented
to the Committee at each meeting during 2022 in order to strengthen
oversight in this growing area of focus for the business. The Group has
considered its processes in the light of the change in the listing rules
requiring compliance with the recommendations of the Taskforce for
Climate-Related Financial Disclosures (‘TCFD’) which is effective for this
reporting period. As a Group we are at a relatively early stage of our ESG
journey but we fully understand and support the need to integrate climate
risk into our strategy and to communicate our activities and response in
this important area to our stakeholders. We are continuing to develop our
approach to climate-related risk alongside our environmental strategy
which is outlined on page 44. As with other ESG risks, climate change
risk (including TCFD requirements) and control will be overseen by the
Audit Committee over the next year. Our TCFD disclosures can be found
on page 51.
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 Audit Committee’s
report for the year ended 31 December 2021. This report describes how
the Audit Committee (the ‘Committee’) has carried out its responsibilities
in relation to independent scrutiny of the Group’s financial reporting and
external audit, risk management and internal control during 2021, and
whether these remain appropriate for the strategic aims of the business.
It also sets out the Committee’s priorities for 2022.
In performing our duties during the year, we have complied with all
applicable requirements of the Code and kept up to date with the FRC’s
best practice guidance as it relates to the Committee’s responsibilities.
We work closely with the Group accounting team and the External
Auditor (the ‘Auditor’), helping to ensure that our financial reporting
remains clear; accounting issues and judgements appropriate; and our
internal control system effective.
There have been various changes to the Committee’s membership
during the year. I would like to welcome Simon King and Stephen
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Headlam Group PLC Annual Report & Accounts 2021
Priorities for 2021
Last year I outlined the priorities for the Committee in 2021. I am pleased to share with you how we addressed those priorities during the year which
are set out in the table below:
Key Priorities for 2021
How they were addressed
To continue the Committee’s focus on the development
of risk management processes and internal controls
throughout the business including review and monitoring
of internal and external assurance reporting and relevant
recommendations for improvement.
We continued our focus on the evolution of the risk and assurance framework. We
have expanded the terms of reference for the Executive Risk Committee to include
ESG related risks and principal risks and have continued oversight of the Executive
Risk Committee in its performance of those additional responsibilities with reports to
each Committee meeting. The Executive Risk Committee considers emerging risks
at each meeting on an operational level and the Board performs horizon scanning of
emerging strategic risks at least annually.
To continue to ensure that the finance function is
evolving to meet the needs of the business as operational
changes are implemented.
We have continued to monitor the strength of the finance team and proposals
related to organisational changes which may affect the control environment in the
business. We have challenged management to ensure performance of the finance
team remained as expected and performed deep dives where appropriate to support
the control framework.
The Committee intends, over the next year, to build on the progress
made during 2021. Our main areas of focus during 2022 will be:
• To continue our focus on the business processes and assurance
framework including mapping of risks and controls to key business
processes and increased focus on the level of internal assurance
provided and commissioned from third parties;
• To consider the impact of the BEIS consultation once the final report
is issued; and
• To develop the Company’s approach to assurance over ESG
disclosures.
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 key judgements 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. We also set out further
information about how we have discharged our duties in respect of the
year under review.
Amanda Aldridge
Chair of the Audit Committee
9 March 2022
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Activities of the Audit Committee during the year
Each year, the Audit Committee agrees a workplan which is designed
to cover its terms of reference across its meetings. This year’s plan
has been followed and the Committee confirms that it has completed
the items delegated to it for the year under review. In addition to
matters relating specifically to its terms of reference, the Committee’s
agendas incorporate matters arising and topical items on which the
Audit Committee has chosen to focus. The key activities of the Audit
Committee in discharging its principal areas of responsibility were:
Financial Reporting
• Reviewed the half year and annual financial statements and reports, and the
significant financial reporting estimates and judgements;
• Considered the impact of COVID-19 and risk disclosures in the half year
financial statements and for the year end;
• 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;
• Reviewed and approved the Committee Report to be published in the annual
report and accounts; and
• Reviewed the Auditor’s findings and recommendations, and management’s
response.
Going Concern and Viability Statement
• 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;
• Considered the impact of COVID-19 pandemic on the going concern and
viability of the Company and challenged management’s assumptions in its
scenario planning;
• 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; and
• 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.
Audit Committee Activities
External Audit
• Considered and approved the audit approach
and scope of the audit work to be undertaken
by the Auditor, and the audit fee;
• Considered the timetable for delivery of the
Annual Report and Accounts;
• Reviewed reports on audit findings;
• Assessed and confirmed the independence of
the Auditor;
Governance
• Progressed actions arising from the 2020
externally facilitated effectiveness review;
• Participated in the 2021 externally facilitated
evaluation of its performance;
• Received updates on corporate governance
requirements relevant to its responsibilities;
• Reviewed the Committee’s Terms of
Reference and annual workplan;
• Reviewed the policy for provision of non-audit
• Approved the Whistleblowing, Fraud and
services; and
• Assessed the effectiveness of the external
audit.
Anti-Money Laundering and the prevention of
Bribery Policies; and
• Considered the Company’s approach to the
avoidance of modern slavery and human
trafficking.
Internal Controls and Risk
• Considered reports from management and
the Auditor 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, including the
adequacy of sources of assurance;
• Reviewed the effectiveness of the risk
management framework and considered
the systems and processes for identifying,
managing and mitigating risks;
• Approved terms of reference for the Executive
Risk Committee, updating to include
responsibility for monitoring the Principal Risks
and ESG issues;
• Reviewed risk register and minutes from the
Executive Risk Committee and challenged
management on its activities; and
• Reviewed reporting disclosures in relation to
internal controls, risk management, principal
risks and uncertainties and the work of the
Committee.
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Headlam Group PLC Annual Report & Accounts 2021
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 58 and 59).
The Chief Executive, Chief Financial Officer, Chairman and the
Auditor also attend the Committee’s meetings at the invitation of the
Committee Chair. The Director of Group Finance and other members
of senior management are also invited to attend the meeting where
appropriate. Meetings of the Committee with the Auditor without the
presence of management were held during the year, usually prior to each
meeting. The Committee Chair holds meetings with the Lead Audit
Partner outside of the formal meeting schedule and keeps in regular
contact with the Chief Financial Officer. The role of Secretary to the
Committee is performed by the Company Secretary.
In addition to attending the 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.
In some instances invited finance team members to the Committee
meetings to discuss items within their remit.
Main role and key responsibilities
The Committee is the body responsible for carrying out the audit
functions required by DTR 7.1.3R. It is given its authority by the Board
and acts in accordance with its written terms of reference which are
available in full on the Company’s website. 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 and assurance process.
An important part of our role is to monitor the integrity of the Group’s
financial reporting and management. In performing this role, the
Committee scrutinises the full and half yearly financial statements and
reviews in detail the work of 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.
Membership and attendance at meetings held in 2021
The Committee is chaired by Amanda Aldridge and all members are
independent Non-Executive Directors as required by the Code. The
Committee holds meetings which are timed to link to events in the
Company’s financial calendar and meets at a minimum three times a year,
including before the final and interim results announcements and their
subsequent publication.
Members
Amanda Aldridge
Stephen Bird1
Simon King1
Keith Edelman
Former Members
Alison Littley1
Meetings
attended
Eligible to
attend
4
1
3
4
1
4
1
3
4
1
1 Stephen Bird and Simon King joined the Board on 13 September 2021 and 14 May 2021
respectively. Alison Littley stepped down from the Board on 31 March 2021.
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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 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:
Significant issues and areas of estimate
and judgement
How they were addressed
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.
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 judgement in
deciding whether items should be treated as
non-underlying by reference to this policy
Carrying value of assets
The Group had £7.6 million of goodwill
allocated on its balance sheet at 31 December
2021, resulting from past acquisitions, along
with intangible assets, property, plant and
equipment and right-of-use assets. The
assessment of the recoverable amount of
these assets are estimated based on future
cashflows and any impairment has the
potential to be material.
Management explained to the Committee the process of calculating the amounts expected to
be received and confirming these balances with suppliers and discussed the assumptions made
in the calculations. The Committee challenged the assumptions used by management and
reviewed the level of cash receipts and credit notes received after the year-end.
The work of the Auditor in relation to supplier rebates was discussed by the Committee.
Based on this, the Committee was satisfied that the amounts recognised have been
appropriately scrutinised and that the assumptions upon which the calculation was based are
sufficiently robust.
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 including consideration of materiality. The items treated
as non-underlying are in respect of the impairment of goodwill and intangibles, amortisation
of acquired intangible assets, impairment of property, plant and equipment and inventory
(following a fire), property disposal profit and business restructuring costs. The Committee also
considered whether the Annual Report and Accounts was fair balanced and understandable and
challenged management’s reconciliation of adjusted profit measures back to IFRS.
The Committee concluded that the disclosure of non-underlying items was sufficient and
appropriate for the user of the accounts to understand the nature of the items and reason for
their treatment as non-underlying.
Management performed the annual impairment review of goodwill at December 2021, along
with impairment reviews for other groups of assets at both June 2021 and December 2021
where indicators of impairment were identified.
Management concluded that the only impairment necessary at June 2021 was the full
write down of the remaining £1.2 million of goodwill allocated to the CECO business and at
December 2021 the full write down of the remaining £0.9 million of intangible assets at CECO.
The key assumptions used in an impairment review are the level of revenue growth, gross
margin and the discount rate. The Committee considered the impairment reviews carried
out by management and discussed the basis of the key assumptions and the sensitivities
performed. The Committee also considered the Auditor’s findings and discussed this matter
with the Auditors.
Based on this the Committee was satisfied that the approach taken by management
was robust and that the assumptions made were reasonable.
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Headlam Group PLC Annual Report & Accounts 2021
Significant issues and areas of estimate
and judgement
How they were addressed
Recoverability of Trade Receivables
The Group uses the forward-looking
expected credit loss approach to measure
the impairment required against its trade
receivables. This estimation requires the
use of historical experience together with
forward-looking adjustments, which require
management to exercise judgement.
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 23
to the financial statements. Calculation of the
Scheme liabilities involves estimation which
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 have a material impact.
Disposal of Belcolor Subsidiary
On 28 April 2021, the Group entered into a sale
agreement to dispose of its Swiss operations,
Belcolor AG. On 29 April 2021, as a condition
of the sale agreement, Belcolor AG undertook
a sale and leaseback of its property.
The subsidiary was sold with effect from
17 May 2021 and is reported the financial
statements as a discontinued operation. The
sale and leaseback was treated as a discrete
pre-disposal transaction
Management assess the macro-economic factors which are likely to affect the future
recoverability of trade receivables and use these assumptions to determine the forward-looking
adjustments applied to the impairment calculations.
The Committee reviewed management’s assumptions used in estimating the impairment of
trade receivables and discussed with the Auditor the work they undertook in this area.
Based on this the Committee was satisfied that the approach taken was appropriate.
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 explained to the Committee how they arrived at the key assumptions
and discussed the sensitivity analysis they had undertaken.
The Committee considered the views and procedures of the Auditor, which entailed a
benchmarking of management’s assumptions with the Auditor’s expectations.
The Committee were satisfied that the assumptions had been appropriately selected.
The Audit Committee reviewed management’s assessment that the subsidiary should
be disclosed as a discontinued operation and were satisfied that it met the necessary
requirements. The Audit Committee also considered the views of the Auditor in relation to the
discontinued operation disclosure, the treatment of the sale and leaseback as a discrete pre-
disposal transaction and management’s calculation of the profit on sale of building and loss on
sale of subsidiary.
Misstatements
Management reported to the Committee that they were not aware of any material misstatements or immaterial misstatements made intentionally to
achieve a particular presentation. The Auditor reported to the Committee the misstatements that had been found in the course of the audit work and
no material amounts remain unadjusted.
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Risk management and internal control
During the year, the Committee has reviewed the risk management
framework and continued its oversight role of the Executive Risk
Committee.
The Board has ultimate responsibility for the effective management of
risk throughout the Group, including determining its risk appetite and
identifying key strategic and emerging risks. The role of the Committee
is to monitor, on behalf of the Board, the Group’s financial and non-
financial risk and internal control management systems and assess their
effectiveness. In doing so, the Committee received regular updates from
the Executive Risk Committee on key risks and assessed the adequacy of
controls and risk classification processes. The Executive Risk Committee
provides day to day oversight of the risks facing the business and assesses
risks and mitigating controls using a specified scoring system based
on likelihood and impact. At each meeting, the Committee reviews and
considers assurance provided by the Executive Risk Committee as part of
its assessment of the effectiveness of the risk management framework.
During 2021, the Executive Risk Committee’s remit was expanded to
cover principal and ESG related risk, the approach to which will therefore
additionally be reviewed and overseen by the Committee in 2022.
An overview of the risk management framework and the principal
risks and uncertainties it identifies, is set out on pages 34 to 38.
Health and safety risks are managed by the Executive Risk Committee
but performance is monitored directly by the Board at each of its
scheduled meetings.
Information security and cyber risk
The Company has a clear approach to identifying and mitigating
information security risk which is outlined further on page 36. The
Committee, with its membership consisting of only Non-Executive
Directors, oversees the Company’s approach to information security and
cyber risk management as part of its review of the risk management and
internal control framework and its oversight of the work of the Executive
Risk Committee. The Committee is briefed by senior management at
each meeting (at least four times a year) on updated risks and controls
related to information security and cyber risk, including regular reporting
from the Executive Risk Committee. Information security and cyber risks
are mitigated through processes and procedures employed by the Group,
monthly training provided to all colleagues with email access and annual
cyber awareness training; in addition to the independent assurance and
annual penetration testing.
Risk management and internal control effectiveness review
In supporting the Board in its assessment of the effectiveness of risk
management and internal control process, the Committee relies on a
number of different sources including: reports provided by management
and the Executive Risk Committee; and the assurance provided by third
parties in specific risk areas. The Committee also receives reports from
the Auditor on matters identified during the course of its statutory
audit work. The Committee 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, in forming its view.
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Headlam Group PLC Annual Report & Accounts 2021
The Committee received reports on and/or considered the following in
respect of the year:
(i) The overall risk management framework, minutes of the Executive
Risk Committee and quarterly risk and control registers against risk
appetite scores;
(ii) Management’s response to control recommendations raised by
the Auditor;
(iii) The ongoing financial impact of COVID-19 and sensitivity analysis
presented by management;
(iv) The outcome and effectiveness of internal control review work
undertaken by the finance team at each of the Group’s UK
business locations;
(v) Group policies and responses to its self-assessment half-yearly
compliance letters from the businesses; and
(vi) A summary of internal and external assurance activity linked to the
principal risks.
The Group’s control framework has developed over a number of years
and is intended to manage rather than eliminate the risk of failure
to achieve business objectives. Such a framework can only provide
reasonable and not absolute assurance against material misstatement or
loss. The control framework is evolving in line with the strategic objectives
and continuing this evolution has been a key element of the Committee’s
focus in 2021.
The 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 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 including a summary of
all sources of assurance in place throughout the Group and internal
self-certification reports relating to the compliance with regulation and
Company policies. The Committee has also considered management’s
plans for internal and external assurance activity for 2022.
The Committee challenged management on the sufficiency of this
assurance framework with the operational change being undertaken
throughout the business. Following consideration of the assurance
available and planned, the Committee considers that the control systems
and associated procedures were adequate for the business during
the year under review. However, it was agreed with management that
assurance activity should increase during 2022 and it is proposed to
introduce a formal internal audit function during the year. Management
will be looking to hire a Head of Internal Audit to set up this function. The
Audit Committee will approve the remit of this role.
External Auditor
Non-audit services
The 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
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 reviewed its policy for the provision of non-audit services
(‘Non-Audit Policy’). Under the Non-Audit Policy and in line with the EU
Audit Directive, non-audit fees paid to the Auditor should not exceed
70% of the average audit fee for the preceding three periods. During the
year under review, no non-audit services were provided by the Auditor
and therefore no fees were paid to the Auditor for non-audit services.
Under the Non-Audit Policy, all non-audit services must be approved
by the Committee. The Auditor is not permitted to provide any services
other than those specifically detailed in the policy and which have been
taken directly from section 5B of the ethical standard. A full breakdown of
audit and non-audit fees is provided in note 3 to the Financial Statements
and the Non-Audit Policy can be viewed in the Environmental, Social and
Governance section of the Company’s website.
Independence and objectivity
Each year the 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.
Gill Hinks took over as lead audit partner for Headlam Group plc
following the conclusion of the 2019 audit. She will serve as lead
audit partner for a maximum of five years, in accordance with current
professional standards.
The Auditor has processes in place to ensure that independence is
maintained and has written to the Committee confirming that, in their
opinion, they remain independent within the meaning of the relevant
regulations on this matter and their own professional standards and
that no conflict of interest exists that would affect their professional
judgement. The Committee additionally considered the conduct of the
Auditor and the level of independence and challenge displayed during
the course of the year-end audit. Taking into account the Auditor’s
confirmation, its own deliberations and feedback from management,
the Committee agreed that the Auditor remained independent from
management and able to display an independent view of the position
of the business.
Effectiveness of External Audit
Following the 2020 year-end, feedback on the effectiveness of the
audit process in addressing areas of key audit risk was obtained from
members of the Committee, regular attendees and members of the
finance team in the form of a specifically designed questionnaire. In
forming its conclusion on the effectiveness of the external audit the
Committee considered:
• The feedback received on the effectiveness of the external audit;
• The External Auditor’s fulfillment of the agreed audit plan;
• An assessment of the responsiveness of the Auditor during the
audit process;
• Reports highlighting areas of key issues and accounting judgements;
and
• The external auditor’s objectivity and independence in carrying out
the audit.
The results showed a favourable view of the audit process and of PwC
as the Auditor, of particular note was the strength of audit governance,
independence and objectivity demonstrated by the Auditor and the
technical knowledge of the audit team.
The scope of the external audit for the year-ended 31 December 2021
was presented by the Auditor to the Committee in October 2021. The
Committee had the opportunity to discuss and rigorously challenge the
audit plan to gain a good understanding of its key elements. It specifically
requested that the Auditor give particular focus to certain locations
where there has been a change in financial controller during the year in
the course of their audit. Additionally, the Committee agreed that certain
audit activities could be undertaken prior to the financial year end in
order to better assure the quality of the work conducted and improve the
overall quality of the year end audit.
A full questionnaire-based evaluation of the performance of the Auditor
during the 2021 Audit will take place following the audit’s conclusion
but the Committee discussed the Auditor’s performance verbally at its
March 2021 meeting. The Auditor specifically demonstrated professional
scepticism and challenged management assumptions in a number of
areas including trade receivables and the impact of climate-related risk
on asset values.
The Committee has independent access to the Auditor, and the
Auditor has direct access to the Chair of the Committee outside formal
meetings. At each meeting there is an opportunity for the Auditor to
discuss matters with the Committee, without executive management
being present.
Consideration of Auditor appointment
During the year, the Committee considered conducting a tender of its
external audit whilst recognising that under current FRC guidance it will
not be due to retender its audit until the 2026 year-end. In determining
whether to recommend the Auditor for reappointment this year, the
Committee considered the Audit firm’s internal control procedures, the
quality and effectiveness of the most recent audit which confirmed that
audit processes were effective and that all appropriate independence
criteria continue to be met.
The Committee therefore concluded that it was in the best interest of
Company shareholders to reappoint PwC as the Company’s external
Auditor and that a re-tender was not necessary. The Committee’s
recommendation, that a resolution to reappoint PwC LLP be proposed at
this year’s AGM, was accepted and endorsed by the Board.
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Interaction with the FRC
The Company’s Interim Results for the period ended 30 June 2021 was
subject to review by the FRC’s Corporate Reporting Review team. The
Company received correspondence requesting further clarification of
the presentation of the cash flow statement relating to the disposal of
Belcolor. The Company responded to the FRC’s enquiries providing the
additional information and has made certain disclosure enhancements
as part of this 2021 Annual Report and Accounts (see page 188) in line
with its commitment to transparent reporting. The FRC has now closed
its enquiry.
The FRC’s review provides no assurance that the interim financial
report is correct in all material respects; the FRC’s role is not to verify
the information provided but to consider compliance with reporting
requirements. The FRC’s letters are written on the basis that it (and its
officers, employees and agents) accepts no liability for reliance on them
by the Company or any third party, including but not limited to investors
and shareholders.
The Company can confirm that during the year under review it had no
interaction with the FRC’s Audit Quality Review Team.
Fair, balanced and understandable
The Committee undertook a detailed review of the drafting and
preparation process of the Annual Report and Accounts to support its
deliberations on whether the 2021 Annual Report and Accounts were
fair, balanced and understandable. The drafting and preparation process
involved various teams and individuals within the Group including Executive
Director, Finance Team, Director of IR and ESG, 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 2022, the Committee deliberated on whether the 2021
Annual Report and Accounts were fair, balanced and understandable.
Following detailed consideration of all sections, the Committee concluded
that the 2021 Annual Report and Accounts contained an accurate
reflection of the Company’s performance and business model, correctly
reflected its strategy, purpose and culture and included consistent
messaging throughout. It therefore, recommended to the Board that the
2021 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 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. Two
severe, plausible scenarios were considered: (A) a sustained recessionary
environment and (B) an economic crisis, similar to the overall impact of
COVID-19 in 2020 and 2021, 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 in both scenarios.
A further, less likely, not plausible and more severe scenario was also
considered, where the Company experiences a reduction in revenue
in 2022, with year-on year decline of 23% (reverse stress test). In this
scenario, the Group would be able to operate within its current facilities
and meet its financial covenants. However, should the reduction in
revenue be greater than this, the Board would need to take mitigating
actions to remain within its banking covenants. The 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 Committee agreed that
the long-term viability assessment should continue to be performed
over a three-year timespan because it is consistent with prior years and
the Company’s three-year rolling strategy plan. This conclusion was
communicated and recommended to the Board for approval.
The viability statement is shown on page 39.
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. Under the Whistleblowing Policy colleagues have direct access
to the Chair of the Committee should they feel they are unable to raise
their concern with management. During the year, the Committee and
the Board reviewed the Whistleblowing Policy and requested that the
Company engage an independent external organisation to provide a
whistleblowing helpline and online system to support the business in
ensuring that anonymous submissions could be made. In early 2022,
an external partner was appointed and work is ongoing to develop the
online facility and incorporate the new services into the whistleblowing
policy and helpline procedures. Once fully implemented, stakeholders
will be able to raise any issues via the externally run hotline in complete
confidence and at all times of the day. Once a whistleblow has been
logged, the Company has procedures in place to formally investigate
them and report the matter to the Board who are kept informed of the
result of any investigations.
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Headlam Group PLC Annual Report & Accounts 2021
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 each
considered by the Committee during the year and recommended to the
Board for approval in October 2021, which it subsequently did. Further
information on Anti-Corruption and Bribery is available on page 124.
Committee efectiveness review
The effectiveness of the Committee was evaluated this year as part of
the externally facilitated Board performance self-evaluation process.
Details of this can be found on page 76. The review found that the
Committee is operating effectively, with its financial oversight, reporting
and management of the external audit process specifically viewed
positively. The Committee discussed the findings of the evaluation for
areas of development, and agreed to focus on the risk management
and control framework and independent assurance over its effective
operation during 2022.
Summary
The Committee has concluded, as a result of its work during the year,
that it has acted in accordance with its terms of reference and fulfilled its
responsibilities.
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
9 March 2022
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Board changes
Steve Wilson stepped down from the Board and the Company on 6
October 2021. Details of his termination arrangements, which were in
line with the shareholder approved Remuneration Policy, are set out in
the Annual Report on Remuneration. Chris Payne, Chief Financial Officer,
was appointed Interim Chief Executive from 7 October 2021 although
no changes were made to his remuneration arrangements to reflect
the additional interim role. However, following his appointment as Chief
Executive, the Committee has considered his remuneration package with
effect from appointment. The main elements are as follows: base salary
of £425,000 increasing to £475,000 after 1 January 2023, subject to
individual and Company performance; workforce aligned pension; annual
bonus of 125% of salary, with on-target bonus reduced from 60% to
50% of maximum performance; and PSP of 100% salary.
Workforce remuneration
The Committee reviewed various elements of workforce remuneration
during 2021. This review was wide-ranging and covered all aspects of
wider workforce remuneration, including: pay practice against national
living wage; demographics; pay and reward; pay principles; pension
and share scheme provision; gender pay; pay ratios; and engagement
mechanisms. Additionally, a number of projects were reviewed prior
to implementation by the Executive Team, including amendments to
defined contribution pension arrangements and annual bonus provision.
When considering workforce remuneration and proposed changes,
the Committee took care to ensure that arrangements supported the
Company’s strategy and served business interest through fairness and
continued engagement.
Business performance and incentive out-turn for 2021
2021 was a good year for the Company and we made a great deal of
progress on a number of objectives. Financial performance rebounded
strongly from 2020, when the first half was materially impacted by the
emergence of COVID-19; industry wide issues, including supply issues,
were able to be largely mitigated; and significant progress was made in
implementing the business change strategy. More information on our
achievements in 2021 is set out in the Chairman’s Statement on page
12. The Executive Team worked hard to achieve this outcome and this is
reflected in their variable pay.
For 2021, the Executive Directors had a maximum annual bonus
opportunity equal to 125% of base salary, with the bonus assessed
against the Company’s underlying profit before tax performance
(70%) and a number of key strategic objectives (30%) as shown in the
table on page 110. As a result of achieving in excess of the maximum
performance target in respect of underlying profit before tax and
meeting the key strategic objectives (see page 111), a total bonus
payment of 100% of the maximum will be awarded to both Chris Payne
and Steve Wilson (with Steve’s bonus pro-rated to the point he stepped
down from the Board). In agreeing to pay maximum annual bonus, the
Committee has confirmed that no furlough support was received from
the UK Government during 2021. Awards granted under the PSP in 2019
were assessed on the basis of performance over the three-year period
to 31 December 2021. The awards were subject to two performance
Keith Edelman Chair of the Remuneration Committee
Statement from the Chair of the Remuneration Committee
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for 2021. The Report includes my Annual
Statement, a summary of the Directors’ Remuneration Policy (‘Policy’),
which took effect from the date of our 2020 AGM and the Annual
Report on Remuneration for the financial year ended 31 December
2021. The Directors’ Remuneration Report will be subject to an advisory
shareholder vote at the AGM on 19 May 2022.
Remuneration Policy
Following shareholder approval of our current Policy at the 2020 AGM,
with 93% of votes cast in favour, some minor changes were made to
how we operate our arrangements in 2021, aimed at further aligning the
Policy with principles of good governance (as previously outlined in our
2020 Remuneration Report). These included, strengthening malus and
clawback provisions, strengthening the in-employment shareholding
guidelines, introducing a post-cessation shareholding policy and reducing
pension provision. Noting the above and following a review during the
year, the Committee concluded that the Policy remains effective and that
no further changes are required at this time.
We therefore continue to operate a simple and transparent structure
comprising salary, benefits, pension, plus an annual bonus and single
long-term incentive plan (the ‘PSP’), both of which are subject to
stretching performance conditions. Incentive pay is subject to malus and
clawback provisions and a part of any annual bonus award is deferred into
shares for a period of time. A post-vesting holding period operates for
the PSP 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.
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Headlam Group PLC Annual Report & Accounts 2021
conditions, the first based on underlying EPS growth (80% of the
award) and the second relative TSR (20% of the award). The combined
assessment of the two performance conditions resulted in nil (0%)
vesting, as shown on page 112.
The combination of a holding period requirement under the PSP, the deferral
of bonus into shares under the Deferred Bonus Plan and the shareholding
guidelines will continue to provide alignment between the interests of
Executive Directors, the shareholders and delivery of the strategy.
Discretion
The Remuneration Committee is conscious of its role in ensuring that
remuneration is appropriate when considering the performance of the
business, the individual directors and the wider stakeholder experience.
During the year, it considered the formulaic outcomes of the annual
bonus plan and the Performance Share Plan and was satisfied that the
outcomes under these incentive schemes were appropriate. Therefore,
no discretion has been exercised during the year.
Remuneration for 2022
Base salary / fees
The Interim Chief Executive received an increase in base salary of 2%
for 2022, in line with the 2022 award for UK employees and, following
appointment as the new Chief Executive, Chris Payne’s base salary was
increased to £425,000. The Chairman and the Non-Executive Directors
also received fee increases for 2022 (as set out on page 119).
Pension
Until his appointment as Chief Executive, Chris Payne received an
11% of salary pension contribution in line with that available to those
employees participating in the Defined Contribution pension scheme
(which is offered to approximately half of the workforce), where Company
contributions range from 4% of salary to 16% of salary depending
on both age and earnings. Following his appointment he will receive a
pension contribution of 8% of salary.
Annual bonus and PSP
The framework for operating our annual bonus and PSP in 2022 will be
largely consistent with our approach in 2021.
Maximum bonus potential will remain at 125% of salary. However,
on-target will be reduced from 60% to 50% of maximum potential.
For FY2022, 70% of the annual bonus will be based on underlying PBT
and 30% on key strategic targets. The Remuneration Committee have
approved key strategic targets that support business growth and ESG
objectives that are both measurable and stretching. The bonus targets
are currently considered to be commercially sensitive but they will be
disclosed in full in next year’s Directors’ Remuneration Report together
with their level of achievement. In line with the Remuneration Policy, a
third of any bonus award will continue to be deferred into shares under
the Deferred Bonus Plan.
Reflecting the reduction to on-target bonus and the Committee’s desire to
rebalance packages more towards the longer term, PSP awards are expected
to be granted over shares equal in value to 100% salary and vesting will be
based 80% on underlying EPS growth and 20% on relative TSR.
UK Corporate Governance Code
In implementing our Policy during the course of 2021, a summary of how
the Committee has sought to comply with the six factors outlined in
Provision 40 of the Code is as follows:
• Clarity – Our remuneration framework is structured to support
financial delivery, shareholder returns and the achievement of
strategic objectives, clearly aligning interests of Executive Directors
with those of our shareholders, as well as with those of our other
key stakeholders. Our Policy is transparent and well understood by
our senior management team. It has been clearly articulated to our
shareholders and representative bodies (both on an ongoing basis and
during consultation). Director remuneration is clearly set out in the
Company’s Annual Remuneration Report together with associated
targets for variable remuneration (unless they are deemed to be
commercially sensitive).
• Simplicity – The Company operates a straightforward remuneration
framework that is a UK market standard approach which should be
familiar to most stakeholders. It is important to the Committee that
its approach is simple and avoids complex arrangement to assist with
its communication and operation. The same simple and transparent
overarching structure has been operated for many years. Performance
targets are readily understandable and clearly articulated as part of the
year end results.
• 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, 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
in-employment and post-cessation shareholding guidelines), (iii) the
deferral of a proportion of annual bonus and the operation of a post-
vesting holding period for the PSP and (iv) 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 Company and individual performance.
Minimum on-target and maximum outcomes for Directors are
presented annually.
• 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).
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements
DIRECTORS’ REMUNERATION REPORT
• Alignment to culture – Our aim is to align our Remuneration
Policy to our culture and values. We strive to instil a sustainable
performance culture at the management level that can cascade
down 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. The targets that are
selected help align the interests of the workforce with those of the
Company’s purpose and strategy. We are keen to foster a culture of
share ownership throughout the Company and as such operate an
HMRC approved sharesave scheme, which is a UK all-employee share
scheme arrangement.
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 2020
AGM and wrote again in January 2022 offering a meeting to discuss our
remuneration approach. A regular investor relations programme is in place
during which major shareholders are able to raise any item for discussion
with Company representatives. We additionally consult with representative
bodies of shareholders both prior to the AGM and when requested.
The Company will continue to engage with major shareholders and
representative bodies on Directors’ remuneration when appropriate. The
provisions of the Companies Act 2006 require the Company to present
its Remuneration Report annually to shareholders for an advisory vote
and to present its Policy for approval every three years (binding vote).
The Committee was pleased with the level of support received for the
advisory Remuneration Report resolution at the 2021 AGM with over
95% of votes cast in favour. We hope we will again receive your support at
the forthcoming AGM.
Conclusion
We remain committed to a responsible, fair and transparent approach to
executive pay which takes into account the remuneration arrangements
for the wider workforce and the cultural priorities of the Company.
I trust this Directors’ Remuneration Report demonstrates these values
and I am always available to meet shareholders if there are any questions
or feedback on our approach to executive remuneration.
Keith Edelman
Chair of the Remuneration Committee
9 March 2022
Remuneration Overview – FY 2022
Executive Remuneration for the year ended 31 December 2022
Fixed remuneration
(c. 33% of total reward assuming maximum performance)
Salary + Pension + Benefits
Annual Incentive
Annual Bonus
(Maximum 125% of Salary)
1/3 Annual Bonus payments
deferred into shares under the
Deferred Bonus Plan
Long-Term Incentive
Performance Share Plan
(Maximum 100% Salary)
Performance measures support the Group’s strategy to:
•
increase profitability for shareholders; and
Performance measures support the Group’s strategy to deliver:
• higher returns to shareholders; and
• deliver key strategic priorities.
•
increased earnings.
Link to Strategy
FY 2022 performance metrics
Underlying Profit Before Tax – 70%
(to support profitability of the business)
Underlying Earnings Per Share (EPS) – 80%
(to support the growth of earnings)
Key strategic objectives linked to strategy – 30%
(to support business growth and ESG objectives)
Total Shareholder Return (TSR) – 20%
(to align the interests of Directors with those of shareholders)
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Headlam Group PLC Annual Report & Accounts 2021
Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out an abridged
version of the Directors’ Remuneration Policy which was approved by
shareholders at the AGM on 22 May 2020. The Policy took formal effect
from the date of approval and is intended to apply until the 2023 AGM
unless a new version is presented to shareholders in the interim.
The full shareholder approved Policy can be found in the 2019 Annual
Report which can be viewed via the Company’s website at www.headlam.
com. In the interests of clarity, the report below includes some minor
annotations to include the changes implemented in 2021 and to
additionally show, where appropriate, how the Policy will be implemented
in 2022.
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 (executive and wider workforce)
are discussed. A non-executive director is always a member of the
Employee Forum and as such receives feedback on remuneration
matters directly from other Forum members and reflects their views
back to the Committee. The 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. In January 2021 the Interim Chair of the Remuneration
Committee contacted the largest 15 shareholders and proxy
reporting agencies offering to discuss the Committee’s approach to
Remuneration. The Committee will additionally 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.
Headlam Group PLC Annual Report & Accounts 2021
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OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Policy table for Executive Directors
Component
Base salary
Purpose and link to
strategy
Operation
Maximum opportunity
Performance measures
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.
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Headlam Group PLC Annual Report & Accounts 2021
Purpose and link to
strategy
Operation
Maximum opportunity
Performance measures
Component
Benefits
To provide broadly market
competitive benefits
as part of the total
remuneration package.
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.
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.
Not applicable.
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.
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 11% of base salary
(reduced from 15% of salary
from the 2021 AGM).
Headlam Group PLC Annual Report & Accounts 2021 101
Retirement
benefits
To provide employees with
long-term savings to allow
for retirement planning.
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Policy table for Executive Directors continued
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.
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Headlam Group PLC Annual Report & Accounts 2021
Component
Performance
Share Plan
(‘PSP’)
Purpose and link to
strategy
Operation
Maximum opportunity
Performance measures
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.
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.
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.
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.
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OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Non-Executive Directors (including the Chairman)
Component
Annual Fee
Purpose and link to
strategy
To attract individuals with
appropriate knowledge
and experience.
Operation
Maximum opportunity
Performance measures
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 incentivise 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.
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 2022 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.
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Headlam Group PLC Annual Report & Accounts 2021
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.
Diferences 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.
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.
Headlam Group PLC Annual Report & Accounts 2021 105
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Recruitment remuneration continued
• 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.
Payments for loss of ofce
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).
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Headlam Group PLC Annual Report & Accounts 2021
PSP
The extent to which any unvested award will vest will be determined in accordance with the rules of the PSP.
Policy
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.
Mitigation
Other payments
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.
Headlam Group PLC Annual Report & Accounts 2021 107
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
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.
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Headlam Group PLC Annual Report & Accounts 2021
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 tables below report the total remuneration receivable in respect of qualifying services by each of the Executive Directors for the years 2021 and
2020.
Executive Directors’ remuneration as a single figure – 2021 (audited)
Executive Director
Chris Payne
Former Director
Steve Wilson4
Base salary/
fees
£000
Non-salary
benefits1
£000
Pension related
benefits3
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes2
£000
364
378
742
18
13
31
40
–
40
455
473
928
0
0
0
Total
£000
877
864
1,741
Total fixed
£000
Total variable
£000
422
391
813
455
473
928
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 2021 and 0% of the award will vest in March 2022.
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.
4 Steve Wilson stepped down from the Board on 6 October 2021. Full details of the package agreed for Steve Wilson, including the pro-rating of the share awards, is outlined later in the Report. The
amount for the annual bonus above includes time pro-rating.
Executive Directors’ remuneration as a single figure – 2020 (audited)
Executive Director
Chris Payne
Steve Wilson
Base salary/
fees
£000
Non-salary
benefits1
£000
Pension related
benefits3
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes2
£000
364
494
858
20
17
37
40
–
40
–
–
–
3
3
6
Total
£000
427
514
941
Total fixed
£000
Total variable
£000
424
511
935
3
3
6
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 2020 and 0% of the award vested in March 2021. Figures for both Chris Payne and Steve Wilson include the grant of options
under the Sharesave Scheme calculated on an intrinsic value basis.
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.
Headlam Group PLC Annual Report & Accounts 2021 109
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
The following tables report the total remuneration receivable in respect of qualifying services by each of the Non-Executive Directors for the years
2021 and 2020.
Non-Executive Directors’ remuneration as a single figure – 2021 (audited)
Non-Executive Directors
Philip Lawrence
Amanda Aldridge
Stephen Bird1
Keith Edelman
Simon King1
Former Director
Alison Littley2
Base salary/
fees
£000
Non-salary
benefits
£000
Pension related
benefits
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes
£000
143
53
14
61
28
13
312
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Stephen Bird joined the Board on 13 September 2021 and Simon King joined the Board on 14 May 2021.
2. Alison Littley stepped down from the Board on 31 March 2021.
Non-Executive Directors’ remuneration as a single figure – 2020 (audited)
Non-Executive Directors
Philip Lawrence
Amanda Aldridge
Keith Edelman
Former Director
Alison Littley
Base salary/
fees
£000
Non-salary
benefits
£000
Pension related
benefits
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes
£000
143
53
55
53
303
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£000
143
53
14
61
28
13
312
Total
£000
143
53
55
53
303
Total fixed
£000
Total variable
£000
143
53
14
61
28
13
312
–
–
–
–
–
–
–
Total fixed
£000
Total variable
£000
143
53
55
53
303
–
–
–
–
–
Annual performance bonus
For 2021, 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 (70% of bonus opportunity) and against the achievement of a number of key strategic objectives (30% of
bonus opportunity) as shown in the tables below:
Proportion of
bonus
determined by
metric (%)
70%
30%
100%
Threshold
performance
Target
performance
Maximum
performance
Actual
performance
Bonus earned
(% max)
Bonus
Receivable (£)
Chris Payne
Bonus
Receivable
(£)
Steve Wilson
£26.1m
£29.0m
See table below
£34.8m
£35.8m
70%
30%
100%
319
136
455
331
142
473
Performance metric
Underlying Profit Before Tax
Strategic and personal objectives
1 Pro-rated to 6 October 2021.
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Headlam Group PLC Annual Report & Accounts 2021
Strategic objectives
The non-financial strategic objectives for the Executive Directors were designed to focus on the achievement of certain key elements of Company
strategy. Subject to achieving a threshold underlying PBT of £23.8m the following strategic measures were applied for both Chris Payne and Steve
Wilson:
Reason for inclusion and link to
Strategy
Assessment / outcome
Objectives
South East Consolidation
To deliver the South East
consolidation of the business,
including transition of various
businesses to new locations.
The consolidation of the Company’s
operations in the South East would
lead to meaningful simplification
of the network and an associated
reduction in headcount and operating
costs while continuing to support
service levels.
Sales
To implement the sales
effectiveness strategy agreed by
the Board.
The effectiveness and efficiency
of the Group’s sales force is key to
supporting Group turnover and profit.
Management Bonus
Framework
To deliver and communicate
a new scorecard-based
management bonus framework
for senior management
in the business ready for
implementation for 2022.
To implement an objective-led bonus
scheme which would be common
across the business in order to
support Group performance and
initiatives.
Potential
bonus
weighting
(% of bonus
opportunity)
Bonus
achieved
(% of bonus
opportunity)
10
10
10
10
10
10
The Board conducted a complete
post-implementation review
of the project and considered
delivery against the timescales set.
The Remuneration Committee
considered that the project was
successfully delivered against the
timescales with the consolidation
and relocation of all operations being
completed by July 2021.
The Remuneration Committee
considered the process undertaken
to design and subsequently
implement measures to increase
the efficiency and effectiveness of
the sales force. Noting the change in
emphasis on sales and more targeted
approach in addition to the reduction
in headcount that has been enabled,
the Committee agreed that this
strategic objective has been fulfilled.
The Remuneration Committee
assessed the scheme design,
communication and impact on
motivation and engagement of
staff towards key business goals. In
assessing all of this the Committee
agreed that the target had been met
in full.
Consistent with the remuneration policy, one-third of any bonus earned will be deferred into shares for a two-year period.
Headlam Group PLC Annual Report & Accounts 2021 111
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Share-based payments vesting in the financial year
Awards granted under the PSP in 2019 were assessed on the basis of performance over the three-year period to 31 December 2021. The awards
were subject to two performance conditions, based on underlying 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
Director
Chris Payne
Former Director
Steve Wilson1
EPS growth (80% of award)
Less than 5% p.a.
5% p.a.
8% p.a.
-9% p.a.
0%
0%
TSR
Relative performance against FTSE
SmallCap Index (20% of award)
Below median
Median
Upper quartile
Below median
0%
0%
Shares granted
Shares vesting
Value of shares vesting
63,707
86,459
0
0
£0
£0
1 Stepped down from the Board on (6 October 2021), shares vesting are shown after the operation of performance conditions and time pro-rating.
PSP awards granted during the financial period (audited)
PSP awards were granted to Executive Directors in 2021 as follows:
Director
Chris Payne
Former Director
Steve Wilson
Number of
nil-cost options
over which award
granted
64,137
87,043
151,180
Value of
Award
£000
291
395
686
% of
salary
80
80
% of award
vesting at
threshold
25
25
Date of
grant
9 April 2021
9 April 2021
Performance
period
3 years
3 years
The share price used to determine the number of shares under the PSP was 454.2 pence, being the average mid-market closing share price for the
five business days prior to the date of award.
The Awards are subject to an underlying Earnings Per Share (‘EPS’) performance condition (80% of the award) and a relative Total Shareholder Return
(‘TSR’) performance condition (20% of the award). The performance targets are shown in the table below:
Performance Target
Below Threshold
Threshold
Maximum
% vesting
0
25
100
Underlying EPS (p)
(80% of award)
Less than 32.1
32.1
34.7
Comparative TSR
(20% of award)
Below median
Median
Upper quartile
The TSR comparator group is based on the constituents of the FTSE SmallCap Index (excluding investment trusts).
The vesting of the awards is additionally subject to a financial underpin whereby the extent of vesting may be adjusted to reflect the overall financial
performance of the Company over the three-year performance period. The Remuneration Committee also has full discretion to ensure that the final
outcome is warranted based on the performance of the Company in the light of all relevant factors and to ensure there have been no windfall gains.
Any awards vesting are additionally subject to a two-year holding period following the date of vesting.
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Headlam Group PLC Annual Report & Accounts 2021
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 3.65% 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 Sharesave scheme will continue to be satisfied by
shares held in treasury.
Further information on share-based payments is set out in note 24 to the financial statements.
Pension-related benefits (audited)
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 aligned to that available to those employees participating in the Defined Contribution pension scheme of
similar age and earnings.
Payment for loss of ofce and to past Directors (audited)
Steve Wilson stepped down from the Board on 6 October 2021. Steve was paid salary contractually due and received contractual benefits up to and
including 6 October 2021. He was also entitled to accrued holiday pay, less deductions and to reimbursement of outstanding expenses, subject to
the Company’s normal expenses policy. Steve will be paid £508,600 in lieu of basic salary and benefits for his twelve-month notice period in twelve
equal monthly instalments which will be subject to mitigation (and subject to deductions in respect of income tax and employee National Insurance
contributions and any sums owed to the Company or its group or which the Company is required by law to make).
The Company will continue to provide Steve with private medical expenses insurance at the same level of cover enjoyed at the time of his departure for
12 months or until obtained from another employer. For the period from 7 October 2021 to 31 December 2021, Steve received payments in relation
to salary and benefits of £85,387. The Company also made a contribution of £3,000 plus VAT in respect of Steve’s legal fees incurred in relation to his
leaving arrangements.
Steve remained eligible to receive an annual bonus for the 2021 financial year which was payable at the normal payment date and subject to
performance testing. Steve will receive a time pro-rated award of £472,807 one-third of which will be deferred in shares for a period of two years in line
with the normal share deferral policy. He will not be eligible for an annual bonus in respect of the 2022 financial year or subsequent years.
Steve has been permitted to retain his vested 2016 Co-Investment Plan awards and his 2018 Deferred Bonus Plan awards which can both be exercised
until 5 April 2022. Additionally, Steve has retained his:
• 2017 Performance Share Plan award which has vested but remains in its holding period until March 2022. Once it is released it will be exerciseable
until September 2022;
• 2019, 2020 and 2021 Performance Share Plan awards which will vest on the normal vesting dates, subject to performance conditions and time pro-
rating. Dividend equivalents will accrue to the extent shares vest and shares will remain subject to the full two-year holding period on vesting; and
• 2020 Deferred Bonus Plan awards which will vest at the normal vesting date and will continue to attract dividend equivalents.
The table below shows the application of time pro-rating and holding periods on Steve Wilson’s share awards:
Award
2019 PSP
2020 PSP
2021 PSP
Number of shares subject to Award
Maximum number of shares
which could vest after the
application of time pro-rating
86,459
140,694
87,043
79,6741
50,238
22,178
Vesting date
Mar 2022
Sept 2023
Apr 2024
Holding period
Mar 2022 – Mar 2024
Sep 2023 – Sep 2025
Apr 2024 – Apr 2026
1 As outlined on page 112 following the application of performance conditions these shares will not vest.
Headlam Group PLC Annual Report & Accounts 2021 113
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Tony Judge (former Chief Operating Officer who stepped down from the Board on 14 September 2018) exercised a nil cost option over 2,656 shares
under the Performance Share Plan on 28 April 2021. The share price on date of exercise was £4.63 leading to a pre-tax benefit of £12,297.28.
There have been no further payments to past directors to be reported for the year under review except as outlined elsewhere in this report.
Executive Directors’ share awards outstanding
Chris Payne
Number of
shares /
options as at
31 December
2020
–
103,669
24,076
63,707
63,506
2,770
7,929
Shares /
options
granted
Shares /
options
lapsed
Shares /
options
exercised
64,137
–
–
–
–
–
–
–
–
–
–
63,506
–
–
–
–
–
–
–
–
–
Number
of shares/
options at
31 December
2021
64,137
103,669
24,076
63,707
0
2,770
7,929
Share price
at grant
(pence)
Exercise
price
(pence)
Market
price
on exercise
date
(pence)
454
281
281
448
441
536
271
Nil
Nil
Nil
Nil
Nil
Nil
227
–
–
–
–
–
–
–
Date of grant
9 April 2021
11 Sept 2020
11 Sept 2020
10 April 2019
9 April 2018
25 Sept 2017
5 Oct 2020
Scheme
PSP
PSP
DBP
PSP
PSP
PSP2
SAYE
Vesting date
Expiry date
April 2024
Sept 20231
Sept 2022
Mar 20221
Mar 20211
Mar 20201
Nov 2023
April 2031
Sept 2030
Sept 2030
April 2029
April 2028
Sept 2027
April 2024
1 Award vests on date shown but is subject to a further two-year holding period during which the option may not be exercised. Following the application of performance conditions, the PSP granted in
April 2019 will not vest.
2 Award vested but subject to holding period.
Steve Wilson
Number of
shares /
options as at
31 December
2020
–
140,694
32,675
86,459
86,187
32,885
4,049
21,860
7,929
Shares /
options
granted
Shares /
options
lapsed
Shares /
options
exercised
87,043
–
–
–
–
–
–
–
–
–
–
–
–
86,187
–
–
–
–
–
–
–
–
–
–
–
–
–
Number
of shares/
options at
31 December
20211
87,043
140,694
32,675
86,459
0
32,885
4,049
21,860
7,929
Date of grant
9 April 2021
11 Sept 2020
11 Sept 2020
10 April 2019
9 April 2018
9 April 2018
5 July 2017
6 May 2016
5 Oct 2020
Share price
at grant
(pence)
Exercise
price
(pence)
Market
price
on exercise
date
(pence)
454
281
281
448
441
441
536
477
271
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
227
–
–
–
–
–
–
–
–
–
Vesting date
Expiry date
April 20242
Sept 20232
Sept 2022
Mar 20222
Mar 20212
Mar 2020
Mar 20202
May 2019
Nov 2023
April 2031
Sept 2030
Sept 2030
April 2029
April 2028
April 2028
July 2027
May 2026
April 2024
Scheme
PSP
PSP
DBP
PSP
PSP
DBP3
PSP4
CIP3
SAYE
1 Awards and expiry dates are shown to the date of leaving the Board (6 October 2021).
2 Award vests on date shown but is subject to a further two-year holding period during which the option may not be exercised. Following the application of performance conditions, the PSP granted in
April 2019 will not vest.
3 Vested awards.
4 Award vested but subject to holding period.
Shareholding guidelines
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 a proportion of the net of tax shares vesting under the PSP and DBP until the guideline is met (increased from half
to all of the net of tax vesting shares from the 2021 AGM). In addition, from the 2021 AGM, post-cessation guidelines linked to the ‘in-employment’
guidelines were introduced. As such, 100% of the in-employment shareholding guideline (200% of salary) will apply up to the first anniversary of
the date of cessation, reducing to 50% of the shareholding guideline (100% of salary) between the first and second anniversary of cessation. In
determining the relevant number of shares to be retained post cessation, only share awards granted after the 2021 AGM will be counted (i.e. past
grants and shares acquired from own purchases will be excluded).
114
Headlam Group PLC Annual Report & Accounts 2021
Statement of Directors’ shareholding and share interests (audited)
The interests of Directors and their connected persons in the Company’s ordinary shares as at 31 December 2021 were as set out below. There have
been no changes to those interests between 31 December 2021 and the date of signing of these financial statements and reports.
Directors
Chris Payne
Amanda Aldridge
Stephen Bird
Keith Edelman
Simon King
Philip Lawrence
Former Directors
Steve Wilson2
Alison Littley2
Interests in Share Schemes
Owned Shares at
31 December 2021
PSP
Deferred Bonus
Nil
Nil
5,000
7,059
15,272
11,184
665,146
Nil
234,283
N/A
N/A
N/A
N/A
N/A
318,245
N/A
24,076
N/A
N/A
N/A
N/A
N/A
65,560
N/A
CIP
Nil
N/A
N/A
N/A
N/A
N/A
21,860
N/A
Shares under
Shareholding
Guidelines1
Shareholding
Guidelines
achieved (%)
14,228
N/A
N/A
N/A
N/A
N/A
713,625
N/A
8
N/A
N/A
N/A
N/A
N/A
309
N/A
SAYE
7,929
N/A
N/A
N/A
N/A
N/A
7,929
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.
2.
Interests shown to the date of stepping down from the Board.
TSR graph
The graph below shows the value at 31 December 2021 of £100 invested in the Company on 1 January 2012 compared to the value of £100 invested
in the FTSE SmallCap Index, making the assumption that dividends are reinvested to purchase additional equity.
400
350
300
250
200
150
100
50
)
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
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 31 Dec 20 31 Dec 21
Source: Datastream (a Refinitiv product)
Headlam Group plc FTSE SmallCap Index
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.
Headlam Group PLC Annual Report & Accounts 2021 115
OverviewCorporate GovernanceStrategic ReportFinancial Statements
DIRECTORS’ REMUNERATION REPORT
Chief Executive remuneration table
The table below sets out the remuneration of the Chief Executive for the latest ten financial year periods.
Period
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Chris Payne
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
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 (%)
2051
8642
514
798
588
1,069
1,0673
7374
1,175
1,134
927
1,347
100
100
0.0
45.5
0.0
65.8
76.8
n/a
87.1
81.4
42.7
65.5
0.0
0.0
0.0
5.7
53.5
97.5
98.6
88.9
n/a
n/a
n/a
n/a
1. The remuneration shown is on a pro-rated basis for the period Chris Payne was Interim Chief Executive from 7 October 2021 to 31 December 2021 only.
2. Steve Wilson stepped down as Chief Executive and a Director on 6 October 2021. The 2021 figures reflect his remuneration earned from the start of 2021 until the date of his resignation as a
Director. This remuneration is for a part year and does not include a termination payment.
3. The remuneration shown 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.
4. 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.
Percentage change in remuneration of Directors compared with other employees
The table below shows the percentage increase/(decrease) in each Executive and Non-Executive Directors’ remuneration compared with the
Company’s employees as a whole between the financial periods 2020 and 2021. Going forward, this disclosure will build up over time to cover a rolling
five-year period.
Director
Executive Director
Chris Payne
Non-Executive Directors
Philip Lawrence
Amanda Aldridge
Stephen Bird3
Keith Edelman
Simon King3
Former Directors
Steve Wilson4
Alison Littley4
All employees1
2021
2020
Salary and fees
(% change)
All taxable benefits
(% change)
Annual bonuses2
(% change)
Salary / fees
(% change)
All taxable benefits
(% change)
Annual bonus
(% change)
0
0
0
N/A
0
N/A
-23
-75
0
-10
N/A
N/A
N/A
N/A
N/A
-24
N/A
5
100
N/A
N/A
N/A
N/A
N/A
100
N/A
100
2
0
0
N/A
0
N/A
2
8
2
0
N/A
N/A
N/A
N/A
N/A
2
N/A
-14
-100
N/A
N/A
N/A
N/A
N/A
-100
N/A
-100
1 Reflects the average percentage change in salary, benefits and bonus for employees of the parent company (excluding the Board).
2 This reflects annual bonus paid for performance during 2021, with payments made in March 2022, as per the single figure table.
3 Stephen Bird and Simon King joined the board on 13 September 2021 and 14 May 2021 respectively.
4 Alison Littley and Steve Wilson left the Board on 31 March 2021 and 6 October 2021 respectively and their pro-rated salary is reflected in the percentage change shown.
116
Headlam Group PLC Annual Report & Accounts 2021
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.
2021
£000
6,588
101,426
2020
£000
6,341
84,754
% change
3.9
19.7
CEO pay ratio
The data shows how the Chief Executive’s single figure remuneration for 2021 (as taken from the single figure remuneration table) compares to
equivalent single figure remuneration for the year ended 31 December 2021 for full-time equivalent UK employees, on a Group basis, ranked at the
25th, 50th and 75th percentile. The remuneration for comparison reflects the total remuneration included in the single total figure of remuneration
table paid to Steve Wilson and Chris Payne in relation to the period that each were undertaking the role of Chief Executive. Pension payments have
been omitted from the CEO pay ratio calculation for the period that Steve Wilson was Chief Executive to maintain consistency as he did not receive
a pension payment. Pension payments have however been included for the period in which Chris Payne was Chief Executive to align with the Interim
Chief Executive’s pay package.
2021
2020
2019
Method
25th percentile ratio Median (50th percentile) ratio
75th percentile ratio
Option A
Option A
Option A
51.1:1
25.8:1
39.3:1
38.9:1
20.7:1
31.8:1
26.5:1
14.4:1
22.7:1
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 and was consistent with reporting for previous years.
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
2021
Percentile
Salary (£)
Total pay and benefits (£)
25th percentile
Median
75th percentile
20,821
27,454
34,420
20,921
27,512
40,420
Non-Executive Directors’ letters of appointment
Details of the current Non-Executive Directors’ appointment dates are set out below:
Non-Executive Director
Philip Lawrence
Amanda Aldridge
Stephen Bird
Keith Edelman
Simon King
Date of appointment
1 June 20181
1 February 2018
13 September 2021
1 October 2018
14 May 2021
Expiry of current term
31 May 2024
31 January 2024
12 September 2024
30 September 2024
13 May 2024
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.
Headlam Group PLC Annual Report & Accounts 2021 117
OverviewCorporate GovernanceStrategic ReportFinancial Statements DIRECTORS’ REMUNERATION REPORT
Statement of implementation of remuneration policy
in 2022
Details of how the Company will operate the Remuneration Policy in 2022
are provided below.
Malus and clawback
In respect of the 2022 annual bonus (and for each year thereafter)
in addition to share awards granted on or after December 2020 the
following provisions apply:
Base salaries for 2022
Following his appointment as Chief Executive, Chris Payne’s salary
increased to £425,000. Subject to individual and Company performance,
the salary will increase to £475,000 from 1 January 2023.
Pension
Chris Payne’s pension reduced from 11% to 8% salary from his
appointment as Chief Executive.
Annual bonus
The maximum annual bonus opportunity for 2022 will remain at 125% of
base salary. However, on-target remuneration will be reduced from 60%
to 50% of maximum potential. The payment of the annual bonus will be
based 70% on underlying profit before tax (‘PBT’) performance and 30%
linked to the achievement of a number of key strategic objectives. The
strategic targets relate to various measurable objectives that underpin
Company growth and ESG. Full disclosure of the targets will be provided
in the 2022 Annual Report and Accounts. In line with our Remuneration
Policy, one-third of any amount earned will be deferred into shares for
two years.
PSP
In considering the performance targets for the 2022 PSP Awards the
Committee has considered the need to set stretching and challenging
targets which are aligned to the short- and long-term performance of the
Group. The Committee will once again set targets based on underlying
EPS Growth and relative TSR. Reflecting the reduction to on-target
bonus and the Committee’s desire to rebalance packages more towards
the longer-term, awards in respect of 2022 will be granted in the form of
nil cost options over ordinary shares in the Company at the level of 100%
of salary:
The performance targets are set out in the table below:
• Prior to the payment of an annual bonus or vesting of a DBP 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); reduce future vesting under the Company’s share plans; or
reduce the number of shares already vested but unexercised.
The circumstances in which malus and clawback may be operated are
as follows:
• The Company materially misstated its financial results (excluding any
changes resulting from a change in accounting standards);
• 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);
• Circumstances which in the opinion of the Board would have (or would
have if made public) a sufficiently significant impact on the reputation
of the Company or Group;
• The Company becomes insolvent or otherwise suffers a corporate
failure and the Board determines that such circumstances arose from
events occurring (in whole or substantial part) during any period in
which the relevant individual was a participant; or
Vesting
(% of maximum)
Underlying EPS growth
(80% of award)
0%
25%
100%
Less than 6% p.a.
6% p.a.
10% p.a.
Straight-line vesting between points.
TSR relative to the constituents of
the FTSE SmallCap Index excluding
investment trusts
(20% of award)
• Such other exceptional circumstances which, in the Remuneration
Committee’s absolute discretion, justify such reimbursement
being imposed.
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.
118
Headlam Group PLC Annual Report & Accounts 2021
Main Role and Key Responsibilities
The Remuneration Committee’s main responsibilities include:
• Designing the framework and policy for Executive Directors’
remuneration and determining remuneration packages for the
Executive Directors, Chairman and Senior Management, including
the Company Secretary, to promote the achievement of the Group’s
strategy and long-term sustainable success. When setting executive
remuneration, take into account the link between Executive Director
and senior manager remuneration and that provided to the wider
workforce;
• Establishing remuneration schemes that promote long-term
shareholding by Executive Directors and that support alignment with
Shareholders’ interests, both in post and post-cessation;
• 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;
• Oversight of the administration of share plans as required;
• Review workforce remuneration and related policies; and
• Determine the policy for and scope of pension arrangements for
Executive Directors and Senior Management.
Non-Executive Directors’ fees for 2022
The Non-Executive Directors received no fee increase for 2021 and
have received no increase in their base fee since 1 January 2018. A
benchmarking review was undertaken during the year to understand
fee levels in companies of similar size and complexity and the results
compared with the company’s pay principles. An increase to the base fee
was approved in light of the increased complexity and time commitments
required by the role and the external environment. The following fees are
to be applied for the financial year ended 31 December 2022.
Role
Chairman fee
Non-Executive Director base fee
Senior Independent Director fee
Audit Committee chair fee
Remuneration Committee chair fee
Fees effective
1 Jan 2022
£000
Fees effective
1 Jan 2021
£000
150.0
50.0
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 26
October 2021. 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. Attendance at
scheduled meetings of the Committee during the year was as follows:
Members
Keith Edelman
Stephen Bird1
Simon King1
Philip Lawrence
Amanda Aldridge
Former Member
Alison Littley2
Meetings
attended
Eligible to
attend
4
3
3
4
4
1
4
3
3
4
4
1
1 Stephen Bird joined the Committee on 13 September 2021 and Simon King joined the
Committee on 14 May 2021.
2 Alison Littley stepped down on 31 March 2021 and attended all meetings she was entitled to
attend.
Members additionally correspond on urgent matters between formal
Committee meetings. Other Directors may attend Remuneration
Committee meetings by invitation, including the Chief Executive and
CFO where appropriate. The Committee also receives assistance from
the People Director, the Company Secretary and from independent
external advisers, FIT Remuneration. 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.
Headlam Group PLC Annual Report & Accounts 2021 119
OverviewCorporate GovernanceStrategic ReportFinancial Statements The key matters discussed at the meetings of the Remuneration Committee in 2021 were as follows:
Remuneration
• Reviewed wider workforce remuneration
arrangements, including proposals relating to
workforce pension provision and annual bonus
scheme and considered in conjunction with
pay strategy for Executive Directors and Senior
Management;
• Considered pay awards for Executive Directors
and Senior Management;
• Considered Annual Bonus payments;
• Reviewed and confirmed that no vesting would
occur for the 2018 PSP;
• Approved the Annual Bonus payments for
2021;
• Reviewed estimated outturn for 2021 variable
remuneration (including share plans);
• Approved the PSP Award and targets;
• Considered and confirmed the continuing
appropriateness of the Remuneration Policy;
• Considered updated benchmarking data for
Executive Directors, Senior Management and
the Chairman;
• Considered and opined on the settlement
arrangements for Steve Wilson; and
• Considered possible package for the new
Chief Executive.
Remuneration
Committee Activities
Reporting
• Approved the Remuneration
Report (including CEO pay
ratio and Gender pay gap
disclosure).
Governance
• Approach to investor and proxy voting
recommendation agency consultation
discussed and agreed to take place in January
2022;
• Consulted with proxy voting recommendation
agencies prior to the AGM;
• Engaged with the Employee Forum in
December 2021 on matters relating to
remuneration;
• Received an AGM debrief market /
governance update and considered
recommendations made by the voting
recommendation agencies in their AGM
reports;
• Reviewed its own terms of reference; and
• Approved its annual workplan.
Efectiveness
• Made progress against matters arising from
the FY2020 performance evaluation;
• Reviewed the Committee’s effectiveness; and
• Reviewed the performance of its independent
advisor FIT Remuneration and determined
that they should remain in office.
Remuneration Committee efectiveness
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) has served as independent
adviser to the Remuneration Committee throughout the year under
review. FIT’s fees in respect of advice to the Remuneration Committee
during the period ended 31 December 2021 were £18,112 (excluding VAT)
and were charged on a time and disbursements basis. FIT also provided
additional related advice to the Company in relation to drafting this report,
share plan rule drafting and Non-Executive Director fee benchmarking.
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.
The Remuneration Committee reviewed the performance of the FIT and
was satisfied that all advice received was of good quality, objective and
independent.
120
Headlam Group PLC Annual Report & Accounts 2021
Statement of shareholders’ votes
The following table sets out the results of the binding vote on the
Directors’ Remuneration Policy at the 2020 AGM and the advisory vote
on the Directors’ Remuneration Report at the 2021 AGM.
% of
votes cast
For
% of
votes cast
Against
Number of
shares
Withheld
2020 Remuneration Policy
2021 Directors’ Remuneration Report
92.57
95.65
7.43 6,513,388
5,198
4.35
This report has been approved by the Board of Directors and signed on
its behalf by Keith Edelman, Chair of the Remuneration Committee.
Keith Edelman
Chair of the Remuneration Committee
9 March 2022
OTHER STATUTORY DISCLOSURES
The Directors present their report, together with the audited financial
statements, for the year ended 31 December 2021. This report
contains additional information which the Directors are required by law
and regulation to include within the Annual Report and Accounts. In
conjunction with the information from the Chairman’s Statement on
page 12 to the Statement of Directors’ Responsibilities on page 126,
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 193. Further details of the Group’s activities and future plans are set
out in the Strategic Report on pages 8 to 57.
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 57. The Strategic Report
includes certain disclosures required to be contained in the Directors’
Report as follows: the viability statement (page 39), approach to diversity
(page 84), workforce engagement (pages 40 and 49), an indication of
likely future developments (page 15, Chief Executive’s Review), and the
approach to risk management (pages 34 to 38).
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 64 and is incorporated into this report by reference.
Acquisitions
There have been no acquisitions during the period under review.
Post balance sheet events
On 17 January 2022, the Group completed a refinancing of its existing
banking facilities which will expire in October 2026. At 31 December 2021,
the Group had two revolving credit facility agreements with Barclays Bank
PLC and HSBC Bank Plc, with a sterling committed facility of £68.5 million
and a euro committed facility of €9.6 million. These were replaced with
a single revolving credit facility agreement with Barclays Bank PLC, The
Governor and Company of the Bank of Ireland and Credit Industriel Et
Commercial (London Branch) for £81.5 million. Other banking facilities
remained the same see note 19.
Financial results and ordinary dividends
The results for the year and financial position at 31 December 2021
are shown in the Consolidated Income Statement on page 134 and
Statements of Financial Position on page 136.
A nominal dividend of 2p per ordinary share was paid on 28 May 2021
to shareholders on the register at the close of business on 7 May 2021.
Additionally, an interim dividend of 5.8p per ordinary share (2020: nil) was
paid on 29 November 2021 to shareholders on the register at the close
of business on 29 October 2021. The Directors propose a final dividend
of 8.6p per ordinary share (2020: Nil) in respect of the financial year ended
31 December 2021. The payment of the final dividend will be subject to
shareholder approval at the AGM. If approved the total dividend for FY21
will be 16.4p per ordinary share.
The Directors have also declared the payment of a special dividend of
17.7 pence per ordinary share under the Capital Return Plan (for further
information see page 18).
Both the final dividend (if approved by shareholders) and the special
dividend will be paid on 27 May 2022 to shareholders on the register of
members at the close of business on 6 May 2022, the associated ex-
dividend date being 5 May 2022.
Share capital
As at 31 December 2021, 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. No new Ordinary Shares were issued during
the year. The Company’s total issued share capital therefore remains
85,639,209 Ordinary Shares as at 31 December 2021. 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 21 May 2021, and no shares were purchased into treasury
since 1 January 2022 and to the date of the signing of this Report.
A total of 200,787 Ordinary Shares were transferred from treasury stock
during 2021 in connection with the Company’s employee share schemes,
and the balance of shares in treasury stock following these transfers
was 331,668 Ordinary Shares as at 31 December 2021 (0.39% of the
Company’s total issued share capital).
Details of the Company’s share capital are set out in note 25 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 UK Market Abuse Regulation, whereby certain employees
require the approval of the Company to deal in the Company’s shares
Headlam Group PLC Annual Report & Accounts 2021 121
OverviewCorporate GovernanceStrategic ReportFinancial Statements OTHER STATUTORY DISCLOSURES
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 21 May 2021, 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 21 May 2021, 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. The Company did not use this authority during the year and up
to the date of the signing of this Report. However, the Company announced a share buyback programme (‘SBB’) on 9 March 2022 which is outlined fully
within the Chief Executive’s Report. It is very likely that any initial purchases under this SBB will be undertaken using the authority granted at the
2021 AGM.
In line with usual practice, the Directors will also seek to renew the authority to purchase shares under the at the forthcoming AGM which will enable
the SBB to continue following the 2022 AGM. The Company intends to exercise this authority: (i) to purchase and hold shares in treasury to fulfil the
Company’s future obligations under its employee share schemes; and / or (ii) after following its Capital Allocation Priorities as detailed on page 13 and
considering market conditions and the share price prevailing at the time, where the Board believes that the purchase and subsequent cancellation of
shares would be in the best interest of shareholders generally. A 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 58 and 59.
Changes to the Board during the period are set out on page 62. Details of the Directors’ service agreements are set out below:
Executive Directors
Chris Payne
Non-Executive Directors
Philip Lawrence (Chairman)
Amanda Aldridge
Stephen Bird
Simon King
Keith Edelman
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
13 September 2017
n/a
8 March 2022
19 May 2022
1 June 2015
1 February 2018
13 September 2021
14 May 2021
1 October 2018
18 June 2015
12 January 2018
10 August 2021
20 May 2021
15 August 2018
1 May 2021
1 February 2021
13 September 2021
14 May 2021
1 October 2021
19 May 2022
19 May 2022
19 May 2022
19 May 2022
19 May 2022
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 UK Corporate
Governance Code.
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Headlam Group PLC Annual Report & Accounts 2021
Related party transactions
The Board and certain members of Senior Management are related parties within the definition of IAS 24 (Revised) ‘Related Party Disclosures’ (‘IAS 24’)
and the Board are related parties within the definition of Chapter 11 of the UK Listing Rules (‘Chapter 11’). There is no difference between transactions
with key personnel of the Company and transactions with key personnel of the Group. During the year, the Group did not enter into any transaction
which, for the purposes of IAS 24, is considered to be a ‘related party transaction’. No related party transactions that require disclosure have been
entered into during the year under review.
Directors’ Powers
Subject to the Company’s Articles of Association, the Companies Act 2006 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.
Rights under employees’ share schemes
As at 31 December 2021, Kleinwort Hambros, as trustee of the Headlam Group Employee Trust Company Limited (‘Trust’) held 679,667 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 24 to the Financial Statements. Details of long-term incentive schemes for the Directors are
shown in the Remuneration Report on pages 96 to 120.
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.
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 2021, 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. As at 9 March 2022, no change in these holdings had been notified and no further notifications
had been received.
Ordinary shares of 5p each
FIL Limited
Aberforth Partners LLP
JO Hambro Capital Management Limited
Heronbridge Investment Management LLP
Ruffer LLP
Ninety One UK Limited
Aggregate of Standard Life Aberdeen plc affiliated management entities
Rathbone Brothers plc
Franklin Templeton Institutional, LLC
Canaccord Genuity Group Inc
Legal and General Group Plc (Group)
Aggregate total
voting rights1
% of total
voting rights2
Indirect/direct
4,635,824
4,597,427
4,301,148
4,209,552
4,884,745
4,230,614
4,189,429
4,070,078
3,384,588
2,770,314
Not disclosed
Indirect
Indirect
Indirect
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Below 3 and 5% Direct and Indirect
5.46
5.41
5.07
5.04
5.00
4.98
4.95
4.87
3.99
3.27
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.
Headlam Group PLC Annual Report & Accounts 2021 123
OverviewCorporate GovernanceStrategic ReportFinancial Statements OTHER STATUTORY DISCLOSURES
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 incorporated entities overseas and they
are listed on page 193.
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.
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.
During the year the Company has issued a new supplier Code of Conduct
and has appointed an external specialist, who during 2022 will commence
a full audit of our supplier base which will help to mitigate any potential
ethical and modern slavery risks in the supply chain.
Our suppliers are expected to engage and adhere to the Headlam Group
Code of Conduct and Headlam will work with all suppliers to ensure
compliance. However, if any supplier is found to be involved in any form of
Modern Slavery or unethical behaviour, the Company will look to suspend
or cease trading with that supplier.
During an assessment of a supplier or declared manufacturing sites, if
any very high-risk sites are identified during the due diligence process,
our third party specialist partner will send a social compliance auditor to
carry out onsite audits using accepted ethical standards,
Full information can be found in the Company’s Modern Slavery
Statement which is published annually 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.
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Headlam Group PLC Annual Report & Accounts 2021
The Supplier Code of Conduct as outlined above, sets out the
standards we expect our suppliers to meet with respect to: employment
practice, working hours, accommodation (if provided) and freedom of
employment; working conditions; wages and benefits; discrimination;
environmental practice; sub-contractors and the use of agencies. As
outlined above, these standards will be audited against the Supplier Code
of Conduct by an external specialist appointed for this purpose.
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
and career development wherever appropriate.
Equal Opportunities
We are committed to the elimination of unlawful and unfair discrimination
and the fair and equal treatment of all.
The heart of the Company’s approach to its 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 in place various policies to ensure this is reflected in
the culture of the business (including an Equal Opportunities policy and an
Inclusion and Respect at Work policy). Contravention of these policies is
treated as a disciplinary matter and may result in dismissal.
Employee Involvement and Communication
We are committed to keeping our colleagues informed and
communicating with them on matters of importance relating to our
company performance and their employment. We also recognise
that communication should be two-way and we actively encourage
feedback and involvement from our colleagues, either through formal
channels such as our Employee Forum (page 68), our full employee or
pulse surveys, or more informal methods such as the dedicated internal
communications email address or MyHub portal.
During the year, members of our Employee Forum have been consulted
on, and had the opportunity to discuss and contribute ideas to various
projects including the Company’s: environmental strategy; approach to
buying and sales; and executive remuneration. 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.
In addition to our Employee Forum, we hold champions meetings in our
businesses and specific departmental group meetings where we get
together those with specific job roles to share best practice and learn
from each other.
In March 2021 we launched our new engagement portal (‘MyHub’) which
allows Company announcements to be distributed to all registered
employees (including those without access to a Company provided PC
or email). MyHub also acts as a repository for policies and procedures, as
well as offering discounts on products and services. Further information
on employee involvement and communication is contained within the
Stakeholder Engagement and Section 172 Statement on page 40.
Chris Payne, Chief Executive, has initiated fortnightly blogs and video blogs in
2021 which have been well received by colleagues. These communications
cover items of interest including: our key focus areas and financial results;
plans for the year ahead; progress against our ESG strategy; changes to
colleague benefits; and regular performance updates.
A summary of how Directors have engaged with employees and had regard
to employee interests and the effect of that regard on the principal decisions
taken by the Company during the financial year is provided on page 41.
Sharesave
During the year, the Company invited all eligible employees to participate
in its HMRC approved Sharesave Scheme. This Scheme allows eligible
employees to save up to £500 per month in one or a combination of
Sharesave Schemes in order to further align their interests with the
performance of the Group. At 31 December 2021, approximately 28% UK
employees participate in one or more of the active Sharesave Schemes.
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 ESG Report on pages
44 to 55 and in the Streamlined Energy and Carbon Reporting (‘SECR’)
Disclosure on page 56. The Company’s disclosure against the TCFD
requirements is set out on pages 51 to 54.
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 and how this feeds through into the decision-making
process can be found on pages 40 to 42.
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 126 and a statement by the
Auditor on their responsibilities is given on page 132.
Political donations and expenditure
The Company’s policy is not to make any donations for political purposes
in the UK or to donate to political parties or incur political expenditure
outside of the UK. Accordingly, neither the Company nor its subsidiaries
made any political donations or incurred political expenditure in the
financial period under review (2020: £nil).
Charitable donations
The Company actively encourages each of its businesses to build strong
relationships with the communities in which they operate and where they
predominantly recruit from. 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, allowing
local communities to benefit directly. An outline of the Company’s approach
to charitable donations is given as part of the ESG Report on page 50.
Charitable giving is undertaken through both monetary and product
donations to good local causes. Monetary donations made during the
year in support of charitable causes nationally, and those of interest to
employees amounted to £6,854 (2020:£17,306).
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. The Company’s Articles
of Association were last amended at the general meeting held on 21 May
2021 with the updated articles being filed with the Registrar of Companies.
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 26 to the financial statements on pages 181 to 188.
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 within the viability statement on page 39. The financial position
of the Group is described in the Financial Review on page 19 and the
Group’s viability statement on page 39. In addition, note 26 to the financial
statements on pages 181 to 188, 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 assessed the risks to the sustainability of the business
model and delivery of strategy, and whether these have been considered
and addressed. This assessment was undertaken over a three year
period to 31 December 2024, consistent with the Company’s three year
rolling strategy. Based on the assessment which is outlined in the viability
statement on page 39, 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 134 to 193 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 2022 AGM.
AGM
This year’s AGM will be held at the Company’s distribution hub in Coleshill
on Thursday, 19 May 2022 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
9 March 2022
Company registration number: 00460129
Headlam Group PLC Annual Report & Accounts 2021 125
OverviewCorporate GovernanceStrategic ReportFinancial Statements STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN RESPECT OF
THE FINANCIAL STATEMENTS
The directors are responsible for preparing the Annual Report and
Accounts and the financial statements in accordance with applicable law
and regulation.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors have prepared the group
and the company financial statements in accordance with UK-adopted
international accounting standards.
Under company law, directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the group and company and of the profit or loss of the group
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 UK-adopted international accounting
standards have been followed, 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 company will continue
in business.
The directors are responsible for safeguarding the assets of the group
and company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are also responsible for keeping adequate accounting
records that are sufficient to show and explain the group’s and company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the group and company and enable them to ensure
that the financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006.
The directors are responsible for the maintenance and integrity of the
company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions
Directors’ confirmations
The directors consider that the Annual Report and Accounts and
accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
group’s and company’s position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed in Annual
Report confirm that, to the best of their knowledge:
• the group and company financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities and financial
position of the group and company, and of the 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
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’s and 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’s and company’s auditors are aware of
that information.
For and on behalf of the Board.
Chris Payne
Director
9 March 2022
126
Headlam Group PLC Annual Report & Accounts 2021
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 2021 and of the group’s profit
and the group’s and company’s cash flows for the year then ended;
• Have been properly prepared in accordance with UK-adopted
international accounting standards; and
• Have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the
Annual Report and Accounts 2021 (the “Annual Report”), which
comprise: the Group and Company Statements of Financial Position
as at 31 December 2021; 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.
We have provided no non-audit services to the company or its controlled
undertakings in the period under audit.
Our audit approach
Overview
Audit scope
• 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 Group Limited,
Domus Group of Companies and Headlam Group plc (the company)
due to their size and risk characteristics. These UK reporting
components comprise 86% of consolidated revenue and 93% of
consolidated underlying profit before tax.
•
In addition, we targeted significant balances in other components.
These were identified as other interest-bearing loans and borrowings
and cash balances within the components of Headlam BV, LMS and
Dersimo. We also tested a sample of LMS revenue transactions to
supporting proof of delivery and cash receipt.
• All work was performed by the group team and no reliance was placed
upon the work of component auditors.
•
Finally, we performed analytical procedures on insignificant trading
components for group reporting purposes
Key audit matters
•
Supplier arrangements (group)
• Disposal of Belcolor (group)
•
Impairment assessment (group and parent)
Materiality
• Overall group materiality: £1,800,000 (2020: £1,600,000) based
on 5% of underlying profit before tax (2020: 5% of 3 year average
underlying profit before tax).
• Overall company materiality: £1,700,000 (2020: £1,520,000) based
on 1% of total assets, capped at allocated component materiality of
£1,700,000 (2020: £1,520,000).
• Performance materiality: £1,350,000 (2020: £1,200,000) (group) and
£1,275,000 (2020: £1,140,000) (company).
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.
Headlam Group PLC Annual Report & Accounts 2021 127
OverviewCorporate GovernanceStrategic ReportFinancial Statements INDEPENDENT AUDITORS’ REPORT
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.
Key audit matter
Supplier arrangements (group)
Refer to the Audit Committee Report on page 90 and the use of
estimates and judgements in the Accounting Policies on page 141.
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.
Disposal of Belcolor (group)
Refer to the Audit Committee Report on page 91 and the use of
estimates and judgements in the Accounting Policies on page 141.
On 28 April 2021, the Group entered into a sale agreement to dispose
of Belcolor AG, representing the entirety of Headlam’s Swiss operations.
As a condition of the sale agreement, Belcolor undertook a sale and
leaseback of its property and paid a dividend of £11.1m to Headlam
Group Plc. The subsidiary was sold with effect from 17 May 2021 and has
been reported in the financial statements as a discontinued operation.
This is not a complete list of all risks identified by our audit.
Disposal of Belcolor (Group), Impairment assessment of assets (Group)
and of investments (Company) are new key audit matters this year.
Impairment of Domus intangibles (Group) and Impact of COVID-19
(Group and Company), which were key audit matters last year, are no
longer included because of the continuing improvements in Domus’
trading performance in the current year and the Group experiencing a
strong recovery back to pre-pandemic trading levels with reduced impact
from Covid-19.Otherwise, the key audit matters below are consistent
with last year.
How our audit addressed the key audit matter
We tested a sample of rebate balances by requesting confirmations
directly 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 evidence 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.
We have reviewed and tested management’s accounting for the
disposal of Belcolor and have agreed the transactions back to
supporting evidence. This included verifying that it was appropriate
to account for the sale and leaseback of the Belcolor property as a
separate transaction prior to the sale of the subsidiary and testing
management’s calculation of the profit on sale of building and loss
on sale of subsidiary.
We have reviewed the presentation of the disposal, its cashflows, and
its disclosures as a discontinued operation and confirmed they are
consistent with the requirements of IFRS 5 and IAS 7.
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Headlam Group PLC Annual Report & Accounts 2021
Key audit matter
How our audit addressed the key audit matter
Impairment assessment (group and parent)
Refer to the Audit Committee Report on page 90 and the use of
estimates and judgements in the Accounting Policies on page 141.
We evaluated management’s assessment of potential impairment
triggers across all of the Group’s cash generating units (CGUs) (Group)
and investments (Company) to identify any potential indicators of
impairment in light of current and future market conditions.
The directors are required to perform an annual assessment of the
carrying value of goodwill. They are also required to exercise judgement
as to whether impairment triggers which require a full impairment
assessment to be performed, have been identified in relation to the
Group's tangible and intangible assets and the Company's investments.
For certain underperforming cash generating units, impairment
triggers were identified. Where a full impairment assessment was
required to support the carrying value of the assets and investments
held, discounted cash flow models have been prepared which include
a number of judgemental assumptions including the potential impact
associated with climate change. The assumptions which are deemed to
be the most significant in these forecasts are in respect of revenue, gross
margin and discount rate.
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 Group Limited, Domus Group of
Companies and Headlam Group plc (the Company). These reporting
components were audited by the group engagement team.
Where impairment triggers were identified, we obtained management’s
impairment models and tested their integrity and accuracy. We agreed
the revenue and cash flows used as the basis of the model back to
Board approved 5 year forecasts and reviewed them in light of recent
trading results and historic performance.
In addition we performed benchmarking against independent market
indices, noting the correlation with macro-economic factors. We
evaluated the extent to which the impact of climate change had
been incorporated into the models. We engaged valuation experts
to benchmark the discount rate calculated by management and
concluded that it lay within our expected ranges.
We reviewed management’s sensitivity analysis on key assumptions,
including the impact of a potential end-of-life disposal tax.
We confirmed that the goodwill and other associated assets relating
to CECO (Flooring) Limited had been appropriately impaired and that a
further three CGUs were materially sensitive to combined movements
in the key assumptions of 1% each.
We reviewed the associated disclosures within the financial statements
to ensure that they were appropriately disclosed.
As a result of these procedures, we consider the directors’ assessment
of the carrying value of tangible and intangible assets to be supportable.
In addition, we targeted significant balances in components outside
of full scope. These were identified as other interest-bearing loans
and borrowings and cash within the components of Headlam BV, LMS
and Dersimo. We also tested a sample of LMS revenue transactions to
supporting proof of delivery and cash receipt.
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.
Our audit of the Company Financial Statements was undertaken by the
Group audit team and included substantive procedures over all material
balances and transactions.
Headlam Group PLC Annual Report & Accounts 2021 129
OverviewCorporate GovernanceStrategic ReportFinancial Statements
INDEPENDENT AUDITORS’ REPORT
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
£1,800,000 (2020: £1,600,000).
£1,700,000 (2020: £1,520,000).
Financial statements – Group
Financial statements – Company
How we determined it
5% of underlying profit before tax
Rationale for
benchmark applied
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. In FY20 a three year
average of underlying profit before tax was used due
to the impact of COVID-19 on results for the year.
Given a return to pre-pandemic levels of trading
in FY21, materiality has been calculated based on
current year underlying profit before tax.
1% of total assets, capped at allocated component
materiality of £1,700,000 (2020: £1,520,000)
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 £444,000 and
£1,700,000. Certain components were audited to a local statutory audit
materiality that was also less than our overall group materiality.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the
company’s ability to continue to adopt the going concern basis of
accounting included:
We use performance materiality to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use
performance materiality in determining the scope of our audit and
the nature and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample sizes.
Our performance materiality was 75% (2020: 75%) of overall materiality,
amounting to £1,350,000 (2020: £1,200,000) for the group financial
statements and £1,275,000 (2020: £1,140,000) for the company
financial statements.
In determining the performance materiality, we considered a number of
factors – the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls – and concluded that an amount at
the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £90,000 (group audit)
(2020: £80,000) and £85,000 (company audit) (2020: £80,000) as well
as misstatements below those amounts that, in our view, warranted
reporting for qualitative reasons.
130
Headlam Group PLC Annual Report & Accounts 2021
•
Evaluating management’s detailed cash flow forecasts and liquidity
headroom under both base case and downside scenarios.
• Testing the cashflows were consistent with board approved forecasts
and considering whether they were reasonable in light of previous
performance, future expectations and management’s track record of
accurate forecasting.
• Assessing there were no doubts over the ability of the group to meet
its debt covenants under both base case and downside scenarios.
• Assessing the impact of the new banking facilities which were agreed
on 17 January 2022.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s and the company’s
ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the preparation
of the financial statements is appropriate.
However, because not all future events or conditions can be predicted,
this conclusion is not a guarantee as to the group’s and the company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting.
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.
Our responsibilities and the responsibilities of the directors with respect
to going concern are described in the relevant sections of this report.
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, which
includes reporting based on the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations. 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 Other Statutory Disclosures, we
also considered whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies
Act 2006 requires us also to report certain opinions and matters as
described below.
Strategic report and Other Statutory Disclosures
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Other Statutory
Disclosures for the year ended 31 December 2021 is consistent with
the financial statements and has been prepared in accordance with
applicable legal requirements.
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 Other
Statutory Disclosures.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation
to going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance with the
provisions of the UK Corporate Governance Code specified for our
review. Our additional responsibilities with respect to the corporate
governance statement as other information are described in the
Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded
that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material to
add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal
risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material
uncertainties to the group’s and company’s ability to continue to do
so over a period of at least twelve months from the date of approval
of the financial statements;
• The directors’ explanation as to their assessment of the group’s and
company’s prospects, the period this assessment covers and why
the period is appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term
viability of the group was substantially less in scope than an audit and
only consisted of making inquiries and considering the directors’ process
supporting their statement; checking that the statement is in alignment
with the relevant provisions of the UK Corporate Governance Code;
and considering whether the statement is consistent with the financial
statements and our knowledge and understanding of the group and
company and their environment obtained in the course of the audit.
Headlam Group PLC Annual Report & Accounts 2021 131
OverviewCorporate GovernanceStrategic ReportFinancial Statements INDEPENDENT AUDITORS’ REPORT
In addition, based on the work undertaken as part of our audit, we
have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken
as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and
company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to report when
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.
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,
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.
Irregularities, including fraud, are instances of non-compliance with laws
and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are
capable of detecting irregularities, including fraud, is detailed below.
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, health and safety legislation and taxation
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 financial
statements such as the Companies Act 2006 and Listing Rules. 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 of inappropriate journal entries and management bias in
accounting estimates. Audit procedures performed by the engagement
team included:
• Discussions with management, including consideration of known or
suspected instances of non-compliance with laws and regulations,
and fraud.
• Review of correspondence and discussions with legal advisors.
• Challenging assumptions and judgements made by management
in their significant accounting estimates and judgements.
• Testing of journals posted to revenue, rebates and cash that have
unusual account combinations
There are inherent limitations in the audit procedures described above.
We are less likely to become aware of instances of non-compliance
with laws and regulations that are not closely related to events and
transactions reflected in the financial statements. 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.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number
of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from which the
sample is selected.
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.
132
Headlam Group PLC Annual Report & Accounts 2021
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 obtained 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 6 years, covering the years ended 31 December 2016 to
31 December 2021.
Other matter
In due course, as required by the Financial Conduct Authority
Disclosure Guidance and Transparency Rule 4.1.14R, these financial
statements will form part of the ESEF-prepared annual financial report
filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard
(‘ESEF RTS’). This auditors’ report provides no assurance over whether
the annual financial report has been prepared using the single electronic
format specified in the ESEF RTS.
Gillian Hinks
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
East Midlands
9 March 2022
Headlam Group PLC Annual Report & Accounts 2021 133
OverviewCorporate GovernanceStrategic ReportFinancial Statements FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2o21
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit/(loss)
Finance income
Finance expenses
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) from continuing operations
Profit/(loss) from discontinued operation
Profit/(loss) for the year attributable to the equity
shareholders
Earnings/(loss) per share for profit from continuing
operations
Basic
Diluted**
Earnings/(loss) per share for profit from discontinued
operations
Basic
Diluted**
Ordinary dividend per share
Interim dividend for the financial year
Final dividend declared
Declared special dividend
Declared dividend
Non-
underlying
(Note 3)
2021
£M
Re-presented*
Non-
underlying
(Note 3)
2020
£M
Total
2021
£M
Underlying
2020
£M
–
–
–
–
(8.2)
(8.2)
–
–
–
(8.2)
1.5
(6.7)
4.4
667.2
(446.7)
220.5
(125.9)
(65.5)
29.1
0.4
(1.9)
(1.5)
27.6
(7.7)
19.9
4.5
578.1
(400.0)
178.1
(113.9)
(46.8)
17.4
0.8
(2.8)
(2.0)
15.4
(3.8)
11.6
0.4
–
–
–
–
(29.6)
(29.6)
–
(0.1)
(0.1)
(29.7)
0.7
(29.0)
(3.3)
Underlying
2021
£M
667.2
(446.7)
220.5
(125.9)
(57.3)
37.3
0.4
(1.9)
(1.5)
35.8
(9.2)
26.6
0.1
Total
2020
£M
578.1
(400.0)
178.1
(113.9)
(76.4)
(12.2)
0.8
(2.9)
(2.1)
(14.3)
(3.1)
(17.4)
(2.9)
26.7
(2.3)
24.4
12.0
(32.3)
(20.3)
31.5p
31.1p
0.2p
0.2p
23.5p
23.2p
13.7p
13.7p
5.3p
5.2p
0.5p
0.5p
5.80p
8.60p
17.70p
–
(20.7)p
(20.7)p
(3.4)p
(3.4)p
–
–
–
2.00p
Note
2
2
6
6
3
7
27
9
9
9
9
25
25
25
25
* The results for the year ended 31 December 2020 have been re-presented to reflect the presentation of the Belcolor business as discontinued.
** For the year ended 31 December 2020, diluted earnings/(loss) per share are reported the same as basic earnings/(loss) per share, as a result of the
earnings being negative so the impact of them is anti-dilutive.
134
Headlam Group PLC Annual Report & Accounts 2021
FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2o21
Profit/(loss) 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
Exchange differences arising on translation of overseas operations
Reclassification of foreign currency translation reserve on disposal of subsidiary
Other comprehensive (expense)/income for the year
Note
23
27
2021
£M
24.4
(2.6)
0.8
(1.8)
(1.2)
(4.8)
(6.0)
(7.8)
2020
£M
(20.3)
(0.3)
0.1
(0.2)
0.9
–
0.9
0.7
Total comprehensive income/(expense) attributable to the equity shareholders for the year
16.6
(19.6)
Total comprehensive income /(expense) attributable to the equity shareholders for the year arising from:
Continuing operations
Discontinued operations
16.9
(0.3)
16.6
(17.5)
(2.1)
(19.6)
Headlam Group PLC Annual Report & Accounts 2021 135
OverviewCorporate GovernanceStrategic ReportFinancial Statements STATEMENTS OF FINANCIAL POSITION
At 31 December 2o21
Assets
Non-current assets
Property, plant and equipment
Investment properties
Right of use assets
Intangible assets
Investments in subsidiary undertakings
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Non-current assets trade and other receivables
Trade and other receivables
Non-current assets classified as held for sale
Total assets
Liabilities
Current liabilities
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
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
Group
Company
Note
2021
£M
2020
£M
2021
£M
2020
£M
10
10
11
12
13
15
16
17
16
18
19
20
21
23
8
19
20
22
14
23
25
25
113.3
–
35.0
18.1
–
166.4
130.9
114.0
61.2
306.1
–
–
–
306.1
472.5
(0.6)
(10.5)
(178.0)
(1.0)
(1.0)
(191.1)
(6.9)
(25.5)
(2.7)
(10.3)
(3.9)
(49.3)
(240.4)
232.1
4.3
53.5
(1.6)
175.9
232.1
122.9
–
42.1
21.1
–
186.1
118.5
101.6
60.8
280.9
–
0.4
0.4
281.3
467.4
(2.0)
(12.5)
(178.4)
–
(0.2)
(193.1)
(7.2)
(30.8)
(2.1)
(8.7)
(5.5)
(54.3)
(247.4)
220.0
4.3
53.5
3.4
158.8
220.0
1.0
91.4
0.7
1.9
100.4
195.4
–
6.2
63.4
69.6
14.4
–
14.4
84.0
279.4
–
(0.1)
(36.7)
(1.0)
(0.7)
(38.5)
–
(0.7)
–
(7.8)
(3.3)
(11.8)
(50.3)
229.1
4.3
53.5
17.3
154.0
229.1
1.0
97.3
0.7
1.1
105.8
205.9
–
22.5
16.6
39.1
–
0.4
0.4
39.5
245.4
–
(0.1)
(35.9)
–
(0.8)
(36.8)
–
(0.7)
–
(6.6)
(2.3)
(9.6)
(46.4)
199.0
4.3
53.5
16.3
124.9
199.0
The notes on pages 140 to 193 are an integral part of these consolidated
financial statements.
These financial statements were approved by the Board of Directors on
9 March 2022 and were signed on its behalf by
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 £36.7 million (loss in 2020: £3.5 million).
Chris Payne
Director
Company Number: 00460129
136
Headlam Group PLC Annual Report & Accounts 2021
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY – GROUP
For the year ended 31 December 2o21
Balance at 1 January 2020
(Loss)/profit for the year attributable to the
equity shareholders
Other comprehensive income/(expense)
Total comprehensive income/(expense)
for the year
Transactions with equity shareholders,
recorded directly in equity
Share-based payments
Share options exercised by employees
Ordinary shares issued
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to
equity shareholders
Balance at 31 December 2020
Balance at 1 January 2021
(Loss)/profit for the year attributable to the
equity shareholders
Other comprehensive income/(expense)
Total comprehensive income/(expense)
for the year
Transactions with equity shareholders,
recorded directly in equity
Share-based payments
Share options exercised by employees
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to
equity shareholders
Share
capital
£M
4.3
Share
premium
£M
53.5
Capital
redemption
reserve
£M
0.1
Special
reserve
£M
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.3
4.3
53.5
53.5
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.0
–
–
1.0
1.5
1.5
–
–
–
–
–
–
–
–
Translation
reserve
£M
6.8
–
0.9
0.9
–
–
–
–
–
–
7.7
7.7
–
(6.0)
(6.0)
–
–
–
–
–
Balance at 31 December 2021
4.3
53.5
0.1
1.5
1.7
Treasury
reserve
£M
(6.1)
–
–
–
–
0.2
–
–
–
0.2
(5.9)
(5.9)
–
–
–
–
1.0
–
–
Retained
earnings
£M
186.0
(20.3)
(0.2)
Total
equity
£M
245.1
(20.3)
0.7
(20.5)
(19.6)
(0.1)
(0.1)
–
(0.2)
(6.3)
(0.1)
0.1
1.0
(0.2)
(6.3)
(6.7)
(5.5)
158.8
158.8
24.4
(1.8)
220.0
220.0
24.4
(7.8)
22.6
16.6
1.2
(0.3)
0.2
(6.6)
1.2
0.7
0.2
(6.6)
1.0
(4.9)
(5.5)
(4.5)
175.9
232.1
Headlam Group PLC Annual Report & Accounts 2021 137
OverviewCorporate GovernanceStrategic ReportFinancial Statements STATEMENT OF CHANGES IN EQUITY – COMPANY
For the year ended 31 December 2o21
Balance at 1 January 2021
Loss for the year attributable to the equity shareholders
Other comprehensive income
Total comprehensive expense for the year
Transactions with equity shareholders, recorded directly in equity
Share-based payments
Share options exercised by employees
Ordinary share issues
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to equity shareholders
Balance at 31 December 2020
Balance at 1 January 2021
Profit for the year attributable to the equity shareholders
Other comprehensive income
Total comprehensive expense for the year
Transactions with equity shareholders, recorded directly in equity
Share-based payments
Share options exercised by employees
Deferred tax on share options
Dividends to equity holders
Total contributions by and distributions to equity shareholders
Share
capital
£M
Share
premium
£M
4.3
–
–
53.5
–
–
–
–
–
–
–
–
–
4.3
4.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
53.5
53.5
–
–
–
–
–
–
–
–
Capital
redemption
reserve
£M
Special
reserve
£M
Treasury
reserve
£M
Retained
earnings
£M
Total
equity
£M
207.8
(3.5)
0.1
(6.1)
–
–
134.9
(3.5)
0.1
–
(3.4)
(3.4)
–
0.2
–
–
–
0.2
(0.1)
(0.1)
–
(0.1)
(6.3)
(6.6)
(0.1)
0.1
1.0
(0.1)
(6.3)
(5.4)
(5.9)
124.9
199.0
(5.9)
–
–
124.9
36.7
(2.0)
199.0
36.7
(2.0)
–
34.7
34.7
–
1.0
–
–
1.0
1.2
(0.3)
0.1
(6.6)
(5.6)
1.2
0.7
0.1
(6.6)
(4.6)
0.1
–
–
–
–
–
–
–
–
–
0.1
0.1
–
–
–
–
–
–
–
–
21.1
–
–
–
–
–
1.0
–
–
1.0
22.1
22.1
–
–
–
–
–
–
–
–
Balance at 31 December 2021
4.3
53.5
0.1
22.1
(4.9)
154.0
229.1
138
Headlam Group PLC Annual Report & Accounts 2021
FINANCIAL STATEMENTS CASH FLOW STATEMENTS
For the year ended 31 December 2o21
Cash flows from operating activities
Profit/(loss) before tax for the year:
Continuing operations
Discontinued operations
Adjustments for:
Depreciation of property, plant and equipment, amortisation and impairment
of intangible assets
Depreciation of right-of-use assets
Impairment of investment
Finance income
Finance expense
(Profit)/loss on sale of property, plant and equipment
Impairment of property, plant and equipment and inventory, following fire
Loss on sale of subsidiary
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
Interest received
Tax paid
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Acquisition of subsidiaries, net of cash acquired
Repayment of acquired borrowings on acquisition
Disposal of discontinued operation, net of cash disposed of**
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from the issue of treasury shares
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Dividends paid
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
Group
Company
Note
2021
£M
2020
£M
2021
£M
2020
£M
27.6
5.8
33.4
9.2
13.5
–
(0.4)
1.9
(11.1)
7.3
0.1
1.2
55.1
(26.6)
(16.6)
5.4
17.3
(0.5)
0.5
(3.5)
13.8
19.7
–
–
(3.5)
(6.1)
(0.8)
9.3
0.7
–
(1.2)
(15.0)
(6.6)
(22.1)
1.0
60.8
(0.6)
61.2
(14.3)
(2.8)
(17.1)
35.8
16.2
–
(0.8)
2.9
0.1
–
–
(0.1)
37.0
15.3
23.2
(4.8)
70.7
(2.7)
0.8
(6.3)
62.5
0.1
(1.0)
(0.2)
–
(15.0)
–
(16.1)
0.2
50.9
(48.5)
(15.7)
(6.3)
(19.4)
27.0
33.4
0.4
60.8
38.9
–
38.9
2.0
–
–
(0.3)
0.5
(5.1)
2.3
5.4
0.4
44.1
–
1.9
0.1
46.1
(0.4)
0.3
(0.3)
45.7
6.9
–
–
0.8
–
(0.7)
7.0
0.7
–
–
–
(6.6)
(5.9)
46.8
16.6
–
63.4
(2.0)
–
(2.0)
1.8
–
16.6
(0.6)
1.0
–
–
–
(0.5)
16.3
–
(1.4)
(3.5)
11.4
(0.5)
0.3
(0.8)
10.4
–
–
–
–
(5.2)
–
(5.2)
0.2
50.0
(50.0)
–
(6.3)
(6.1)
(0.9)
17.5
–
16.6
3
11
13
6
6
3
24
28
27
25
17
*
Cash generated from the Group operations for the year ended 31 December 2020, includes an amount of £11.0 million cash received under governmental job retention schemes in the UK and
France (Company £0.1 million). These are discussed in more detail under Government Grants in note 1.
** For cash flows of discontinued operations see note 27.
Headlam Group PLC Annual Report & Accounts 2021 139
OverviewCorporate GovernanceStrategic ReportFinancial Statements
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
On 31 December 2020, IFRS as adopted by the European Union
at that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being subject
to endorsement by the UK Endorsement Board. Headlam Group plc
transitioned to UK-adopted International Accounting Standards in its
consolidated financial statements on 1 January 2021. This change
constitutes a change in accounting framework. However, there is no
impact on recognition, measurement or disclosure in the period reported
as a result of the change in framework.
Both the Company’s and the Group’s financial statements have been
prepared and approved by the Directors in accordance with UK-adopted
International Accounting Standards and with the requirements of the
Companies Act 2006 as applicable to companies reporting under those
standards. 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 9 March 2022.
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 hundred 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.
140
Headlam Group PLC Annual Report & Accounts 2021
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 15 to 18.
The financial position of the Group, its cash flows, liquidity position and
borrowing facilities are described in the Financial Review on pages 19 to
29. In addition, note 26 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 19 to the financial statements,
the Group has maintained two separate agreements in the year with
Barclays Bank PLC and HSBC Bank Plc and these include both Sterling
and Euro term facilities. The Group’s Sterling committed facilities were
£68.5 million and its Euro committed facilities were €9.6 million. On
17 January 2022, the Group refinanced its banking facilities. The new
committed facilities agreed with a club of banks total £81.5 million with
initial maturity in October 2026, but with a one-year extension option, at
the discretion of the banks.
The Group also has short term uncommitted facilities of £25 million and
€3.8 million which are renewable on an annual basis. These are renewable
on an annual basis and an additional €1.0 million facility was agreed in
January 2022 in Continental Europe. The £25.0 million uncommitted
facilities will reduce to a £15.0 million facility in May 2022.
As at 31 December 2021, the Company had cash and loans excluding
lease liabilities of £53.7 million and had total banking facilities available of
£104.8 million, of which £97.3 million was undrawn.
As detailed in the Viability Statement on page 39. The Directors
have reviewed the Company’s resilience to the principal risks and
uncertainties by considering stress testing forecasts through adverse
scenarios, which involve a reduction in market demand, including (A) a
sustained recessionary environment, characterised by a long period
of underperformance throughout the assessment period and (B) an
economic crisis with a sharp decline in demand in the first year before
a recovery. The testing indicated that the Company would be able to
operate within its banking facilities and meet its financial covenants in
both scenarios.
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.
NOTES (b) Use of accounting estimates and judgements
Sensitivities in respect of these assumptions are detailed in note 23.
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 amounts, events or actions, actual results
ultimately may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision affects both
current and future periods.
The key sources of estimation uncertainty at the Statement of Financial
Position date that may give rise to a material adjustment to the carrying
value of assets and liabilities within the next financial year are as follows:
• Supplier arrangements
The group has a number of rebate agreements with suppliers. 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. At 31
December 2021, rebates receivable are estimated to be fully
recoverable.
• Trade receivables
The expected credit loss model is used to measure the impairment
required against trade receivables. This requires historical experience,
together with management estimates to derive forward-looking
adjustments to the impairment calculation. If the factor relating to
forward-looking adjustments decreased by 50% the loss allowance
would decrease by £1.5 million. See note 26.
• 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 23. 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 pension and salary increases, price inflation,
discount rate used to measure actuarial liabilities and mortality rates.
• Impairment
The Group determines whether goodwill is impaired on an annual
basis unless there is an indication of impairment at an earlier date.
The Group also assesses whether property, plant and equipment,
right of use assets and other intangible assets are impaired if there is
an indication of impairment at the end of the reporting period. These
both require an estimation of the value in use of the cash generating
units to which the assets 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
on goodwill and other intangibles in respect of CECO (Flooring) Ltd
of £2.1 million. Further details on this 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:
• 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 are associated with the acquisition of businesses or other
items which by virtue of their nature, size and expected frequency,
require adjustment to show the performance of the Group in a
consistent manner which is comparable year-on-year, see note 3.
The following are the principal items classed as non-underlying:
•
Impairment of intangibles, fixed assets and right of use assets as
they are significant, non-recurring items;
• Amortisation of acquired intangibles as they relate to the
acquisition of businesses;
• Property disposal profits as they are not generated from the
normal course of business;
• Acquisitions related fees and deferred and contingent
consideration items as they relate to the acquisition of businesses;
•
Impairment of property, plant and equipment (following a fire) as it
is a significant, non-recurring item;
• Business restructuring cost which is a significant cash item that
falls across 2020 and 2021, and for which no further costs are
expected.
Headlam Group PLC Annual Report & Accounts 2021 141
OverviewCorporate GovernanceStrategic ReportFinancial Statements
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.
Foreign currency exposure
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.
Note 26 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 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).
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.
1 Presentation of the Financial Statements and
Accounting Policies continued
Judgements continued
(c) Impact of newly adopted accounting standards
There were no newly adopted accounting standards by the Group and
Company in 2021.
(d) IFRS not yet applied
There are no 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 results 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.
142
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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 26.
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 –
2%
Plant and equipment
–
Motor and commercial vehicles
Office and computer equipment
–
Warehouse and production equipment –
10% – 25%
10% – 33%
10% – 20%
Land is not depreciated.
The residual balances are reviewed annually.
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.
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 less accumulated depreciation
and impairment losses, 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.
Headlam Group PLC Annual Report & Accounts 2021 143
OverviewCorporate GovernanceStrategic ReportFinancial Statements 1 Presentation of the Financial Statements and
Accounting Policies continued
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, customer relationships, supply
agreements and software development 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
Customer relationships
Supply agreements
Software development
– 10 – 15 years
– 1 – 36 months
– 1 – 3 years
– 5 – 10 years
– 1 – 5 years
– 5 – 10 years
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,
transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at fair value
through profit or loss 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;
Fair value through the profit and loss
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.
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. 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 26.
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 rebates 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.
144
Headlam Group PLC Annual Report & Accounts 2021
NOTES Provisions to write down inventory to its net realisable value are
calculated by reference to each individual product, based on the ageing
profile and consideration of inventory sold for less than its carrying value,
and consideration for discontinued items.
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.
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.
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.
Provisions
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.
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.
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.
Contingent Liability
Contingent liabilities are not recognised but are disclosed when the
Group has a possible obligation as a result of past events and whose
existence will be confirmed only by uncertain future events not wholly
within the Group’s control, or when the Group has a present obligation
as a result of past events but either it is not probable that an outflow of
resources will be required to settle the obligation or the amount of the
obligation cannot be measured reliably.
Calculation of recoverable amount
The recoverable amount of assets, with the exception of the Group’s
receivables, is the greater of their fair value less cost to sell and value
in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset. For an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
Contingent Asset
Contingent assets are possible assets whose existence will be confirmed
by the occurrence or non-occurence of uncertain future events that
are not wholly within the control of the entity. Contingent assets are not
recognised, but they are disclosed when it is more likely than not that an
inflow of benefits will occur.
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.
Headlam Group PLC Annual Report & Accounts 2021 145
OverviewCorporate GovernanceStrategic ReportFinancial Statements 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 96 to 120.
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.
1 Presentation of the Financial Statements and
Accounting Policies continued
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 finance expenses in the income statement.
All actuarial gains and losses that arise in calculating the Group’s
obligation in respect of a scheme are recognised immediately in reserves
and reported in the statement of comprehensive income.
Where the calculation results in a benefit to the Group, the asset
recognised is limited to the present value of any future refunds from the
plan or reductions in future contributions to the plan. The Company does
not have an unconditional right to a refund under IFRIC 14. Consequently,
the surplus balance sheet position at 31 December 2021 has been
reduced to a deficit in recognition of the asset ceiling and the minimum
funding requirement (i.e. the present value of future contributions
the Company is contractually obliged to pay via the schedule of
contributions).
The Group operates a UK defined benefit pension plan. In May 2021,
the Group’s defined benefit plan in Switzerland was disposed of with the
disposal of Belcolor, its Swiss operation. 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.
146
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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. Provisions 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 rebates 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.
Government Grants
The Group recognises government grants in accordance with IAS 20.
These grants were received by the Group in the UK in the form of furlough
payments made by the Government under the Coronavirus Job Retention
Scheme (‘JRS’) for the year ended 31 December 2020. There were no
government grants received by the Group in the year ended 31 December
2021. The grants received by the Group are recognised in the income
statement on a systematic basis over the periods in which the entity
recognises as expenses the related costs for which the grants are intended
to compensate. The grants are applied against the cost incurred and it is
the Group’s accounting policy choice that they are shown net within the
income statement. Furlough income included under this JRS and included
within the income statement at 31 December 2020 amounted to £10.5
million. An additional amount of £0.5 million was received by the Group’s
French subsidiary under a similar scheme by the French government.
In addition to the JRS scheme two loans were received by the Group’s French
subsidiary for a total of €2 million repayable by September 2021. The loans
were from the French government and were interest free. One of the loans
was repaid in full and the other for €1 million was converted into an interest-
bearing long-term loan with monthly repayments ending in September 2023.
No other government grants were applied for or received during the year
ended 31 December 2021 (31 December 2020: £nil).
Lease payments
In accordance with IFRS 16, 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
the exercise price of a purchase option if the group is reasonably
certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term
reflects the group exercising that option.
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 leases
of low-value assets, i.e. assets of £3,000 or less, 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.
Interest paid and interest received are classified as operating cash flows
in the cash flow statement.
Headlam Group PLC Annual Report & Accounts 2021 147
OverviewCorporate GovernanceStrategic ReportFinancial Statements 1 Presentation of the Financial Statements and
Accounting Policies continued
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. Nominal dividends declared but unpaid at the end
of the year are not recognised in the financial statements.
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 are associated with the acquisition of businesses or other
items which by virtue of their nature, size and expected frequency require
adjustment to show the performance of the Group in a consistent
manner which is comparable year-on-year, see note 3.
The following are the principal items classed as non-underlying:
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.
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.
•
Impairment of intangibles, fixed assets and right of use assets as
they are significant, non-recurring items;
• Amortisation of acquired intangibles as they relate to the acquisition
of businesses;
• Property disposal profits as they are not generated from the normal
course of business;
• Acquisitions related fees and deferred and contingent consideration
items as they relate to the acquisition of businesses;
•
Impairment of property, plant and equipment (following a fire) as it is a
significant, non-recurring item;
• Business restructuring cost which is a significant cash item that falls
across 2020 and 2021, and for which no further costs are expected.
See page 26 of the Financial Review for details on alternative
performance measures.
Discontinued operation
A discontinued operation is a component of the Group that has been
disposed of or is classified as held for sale and that represents a separate
major line of business or geographical area of operations. The results of
discontinued operations are presented separately in the statement of
profit or loss and the comparative period is re-presented to show the
results of the discontinued operation separately. The segmental results
are shown excluding the discontinued operation and the comparative
period is re-presented to also exclude the discontinued operation.
Sale and leaseback of property, plant and equipment
In determining whether a transaction is a sale-and-leaseback, the
company first considers whether the initial transfer of the underlying
asset from the seller to the buyer is a sale in accordance with IFRS 15.
When a transaction meets the definition of a sale-and-leaseback, the
company derecognises the underlying asset and applies the lessee
accounting model as per IFRS 16. The company records a right-of-use
asset at the retained portion of the previous carrying amount, such that
the amount of any gain or loss on sale recognised is only that related to
the rights transferred to the lessor.
148
Headlam Group PLC Annual Report & Accounts 2021
NOTES
2 Segment reporting
As at 31 December 2021, the Group had 63 operating segments in the UK and three operating segments in Continental Europe, following the
disposal of the Swiss operating segment in May 2021. 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 Chief Executive. Discrete financial information is available for each segment and used by the
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 Chief Executive, the Board and the executive management team and forms the
basis for the presentation of operating segment information given below.
Continuing operations
Revenue
External revenues
Reportable segment underlying operating profit
Reportable segment assets
Reportable segment liabilities
UK
Continental Europe
Total
2021
£M
2020
£M
2021
£M
2020
£M
2021
£M
2020
£M
585.8
37.0
280.6
(196.4)
504.7
15.5
296.5
(200.9)
81.4
3.1
30.3
(27.1)
73.4
1.6
47.8
(31.3)
667.2
40.1
310.9
(223.5)
578.1
17.1
344.3
(232.2)
During the year there were no inter-segment revenues for the reportable segments (2020: £nil).
Reconciliations of reportable segment profit/(loss), assets and liabilities and other material items:
Profit/(loss) for the year
Total underlying operating profit for reportable segments
Non-underlying items
Unallocated (expense)/income
Operating profit/(loss)
Finance income
Finance expense
Profit/(loss) before taxation
Taxation
Profit/(loss) from continuing operations
Profit/(loss) from discontinued operations
Profit/(loss) for the year
2021
£M
40.1
(8.2)
(2.8)
29.1
0.4
(1.9)
27.6
(7.7)
19.9
4.5
24.4
2020
£M
17.1
(29.6)
0.3
(12.2)
0.8
(2.9)
(14.3)
(3.1)
(17.4)
(2.9)
(20.3)
Headlam Group PLC Annual Report & Accounts 2021 149
OverviewCorporate GovernanceStrategic ReportFinancial Statements 2 Segment reporting continued
Continuing operations continued
Assets
Total assets for reportable segments
Unallocated assets:
Properties, plant and equipment
Right of use assets
Non-current assets classified as held for sale
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
2021
£M
2020
£M
310.9
344.3
97.5
0.7
–
63.4
472.5
105.4
0.7
0.4
16.6
467.4
(223.5)
(232.2)
(0.7)
(4.9)
(1.0)
(10.3)
(0.8)
(5.5)
(0.2)
(8.7)
(240.4)
(247.4)
Continuing Operations
Other material items 2021
Capital expenditure
Impairment of goodwill
Impairment of intangible assets
Impairment of property, plant and equipment and inventory (following fire)
Depreciation
Depreciation of right of use assets
Non-underlying items (excluding finance expenses and impairments)
Other material items 2020
Capital expenditure
Impairment of goodwill
Depreciation
Depreciation of right of use assets
Non-underlying items (excluding finance expenses and impairments)
Continental
Europe
£M
UK
£M
Reportable
segment
total
£M
Unallocated
£M
Consolidated
total
£M
5.7
1.2
0.9
7.3
2.3
11.6
(1.1)
9.1
23.4
2.8
14.0
4.8
0.4
–
–
–
0.4
1.9
(0.1)
0.7
1.3
0.7
2.1
0.1
6.1
1.2
0.9
7.3
2.7
13.5
(1.2)
9.8
24.7
3.5
16.1
4.9
–
–
–
–
2.5
–
–
5.6
–
2.7
0.1
–
6.1
1.2
0.9
7.3
5.2
13.5
(1.2)
15.4
24.7
6.2
16.2
4.9
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 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.
150
Headlam Group PLC Annual Report & Accounts 2021
NOTES The 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
Continental Europe
Total
2021
£M
2020
£M
407.2
178.6
585.8
354.3
150.4
504.7
2021
£M
49.7
31.7
81.4
2020
£M
44.9
28.5
73.4
2021
£M
2020
£M
456.9
210.3
667.2
399.2
178.9
578.1
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)/loss on sale of property, plant and equipment
Non-underlying items for continuing and discontinued operations after tax of £2.3 million (2020: £32.3 million) relate to the following:
Continuing operations:
Impairment of intangibles, fixed assets and right of use assets
Amortisation of acquired intangibles
Property disposal
Acquisitions related fees
Movements in deferred and contingent consideration
Finance costs on deferred and contingent consideration
Impairment of property, plant and equipment and inventory (following a fire)
Business restructuring cost
GMP Equalisation
Taxation on non-underlying items
Discontinued operation:
Impairment of goodwill
Disposal of subsidiary (including Swiss property disposal)
2021
£M
2.1
1.6
(5.1)
–
–
–
7.3
2.3
–
8.2
(1.5)
6.7
–
(4.4)
(4.4)
2.3
2021
£M
5.2
13.5
4.0
(11.1)
2020
£M
6.2
16.2
29.6
0.1
2020
£M
24.7
1.6
–
0.7
(0.1)
0.1
–
2.4
0.3
29.7
(0.7)
29.0
3.3
–
3.3
32.3
Headlam Group PLC Annual Report & Accounts 2021 151
OverviewCorporate GovernanceStrategic ReportFinancial Statements 3 Profit before tax continued
The business restructuring related to aligning overall headcount with trading patterns and evolving customer servicing, along with executive
settlement agreements and were all cash in nature. Cumulative non-underlying business restructuring costs since their initiation as part of the
business change strategy amount to £4.7 million and cover the period July 2020 to December 2021. No further business restructuring costs are
currently anticipated for 2022.
See page 26 of the Financial Review for details on alternative performance measures.
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
2021
£M
0.2
0.3
0.5
2020
£M
0.2
0.3
0.5
4 Staf numbers and costs
The monthly average number of people employed, including Executive Directors, during the year, analysed by category, was as follows:
By sector:
Floorcoverings
Central operations
By function:
Sales and distribution
Administration
The aggregate payroll costs were as follows:
Wages and salaries*
Equity settled share-based payment expense/(income) (note 24)
Social security costs*
Other pension costs (note 23)*
Number of employees
Group
Company
2021
2020
2021
2020
2,077
22
2,099
1,912
187
2,099
2,446
20
2,466
2,239
227
2,466
–
22
22
–
22
22
Group
Company
2021
£M
85.0
1.2
10.8
4.5
101.5
2020
£M
71.3
(0.1)
8.7
4.8
84.7
2021
£M
3.0
0.4
0.4
0.2
4.0
–
20
20
–
20
20
2020
£M
2.2
(0.5)
(0.1)
0.1
1.7
* Wages and salaries, social security costs and pension costs for the year ended 31 December 2020, include an amount of £10.1 million, £0.7 million and £0.2 million respectively for funds received
under governmental job retention schemes in the UK and France (Company £0.1 million in total).
152
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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
2021
£M
2.1
0.3
2.4
2020
£M
1.2
0.2
1.4
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 96 to 120.
Payment for loss of ofce to past directors
Steve Wilson stepped down from the Board on 6 October 2021. Steve was paid salary contractually due and received contractual benefits up to and
including 6 October 2021. Included in the table above is a further £0.1 million in relation to payments made for loss of office for the period 7 October
2021 to 31 December 2021. In addition to these payments, 10 months, amounting to £0.4 million will be paid in 2022, these costs have been accrued
at 31 December 2021 but not included in the table above. Further details can be found in the Director’s Remuneration Report on page 113.
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 23)
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).
2021
£M
0.3
0.1
0.4
(0.4)
(1.3)
(0.1)
–
(0.1)
(1.9)
2020
£M
0.6
0.2
0.8
(0.7)
(1.6)
(0.1)
(0.1)
(0.4)
(2.9)
Headlam Group PLC Annual Report & Accounts 2021 153
OverviewCorporate GovernanceStrategic ReportFinancial Statements
2021
£M
6.4
(0.3)
6.1
–
2.7
0.2
2.9
9.0
7.7
1.3
2021
£M
–
–
–
(0.2)
(0.8)
(1.0)
(1.0)
2020
£M
2.7
(0.9)
1.8
0.1
0.9
0.4
1.4
3.2
3.1
0.1
2020
£M
–
–
–
0.2
(0.1)
0.1
0.1
7 Taxation
Recognised in the income statement
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expense:
Origination and reversal of temporary differences
Effect of change in UK tax rates
Adjustments for prior years
Total tax
Total tax continuing operations in income statement
Total tax discontinued operations 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
Deferred tax on other comprehensive expense:
Defined benefit plans
Total tax reported directly in reserves
154
Headlam Group PLC Annual Report & Accounts 2021
NOTES
Factors that may afect future current and total tax charges
The UK headline corporation tax rate for the year was 19.0% (2020: 19.0%). In the Spring Budget of 2021, the UK Government announced that from
1 April 2023 the rate of UK corporation tax will increase from 19% to 25%. This new law was substantively enacted on 24 May 2021. UK deferred tax
assets and liabilities have therefore been calculated at a rate of 25% (2020: 19%).
In addition, an increase in the Dutch corporation tax rate to 25.8% (2020: 25.0%) was enacted in December 2021 which has also been taken into
account in the calculation of the related deferred tax balance.
Reconciliation of efective tax rate
Profit/(loss) before tax on continuing operations
Profit/(loss) before tax on discontinued operations
Total profit/(loss) before tax
Tax using the UK corporation tax rate
Effect of change in UK tax rate
Local tax incentives
Non-deductible expenses/non-taxable income
Non-deductible non-underlying items
Effect of tax rates in foreign jurisdictions
Impact of losses not recognised
Adjustments in respect of prior years
Total tax in income statement
Add back tax on non-underlying items – continuing
Add back tax on non-underlying items – discontinued
Total tax charge excluding non-underlying items
Profit before non-underlying items
Adjusted effective tax rate excluding non-underlying items
2021
%
19.0
8.1
(0.5)
1.0
–
–
(0.3)
(0.1)
27.2
£M
27.6
5.8
33.4
6.3
2.7
(0.2)
0.4
–
–
(0.1)
(0.1)
9.0
1.5
(1.3)
9.2
35.9
25.8%
2020
%
19.0
(5.3)
–
(2.9)
(31.0)
0.1
(1.7)
2.9
(18.7)
£M
(14.3)
(2.8)
(17.1)
(3.2)
0.9
–
0.5
5.3
(0.1)
0.3
(0.5)
3.2
0.7
–
3.9
15.9
24.5%
8 Current tax liabilities
The Group’s current tax liability of £1.0 million (2020: £0.2 million) 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 £0.7 million (2020: £0.8 million) represents the amount of
income tax payable in respect of current and prior year periods which exceed any amounts recoverable.
At 31 December 2021, the Group held a current provision of £0.5 million (2020: £0.7 million) 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.
Headlam Group PLC Annual Report & Accounts 2021 155
OverviewCorporate GovernanceStrategic ReportFinancial Statements 9 Earnings per share
Continuing operations earnings
Earnings/(loss) for basic and diluted earnings per share
Earnings for underlying basic and underlying diluted earnings per share
Discontinued operations earnings
Earnings/(loss) for basic and diluted earnings per share
Earnings for underlying basic and underlying 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
Continuing operations earnings per share
Basic
Diluted*
Underlying basic
Underlying diluted
Discontinued operations earnings per share
Basic
Diluted*
Underlying basic
Underlying diluted
2021
£M
19.9
26.6
4.5
0.1
2020
£M
(17.4)
11.6
(2.9)
0.4
2021
2020
84,484,084
84,228,880
84,484,084
1,070,830
84,228,880
543,732
85,554,914
84,772,612
23.5p
23.2p
31.5p
31.1p
5.3p
5.2p
0.2p
0.2p
(20.7)p
(20.7)p
13.7p
13.7p
(3.4)p
(3.4)p
0.5p
0.5p
*
For the year ended 31 December 2020, diluted earnings/(loss) per share are reported the same as basic earnings/(loss) per share, as a result of the earnings being negative so the impact of them is
anti-dilutive.
At 31 December 2021, the Company held 1,013,991 shares (2020: 1,211,073) 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.
156
Headlam Group PLC Annual Report & Accounts 2021
NOTES 10 Property, plant and equipment
Group property, plant and equipment
Cost
Balance at 1 January 2020
Acquisitions
Additions
Disposals
Transfer to use
Transfer to assets held for sale
Effect of movements in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Disposals
Disposals relating to discontinued operation
Impairment of property (following a fire)
Reclassification
Effect of movements in foreign exchange
Balance at 31 December 2021
Accumulated depreciation and impairment
Balance at 1 January 2020
Depreciation charge for the year
Disposals
Transfer to assets held for sale
Effect of movements in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Depreciation charge for the year
Disposals
Disposals relating to discontinued operation
Impairment of property (following a fire)
Effect of movements in foreign exchange
Balance at 31 December 2021
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
Land and
buildings
£M
Plant and
equipment
£M
Under
construction
£M
Total
£M
174.9
0.2
14.3
(4.3)
–
(0.8)
1.4
185.7
185.7
5.9
(12.6)
(2.9)
(3.1)
–
(1.1)
171.9
60.3
6.2
(4.1)
(0.4)
0.8
62.8
62.8
5.2
(6.4)
(1.5)
(0.8)
(0.7)
58.6
16.0
–
4.5
–
(19.5)
–
–
1.0
1.0
–
–
–
–
–
–
1.0
–
–
–
–
–
–
–
–
–
–
–
–
–
16.0
1.0
1.0
114.6
122.9
113.3
120.0
–
0.3
(0.1)
19.5
(0.8)
0.9
139.8
139.8
1.8
(10.8)
–
(3.1)
0.2
(0.7)
127.2
31.5
2.7
(0.1)
(0.4)
0.5
34.2
34.2
2.4
(5.1)
–
(0.8)
(0.3)
30.4
88.5
105.6
96.8
38.9
0.2
9.5
(4.2)
–
–
0.5
44.9
44.9
4.1
(1.8)
(2.9)
–
(0.2)
(0.4)
43.7
28.8
3.5
(4.0)
–
0.3
28.6
28.6
2.8
(1.3)
(1.5)
–
(0.4)
28.2
10.1
16.3
15.5
Headlam Group PLC Annual Report & Accounts 2021 157
OverviewCorporate GovernanceStrategic ReportFinancial Statements 10 Property, plant and equipment continued
Company investment properties and plant and equipment
Cost
Balance at 1 January 2020
Additions
Transfer to use
Transfer to assets held for sale
Balance at 31 December 2020
Balance at 1 January 2021
Disposals
Balance at 31 December 2021
Accumulated depreciation
Balance at 1 January 2020
Depreciation charge for the year
Transfer to assets held for sale
Balance at 31 December 2020
Balance at 1 January 2021
Disposals
Depreciation charge for the year
Balance at 31 December 2021
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
Investment
properties
£M
Note
Plant and
equipment
Under
construction
£M
18
18
103.6
–
19.5
(0.8)
122.3
122.3
(5.5)
116.8
23.6
1.8
(0.4)
25.0
25.0
(1.6)
2.0
25.4
80.0
97.3
91.4
16.0
4.5
(19.5)
–
1.0
1.0
–
1.0
–
–
–
–
–
–
–
–
16.0
1.0
1.0
The Company holds investment properties which are predominately freehold distribution centres, occupied by its UK subsidiary companies for
trading purposes. 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 and it is considered that the valuation is materially consistent in the current year. This valuation of
the investment properties, not including those under construction at the same date was £101.4 million, however the Company has chosen to hold
them at cost.
158
Headlam Group PLC Annual Report & Accounts 2021
NOTES 11 Right of use assets
Net book value at 1 January 2020
Additions
Contract modifications
Depreciation
Effect of movements in foreign exchange
Net book value at 31 December 2020
Net book value at 1 January 2021
Additions
Contract modifications
Depreciation
Disposals relating to discontinued operation
Effect of movements in foreign exchange
Net book value at 31 December 2021
Group
Non-
property
£M
Company
Total
£M
Properties
£M
Properties
£M
15.9
0.1
(0.2)
(4.6)
0.1
11.3
11.3
2.3
1.1
(3.9)
(1.2)
(0.2)
9.4
28.0
13.9
0.5
(11.6)
–
30.8
30.8
4.6
(0.2)
(9.6)
–
–
25.6
43.9
14.0
0.3
(16.2)
0.1
42.1
42.1
6.9
0.9
(13.5)
(1.2)
(0.2)
35.0
0.6
0.1
–
–
–
0.7
0.7
–
–
–
–
–
0.7
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.
An analysis of the related lease liabilities is set out in Note 20 ‘Lease liabilities’ and Note 26 ‘Financial instruments’.
Headlam Group PLC Annual Report & Accounts 2021 159
OverviewCorporate GovernanceStrategic ReportFinancial Statements 12 Intangible assets
Group
Cost
Balance at 1 January 2020
Additions
Balance at 31 December 2020
Balance at 1 January 2021
Disposal
Additions
Balance at 31 December 2021
Impairment and amortisation
Balance at 1 January 2020
Impairment charge for the year
Amortisation charge for the year
Balance at 31 December 2020
Balance at 1 January 2021
Impairment charge for the year
Amortisation charge for the year
Disposal
Balance at 31 December 2021
Net book value
At 31 December 2020 and 1 January 2021
At 31 December 2021
Goodwill
£M
Order book
£M
Customer
relationships
£M
Brand
names
£M
Non-
compete
£M
Supply
agreements
£M
Software
development
£M
41.7
0.4
42.1
42.1
(4.2)
–
37.9
5.3
28.0
–
33.3
33.3
1.2
–
(4.2)
30.3
8.8
7.6
6.5
–
6.5
6.5
–
–
6.5
6.5
–
–
6.5
6.5
–
–
–
6.5
–
–
7.0
0.4
7.4
7.4
–
–
7.4
1.5
–
0.9
2.4
2.4
0.4
0.8
–
3.6
5.0
3.8
7.3
0.3
7.6
7.6
–
–
7.6
1.0
–
0.7
1.7
1.7
0.5
0.6
–
2.8
5.9
4.8
0.1
–
0.1
0.1
–
–
0.1
–
–
–
–
–
–
0.1
–
0.1
0.1
–
0.2
–
0.2
0.2
–
–
0.2
–
–
–
–
–
–
0.1
–
0.1
0.2
0.1
–
1.1
1.1
1.1
–
1.0
2.1
–
–
–
–
–
–
0.3
–
0.3
1.1
1.8
Total
£M
62.8
2.2
65.0
65.0
(4.2)
1.0
61.8
14.3
28.0
1.6
43.9
43.9
2.1
1.9
(4.2)
43.7
21.1
18.1
Software development includes an amount of £1.9 million (2020: £1.1 million) not currently being amortised as they are still in the course of
development.
Amortisation charged during the year of £1.9 million (2020:£1.6 million) is presented within Administration expenses in the Consolidated Income
Statement.
Cumulative impairment losses recognised in relation to goodwill is £30.3 million (2020: £33.3 million).
Company
Cost
Balance at 1 January 2020
Additions
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Balance at 31 December 2021
Net book value at 31 December 2021
160
Headlam Group PLC Annual Report & Accounts 2021
Software
development
£M
–
1.1
1.1
1.1
0.8
1.9
1.9
NOTES 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
McMillan Flooring
CECO (Flooring) Limited
Ashmount Flooring Supplies Limited
Telenzo
Other
Reported
segment
UK
UK
UK
UK
UK
UK
UK
2021
£M
4.4
1.4
0.1
–
0.4
0.3
1.0
7.6
2020
£M
4.4
1.4
0.1
1.2
0.4
0.3
1.0
8.8
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 and other assets 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 ended 31 December 2021, all goodwill was tested for impairment, which resulted in an impairment charge on goodwill attributable to
CECO (Flooring) Limited of £1.2 million. The recoverable amount of CECO (Flooring) Limited was its value in use, which amounted to £nil.
Value in use was determined by discounting the future cash flows generated from the continuing use of the CGU on a basis consistent with 2020, and
applying the following key assumptions.
Key assumptions
Cash flows were projected based on actual operating results, the approved 2022 business plan and management’s assessment of planned
performance in the period to 2026. For the purpose of impairment testing the cash flows were assumed to grow into perpetuity at a rate of 2.0%
beyond 2026.
The main assumptions within the operating cash flows used for 2022 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. As the CGUs in the UK, have similar
characteristics and risk profiles, a single discount rate has been applied. The pre-tax weighted average cost of capital of 11.2% (2020: 11.7%).
Climate-related risks have been considered in relation to the impairment testing, including possible end-of-life disposal tax (extended producer
responsibility), the transition to electric vehicles and significant changes in consumer preferences towards more sustainable products, with the latter
able to be mitigated by the Group reflecting this in its product offering. A high degree of uncertainty surrounds the likelihood, timing and quantum of
any possible end-of-life disposal tax. This risk is not included in the base case models due to the high levels of uncertainty whilst other risks have been
assumed not to have a material impact. Sensitivity analysis has been performed assuming an end-of-life disposal tax equating to 0.6% of revenue,
taking effect after year 5 in the model. The Directors have assessed that end-of-life disposal tax based on this assumption, would not cause further
material impairment.
Headlam Group PLC Annual Report & Accounts 2021 161
OverviewCorporate GovernanceStrategic ReportFinancial Statements 12 Intangible assets continued
Sensitivity analysis
The Group has applied sensitivities to assess whether any reasonable possible changes in these key assumptions could cause a further impairment
to goodwill and subsequently intangible assets, property, plant and equipment and right-of-use assets that would be material to these Consolidated
Financial Statements.
The Directors performed sensitivity analysis on the estimated recoverable amounts focusing on a reasonably possible change in key assumptions:
(i) sales growth decrease of 1% in first five years;
(ii) gross margin decrease of 1%; and
(iii) pre-tax discount rate, used to convert the cash flow forecasts to present values, increase of 1%.
One CGU is materially sensitive to the gross margin sensitivity and would require a £1.4 million impairment should gross margin decrease by 1%.
Three CGUs are materially sensitive to a combination of all three sensitivities above and would require an impairment of £6.9 million should all three
sensitivities occur as above, simultaneously.
13 Investments in subsidiary undertakings
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2020
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2020
Balance at 1 January 2021
Share options granted to employees of subsidiary undertakings
Disposal of subsidiary
Balance at 31 December 2021
Impairment
Balance at 1 January 2020
Impairment charge for the year
Balance at 31 December 2020
Balance at 1 January 2021 and 31 December 2021
Carrying value
At 1 January 2020
At 31 December 2020
At 31 December 2021
£M
122.0
0.4
122.4
122.4
0.8
(6.2)
117.0
–
(16.6)
(16.6)
(16.6)
122.0
105.8
100.4
A full list of the Group’s subsidiaries is listed on page 193. During the year ended 31 December 2021, the company sold its investment in Belcolor AG,
its Swiss subsidiary, further details can be found on page 188. During the year ended 31 December 2020 an impairment in the Company’s investment
in Domus Group of Companies Ltd was recognised of £16.6 million.
162
Headlam Group PLC Annual Report & Accounts 2021
NOTES 14 Deferred tax assets and liabilities
Group
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
Tax assets/(liabilities)
Set-off of tax
Movement in deferred tax during the year
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
Assets
Liabilities
Net
2021
£M
–
–
–
1.7
0.5
2.2
(2.2)
–
2020
£M
–
–
–
1.2
–
1.2
(1.2)
–
2021
£M
(9.7)
(2.5)
(0.3)
–
–
(12.5)
2.2
(10.3)
2020
£M
(7.2)
(2.5)
(0.1)
–
(0.1)
(9.9)
1.2
(8.7)
2021
£M
(9.7)
(2.5)
(0.3)
1.7
0.5
(10.3)
–
(10.3)
2020
£M
(7.2)
(2.5)
(0.1)
1.2
(0.1)
(8.7)
–
(8.7)
1 January
2021
£M
Removed on
disposal
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2021
£M
(7.2)
(2.5)
(0.1)
1.2
(0.1)
(8.7)
–
–
–
(0.5)
0.8
0.3
(2.5)
–
(0.2)
–
(0.2)
(2.9)
–
–
–
1.0
–
1.0
(9.7)
(2.5)
(0.3)
1.7
0.5
(10.3)
Deferred tax of £nil (2020: £nil) is expected to be recovered or settled within 12 months from the reporting date.
Movement in deferred tax during the prior year
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Tax losses
Other items
1 January
2020
£M
Brought in on
acquisition
£M
Recognised in
income
£M
Recognised
in equity
£M
31 December
2020
£M
(6.0)
(2.3)
–
1.3
0.3
(0.2)
(6.9)
–
(0.3)
–
–
–
–
(0.3)
(1.2)
0.1
(0.1)
–
(0.3)
0.1
(1.4)
–
–
–
(0.1)
–
–
(0.1)
(7.2)
(2.5)
(0.1)
1.2
–
(0.1)
(8.7)
Headlam Group PLC Annual Report & Accounts 2021 163
OverviewCorporate GovernanceStrategic ReportFinancial Statements 14 Deferred tax assets and liabilities continued
Company
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Employee benefits
Tax assets/(liabilities)
Set-off of tax
Movement in deferred tax during the year
Property, plant and equipment
Employee benefits
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
Assets
Liabilities
Net
2021
£M
–
1.4
1.4
(1.4)
–
2020
£M
–
0.6
0.6
(0.6)
–
2021
£M
(9.2)
–
(9.2)
1.4
(7.8)
2020
£M
(7.2)
–
(7.2)
0.6
(6.6)
2021
£M
(9.2)
1.4
(7.8)
–
(7.8)
2020
£M
(7.2)
0.6
(6.6)
–
(6.6)
1 January
2021
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2021
£M
(7.2)
0.6
(6.6)
(2.0)
–
(2.0)
–
0.8
0.8
(9.2)
1.4
(7.8)
1 January
2020
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2020
£M
(6.0)
0.8
(5.2)
(1.2)
–
(1.2)
–
(0.2)
(0.2)
(7.2)
0.6
(6.6)
Unrecognised deferred tax assets and liabilities – Group and Company
At 31 December 2021, the Group and Company has unused capital losses of £9.4 million (2020: £10.8 million) 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 £1.7 million (2020 £1.8 million).
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.
164
Headlam Group PLC Annual Report & Accounts 2021
NOTES 15 Inventories
Goods for resale
Balance as at 31 December
Cost of sales consists of the following:
Material cost
Processing cost
Group
Company
2021
£M
2020
£M
130.9
118.5
2021
£M
–
Group
Company
2021
£M
443.1
3.6
446.7
Re-presented
2020
£M
398.3
1.7
400.0
2021
£M
–
–
–
2020
£M
–
2020
£M
–
–
–
The cost of inventories within cost of sales stated above includes movements in the provision for obsolete inventory of £0.8 million release (2020: £2.0
million release). Write-downs of inventory to net realisable value amounted to £6.9 million (2020: £7.0 million). These were recognised as an expense
during the year ended 31 December 2021 and included in cost of sales in the consolidated income statement.
16 Trade and other receivables
Current
Trade receivables
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
Non Current
Amounts due from subsidiary undertakings
Group
Company
2021
£M
72.9
5.6
35.5
–
2020
£M
78.8
4.3
18.5
–
114.0
101.6
2021
£M
–
0.1
0.3
5.8
6.2
Group
Company
2021
£M
–
–
2020
£M
–
–
2021
£M
14.4
14.4
2020
£M
–
0.2
0.3
22.0
22.5
2020
£M
–
–
Other receivables include balances that fall due after more than 1 year of £nil (2020: £nil).
Amounts due from subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
£0.4 million (2020: £6.5 million increase) was recognised as a reduction in the impairment loss allowance in the Consolidated Income Statement in
respect of trade receivables.
Headlam Group PLC Annual Report & Accounts 2021 165
OverviewCorporate GovernanceStrategic ReportFinancial Statements 16 Trade and other receivables continued
The receivables written off during the year as uncollectible are attributable to the reportable segments as follows:
UK
Continental Europe
Further details on the impairment of trade receivables is provided in note 26.
17 Cash and cash equivalents
Cash
Cash and cash equivalents per Statement of Financial Position
Group
Company
2021
£M
0.4
0.2
0.6
2020
£M
0.9
0.2
1.1
2021
£M
–
–
–
2020
£M
–
–
–
Group
Company
2021
£M
61.2
61.2
2020
£M
60.8
60.8
2021
£M
63.4
63.4
2020
£M
16.6
16.6
Cash and cash equivalents of £61.2 million (2020: £60.8 million) is shown net of overdrawn bank accounts of £117.7 million (2020: £43.8 million) that
have a right of set-off under the UK overdraft facilities. Gross cash without the set-off agreement is £178.9 million (2020: £104.6 million).
18 Non-current assets classified as held for sale
Assets classified as held for sale:
Property, plant and equipment
Group
Company
2021
£M
–
2020
£M
0.4
2021
£M
–
2020
£M
0.4
On the 25 January 2021, the company sold a freehold property in Hadleigh, UK that had been actively marketed for sale and was available for
immediate disposal on 31 December 2020. The property had been reported as non-current assets classified as held for sale and reported under
unallocated in note 2 as it is primarily a group activity to hold and maintain the properties.
At 31 December 2021, there were no properties classified as held for sale.
19 Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s and Company’s interest-bearing loans and borrowings.
On 17 January 2022, the Group completed a refinancing of its existing banking facilities which will expire in October 2026 but with a one-year
extension option, at the discretion of the banks.
At 31 December 2021, the Group had two agreements with Barclays Bank PLC and HSBC Bank Plc, with a sterling committed facility of £68.5 million
and a euro committed facility of €9.6 million. The Group also had short term uncommitted facilities of £25.0 million in the UK and €3.8 million facility
in Continental Europe. The disposal of Belcolor on 17 May 2021, led to a reduction in the euro uncommitted facilities in Continental Europe of €5.0
million. These are renewable on an annual basis and an additional €1.0 million facility was agreed in January 2022 in Continental Europe. The £25.0
million uncommitted facilities will reduce to a £15.0 million facility in May 2022. The total banking facilities available to the Group at 31 December 2021
were £104.8 million (2020: £110.3 million).
166
Headlam Group PLC Annual Report & Accounts 2021
NOTES Following the refinancing the Group now has a committed sterling revolving credit facility agreement with Barclays Bank PLC, The Bank
of Ireland and Credit Industriel Et Commercial (London Branch) for £81.5 million. The change in the Group’s facilities is detailed below:
Sterling RCF
Euro RCF
Sterling uncommitted facilities UK
Euro uncommitted facilities Continental Europe
Facilities
17 January
2022
£M
31 December
2021
£M
31 December
2020
£M
81.5
–
25.0
4.0
68.5
8.1
25.0
3.2
68.5
8.4
25.0
8.4
110.5
104.8
110.3
For more information about the Group’s and Company’s exposure to interest rate and foreign currency risk, see note 26.
Current liabilities
Bank overdraft
French Government loan
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
Group
Company
2021
£M
–
–
0.6
0.6
6.9
6.9
2020
£M
–
1.8
0.2
2.0
7.2
7.2
2021
£M
2020
£M
–
–
–
–
–
–
–
–
–
–
–
–
During the year the Group’s French subsidiary, LMS SA, converted one of its loans from the French Government, issued to deal with the COVID crisis,
into a long-term loan with one of its banks. Interest is now payable on this loan and the repayment date of September 2021 has been extended to
September 2023 with monthly repayments being made. LMS SA has £0.4 million reported in current liabilities and £0.3 million reported in non-current
liabilities.
Further interest-bearing loans reported relate to the euro committed facilities that have been drawn by the Group’s European subsidiaries. LMS SA
has drawn £5.1 million and Headlam Holdings BV has drawn £1.7 million (2020: LMS SA £5.4 million and Headlam Holdings BV £2.0 million). The Group
refinanced on 17 January 2022 and the £6.8 million was repaid prior to completion of the refinancing.
The Group has undrawn borrowing facilities at 31 December 2021, which amounted to £97.3 million (2020: £102.8 million). 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 2021 and there were no breaches.
Headlam Group PLC Annual Report & Accounts 2021 167
OverviewCorporate GovernanceStrategic ReportFinancial Statements 19 Other interest-bearing loans and borrowings continued
The undrawn borrowing facilities are as follows:
UK
Netherlands
France
Switzerland
Interest
rate
%
1.44
1.76
1.31
–
Interest
rate
%
1.19
1.79
1.32
1.50
2021
£000
93.5
2.9
0.9
–
97.3
2020
£000
93.5
2.7
2.5
4.1
102.8
The undrawn borrowing facilities consisted of £69.8 million committed and £27.5 million uncommitted facilities (2020: £69.5 million committed and
£33.3 million uncommitted).
All the borrowing facilities above bear interest at floating rates.
Changes in net funds
Cash at bank and in hand
Debt due within one year
Debt due after one year
Net funds excluding lease liabilities
Lease liabilities
Net funds/(debt)
20 Lease liabilities
Lease liabilities
Current
Non-current
At
1 January
2021
£M
60.8
(2.0)
(7.2)
51.6
(43.3)
8.3
Non-cash
items
£m
–
–
–
–
(13.0)
(13.0)
Cash
flows
£M
4.5
1.2
–
5.7
15.0
20.7
Disposal of
subsidiary
£M
Foreign
exchange
movements
£M
At
31 December
2021
£M
(3.5)
–
–
(3.5)
5.5
2.0
(0.6)
0.2
0.3
(0.1)
(0.2)
(0.3)
61.2
(0.6)
(6.9)
53.7
(36.0)
17.7
Group
Company
2021
£M
10.5
25.5
36.0
2020
£M
12.5
30.8
43.3
2021
£M
0.1
0.7
0.8
2020
£M
0.1
0.7
0.8
The lease liabilities are split on the balance sheet between current and non-current.
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 assets (note 11) 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 asset’s useful life and the lease term on a straight-line 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, see note 6.
168
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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:
•
•
•
•
•
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payment that are based on an index or a rate;
amounts expected to be payable by the lessee under residual value guarantees;
the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
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.
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.
Payments associated with short-term leases of £ 0.1 million (2020: £0.1 million) and leases of low-value assets of £0.1 million (2020: £0.1 million) 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.
The total cash outflow for leases during the year ended 31 December 2021 was £16.5 million (2020: £17.5 million) for the Group and £0.1 million
(2020: £nil ) for the Company.
During the year the Group benefited from a gain on a sale and leaseback of its property in Switzerland of £5.8 million, see note 27.
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.
21 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
Group
Company
2021
£M
126.8
14.5
36.6
–
0.1
178.0
2020
£M
129.7
23.5
25.1
–
0.1
178.4
2021
£M
0.1
1.8
4.8
30.0
–
36.7
2020
£M
0.6
2.6
2.7
30.0
–
35.9
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 26.
Headlam Group PLC Annual Report & Accounts 2021 169
OverviewCorporate GovernanceStrategic ReportFinancial Statements 22 Provisions
Balance at 1 January
(Credited)/charged to the income statement:
Additional provisions
Release of provisions
Utilisation of provisions
Balance at 31 December
Property
2021
£M
2.1
0.8
(0.2)
–
2.7
2020
£M
2.3
0.1
(0.2)
(0.1)
2.1
The property provisions relate to property dilapidations. Dilapidation provisions are expected to be utilised between 1 and 112 years as the individual
lease term comes to an end.
23 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 (the “plan”) is the principal defined benefit plan operated by the company 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 was
closed to new members and from 31 March 2020 it is now closed to future accrual of benefits.
The plan is a registered scheme under UK legislation and is contracted out of the State Second Pension. The plan is legally separated from the company
and assets are held independently of the company’s finances. The plan is subject to the scheme funding requirements outlined in UK legislation.
The company has a right to a refund of any surplus in the plan if the plan winds up, after payment of expenses, members benefits and any
enhancements to the members’ benefits as the Trustee sees fit. In addition, if the assets of the plan exceed the estimate by the actuary of the cost of
buying out the benefits of all beneficiaries with an insurance company, including the associated expenses, and the plan is not being wound up, then the
company may request a payment of the excess funds. There have been no payments made to the company out of the plan’s assets over the year.
The plan was established from 11 February 1983 under trust and is governed by the plan’s Trust Deed and Rules dated 26 March 2015. The Trustee
of the plan comprises one employee representative and two employer representatives. The Trustee of the plan is required by law to act in the best
interests of the plan participants. The Trustee is responsible for the operation and the governance of the plan, including making decisions regarding
the plan’s funding and investment strategy in conjunction with the company.
There have been no other curtailments or settlements made to the plan over 2021. On 31 March 2020, the plan closed to future accrual which would
typically be treated as a curtailment event. Historically the future salary increase assumption used to calculate the Scheme’s IAS 19 liabilities has been
set equal to the assumption for expected future RPI inflation (the rate of increase applied to pensions in deferment) and therefore there was no impact
on the reported liabilities in respect of this event.
The plan’s investment strategy is to invest broadly 70% in return seeking assets and 30% in matching assets, mainly government bonds. This strategy
reflects the plan’s liability profile and the Trustee’s and company’s attitude to risk. The matching fund seeks to match the return achieved on the
liabilities. The plan’s investments include interest rate and inflation hedging.
170
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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 2020 and revealed a funding shortfall of £11.1 million.
The main annual rate assumptions used by the actuary were, increase of pensions in payment 2.45%, discount rate before retirement 2.75%, discount
rate after retirement 1.0% and inflation 2.45%. Assets were taken at their audited market value at the valuation date.
The deficit recovery plan was agreed between the Company and Trustee in February 2021. Contributions will be c.£1.0 million per annum between
April 2021 and March 2026. A mechanic has also been agreed whereby 1.5% of any amount distributed to shareholders in excess of £21.0 million per
annum is paid to the Scheme.
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 average duration of the liabilities is approximately 17 years.
Swiss defined benefit plan
On 17 May 2021, Headlam Group plc disposed of Belcolor AG, its subsidiary operating in Switzerland. The Swiss defined benefit plan detailed below
was included in the disposal and therefore, from that date, the results of the plan are no longer consolidated in this Annual Report and Accounts.
The plan provided 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 4.2% for the
part beyond the mandatory part. The minimum interest rate on old age savings has legally been fixed.
The Company is affiliated to the 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 were no amendments, curtailments or settlements during 2021 or 2020 made to the plan.
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 this plan held by Belcolor AG was as at 31 December 2020, whilst it was still under the control of Headlam Group
plc, and revealed that the plan was overfunded. This overfunding is appropriate to Swiss legislation and cannot be considered in the context of IAS 19.
According to Swiss rules there is no need to evaluate the scheme using assumptions for future changes of salary increase, benefit increase or inflation.
The last IAS 19 valuation at year-end 2020 revealed a funding deficit of £2.8 million.
The liabilities of the scheme are based on the current value of expected benefit payment cash flows to members of the Scheme over the next 50
years or more. The weighted average duration of the liabilities was 19.39 years.
Headlam Group PLC Annual Report & Accounts 2021 171
OverviewCorporate GovernanceStrategic ReportFinancial Statements 23 Employee benefits continued
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
Company
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
(0.6)
(4.9)
(1.0)
(3.9)
(4.9)
2020
£M
(134.9)
129.7
(5.2)
–
(0.3)
(5.5)
–
(5.5)
(5.5)
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
–
(4.3)
(1.0)
(3.3)
(4.3)
Group
Company
2021
£M
134.9
–
–
1.7
(3.8)
(0.2)
(0.5)
(9.9)
–
(14.5)
(0.7)
107.0
2020
£M
129.5
1.3
0.3
2.3
10.7
0.6
(1.8)
(9.1)
0.3
–
0.8
134.9
2021
£M
119.7
–
–
1.7
(3.8)
(0.2)
(0.5)
(9.9)
–
–
–
107.0
2020
£M
(119.7)
117.4
(2.3)
–
–
(2.3)
–
(2.3)
(2.3)
2020
£M
116.7
0.3
0.3
2.2
10.3
0.6
(1.5)
(9.3)
0.1
–
–
119.7
Present value of funded defined benefit obligations
Fair value of plan assets
Surplus/(deficit) in funded scheme
Adjustment in respect of asset ceiling and minimum funding requirement
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 cost
Interest cost
Net remeasurement losses/(gains) – financial
Net remeasurement losses/(gains) – demographic
Net remeasurement (gains)/losses – experience
Benefits paid
Contributions by members
Disposal of Swiss plan
Effect of movements in foreign exchange
At 31 December
172
Headlam Group PLC Annual Report & Accounts 2021
NOTES Movements in fair value of plan assets
At 1 January
Interest income on plan assets
Return on assets, excluding interest income
Contributions by employer:
Future service contributions
Contributions by members
Benefits paid
Disposal of Swiss plan
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
Cash and other
Group
Company
2021
£M
129.7
1.6
9.3
0.7
–
(9.9)
(11.8)
(0.5)
2020
£M
125.6
2.2
9.2
0.8
0.3
(9.1)
–
0.7
2021
£M
117.4
1.6
9.3
0.7
–
(9.9)
–
–
2020
£M
114.5
2.2
9.6
0.3
0.1
(9.3)
–
–
119.1
129.7
119.1
117.4
Group
Company
2021
£M
46.7
39.7
15.7
1.4
(2.5)
18.1
2020
£M
50.1
36.5
17.5
3.2
4.9
17.5
2021
£M
46.7
39.7
15.7
1.4
(2.5)
18.1
2020
£M
45.9
36.5
13.4
1.5
4.9
15.2
119.1
129.7
119.1
117.4
* These assets are held within pooled investment vehicles that are unquoted. The fair value of the underlying assets within these funds have a quoted market price in an active market.
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
2021
£M
–
0.1
0.1
2020
£M
1.6
0.1
1.7
Service costs, including past service costs and net interest are charged to Administration expenses and Net finance costs respectively.
Remeasurement of the net defined benefit liability/(asset) in the Statement of Comprehensive Income:
Return on assets, excluding interest income
Net remeasurement – financial
Net remeasurement – demographic
Net remeasurement – experience
Adjustment in respect of asset ceiling and minimum funding requirement
Group
2021
£M
(9.3)
(3.8)
(0.2)
(0.5)
16.4
2.6
2020
£M
(9.2)
10.7
0.6
(1.8)
–
0.3
Headlam Group PLC Annual Report & Accounts 2021 173
OverviewCorporate GovernanceStrategic ReportFinancial Statements 23 Employee benefits continued
Expense recognised in the income statement relating to defined benefit obligation continued
Principal actuarial assumptions are as follows:
Discount rate (net of management fees)
Revaluation of deferred benefits in excess of GMPs
Inflation-linked pension increases
Price inflation (RPI)
Commutation of pension at retirement
Mortality table assumptions:
UK pre-retirement
UK post-retirement – future pensioners
UK post-retirement – current pensioners
UK
2021
%
1.9
3.4
3.4
3.4
2020
%
1.4
3.0
3.0
3.0
Swiss
2020
%
0.2
2.0
–
2.0
85% of members assumed to
take maximum tax-free cash
using the Scheme’s current
commutation terms
85% of members assumed to take
maximum tax-free cash using the
Scheme’s current commutation terms
AC00 (Ultimate) table
AC00 (Ultimate) table
–
97%(M)/103%(F) of the S3PA tables
with future improvements from
2013 in-line with the CMI _2020
projections model with the initial
addition to mortality improvements
parameter of 0.5% and a long-
term rate of improvement of 1.5%
per annum and a 2020 weighting
parameter of 0%.
97%(M)/103%(F) of the S3PA tables
with future improvements from
2013 in-line with the CMI _2020
projections model with the initial
addition to mortality improvements
parameter of 0.5% and a long-
term rate of improvement of 1.5%
per annum and a 2020 weighting
parameter of 0%.
97%(M)/103%(F) of the S3PA tables
with future improvements from 2013
in-line with the CMI _2019 projections
model with the initial addition to
mortality improvements parameter
of 0.5% and a long-term rate of
improvement of 1.5% per annum.
97%(M)/103%(F) of the S3PA tables
with future improvements from 2013
in-line with the CMI _2019 projections
model with the initial addition to
mortality improvements parameter
of 0.5% and a long-term rate of
improvement of 1.5% per annum.
Swiss scheme
–
–
BVG 2015
174
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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
2021
Years
24.3
22.7
26.3
24.6
2020
Years
24.3
22.7
26.2
24.5
2021
Years
24.3
22.7
26.3
24.6
2020
Years
24.3
22.7
26.2
24.5
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
Efect in £M
Discount rate
Rate of inflation (RPI)*
Assumed life expectancy
Impact on scheme liabilities
2021
Impact on scheme liabilities
2020
Change in assumption
Increase
Decrease
Increase
Decrease
0.25% movement
0.25% movement
One-year movement
(4.3)
3.5
4.9
4.6
(3.3)
(4.8)
(5.3)
4.6
5.8
5.6
(4.7)
(5.8)
* With corresponding changes to the salary and pension increase assumptions.
The figures in the table as at 31 December 2021 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 2020 have been calculated by applying the same percentage increase
or decrease as at 31 December 2021.
Extrapolation of the sensitivity analysis beyond the ranges shown may not be appropriate.
Swiss defined benefit plan
There are no figures reported for the Swiss defined benefit plan as it was disposed of with the Swiss business Belcolor on 17 May 2021 and sensitivities
are therefore not appropriate.
Headlam Group PLC Annual Report & Accounts 2021 175
OverviewCorporate GovernanceStrategic ReportFinancial Statements 23 Employee benefits continued
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
Surplus/(deficit) in funded scheme
Adjustment in respect of asset ceiling and minimum funding requirement
Deficit
Company
Present value of defined benefit obligation
Fair value of plan assets
Surplus/(deficit) in funded scheme
Adjustment in respect of asset ceiling and minimum funding requirement
Deficit
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
2020
£M
(134.9)
129.7
(5.2)
–
(5.2)
2020
£M
(119.7)
117.4
(2.3)
–
(2.3)
2019
£M
(129.5)
125.5
(4.0)
–
(4.0)
2019
£M
(116.7)
114.5
(2.2)
–
(2.2)
2018
£M
(125.1)
119.6
(5.5)
–
(5.5)
2018
£M
(111.6)
109.0
(2.6)
–
(2.6)
2017
£M
(139.0)
126.7
(12.3)
–
(12.3)
2017
£M
(126.3)
116.6
(9.7)
–
(9.7)
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 2021 is £0.6
million (2020: £0.3 million). 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 £4.4 million (2020: £3.2 million). Contributions amounting to £0.3 million
(2020: £0.3 million) in respect of the December 2021 payroll were paid in January 2022.
The total Group cost of operating the plans during the year was £4.5 million (2020: £4.8 million) and, at 31 December 2020, there was an amount
of £0.3 million (2020: £0.3 million) owed to the plans, being employer and employee contributions due for December 2021, which was paid in
January 2022.
24 Share-based payments
Group and Company
Executive Directors and executive management currently participate in executive share option schemes. The Group operates a 2008 HMRC approved
scheme and 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 96 to 120.
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 6 October 2021 when employees with over one month’s service
were invited to participate.
176
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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 5 May 2015
Number of instruments
2021
–
2020
91,662
Headlam Group Co-Investment Plan 2008 granted
21,860
21,860
to key management 6 May 2016*
Vesting conditions
Contractual life of options
Continuous service
01/07/20 – 01/01/21
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
Five-year Sharesave scheme granted to other
149
20,455
Continuous service
01/07/21 – 01/01/22
employees 4 May 2016
Headlam Group Performance Share Plan 2008
granted to key management 5 July 2017*
12,705
12,705
Awards will vest between 25% and 100%
for performance between ‘threshold’
performance and ‘maximum’ performance
06/07/20 – 06/07/27
Three-year Sharesave scheme granted to other
–
47,855
Continuous service
01/07/20 – 01/01/21
employees 3 May 2017
Five-year Sharesave scheme granted to other
8,953
10,034
Continuous service
01/07/22 – 01/01/23
employees 3 May 2017
Headlam Group Performance Share Plan 2008
granted to key management 9 April 2018*
–
328,596
Awards will vest between 25% and 100%
for performance between ‘threshold’
performance and ‘maximum’ performance
10/04/21 – 08/04/24
Three-year Sharesave scheme granted to other
4,064
173,551
Continuous service
01/07/21 – 01/01/22
employees 1 May 2018
Five-year Sharesave scheme granted to other
18,546
27,101
Continuous service
01/07/23 – 01/01/24
employees 1 May 2018
Headlam Group Performance Share Plan 2008
granted to key management 10 April 2019*
297,475
304,260
Awards will vest between 25% and 100%
for performance between ‘threshold’
performance and ‘maximum’ performance
11/04/22 – 09/04/25
Three-year Sharesave scheme granted to other
185,356
230,148
Continuous service
01/07/22 – 01/01/23
employees 3 May 2019
Headlam Group Performance Share Plan
2008 granted to key management 11 September
494,422
552,318
2020*
Awards will vest between 25% and 100%
for performance between ‘threshold’
performance and ‘maximum’ performance
12/09/23 – 11/09/26
Three-year Sharesave scheme granted to other
1,069,722 1,311,935
Continuous service
01/11/23 – 30/04/24
employees 5 October 2020
Headlam Group Performance Share Plan
2008 granted to key management 9 April 2021*
200,474
Three-year Sharesave scheme granted to other
212,319
–
–
Awards will vest between 25% and 100%
for performance between ‘threshold’
performance and ‘maximum’ performance
10/04/24 – 09/04/27
Continuous service
01/11/24 – 30/04/25
employees 6 October 2021
Total share options
2,526,045 3,132,480
*
Further details are provided on pages 96 to 120 of the Remuneration Report.
Headlam Group PLC Annual Report & Accounts 2021 177
OverviewCorporate GovernanceStrategic ReportFinancial Statements 24 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
Forfeited during the year
Cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted
average
exercise
price (pence)
2021
165.9
350.3
180.5
127.3
113.5
263.2
Weighted
average
exercise
price (pence)
2020
Number
of options
2020
221.4 2,008,313
349.3
(19,899)
160.1 1,875,033
(280,528)
–
(450,439)
67.3
–
365.0
Number
of options
2021
3,132,480
(197,082)
483,529
(505,049)
(235,729)
(152,104)
161.1
2,526,045
165.9 3,132,480
38.6
38,778
316.2
174,082
The weighted average share price for options exercised during the year was 471.9p (2020: 357.3p).
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 1.68 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 2021 are shown below:
2021
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
EPS 80% & TSR 20%
Three-year
Performance
Share Plan
2008
265,360
–
415.39
428.00
–
43.0%
three years
3.9%
0.1%
Three-year
Sharesave
scheme
218,169
127.70
–
428.00
400.00
40.0%
three years
3.9%
0.5%
178
Headlam Group PLC Annual Report & Accounts 2021
NOTES Details of share options granted during 2020 are shown below:
2020
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
TSR 100%
Three-year
Performance
Share Plan
2008
Three-year
Sharesave
scheme
552,318
1,322,715
–
261.4p
360.0p
–
40.0%
three years
2.4% p.a.
(0.2)% p.a.
77.4p
–
360.0p
227.0p
40.0%
three years
2.8% p.a.
0.0% p.a.
The total expenses/(income)recognised for the year arising from share-based payments are as follows:
Total expense/(income) recognised
25 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
2021
£M
1.2
2020
£M
(0.1)
2021
£M
0.4
2020
£M
(0.5)
2021
£M
0.8
2020
£M
0.4
Ordinary shares
2021
2020
107,840,000
107,840,000
85,639,209
–
85,452,093
187,116
85,639,209
85,639,209
2021
£M
4.3
4.3
2020
£M
4.3
4.3
At 31 December 2021, the Company held 1,013,991 shares (2020: 1,211,073) 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 1.2% (2020: 1.5%) of the issued share
capital as at 31 December 2021 with a nominal value of £0.1 million (2020: £0.1 million).
In the period from 1 January 2022 to 9 March 2022 no shares were purchased by the Company.
Headlam Group PLC Annual Report & Accounts 2021 179
OverviewCorporate GovernanceStrategic ReportFinancial Statements 25 Capital and reserves continued
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 2019 of 7.55p paid 2 January 2020
Dividend of a nominal amount of 2.00p paid 28 May 2021
Interim dividend for 2021 of 5.80p paid 29 November 2021
2021
£M
–
1.7
4.9
6.6
2020
£M
6.3
–
–
6.3
The Board of Directors have declared a final dividend of 8.60p per share which if approved by shareholders at the forthcoming AGM, will be payable
on 27 May 2022. As part of the return of surplus capital to shareholders, the Company has also declared a special dividend of 17.70p per share (not
subject to shareholder approval) which will be paid alongside the final ordinary dividend on the same date.
The total value of dividends proposed or declared but not recognised at 31 December 2021 is £22.3 million (2020: £1.7 million).
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. At 31 December 2021,
this reserve was £1.5 million and there were no changes to this Special reserve during the year. During 2020, shares were issued as part of the deferred
consideration of the acquisition of Domus Group of Companies Limited and £1.0 million was transferred to this reserve.
180
Headlam Group PLC Annual Report & Accounts 2021
NOTES 26 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 and at fair value through profit or loss, 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.
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
Company
2021
£M
108.4
61.2
169.6
2020
£M
97.3
60.8
158.1
2021
£M
20.5
63.4
83.9
2020
£M
22.3
16.6
38.9
The fair values of the above financial assets at both 31 December 2021 and 2020, are deemed to approximate to carrying value due to the short-term
maturity of the instruments.
Headlam Group PLC Annual Report & Accounts 2021 181
OverviewCorporate GovernanceStrategic ReportFinancial Statements 26 Financial instruments continued
Impairment of financial assets continued
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
2021
2020
Gross
£M
44.0
24.0
11.6
79.6
Impairment
£M
(0.2)
(0.3)
(6.2)
(6.7)
Gross
£M
44.8
27.2
14.9
86.9
Impairment
£M
(0.1)
(0.3)
(7.7)
(8.1)
All other receivables and derivative financial assets are not past due (2020: not past due).
The Company had trade receivables of £nil (2020: £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 48 months before 31 December 2021 or 1 January 2021 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, including gross domestic product growth, affecting the ability of the customers to settle the receivables.
The Company has maintained a prudent level of loss allowance below, despite strong cash collections throughout 2021 in anticipation of the impact of
inflationary and energy cost pressures on the economic environment, and the withdrawal of certain government support schemes which might cause
collection experience to lessen.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and ageing based on invoice
date. The loss allowance provision as at 31 December 2021 is determined as follows;
Ageing based on invoice date
31 December 2021
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
31 December 2020
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
Current
< 30 days
0.3%
44.0
0.1
Current
< 30 days
0.3%
44.8
0.1
30–60 days
60–90 days
1.0%
24.0
0.2
40.9%
8.9
3.7
30–60 days
60–90 days
1.1%
27.2
0.3
43.8%
11.1
4.8
Over 90
days
100.0%
2.7
2.7
Over 90
days
76.9%
3.8
2.9
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
2021
£M
63.4
9.5
72.9
2020
£M
67.8
11.0
78.8
2021
£M
–
–
–
Total
79.6
6.7
Total
86.9
8.1
2020
£M
–
–
–
During the year the Group’s impairment loss as a percentage of revenue amounted to 0.02% (2020: 1.1%).
182
Headlam Group PLC Annual Report & Accounts 2021
NOTES The loss allowances for trade receivables as at 31 December reconcile to the opening loss allowances as follows:
Opening loss allowance at 1 January
(Decrease)/increase in loan loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectible
Discontinued operation
Effect of movement in foreign exchange
Closing loss allowance at 31 December
Group Trade receivables
Company Trade receivables
2021
£M
8.1
(0.4)
(0.6)
(0.3)
(0.1)
6.7
2020
£M
2.6
6.5
(1.1)
–
0.1
8.1
2021
£M
–
–
–
–
–
–
2020
£M
–
–
–
–
–
–
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.
The company has loss allowances against amounts due from subsidiary undertakings of £0.8 million (2020: £1.6 million).
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 2021, cash and cash equivalents covered the amounts of borrowings maturing in the next 12 months with a
net positive liquidity of £53.7 million (2020: £51.6 million). Details of the total facilities that the Group has access to are given in note 19.
The following are the contractual maturities of financial liabilities:
31 December 2021
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Lease liabilities
Derivative financial liabilities
Other derivatives
31 December 2020
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Lease liabilities
Derivative financial liabilities
Other derivatives
Carrying
amount
£M
7.5
163.4
36.0
0.1
207.0
Carrying
amount
£M
9.2
154.8
43.3
0.1
207.4
Contractual
cash flows
£M
(7.6)
(163.4)
(37.5)
(0.1)
(208.6)
Contractual
cash flows
£M
(9.5)
(154.8)
(43.3)
(0.1)
(207.7)
1 year
or less
£M
(1.0)
(163.4)
(11.0)
(0.1)
(175.5)
1 year
or less
£M
(2.1)
(154.8)
(12.5)
(0.1)
(169.5)
1–2
years
£M
(6.6)
–
(8.6)
–
(15.2)
1–2
years
£M
(0.3)
–
(9.3)
–
(9.6)
2–5
years
£M
–
–
(14.2)
–
(14.2)
2–5
years
£M
(7.1)
–
(16.0)
–
(23.1)
5 years
or more
£M
–
–
(3.7)
–
(3.7)
5 years
or more
£M
–
–
(5.5)
–
(5.5)
Headlam Group PLC Annual Report & Accounts 2021 183
OverviewCorporate GovernanceStrategic ReportFinancial Statements 26 Financial instruments continued
31 December 2021
Company
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Derivative financial liabilities
Other derivatives
31 December 2020
Company
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Derivative financial liabilities
Other derivatives
Carrying
amount
£M
Contractual
cash flows
£M
34.9
0.8
–
35.7
(34.9)
(0.8)
–
(35.7)
Carrying
amount
£M
Contractual
cash flows
£M
33.3
0.8
–
34.1
(33.3)
(0.8)
–
(34.1)
1 year
or less
£M
(34.9)
(0.1)
–
(35.0)
1 year
or less
£M
(33.3)
(0.1)
–
(33.4)
1–2 years
£M
2–5 years
£M
–
(0.1)
–
(0.1)
–
(0.1)
–
(0.1)
1–2 years
£M
2–5 years
£M
–
(0.1)
–
(0.1)
–
(0.1)
–
(0.1)
5 years
or more
£M
–
(0.5)
–
(0.5)
5 years
or more
£M
–
(0.5)
–
(0.5)
The value of the Group’s and Company’s financial liabilities as detailed above at 31 December 2021 and 2020 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.
The table below sets out the Group’s accounting classification of each class of financial assets and liabilities at 31 December 2021 and 2020.
Fair value
through profit
or loss (FVPL)
£M
–
–
–
–
–
–
–
–
–
(0.1)
(0.1)
Amortised
cost
£M
61.2
(7.2)
(0.3)
(126.8)
(36.6)
(36.0)
72.9
35.5
(2.7)
–
(40.0)
Total
Carrying
Value
£M
61.2
(7.2)
(0.3)
(126.8)
(36.6)
(36.0)
72.9
35.5
(2.7)
(0.1)
(40.1)
31 December 2021
Cash and cash equivalents
Borrowings due within one year
Borrowings due after one year
Trade payables
Non-trade payables
Leasing liabilities
Trade receivables
Other receivables
Provisions
Derivative liability
184
Headlam Group PLC Annual Report & Accounts 2021
NOTES 31 December 2020
Cash and cash equivalents
Borrowings due within one year
Borrowings due after one year
Trade payables
Non-trade payables
Leasing liabilities
Trade receivables
Other receivables
Provisions
Derivative liability
Fair value
through profit
or loss (FVPL)
£M
–
–
–
–
–
–
–
–
–
(0.1)
(0.1)
Amortised
cost
£M
60.8
(2.0)
(7.2)
(129.7)
(25.1)
(43.3)
78.8
18.5
(2.1)
–
(51.3)
Total
Carrying
Value
£M
60.8
(2.0)
(7.2)
(129.7)
(25.1)
(43.3)
78.8
18.5
(2.1)
(0.1)
(51.4)
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.
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
2021
£M
61.2
(7.5)
53.7
2020
£M
60.8
(7.4)
53.4
2021
£M
63.4
–
63.4
2020
£M
16.6
–
16.6
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 2020.
31 December 2021
Variable rate instruments
31 December 2020
Variable rate instruments
Group
Company
Profit or loss
Equity
Profit or loss
Equity
100bp
increase
£M
100bp
decrease
£M
100bp
increase
£M
100bp
decrease
£M
100bp
increase
£M
100bp
decrease
£M
100bp
increase
£M
100bp
decrease
£M
0.6
0.5
(0.6)
(0.5)
–
–
–
–
0.6
0.2
(0.6)
(0.2)
–
–
–
–
Headlam Group PLC Annual Report & Accounts 2021 185
OverviewCorporate GovernanceStrategic ReportFinancial Statements 26 Financial instruments continued
Foreign currency risk
The Group and Company are exposed to movements in currency exchange rates arising from transaction currency cash flows and the translation of
the results and net assets of overseas subsidiaries. The currencies giving rise to this risk are primarily the euro, 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 2021 amounted to £0.1 million (2020: liability of £0.1 million).
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
Total current derivative financial instrument liabilities
Derivatives are only used for economic hedging purposes and not as speculative investments.
The movements in respect of derivative financial instruments were as follows:
Opening balance 1 January 2021
Less: charge to profit or loss
Closing balance 31 December 2021
Group
Company
2021
£M
0.1
0.1
2020
£M
0.1
0.1
2021
£M
–
–
2020
£M
–
–
Foreign currency
forwards
£M
(0.1)
–
(0.1)
Hedge inefectiveness
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 2021, 8.4% (2020: 9.6% continuing operations) of the Group’s underlying operating profit was derived from
overseas subsidiaries and at 31 December 2021, 6.1% (2020: 22.3%) 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.
186
Headlam Group PLC Annual Report & Accounts 2021
NOTES The exposure to foreign currency risk was as follows:
2021
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2020
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£M
0.1
0.3
(2.3)
(1.9)
Euro
amount
£M
0.4
0.6
(3.5)
(2.5)
Group
Other
amount
£M
0.1
0.1
(1.0)
(0.8)
Group
Other
amount
£M
–
–
(0.8)
(0.8)
Euro
amount
£M
–
0.1
–
0.1
Euro
amount
£M
–
0.1
–
0.1
Company
Other
amount
£M
–
–
–
–
Company
Other
amount
£M
–
–
–
–
Total
£M
0.2
0.4
(3.3)
(2.7)
Total
£M
0.4
0.6
(4.3)
(3.3)
Total
£M
–
0.1
–
0.1
Total
£M
–
0.1
–
0.1
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 2020.
Euro
Other
Group
Company
2021
£M
(0.2)
(0.1)
2020
£M
(0.2)
(0.1)
2021
£M
–
–
2020
£M
–
–
A 10% strengthening of sterling against the above currencies at 31 December would have had the equal but opposite effect on the above currencies
to the amounts shown above, on the basis that all other variables remain constant.
Fair values hierarchy
The financial instruments carried at fair value are 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 some forward currency contracts, which were fair valued in accordance with level 2 for the year.
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.
Headlam Group PLC Annual Report & Accounts 2021 187
OverviewCorporate GovernanceStrategic ReportFinancial Statements 26 Financial instruments continued
Borrowings, other financial assets and other financial liabilities
Where available, market values have been used to determine fair values. Where market values are not available, fair values have been estimated by
discounting expected future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued at the exchange
rate prevailing at the Statement of Financial Position date.
Capital management
The Group views its finance capital resources as 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 2.0 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 17 January 2022, the Group completed a refinancing of its existing banking facilities which will expire in October 2026, these are disclosed in note
19. At 31 December 2021, the Group had two agreements with Barclays Bank PLC and HSBC Bank Plc, with a sterling committed facility of £68.5
million and a euro committed facility of €9.6 million. The Group also had short term uncommitted facilities of £25.0 million in the UK and €3.9 million
in Continental Europe. These are renewable on an annual basis. The disposal of Belcolor AG led to a reduction in the euro uncommitted facilities in
Continental Europe of €5 million. The total banking facilities available to the Group at 31 December 2021 were £104.8 million (2020: £110.3 million).
The uncommitted facility, coupled with cash generated from operations, is used to fund the Group’s ongoing working capital requirements. The
committed facility is in place to support the Group’s strategic investment plans.
No changes were made to the objectives, policies or processes during the years ended 31 December 2021 and 31 December 2020.
27 Discontinued operations
On 28 April 2021, the Group entered into a sale agreement to dispose of Belcolor AG (‘Belcolor’). Belcolor is a floorcoverings distribution business
based in St. Gallen, Switzerland, and represents the entirety of Headlam’s Swiss operations. Headlam’s Continental European operations (including
Belcolor) accounted for 17.2% of total revenue in 2020, with Switzerland being the smallest reflecting the small landmass and population of the
country. For the year ended 31 December 2020, Belcolor reported revenue of £31.1 million and underlying profit before tax of £1.1 million (£0.5 million
after pension costs incurred under IAS19), with fairly uninterrupted operations during 2020 in contrast to the Company’s UK and French operations
which were subject to stringent COVID-19 related lockdown measures.
While Belcolor was highly established and industry-leading in its country, there were limited avenues for meaningful organic or acquisitive growth.
Additionally, the Swiss market varies significantly from the Company’s other geographic markets in terms of supplier base and product mix,
and therefore there was limited ability to leverage group synergies. The disposal allows the Company to more effectively focus its activities and
investments on its operations which offer greater opportunity.
On 29 April 2021, as a condition of the sale agreement, Belcolor undertook a sale and leaseback of its property for gross proceeds of £12.4 million and
paid a dividend of £11.1 million to its parent company, Headlam Group plc. Gross assets disposed of were £18.8 million. Cash consideration before
costs of £0.9 million was received on sale of the subsidiary.
188
Headlam Group PLC Annual Report & Accounts 2021
NOTES The subsidiary was sold on 28 April 2021 with effect from 17 May 2021 and was reported in these financial statements for the year ending 31
December 2021 as a discontinued operation.
Financial information relating to the discontinued operation for the period to the date of disposal is set out below.
Financial performance of discontinued operation
Period ended 17 May 2021
Year ended 31 December 2020
Underlying
£M
Non-underlying
£M
9.1
(9.0)
–
0.1
–
0.1
–
0.1
–
–
5.8
5.8
(1.3)
4.5
(0.1)
4.4
Underlying
£M
Non-underlying
£M
31.1
(30.6)
–
0.5
(0.1)
0.4
–
0.4
–
(3.3)
–
(3.3)
–
(3.3)
–
(3.3)
Total
£M
9.1
(9.0)
5.8
5.9
(1.3)
4.6
(0.1)
4.5
4.8
4.8
Total
£M
31.1
(33.9)
–
(2.8)
(0.1)
(2.9)
–
(2.9)
–
–
Revenue
Expenses
Other gains (profit on sale of building)
Profit/(loss) before tax
Attributable tax expense
Profit/(loss) after tax of discontinued operation
Loss on sale of subsidiary after tax
Profit/(loss) from discontinued operation
Reclassification of foreign currency translation
reserve on disposal of subsidiary
Other comprehensive income from
discontinued operation
Consideration received:
Cash
Costs of disposal
Net disposal consideration
Carrying amount of net assets sold
Loss on sale before tax and reclassification of foreign currency translation reserve
Reclassification of foreign currency translation reserve on disposal of subsidiary
Tax expense on loss
Loss on sale after tax
Cash flows from discontinued operation
Net cash (outflow)/inflow from ordinary activities
Net cash inflow/(outflow) from investing activities
Net cash outflow from financing activities
Net increase in cash generated by the subsidiary
Period ended
17 May
2021
£M
Year ended
31 December
2020
£M
0.9
(0.1)
0.8
(5.7)
(4.9)
4.8
–
(0.1)
(1.8)
12.4
–
10.6
–
–
–
–
–
–
–
–
1.2
(0.5)
(0.2)
0.5
Headlam Group PLC Annual Report & Accounts 2021 189
OverviewCorporate GovernanceStrategic ReportFinancial Statements 27 Discontinued operations continued
Efect of disposal on the financial position of the Group
Property, plant and equipment
Right-of-use-assets
Inventories
Trade and other receivables
Cash and cash equivalents
Employee benefits
Current tax liability
Trade and other payables
Deferred tax liabilities
Lease liabilities
Net assets and liabilities
Net disposal consideration
Cash and cash equivalents disposed of
Net cash outflow
£M
(1.4)
(1.2)
(8.7)
(3.2)
(4.3)
2.8
1.5
3.0
0.3
5.5
(5.7)
0.8
(4.3)
(3.5)
The net cash consideration of £0.8 million represents the residual consideration following the £11.1 million dividend previously paid up to the parent
company. Cash balances of £4.3 million were held by Belcolor on disposal.
28 Acquisitions
There were no acquisitions during the year ended 31 December 2021.
Prior year acquisitions
In the prior year a subsidiary company of Headlam Group plc entered into an agreement to acquire Supertex Furnishing Limited (‘Supertex’). Supertex
operates from the Group’s existing premises in Stockport, Lancashire creating operating efficiencies, with a trade counter remaining in Leyland to
service the local area.
The fair values of the assets and liabilities acquired have been reconsidered as part of the hindsight period, but no adjustment was considered
necessary.
29 Capital commitments
Group
As at 31 December 2021, the Group entered into commitments to purchase property, plant and equipment for £0.4 million and intangibles of £1.9
million (2020: £1.0 million and £2.7 million respectively) of which £1.2 million will be settled in the following financial year (2020: £1.8 million).
Company
At 31 December 2021, the Company had commitments to purchase intangibles of £1.9 million (2020: £2.7 million).
190
Headlam Group PLC Annual Report & Accounts 2021
NOTES 30 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 58 and 59.
As at 31 December 2021, Directors of the Company and their immediate relatives controlled 0.1% of the total voting rights of the Company (2020:
0.8%).
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 £0.3 million (2020: £0.2 million).
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
£M
21.6
(30.5)
Balance at
31 December
2021
£M
20.2
(30.0)
Highest
during
the year
£M
23.3
(30.0)
Balance at
31 December
2020
£M
22.0
(30.0)
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
2021
£M
For year
ended
31 December
2020
£M
10.1
40.0
2.4
0.2
8.9
10.7
2.4
0.3
Headlam Group PLC Annual Report & Accounts 2021 191
OverviewCorporate GovernanceStrategic ReportFinancial Statements 31 Contingent asset
At December 2021, the Group identified a contingent asset relating to an insurance claim for losses, as a result of the Kidderminster fire, arising from
damage to the Group’s property, stock and contents, and trading losses. The claim was in progress at 31 December 2021 and its outcome, whilst
probable given the insurance contracts in place, was not certain and therefore not recognised in the financial statements as an asset. It was not
practicable to estimate its financial effect.
32 Contingent liability
There are no contingent liabilities for the year ending 31 December 2021. In November 2020, the Group provided evidence for an investigation by
the Netherlands Authority for Consumers and Markets (‘ACM’) concerning possible anti-competitive behaviour in the industry. In July 2021, the ACM
notified the Group that they had terminated their investigation and no further action has been taken.
33 Subsequent events
Management have given due consideration to any events occurring in the period from the reporting date to the date these Financial Statements were
authorised for issue and have concluded that there are no material adjusting or non-adjusting events to be disclosed in these Financial Statements
with the exception of the following:
On 17 January 2022, the Group completed a refinancing of its existing banking facilities which will expire in October 2026. At 31 December 2021, the
Group had two revolving credit facility agreements with Barclays Bank PLC and HSBC Bank Plc, with a sterling committed facility of £68.5 million and a
euro committed facility of €9.6 million. These were replaced with a single revolving credit facility agreement with Barclays Bank PLC, The Bank of Ireland
and Credit Industriel Et Commercial (London Branch) for £81.5 million.
192
Headlam Group PLC Annual Report & Accounts 2021
NOTES 34 Group subsidiaries
Company
HFD Limited
MCD Group Limited
CECO (Flooring) Limited
Domus Tiles Limited
Headlam BV
Dersimo BV
LMS SA
Headlam (European) Limited
Betu Holdings Limited
Headlam Holdings BV
Headlam SAS
Domus Group of Companies Limited
Tileco (2012) Bidco Limited (in liquidation)
Tileco Group (2007) Limited (in liquidation)
Tileco Group Limited (in liquidation)
Yourfloors Plc
Crossforge Limited
Headlam Group Employee Trust Company Limited
Headlam Group Pension Trustees Limited
Tileco Limited (in liquidation)
Surface Tiles Limited (in liquidation)
Gorsey Twenty Limited (in liquidation)
Gorsey Twenty One Limited
Gorsey Twenty Two Limited (in liquidation)
Gorsey Twenty Three Limited (in liquidation)
Gorsey Twenty Four Limited (in liquidation)
Type
Place of incorporation
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
Dormant
Great Britain*
Great Britain*
Great Britain*****
Great Britain*
Netherlands**
Netherlands****
France***
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*
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: 9-11 Rue de la litte, 92390, Villeneuve-la-Garenne, France.
**** 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.
Headlam Group PLC Annual Report & Accounts 2021 193
OverviewCorporate GovernanceStrategic ReportFinancial Statements FINANCIAL RECORD
Trading results (Continuing operations)
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 – Continued operations
Underlying profit on ordinary activities after taxation – Discontinued operations
Profit/(loss) before tax
Shareholder value
Earnings/(loss) per share for profit from continuing operations
Underlying earnings/(loss) per share for profit from continuing operations
Earnings/(loss) per share for profit from discontinued operations
Paid interim and final dividend per share
Paid special dividend per share
Proposed special dividend per share
Proposed dividend per share***
Declared 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
Non-current assets classified as held for sale
Total assets
2021
£M
2020
£M
2019
£M
2018
£M
Restated*
2017
£M
667.2
220.5
(183.2)
609.2
188.9
(171.0)
719.2
229.4
(187.2)
708.4
229.1
(184.8)
692.5
218.1
(174.3)
37.3
(1.5)
35.8
(9.2)
26.6
0.1
27.6
23.5p
31.5p
5.3p
5.8p
–
17.7p
8.6p
–
113.3
35.0
18.1
–
166.4
130.9
114.0
61.2
306.1
–
306.1
472.5
17.9
(2.0)
15.9
(3.9)
12.0
–
(17.1)
(24.2)p
14.3p
–
7.55p
–
–
–
2.00p
122.9
42.1
21.1
–
186.1
118.5
101.6
60.8
280.9
0.4
281.3
467.4
42.2
(2.7)
39.5
(6.9)
32.6
–
35.2
34.0p
38.8p
–
25.0p
–
–
7.55p
–
114.5
43.9
48.5
0.7
207.6
132.5
123.7
33.4
289.6
–
289.6
497.2
44.3
(0.9)
43.4
(7.8)
35.6
–
40.4
40.0p
42.5p
–
24.8p
–
–
25.0p
–
102.1
–
50.9
0.5
153.5
132.7
119.0
44.0
295.7
–
295.7
449.2
43.8
(0.7)
43.1
(8.0)
35.1
–
40.7
39.1p
41.7p
–
22.55p
8.00p
–
24.8p
–
101.6
–
44.7
0.6
146.9
131.6
128.0
42.0
301.6
–
301.6
448.5
194
Headlam Group PLC Annual Report & Accounts 2021
NOTES 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
Total liabilities
Net assets
2021
£M
2020
£M
2019
£M
2018
£M
–
(0.6)
(10.5)
(178.0)
(1.0)
(1.0)
(191.1)
(6.9)
(25.5)
–
(2.7)
(10.3)
(3.9)
(49.3)
–
(2.0)
(12.5)
(178.4)
–
(0.2)
(193.1)
(7.2)
(30.8)
–
(2.1)
(8.7)
(5.5)
(54.3)
–
(0.2)
(13.9)
(181.9)
–
(5.0)
(201.0)
(6.2)
(30.7)
–
(2.3)
(7.6)
(4.3)
(51.1)
(0.2)
(0.2)
–
(181.3)
–
(6.8)
(188.5)
(6.8)
–
(2.6)
(2.2)
(8.1)
(5.9)
(25.6)
Restated*
2017
£M
–
(0.2)
–
(190.3)
(2.2)
(6.4)
(199.1)
(6.5)
–
(4.9)
(2.0)
(6.9)
(10.5)
(30.8)
(240.4)
(247.4)
(252.1)
(214.1)
(229.9)
232.1
220.0
245.1
235.1
218.6
* The Condensed Consolidated Interim Income Statement for the year ended 31 December 2017 has 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 2021, 2020, 2019 and 2018.
IFRS 16 adopted from 1 January 2019.
**
*** Following the announcement on 25 March 2020, the 2019 final ordinary dividend was suspended, that had previously been detailed within the 2019 final results announcement.
The results for 2020 – 2017 within the Financial record have not been re-presented to reflect the discontinued activity that occurred in 2021, they remain the historical results reported for the Group.
Headlam Group PLC Annual Report & Accounts 2021 195
OverviewCorporate GovernanceStrategic ReportFinancial Statements Solicitors
Pinsent Masons LLP
55 Colmore Row
Birmingham
B3 2FG
Stockbroker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Panmure Gordon
One New Change
London
EC4M 9AF
Financial PR and IR
Alma PR
71–73 Carter Lane
London
EC4V 5EQ
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
ADVISERS
Auditor
PricewaterhouseCoopers LLP
One Chamberlain Square
Birmingham
B3 3AX
Taxation advisers
Deloitte LLP
Four Brindleyplace
Birmingham
B1 2HZ
Principal bankers
Barclays Bank PLC
PO Box 3333
One Snowhill
Snow Hill
Queensway
Birmingham
B3 2WN
HSBC Bank Plc
Level 6, Metropolitan House
CBX 3
321 Avebury Boulevard
Milton Keynes
MK9 2GA
Bank of Ireland
26 Cross Street
Manchester
M2 7AF
Crédit Industriel et Commercial
CIC London Branch
Finsbury Circus House
15 Finsbury Circus
London
EC2M 7EB
196
Headlam Group PLC Annual Report & Accounts 2021
NOTES H
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a
m
G
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o
u
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P
l
c
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
1
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