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The leading,
most trusted
experts in flooring
Annual Report & Accounts 2022
Overview
INTRODUCING OUR
2022 ANNUAL REPORT
Chris Payne, Chief Executive
Operating for over 30 years, we are the
UK's leading floorcoverings distributor.
We work with suppliers across the globe
manufacturing the broadest range
of products and give them a highly
effective route to market, selling their
products into the large and diverse
trade customer base.
We have an extensive customer base spanning independent and
multiple retailers, small and large contractors, and housebuilders.
We are focused on growing our customer base and providing great
service to all customers through the largest product range, in-depth
knowledge, ecommerce and marketing support, and nationwide service.
Our colleagues are at the heart of our business and, alongside supporting
our suppliers and customers to grow their businesses, we are focused on
all areas of support for them, to make Headlam a great place to work.
There have been many advances in colleague engagement and support
during 2022 which will continue to be built on during 2023.
Also at the forefront of our minds is the sustainability and long
term success of Headlam for the benefit of all our stakeholders.
Our strategy of driving growth and gaining market share from a more
efficient operating base will support growing returns for shareholders.
As importantly, our ESG strategy includes multiple actions to reduce
our impact on the environment, continue to support our colleagues,
and ensure high levels of governance.
2022 presented very challenging headwinds, not least the
well-documented significant operational cost increases and cost
of living crisis in the UK, all of which had to be carefully navigated.
We hope you enjoy reading this year’s Annual Report which details
our many activities during 2022, and our focus areas for 2023.
YEARS
Visit us online at www.headlam.com
CONTENTS
Overview
About Us
Investment Case
What makes Headlam
Financial Performance
Chairman’s Statement
Strategic Report
Our Marketplace and Customer Segments
Our Business Model: Supporting Customers
and Suppliers
Our Growth Strategy
Delivering on the Strategy: Progress In 2022
Digital at Headlam
Product and Brands at Headlam
Trade Counters at Headlam
Key Performance Indicators
Stakeholders and Engagement,
Section 172 Statement
People, Culture and Communities
Q&A with the Chief Executive
Chief Executive Review
Larger Customers at Headlam
Financial Review
Capital Allocation Priorities
Alternative Performance Measures ('APMs')
Our Sustainability Report
Risk Management, Principal Risks and Uncertainties
Viability Statement
Non-Financial Information Statement
Governance
Board of Directors and Executive Team
Chairman’s Introduction
Compliance Statement
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Other Statutory Disclosures
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Statements of Financial Position
Statement of Changes in Equity – Group
Statement of Changes in Equity – Company
Cash Flow Statements
Notes to the Financial Statements
Financial Record
Additional Information
02
03
04
05
06
10
12
14
16
18
20
22
24
28
32
36
38
46
48
55
58
61
81
87
89
92
96
98
100
106
114
116
126
134
166
173
176
184
185
186
187
188
189
190
248
250
Headlam Group PLC Annual Report & Accounts 2022
01
About Us: Our Vision and Values
See page 02
Our Business Model: Supporting
Customers and Suppliers
See pages 12–13
Our Strategy: Delivering Growth
See pages 14–15
Our People and Sustainability
See pages 32–35 and 61–80
ABOUT US
The UK's leading floorcoverings distributor
Our Purpose
Our Vision
Creating great places for our
communities to live, work and play
The leading, most trusted experts
in flooring
World class flooring solutions, delivered sustainably.
We are flooring experts; sourcing, developing and
distributing great product ranges in a sustainable,
environmentally responsible way. We work to support
local jobs, businesses, and communities. Delivering
the right solution every time.
With the reach to truly deliver for every customer.
Through our vast product choice, in-depth flooring
expertise, nationwide service excellence, and
dynamic, inclusive culture. All driven by the
collective ingenuity of our people.
Our Values
Every business in the Headlam group brings its own skills and expertise, built on a proud history of serving their
customers. The 'Headlam Way' is an expression of the shared values that bring us together. It’s why people
choose to work with us.
Keep each other safe
and well, always
Lead by example,
we are all leaders
Work together,
with everyone
Keep improving,
everywhere
02
Act sustainably, use less,
waste less, give back
Get it done,
brilliantly
And always, do the right thing
Overview INVESTMENT CASE
Strong Foundations
• Market leader with long established operational expertise and
customer servicing
• Strong balance sheet, demonstrated resilience, and track record
of cash generation and shareholder returns
• High levels of corporate governance and oversight, and well
developed ESG Strategy
Financial Review
For more information see pages 48–57
Growth Strategy
• Comprehensive strategy in place to deliver new revenue growth and
capture increased market share, with demonstrated progress in 2022
despite weaker UK residential market
• Ongoing focus on operational efficiency, modernisation, and
customer servicing to further improve performance
•
Investment in people, network (systems, equipment, and sites),
and customer propositions to support revenue growth
Our Strategy
For more information see pages 14–17
Delivering Success
• Capturing larger share of £3 billion1 UK market to extend market
leading position, with relatively modest investment required to
deliver on the strategy
• Strategy ensuring long term success and sustainability of the business,
responding to the evolving market and capturing commercial and
ESG related opportunities
Our Marketplace
For more information see pages 10–11
1 Source: LEK Consulting, 2020, calculated at distributors’ selling price and
inclusive of sales direct from manufacturers
03
Headlam Group PLC Annual Report & Accounts 2022 Overview
WHAT MAKES HEADLAM
To maximise customer reach and sales opportunity,
Headlam operates 67 businesses and trade brands across
the UK and Continental Europe (France and the Netherlands),
which are supported by the group's network, central resources
and processes.
30 years of operating expertise
• Knowledgeable and long serving colleagues
•
•
Servicing a large and diverse customer base
Long established supplier relationships across the globe
Nationwide network and operations
• National and regional businesses
• Next day delivery from extensive distribution network
• Growing number of trade counter collection sites
Broadest and largest product range
•
•
Spanning a wide spectrum of price points and categories
Exclusive own branded products, and well recognised brands
• New exclusive launches, including sustainable products
Leading customer servicing
• Dedicated sales teams and marketing support
•
•
Tailored service propositions and comprehensive solutions
Investing in ecommerce and industry leading digital channels
30
Years operating
2,267
People
67
Businesses
and trade
brands
22
Distribution
hubs and
centres
58
Trade
counters
Revenue
87.1%
12.9%12.9%
UK
Continental Europe
65.6%
34.4%34.4%
Residential sector
Commercial sector
04
FINANCIAL PERFORMANCE
Revenue
Statutory basic earnings/(loss) per share
£663.6m
(0.5)%
(2021: £667.2m)
22
21
20
663.6
667.2
578.1
40.1p
+70.6%
(2021: 23.5p)
22
21
20
40.1
23.5
(20.7)
Underlying* operating profit
Total ordinary dividend**
22
21
20
17.4
39.2
37.3
17.4p
+6.1%
(2021: 16.4p)
22
21
20
0.0
17.4
16.4
£39.2m
+5.1%
(2021: £37.3m)
Statutory operating
profit: £43.9m
(2021: £29.1m)
Underlying* profit before tax
Average net funds/(debt)***
£37.1m
+3.6%
(2021: £35.8m)
22
21
20
15.4
37.1
35.8
£3.1m
(91.9)%
(2021: £38.3m)
22
21
20
3.1
(8.6)
Statutory profit/(loss)before tax
Net (debt)/funds****
£41.8m
+51.4%
(2021: £27.6m)
22
21
20
41.8
27.6
(14.3)
£(35.9)m
(302.8)%
(2021: £17.7m)
22
(35.9)
21
20
38.3
17.7
8.3
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 2021. 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 48 to 60.
*
Underlying is before non-underlying items, which includes
i) impairment of intangibles, fixed assets and right of use assets,
ii) amortisation of acquired intangibles, iii) property disposal profits,
iv) impairment of property, plant and equipment and inventory
(following a fire), v) insurance proceeds (following fire) and vi)
business restructuring costs in 2021.
**
***
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 (debt)/funds is as at 31 December, and includes lease liabilities
of £37.7 million in 2022 (2021: £36.0 million; 2020: £43.3 million)
05
Headlam Group PLC Annual Report & Accounts 2022 CHAIRMAN’S STATEMENT
Keith Edelman, Non-Executive Chairman
“ 2022 was a busy year with many
achievements, however, it also
presented very challenging
industry headwinds”
06
Overview 2022 was a busy year, with many achievements including pleasing progress
in early stage delivery on the strategy. However, the year also presented very
challenging headwinds, not least significant operational cost increases and
an inflationary environment which resulted in a cost of living crisis, materially
impacting a large proportion of the Company’s domestic marketplace.
This served to subdue overall financial performance
and mask early contributions from the strategy,
although they served as an important counterbalance
to the weak UK residential sector so that group revenue
was broadly maintained year on year.
The strategy of driving revenue growth and capturing
increased market share from a more efficient and
modernised operating base is being delivered through
various discrete projects. Each has an accelerating
contribution profile which will support value creation
for all stakeholders. Successes in the year included
new larger customer wins with potential to scale
up, effective execution of the early stage roll-out of
improved trade counters nationwide, and launches
/ relaunches of own product brands to appeal to a
wider customer base.
can fulfil this priority and maintain a strong balance
sheet while continuing its focus on shareholder returns.
The Company’s well developed ESG strategy is an
important framework to ensure the sustainability and
long-term success of Headlam, and is closely aligned
with the overall strategy. Importantly, it will allow
the Company to capture commercial opportunities,
advance efficiency and modernisation measures, as
well as support colleagues and local communities.
Of note, the Company is actively engaged in many
decarbonisation actions in support of its Net Zero
emissions target (Scope 1 and 2) by 20351, including
investing in solar panels to both reduce emissions
and defray future energy costs. Furthermore, the
Company anticipates launching sustainable products
during 2023 to capture growing customer demand.
In support of delivery and oversight of the strategy,
the Board was refreshed and enhanced during the
year, bringing further relevant expertise and skills.
Additionally, significant operational capability has
been added throughout the business, mostly notably
in customer and digital strategies, IT, trade counter
management, and HR support.
Due to the economic backdrop, support for
the Company’s people of both a financial and
non-financial nature was a particular focus. A tiered
annual pay award and commitment to the National
Real Living Wage has sought to provide additional
support for more junior colleagues, and investment in
the HR team will allow enhancements in the areas of
wellbeing and colleague development opportunities.
Despite the inflationary cost pressures in the year, the
Company continued to invest across the business to
strengthen its position, support revenue growth, and
build foundations for future opportunities. Alongside
investment in people, the Company invested in sites,
systems and customer service propositions, all of which
support the strategy. As the investment required to
deliver on the strategy is relatively modest, the Board
Headlam is a long-established market leading
business with solid foundations that have been
strengthened through the development and
increasing implementation of the strategy.
The Company is now engaging with a far larger
proportion of the overall market and has significant
growth ambitions. Whilst there will be a lag to this
translating into overall financial performance given
the economic backdrop and upfront investment
required for some projects, the Board is highly
confident in the strategy and its future success.
The Board wishes to thank all its stakeholders,
especially its people, and looks forward to updating
on demonstrable progress under both the overall and
ESG strategies as 2023 progresses.
Keith Edelman
Non-Executive Chairman
8 March 2023
1
Full detail on the Company's emissions targets can be found within the Sustainability Report on pages 61 to 80.
07
Headlam Group PLC Annual Report & Accounts 2022 08
STRATEGIC
REPORT
Our Marketplace and Customer Segments
Our Business Model: Supporting Customers
and Suppliers
Our Growth Strategy
Delivering on the Strategy: Progress In 2022
Digital at Headlam
Product and Brands at Headlam
Trade Counters at Headlam
Key Performance Indicators
Stakeholders and Engagement,
Section 172 Statement
People, Culture and Communities
Q&A with the Chief Executive
Chief Executive Review
Larger Customers at Headlam
Financial Review
Capital Allocation Priorities
Alternative Performance Measures ('APMs')
Our Sustainability Report
Introduction
ESG Strategy
Environmental
Social
Governance
Task Force on Climate-related Financial
Disclosures (‘TCFD’)
Streamlined Energy and Carbon Reporting
('SECR')
Risk Management, Principal Risks and Uncertainties
Viability Statement
Non-Financial Information Statement
10
12
14
16
18
20
22
24
28
32
36
38
46
48
55
58
61
62
63
64
68
70
72
77
81
87
89
09
Headlam Group PLC Annual Report & Accounts 2022 Strategic Report
OUR MARKETPLACE AND
THE CUSTOMER SEGMENTS
Marketplace during 2022
The marketplace was affected by a number of
external factors during 2022, which evolved as the
year progressed.
Industry wide supply issues evident in the second half
of 2021 continued into the first half of 2022. These
in large part stemmed from the consequences of
COVID-19, with upstream raw material shortages and
cost inflation leading to product availability issues.
This in turn led to manufacturers implementing
significant price increases across many product
categories. However, as is a feature of the marketplace
in part due to infrequency of purchase, these increases
were passed directly through and readily absorbed.
As the year progressed, the inflationary environment in
the UK that had been evident at the beginning of the
year continued to worsen, leading to a cost of living crisis.
High
Traditional
Retailers
Description
Mix of large and
small warehouse style
physical stores and
traditional carpet /
flooring shops, plus
some online retailers
with a salesforce
£3 billion1 UK market
Existing Headlam Weighting
Tradespeople
and Fitters
Description
Progressive
Retailers
Description
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
Showroom style stores,
more interior design
and lifestyle focused
with less volume of
product on display
than traditional retailer.
May sell other home
décor products
Key needs
from Headlam
Key needs
from Headlam
•
Product availability,
and delivered
next day
• Nearby trade
counter for
collection
• Customer service
relationships and
touchpoints, fast
response to queries
• Reliable quality
• New product
launches, sampling,
and promotions
• Quick, one-stop
shop
•
Product advice
and sampling to
showcase to
end-consumer
• Ability to check
stock, and order
out of hours and
on the move
See Trade Counter case
study on pages 22–23
Key needs
from Headlam
• On trend,
design-led
products and
product brands
• Advice and insight
into end-consumer
buying trends
•
Point of sale
materials to
showcase options
to end-consumer
• Digital ordering
and stock checking
Contractors
(including government)
Description
Large contracting
companies with
premises. Undertake
large scale projects
which may include
government contracts,
hotels, office and
retail refurbishments,
care homes
Key needs
from Headlam
• Quick ordering and
delivery lifecycle
• Able to supply
nationwide, and
to site
• Account
management, and
contracts in place
•
Sustainability
credentials
10
This economic backdrop particularly impacted
consumer spending on ‘discretionary’ items, and as a
consequence the residential sector was notably weak
in the year with underlying volumes significantly down.
However, the product price increases provided support
to revenue.
COVID-19 lockdowns and restrictions in 2020 and 2021
caused the fortunes of the residential and commercial
sectors to fare very differently. While the residential
sector had been a beneficiary of limited opportunities
for spend, the commercial sector experienced
prolonged closures with large levels of expenditure
deferrals. However, 2022 saw a good recovery for the
commercial sector as activity rebounded from low
levels, with this sector being less exposed to inflation
and reduced discretionary spend, due in part to being
underpinned by health and safety requirements.
Multiple Retailers
Larger
Larger Customers
Housebuilders
Description
Description
Online
(pure online)
Description
Low
Mix of flooring
specialists and
generalists selling
flooring with multiple
premises, typically
in several regions or
nationwide
Key needs from
Headlam
•
Fast and accurate
deliveries
nationwide
(any location /
frequency)
• Digital systems
allowing real-
time data sharing
and automated
ordering
•
•
Supply chain
management
and stockholding
Sustainability
credentials,
exclusive products
and product insight
See Homebase case
study on page 46
1 Drop Ship Vendor
Typically national
housebuilding
companies,
responsible for
multiple developments
Website the only
selling channel, with
no other means of
selling (no physical
retail premises)
Key needs
from Headlam
• Account
Key needs
from Headlam
• Delivery to
management, and
contracts in place
fulfilment centre
and / or DSV1
• Able to supply
nationwide at
scale and to site
•
•
Product insight
and tailored
range, point of
sale materials to
showcase options
to end-consumer
Supply chain
management
and stockholding
See Leading
Housebuilder case
study on page 47
• Well recognised
product brands,
with good social
media appeal
• Direct to
end-consumer
sampling fulfilment
• Digital systems
allowing
real-time data
sharing and
automated
ordering
See Melrose Interiors
case study on page 47
Headlam Group PLC Annual Report & Accounts 2022
11
Strategic Report
OUR BUSINESS MODEL: SUPPORTING
CUSTOMERS AND SUPPLIERS
How we work to support our value chain
Purchasing
Using our unrivalled product
insight and knowledge to
have the broadest and
most innovative inventory
position that fulfils customers’
orders rapidly, with low risk
of obsolescence.
Customer Service
Providing our extensive
customer base with
comprehensive service
propositions tailored to their
specific needs, with a focus
on evolving these propositions
to respond to any changes in
the marketplace.
Supporting our suppliers
Solutions
Delivery
Supporting our customers
Working closely with our
suppliers across the globe
to launch innovative and
successful products into the
marketplace, sharing data
and ensuring an efficient and
ethical supply chain.
Providing an array of solutions
across the value chain,
spanning anything from
stockholding and storage
solutions, to curated exclusive
product ranges, through to
national distribution
(any location / frequency).
Providing a truly nationwide
Helping our customers grow
service with next day delivery
their businesses through
and a trade counter collection
understanding their needs,
network, and ongoing
improvements to both
to enhance the
delivery proposition.
offering the broadest product
mix supported by expert
knowledge and solutions,
and giving them competitive
advantages.
Key competitive advantages
Long established relationships
Extensive distribution network
Operating for over 30 years,
with many of the businesses
in the group having longer
heritages. This has resulted in
long-standing relationships with
both suppliers and customers.
The only truly nationwide
business, with 67 national
and regional businesses and
brands. Next day delivery
and growing number of
trade counter collection
sites. Continuing to invest in
and expand the network to
improve customer service.
Material handling and
processing capabilities
Largest inventory holding
amongst peers, and across
all main product categories.
Able to process a high volume
of orders for next day delivery.
Further investment made in
sortation units and cutting
tables during 2022, and 2023.
12
Product knowledge
and ranging
Unrivalled product knowledge
and technical expertise. Able
to provide valuable product
insight to both customers and
suppliers. Continuing to invest
in and launch new products
and ranges to capture further
market share.
Customer service
Broadest product offering
with next day delivery and
trade counter collection
service. Improved customer
service propositions including:
industry-leading app,
improved B2B websites, and
growing DSV1 capabilities.
How we work to support our value chain
Purchasing
Using our unrivalled product
insight and knowledge to
have the broadest and
most innovative inventory
position that fulfils customers’
orders rapidly, with low risk
of obsolescence.
Customer Service
Providing our extensive
customer base with
comprehensive service
propositions tailored to their
specific needs, with a focus
on evolving these propositions
to respond to any changes in
the marketplace.
Supporting our suppliers
Solutions
Delivery
Supporting our customers
Working closely with our
suppliers across the globe
to launch innovative and
Providing an array of solutions
across the value chain,
spanning anything from
successful products into the
stockholding and storage
marketplace, sharing data
solutions, to curated exclusive
and ensuring an efficient and
product ranges, through to
ethical supply chain.
national distribution
(any location / frequency).
Providing a truly nationwide
service with next day delivery
and a trade counter collection
network, and ongoing
improvements to both
to enhance the
delivery proposition.
Helping our customers grow
their businesses through
understanding their needs,
offering the broadest product
mix supported by expert
knowledge and solutions,
and giving them competitive
advantages.
Key competitive advantages
Long established relationships
Extensive distribution network
Operating for over 30 years,
with many of the businesses
The only truly nationwide
business, with 67 national
in the group having longer
and regional businesses and
heritages. This has resulted in
brands. Next day delivery
long-standing relationships with
and growing number of
both suppliers and customers.
trade counter collection
sites. Continuing to invest in
and expand the network to
improve customer service.
Material handling and
processing capabilities
Largest inventory holding
amongst peers, and across
all main product categories.
Able to process a high volume
of orders for next day delivery.
Further investment made in
sortation units and cutting
tables during 2022, and 2023.
Product knowledge
and ranging
Unrivalled product knowledge
and technical expertise. Able
to provide valuable product
insight to both customers and
suppliers. Continuing to invest
in and launch new products
and ranges to capture further
market share.
Customer service
Broadest product offering
with next day delivery and
trade counter collection
service. Improved customer
service propositions including:
industry-leading app,
improved B2B websites, and
growing DSV1 capabilities.
1 Drop Ship Vendor
13
Headlam Group PLC Annual Report & Accounts 2022
OUR GROWTH STRATEGY
How we are achieving our vision to deliver
success together
“ Strategy of driving
revenue growth
and capturing
increased market
share from a
more efficient
and modernised
operating base,
being delivered
through various
discrete projects.
Each has an
accelerating
contribution profile
which will support
value creation for
all stakeholders”
14
Maximising sales through
great service, solutions,
pricing and range
Developing new
opportunities for
future growth
Improving our
Leading on sustainability
Making Headlam a
operational capabilities
and environmental
great place to work
and effectiveness
responsibility
for everyone
Excel with existing customers
Expand customer base
Operational excellence
Environmental
People
• Secure and increase share with
independent and progressive
retailers through service, price
and range offerings
• Expand share through
• Optimise the branch network
• Reduce greenhouse gas
• Provide safe place to work
tailored propositions for larger
customers, contractors and
housebuilders
• Tailored fitter and contractor
• Deliver and expand the trade
propositions
counter concept
• Expand own product
brands offering
Routes to market
• Online brand awareness
Buying and products
and engagement
• Better range curation and
• Digital/ecommerce offering
pricing, buying and supplier
engagement
• Product development,
(re)launches and innovation
New opportunities
• Explore M&A opportunities in
adjacent products and/or new
market segments
and transport
• Develop sales force
emissions across building
footprint and fleet
effectiveness and efficiency
• Reduce waste, and promote
•
Invest in sites and equipment to
sustainable products
support growth
• Work with the industry to
improve recycling and end-of-
life treatment of sold products
Expand existing capabilities
• Consumer and market insights
• Build core capabilities in digital,
data and tech
• Build skills to succeed now and
in the future
• Support wellbeing
• Fair and competitive reward
and benefits
• Support local community
programmes
Business with integrity
• Reliable business processes,
Culture
systems, and controls in place
• Build inclusive and
• Ethical business conduct in
all areas, both internally and
oversight of supply chain
• Manage risk, and ensure the
continuity of the business
collaborative
performance culture
• Recognise and celebrate
success
• Open and frequent
communication
Link to Risks
1 2
Link to Risks
1 2 3 10
Link to Risks
1 2 3
Link to Risks
8 9 10
See pages 81–86
See pages 81–86
See pages 81–86
See pages 81–86
See pages 81–86
Link to KPIs
Link to KPIs
1 2 3 4 5
See pages 24–27
1 2 3 4 5 6
See pages 24–27
Link to KPIs
Link to KPIs
2 3 4 5 7 8 9 11
11 12
See pages 24–27
See pages 24–27
See pages 24–27
Link to Risks
5 6 10
Link to KPIs
9 10
Strategic Report “ Strategy of driving
revenue growth
and capturing
increased market
share from a
more efficient
and modernised
operating base,
being delivered
through various
discrete projects.
Each has an
accelerating
contribution profile
which will support
value creation for
all stakeholders”
retailers through service, price
customers, contractors and
and range offerings
housebuilders
• Tailored fitter and contractor
• Deliver and expand the trade
propositions
counter concept
• Expand own product
brands offering
Routes to market
• Online brand awareness
Buying and products
and engagement
• Better range curation and
• Digital/ecommerce offering
pricing, buying and supplier
engagement
• Product development,
(re)launches and innovation
New opportunities
• Explore M&A opportunities in
adjacent products and/or new
market segments
Maximising sales through
Developing new
great service, solutions,
opportunities for
pricing and range
future growth
Improving our
operational capabilities
and effectiveness
Leading on sustainability
and environmental
responsibility
Making Headlam a
great place to work
for everyone
Excel with existing customers
Expand customer base
Operational excellence
Environmental
People
• Secure and increase share with
• Expand share through
• Optimise the branch network
independent and progressive
tailored propositions for larger
and transport
• Develop sales force
• Reduce greenhouse gas
emissions across building
footprint and fleet
effectiveness and efficiency
• Reduce waste, and promote
•
Invest in sites and equipment to
support growth
Expand existing capabilities
• Consumer and market insights
• Build core capabilities in digital,
data and tech
sustainable products
• Work with the industry to
improve recycling and end-of-
life treatment of sold products
Business with integrity
• Reliable business processes,
systems, and controls in place
• Ethical business conduct in
all areas, both internally and
oversight of supply chain
• Manage risk, and ensure the
continuity of the business
• Provide safe place to work
• Build skills to succeed now and
in the future
• Support wellbeing
• Fair and competitive reward
and benefits
• Support local community
programmes
Culture
• Build inclusive and
collaborative
performance culture
• Recognise and celebrate
success
• Open and frequent
communication
Link to Risks
1 2
Link to Risks
1 2 3 10
Link to Risks
1 2 3
Link to Risks
8 9 10
Link to Risks
5 6 10
See pages 81–86
See pages 81–86
See pages 81–86
See pages 81–86
See pages 81–86
Link to KPIs
Link to KPIs
1 2 3 4 5
See pages 24–27
1 2 3 4 5 6
See pages 24–27
Link to KPIs
Link to KPIs
2 3 4 5 7 8 9 11
11 12
Link to KPIs
9 10
See pages 24–27
See pages 24–27
See pages 24–27
15
Headlam Group PLC Annual Report & Accounts 2022 DELIVERING ON THE STRATEGY:
PROGRESS IN 2022
Despite the weak UK residential sector in 2022, pleasing
progress was made in the early stage delivery on the strategy.
Key aims
Larger Customers
Trade Counters
Products and Brands
Digital Investment
Operating Efficiency
Targeting multiple retailers
Roll-out of new and improved
Launches and relaunches
Enhanced digital and ecommerce
Improved operating efficiency
and other larger customers
trade counters nationwide
of products and brands
capabilities and applications
and modernisation
Why important
Progress made
16
Traditionally been very
underweight in this customer
segment which accounts for
c £1 billion of overall £3 billion
UK market
Will increase geographic
coverage and density, filling
areas where no physical presence
currently, and appealing to wider
range of customers
New customer wins, with
considerable potential for
scalability. Aim to grow revenue
in this area by £100m within
5 years
On track for 90 invested1 sites
by the end of 2025. Targeted
to add c £120m of new revenue
to the £80m reported for 2021
upon maturity
New customers include
Homebase, a builders
merchant, Oak Furnitureland,
and a top 10 UK housebuilder
58 sites at end of 2022,
24 invested1, with accelerating
roll-out to create
national footprint
New revenue provided an
important countermeasure
to weak UK residential sector
in 2022
Strong KPIs from invested
sites (revenue, new account
openings, and margins), with
invested sites +10% revenue
against uninvested
Will increase sales through
Will increase revenue opportunities
Will improve the service to all
appealing to a wider cross-section
in all customer segments,
customers, support revenue
of the customer / end-consumer
particularly larger customers, and
growth, and improve profitability
base, and keep brands relevant
also help lower cost to serve
Over 30 launches / relaunches
Reached 26% of sales from
£6m investment in sites and
during 2022. Over 40 planned
digital channels, from base of
equipment (sortation units and
for 2023, including own
11% in 2019
cutting tables) during 2022
branded sustainable range(s)
New ‘Everyroom’ brand
Industry leading app
+98% of orders delivered
launched in 2022, generating
myheadlam generating over
right first time
over £8m of sales in seven
£6m of sales since launch in
months, and finalist for a
November 2021
leading trade award
Commissioned specialist
Further systems integration
Capacity created in existing
research indicating market
completed allowing more
network to support revenue
share gains in the year,
effective information flows,
growth, with modest
extending leading position
and upselling/cross-selling
incremental infrastructure
capabilities being introduced
and investment required to
support growth
Link to Strategy
Link to Strategy
Link to Strategy
Link to Strategy
Link to Strategy
See pages 46–47 for
Larger Customer Case Studies
See pages 22–23 for
Trade Counter Case Study
See pages 20–21 for
Product Brands at Headlam
See pages 18–19 for
Digital at Headlam
See pages 38–45 for
Chief Executive Review
1 New, relocated, or refitted sites
Strategic Report
Key aims
Larger Customers
Trade Counters
Products and Brands
Digital Investment
Operating Efficiency
Targeting multiple retailers
Roll-out of new and improved
and other larger customers
trade counters nationwide
Launches and relaunches
of products and brands
Enhanced digital and ecommerce
capabilities and applications
Improved operating efficiency
and modernisation
Why important
Progress made
Traditionally been very
Will increase geographic
underweight in this customer
coverage and density, filling
segment which accounts for
areas where no physical presence
c £1 billion of overall £3 billion
currently, and appealing to wider
UK market
range of customers
New customer wins, with
On track for 90 invested1 sites
considerable potential for
by the end of 2025. Targeted
scalability. Aim to grow revenue
to add c £120m of new revenue
in this area by £100m within
to the £80m reported for 2021
5 years
upon maturity
New customers include
Homebase, a builders
58 sites at end of 2022,
24 invested1, with accelerating
merchant, Oak Furnitureland,
and a top 10 UK housebuilder
roll-out to create
national footprint
New revenue provided an
Strong KPIs from invested
important countermeasure
sites (revenue, new account
to weak UK residential sector
openings, and margins), with
in 2022
invested sites +10% revenue
against uninvested
Will increase sales through
appealing to a wider cross-section
of the customer / end-consumer
base, and keep brands relevant
Will increase revenue opportunities
in all customer segments,
particularly larger customers, and
also help lower cost to serve
Will improve the service to all
customers, support revenue
growth, and improve profitability
Over 30 launches / relaunches
during 2022. Over 40 planned
for 2023, including own
branded sustainable range(s)
New ‘Everyroom’ brand
launched in 2022, generating
over £8m of sales in seven
months, and finalist for a
leading trade award
Commissioned specialist
research indicating market
share gains in the year,
extending leading position
Reached 26% of sales from
digital channels, from base of
11% in 2019
£6m investment in sites and
equipment (sortation units and
cutting tables) during 2022
Industry leading app
myheadlam generating over
£6m of sales since launch in
November 2021
Further systems integration
completed allowing more
effective information flows,
and upselling/cross-selling
capabilities being introduced
+98% of orders delivered
right first time
Capacity created in existing
network to support revenue
growth, with modest
incremental infrastructure
and investment required to
support growth
Link to Strategy
Link to Strategy
Link to Strategy
Link to Strategy
Link to Strategy
See pages 46–47 for
Larger Customer Case Studies
See pages 22–23 for
Trade Counter Case Study
See pages 20–21 for
Product Brands at Headlam
See pages 18–19 for
Digital at Headlam
See pages 38–45 for
Chief Executive Review
1 New, relocated, or refitted sites
17
Headlam Group PLC Annual Report & Accounts 2022
Strategic Report
DIGITAL
AT HEADLAM
Supporting and increasing revenue opportunities
A comprehensive digital strategy is one of the key
drivers of the Company’s growth and efficiency
strategy. Enabling greater appeal to a wider base
of customers, supporting all the increased revenue
opportunities, and also helping lower the cost
to serve.
During 2021, the Company
launched new and improved B2B
websites across all its businesses,
as well as an industry leading app,
myheadlam, allowing more mobile
customers to trade ‘on the go’ in
a quick and easy way. This helped
the Company achieve 26% of its
sales coming from digital channels
by the end of 2022, from a base of
11% in 2019.
A key deliverable in 2022 was
introducing a product information
management system (‘PIM’) to
enable centralised control and
distribution of product data to
all business channels, including
suppliers and customers, through
quick and effective automated
flows. It allows the acceleration
of product to market, and richer
more detailed information and
imagery for use internally and
by customers. The Company will
seek to leverage the PIM further
in 2023 and drive sales through
better showcasing of product
specifications, upselling and cross
selling, and collecting product
data from suppliers at source.
Other focus areas in 2023
include embedding a new Order
Benefits
• Appealing to a wider
customer base
•
Supports all the increased
revenue opportunities
• Helps lower the cost
to serve
Management System (‘OMS’) that
will provide better aggregated
stock visibility across the network,
allowing the Company to improve
the service to customers through
near real time inventory feeds. The
OMS will also enable improvements
to the Company’s Drop Ship
Vendor (‘DSV’) capabilities.
The Company introduced this
proposition to its service offering
in 2022, whereby it can provide a
full end to end fulfilment service for
customers, delivering orders direct
to their customers’ homes on their
behalf (using carrier partners).
18
Investment is also being made
in the Company’s own product
brands, with a number of the
established and well recognised
brands being scaled up in terms
of market penetration and
awareness through various digital
marketing channels (see Product
Brands at Headlam on page 20).
The overall ‘Headlam’ brand is
also to become more prominent
and better leveraged to secure
commercial opportunities.
A new Headlam brand website
is being launched later this year
to showcase the Company’s
capabilities and service offering,
and support the marketing to new
and existing customers.
The integration of Melrose Interiors,
which the Company acquired
in January 2023, will further
strengthen Headlam’s overall
digital capabilities and range
of service propositions. Melrose
Interiors is the largest independent
supplier to the UK online rug
industry (see Melrose Interiors case
study on page 66).
Headlam’s digital strategy
requires only modest investment,
and is operationally derisked by
partnering with a selected group
of market leading technical
solution providers. In the medium
term, the Company’s vision is to
create an omnichannel model for
its customers that allows them to
interact and trade with Headlam
in a variety of ways, providing
a seamless and personalised
experience.
19
Headlam Group PLC Annual Report & Accounts 2022 Strategic Report
PRODUCT BRANDS
AT HEADLAM
Leveraging established own brands, maximising
their sales potential, launching new
A key growth driver is the leveraging of the
established product brands within the group,
and the launching and marketing of new brands.
This enables the Company to appeal to a wider
base of customers, capturing market share and
increasing sales.
The Company has a large
portfolio of own product brands,
many of which have been in the
marketplace for a number of
years and are well recognised and
regarded. They span price points
from £10 per sq metre to over £150
per sq metre (average selling retail
prices), and therefore have appeal
for a wide cross-section of end-
consumers. Notably, Headlam has
the broadest offering of branded
residential carpet, with this being
the largest product category in the
UK marketplace.
While the brands are well
regarded, many have been
underleveraged in recent years,
and not sufficiently invested,
in terms of digital presence,
marketing spend, and new
product development. Several
existing brands were refreshed
or relaunched during 2022, and
scaled up in terms of market
penetration and awareness
through various digital marketing
channels (including improved
websites and social media).
Kingsmead Carpets was one of
Benefits
•
Increase sales and
intrinsic brand values
• Capture larger
market share
•
Secure commercial
opportunities through
sustainable launches
those refreshed with a new social
media strategy, and has already
doubled its weekly social media
users and quadrupled organic
traffic via Google searches.
In terms of new brand launches,
in 2022 the Company launched
Everyroom, its new and exclusive
brand offering great quality
and design at affordable prices.
This lower price point brand has
helped the Company’s customers
secure sales at a time when
20
end-consumers are more cost
conscious due to the inflationary
environment. The Company has
provided further traction through
free sampling and holding prices
despite industry-wide product
price increases. Feedback and
sales since launch have been very
positive, and the brand is a finalist
for a leading trade award later
in 2023.
While sustainable products
currently make up a low proportion
of the overall market offering,
customers and end-consumers will
increasingly signal a preference
for sustainable products. The
Company aims to take a lead
in launching and marketing
sustainable products, capturing
competitive advantage, with a
particular focus on fully recyclable
ranges. Working closely with
selected suppliers, the Company
is at the trialing and proof of
concept stage of new technology
with a view to launching own
branded sustainable ranges
from the second half of 2023. The
acquisition of Melrose Interiors has
also brought the award winning
[Re]lay brand of recycled rugs into
the group.
The Company’s Tamworth
site, home of product brands,
underwent a major refurbishment
in 2022. It now houses an
innovation hub which suppliers
and customers visit to discuss
collaborations with Headlam
on product development and
strategy, and sales development
and ranging.
During 2023, the Company
expects to launch over 40
new products (including
existing range refreshes),
with associated digital
marketing. The new websites
will have direct-to-consumer
sampling fulfilment, creating
further brand awareness
and demand.
21
Headlam Group PLC Annual Report & Accounts 2022 Strategic Report
TRADE COUNTERS
AT HEADLAM
Benefits
•
Increased geographic
coverage and density
• Appealing to a wider
range of customers
•
Targeting much
increased revenue from
this business unit
Accelerating roll-out of new and improved
trade counter sites nationwide, a fast growing
business unit
One of the main new revenue growth drivers is the
roll-out of new and improved trade counter sites
across the UK, creating a nationwide footprint that
also appeals to a wider range of customers thereby
capturing further market share.
The target is 90 invested1 sites
by the end of 2025, from the
previously 53 uninvested sites in
2021. This fast growing business unit
is targeted to add approximately
£120 million of revenue to the
£80 million reported for 2021
through a relatively modest capital
investment totalling around
£25 million2.
The first wave of invested sites
are already demonstrating
strong KPIs against uninvested
sites in terms of revenue, new
account openings, and margin.
Revenue from invested sites was
up 10% against uninvested sites
in 2022, and margin enhancing
to the group. Due to the upfront
investment required, and modelled
sales profile of new sites, the
roll-out project is expected to be
profit diluting in 2023 and 2024,
then profit enhancing from 2025
onwards.
1 New, relocated or refitted sites
2 Total of £6 million incurred so far by
31 December 2022
22
90
≥75
≥65
53
58
s
e
t
i
s
f
o
r
e
b
m
u
n
l
a
t
o
T
Invested sites
Typical new trade
Uninvested
sites
2021
2022
2023
2024
2025
Exact 2023 and 2024 sites profile is subject to prospective sites pipeline, with a strong pipeline
of sites currently. Will be some existing site closures / consolidations.
The trade counters offer a
convenient, one-stop shop for all
trade customers who may supply
or fit flooring as part of their overall
offering, enlarging the Company’s
customer base from traditional
flooring specialists / fitters. The
trade counter network offers a
collection service (from any site),
walk-in service, exclusive products,
accessories and workwear, and
expert advice.
Headlam will be the only flooring
distributor to have a national
standalone trade counter network.
With potential to increase the
geographic coverage and density
after the initial 90, continuing
to fill in areas where there is no
physical presence and making the
sites more accessible by lowering
travel time.
counter site:
• Town or conurbation with
no physical presence
currently
• Area with existing trade
footfall, located alongside
complementary trade
businesses
• 28 minute drivetime
catchment area
• c 5,000 sq ft property
(leased)
• Total capital investment
c £300,000
• Breakeven end of year 2
• Sales maturity in year 5
• Operating under
the well-recognised
local business brand,
co-branded Headlam
23
Headlam Group PLC Annual Report & Accounts 2022
KEY PERFORMANCE INDICATORS
(KPIs)
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 48 to
60, and below.
The financial results for 2021 and 2020 represent continuing operations only and exclude the contribution from
the Swiss business, Belcolor AG, following its disposal in 2021.
Financial KPIs
1 Like-for-like1
revenue growth (%)
APM
22
21
20
(17.2)
0.5
16.3
Measurement
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.
Initiatives and actions for
improvement
Organic revenue growth is a key
strategic objective with specific
projects to support its delivery.
Link to Strategy
Why it’s important and relevant
Allows a consistent measure of
year-on-year performance.
2 Gross profit margin (%)
Measurement
22
21
20
33.1
33.0
30.8
Measured as a % of revenue.
Why it’s important and relevant
Shows the effectiveness of gross
profit generation from revenue.
Initiatives and actions for
improvement
Ongoing pricing discipline, and
product ranging.
Link to Strategy
3 Underlying2 selling, general
Measurement
and administrative costs (%)
APM
Measured as a % of revenue.
22
21
20
27.2
27.5
27.8
Why it’s important and relevant
Shows how effective the Company
is at converting gross profit into
operating profit. Underlying2 is used
to show the underlying performance
of the business without exceptional
costs / items.
Initiatives and actions for
improvement
Focus on operating efficiencies and
headcount control to ensure cost
increases remain below revenue
growth.
Link to Strategy
1 Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full
contribution in both the 2022 and the comparator year(s), and is adjusted for any variances in working days.
24
Strategic Report
4 Underlying2 operating
profit margin (%)
APM
22
21
20
5.9
5.6
3.0
Measurement
Measured as a % of revenue.
Initiatives and actions for
improvement
Why it’s important and relevant
Shows the effectiveness of
sustainable operating profit
generation from revenue.
Underlying2 is used to show the
underlying performance of the
business without exceptional
costs / items.
Strategy to improve operating and
financial performance including
revenue growth on a partially fixed
cost base (see Chief Executive
Review on page 38).
Link to Strategy
5 Statutory basic earnings/
(loss) per share (‘EPS’) (p)
22
21
40.1
23.5
20
(20.7)
Measurement
Profit after tax divided by average
weighted number of shares.
Why it’s important and relevant
Shows the level of profit per share
attributable to shareholders.
Initiatives and actions for
improvement
In-line with statutory profit
performance.
Link to Strategy
6 Return on capital employed
Measurement
(‘ROCE’) (%)
APM
22
21
20
9.1
19.6
21.7
Measured as underlying2 operating
profit as a % of capital employed.
Why it’s important and relevant
Demonstrates the relative level of
profit generated by the capital
employed. Underlying2 is used to
show the underlying performance
of the business without exceptional
costs / items.
7 Cash conversion (%)
Measurement
APM
22
21
20
(580)
39
59
Measured as a % of operating profit.
Why it’s important and relevant
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.
Initiatives and actions for
improvement
Focus on efficient use of capital.
May be offset in the short-term by
a period of upfront investment and
maturity i.e. trade counter roll-out
(see Chief Executive Review on
page 38).
Link to Strategy
Initiatives and actions for
improvement
Target of 90% and above 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. Recently cash
conversion has been lower due to
investment in inventory to protect
against product supply issues.
Link to Strategy
2 Underlying is before non-underlying items, which includes i) impairment of intangibles, fixed assets and right of use assets, ii) amortisation of
acquired intangibles, iii) property disposal profits, iv) impairment of property, plant and equipment and inventory (following a fire), v) insurance
proceeds (following fire) and vi) business restructuring costs in 2021.
25
Headlam Group PLC Annual Report & Accounts 2022
KEY PERFORMANCE INDICATORS
(KPIs) CONTINUED
Initiatives and actions for
improvement
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. Centralisation of
slower-moving stockholding.
Link to Strategy
Initiatives and actions for
improvement
Focus on people and culture,
including investing in people
through training and review of
reward / benefits.
Link to Strategy
Non-Financial KPIs
8 Inventory turn
Measurement
22
21
20
3.2
3.7
3.4
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).
Why it’s important and relevant
A higher inventory turn is an
indicator of efficient revenue
generation, and more effective
utilisation of distribution centre
capacity.
9 Employee retention (%)
Measurement
22
21
20
73
81
82
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.
Why it’s important and relevant
Retention demonstrates the
Company’s ability to retain
employees. The Company is
continuing to develop a cultural
ethos which attracts and retains
the best talent to ensure valuable
workforce knowledge is retained to
support delivery of the strategy, and
reduce the costs involved in hiring
and training employees.
26
Strategic Report 10 Reportable incidents
(‘RIDDOR Reports’)
22
21
20
19
19
12
Initiatives and actions for
improvement
Dedicated health and safety team
continuing to enhance cultural
awareness, with regular audits.
External support retained to further
embed a strong health and safety
culture.
Link to Strategy
Measurement
Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
2013 ('RIDDORs'). These regulations
require employers, the self-employed
and those in control of premises to
report specified workplace incidents.
Why it’s important and relevant
By measuring reportable injuries, it is
possible to identify any deficiencies
in the Company’s processes, allowing
continuous improvement in health
and safety standards.
11 Deliveries per
commercial vehicle
22
21
20
14
15
16
Measurement
Average deliveries per commercial
vehicle per day in area following
Transport Integration (delivery
consolidation) project. Prior to the
project, in 2019 it was 12.
Initiatives and actions for
improvement
Completion of the roll-out
of the Transport Integration
project, moving to continuous
improvement phase.
Why it’s important and relevant
Link to Strategy
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.
12 UK Scope 1 and 2 emission
Measurement
reduction1
22
(44%)
21
(40%)
20
(40%)
Percentage reduction in UK Scope
1 and 2 emissions (tCO2e) against a
baseline year set at 2019.
Why it’s important and relevant
Need to meet the reduction
pathway required to achieve the
interim target of a 46% reduction
by 2030, and reduce the Company’s
contribution to climate change.
Initiatives and actions for
improvement
Actively engaged in transition
planning, with the main
decarbonisation actions currently
being pursued detailed in the
Sustainability Report page 61.
Link to Strategy
1 UK Scope 1 and 2 emission reduction: data for Continental European operations collated for the first time
in 2022, and therefore is not included in this KPI
Please see more details in our Sustainability Report on pages 61–80
1 This is a new KPI, replacing the previous 'Recycled Packaging' KPI owing to that KPI becoming embedded across the group and being largely
achieved with consistent performance in excess of 95% in recent years
27
Headlam Group PLC Annual Report & Accounts 2022
STAKEHOLDERS
AND ENGAGEMENT
The Board has responsibility for managing the business to
promote its success, and having regard to how its decisions and
events impact its stakeholders, engaging with and supporting
them appropriately.
Key stakeholders
Relationship to Headlam
How we support
How we engage
Our
Colleagues
Colleagues are at the heart of the
Company. We have over 2,200
colleagues within a variety of
departments, including warehousing,
transport, sales, and central
head office
Creating safe,
rewarding and
fulfilling work, where
everyone has the
opportunity to
succeed
Chief Executive, Executive Team,
and Board all having frequent
interaction, including site visits and
both formal and informal forums
(inclusive of the Employee Forum)
Recognition programme put in
place during 2022, celebrating
colleagues’ great performances
and commitment
The Company continues improving
the support to its colleagues,
including through engagement,
cultural development, review of
rewards and benefits, training and
development opportunities
Imperative to the success and
growth of the Company. We have
a broad customer base, with
each customer segment having
differing service preferences and
requirements
The Company continues to
focus on improving the service
proposition to all customer
segments
Key to ensuring the Company can
supply the right product
at a competitive price
in a timely manner to customers /
end-consumers
We work with suppliers across the
globe manufacturing a diverse
range of products, and provide
them with a cost efficient and
effective route to market for their
products
Our
Customers
Our
Suppliers
28
Helping our customers
grow their businesses
Helping global
manufacturers sell
their products into
the diverse and
fragmented trade
customer base
Frequent interaction through sales
representatives, dedicated service
teams, and communications
channels
Six monthly customer surveys, and
feedback mechanisms
Focus groups, including on new
product launches
Frequent visits to suppliers’ sites
and premises. First Supplier
Conference held in 2022, and
planned for 2023
Sharing of sales data, and insight
into customer and
end-consumer buying
Engagement on sustainability
matters, including on supply chain
to mitigate or eliminate risk in
the areas of modern slavery and
human trafficking
Main event(s) impacting
Effect on decision making,
Outcome, and benefits
stakeholder during the year
and key decisions taken
to stakeholder(s)
Prevailing economic environment, and
Focus on both financial and
Supporting lower salaried colleagues
inflationary impact on cost of living
non-financial support to colleagues
to a greater degree against impact
Further developing the mental health
strategy in 2023
Tiered approach to annual pay award
for 2023, with lower salaried colleagues
receiving higher percentage increase
of UK cost of living crisis, and ensuring
everyone receives the equivalent of the
National Real Living Wage
Improving Headlam as a place to work
for all colleagues
Helping to attract, retain and support
Expanded HR team to provide greater
levels of engagement and support
great people
Increase in their own operational costs
Providing more efficient ways to
New affordable ‘Everyroom’ brand
due to inflationary environment
place orders (digital strategy) and
helping customers secure sales in a
Cost of living crisis suppressing market
receive orders
more cost conscious environment
volumes in the UK residential sector
Tailored propositions to better support
Roll-out of trade counter network,
requirements
Providing competitive advantage
with more customer collection points
and improved offering
through promotions and new launches
Investment in the network (sites and
equipment) to support service
Increase in their own operational
Working together to capture the
Working with selected suppliers to
costs, leading to them implementing
competitive advantage, including in
launch sustainable ranges in 2023
significant product price increases
the area of sustainability
Taking a more centralised group
Cost of living crisis suppressing market
Working together to improve supply
approach to buying to create
volumes in the UK residential sector
chain efficiencies, and engagement on
efficiencies
Increasing regulation / legislation, and
Sustainability Charter
More strategic discussions following the
need to demonstrate sustainability
Working together to relaunch / launch
first Supplier Conference
credentials
new products to create demand
Strategic Report Key stakeholders
Relationship to Headlam
How we support
How we engage
Our
Colleagues
Colleagues are at the heart of the
Company. We have over 2,200
colleagues within a variety of
Creating safe,
rewarding and
Chief Executive, Executive Team,
and Board all having frequent
fulfilling work, where
interaction, including site visits and
departments, including warehousing,
everyone has the
transport, sales, and central
head office
opportunity to
succeed
The Company continues improving
the support to its colleagues,
including through engagement,
cultural development, review of
rewards and benefits, training and
development opportunities
both formal and informal forums
(inclusive of the Employee Forum)
Recognition programme put in
place during 2022, celebrating
colleagues’ great performances
and commitment
Our
Customers
Imperative to the success and
Helping our customers
Frequent interaction through sales
growth of the Company. We have
grow their businesses
representatives, dedicated service
a broad customer base, with
each customer segment having
differing service preferences and
requirements
The Company continues to
focus on improving the service
proposition to all customer
segments
teams, and communications
channels
Six monthly customer surveys, and
feedback mechanisms
Focus groups, including on new
product launches
Our
Suppliers
Key to ensuring the Company can
Helping global
Frequent visits to suppliers’ sites
supply the right product
at a competitive price
manufacturers sell
their products into
and premises. First Supplier
Conference held in 2022, and
in a timely manner to customers /
the diverse and
planned for 2023
fragmented trade
customer base
end-consumers
We work with suppliers across the
globe manufacturing a diverse
range of products, and provide
them with a cost efficient and
effective route to market for their
products
Sharing of sales data, and insight
into customer and
end-consumer buying
Engagement on sustainability
matters, including on supply chain
to mitigate or eliminate risk in
the areas of modern slavery and
human trafficking
Main event(s) impacting
Effect on decision making,
Outcome, and benefits
stakeholder during the year
and key decisions taken
to stakeholder(s)
Prevailing economic environment, and
inflationary impact on cost of living
Focus on both financial and
non-financial support to colleagues
Further developing the mental health
strategy in 2023
Tiered approach to annual pay award
for 2023, with lower salaried colleagues
receiving higher percentage increase
Expanded HR team to provide greater
levels of engagement and support
Supporting lower salaried colleagues
to a greater degree against impact
of UK cost of living crisis, and ensuring
everyone receives the equivalent of the
National Real Living Wage
Improving Headlam as a place to work
for all colleagues
Helping to attract, retain and support
great people
Increase in their own operational costs
due to inflationary environment
Cost of living crisis suppressing market
volumes in the UK residential sector
Providing more efficient ways to
place orders (digital strategy) and
receive orders
New affordable ‘Everyroom’ brand
helping customers secure sales in a
more cost conscious environment
Tailored propositions to better support
requirements
Providing competitive advantage
through promotions and new launches
Roll-out of trade counter network,
with more customer collection points
and improved offering
Investment in the network (sites and
equipment) to support service
Increase in their own operational
costs, leading to them implementing
significant product price increases
Working together to capture the
competitive advantage, including in
the area of sustainability
Cost of living crisis suppressing market
volumes in the UK residential sector
Increasing regulation / legislation, and
need to demonstrate sustainability
credentials
Working together to improve supply
chain efficiencies, and engagement on
Sustainability Charter
Working together to relaunch / launch
new products to create demand
Working with selected suppliers to
launch sustainable ranges in 2023
Taking a more centralised group
approach to buying to create
efficiencies
More strategic discussions following the
first Supplier Conference
29
Headlam Group PLC Annual Report & Accounts 2022 STAKEHOLDERS
AND ENGAGEMENT
CONTINUED
Key stakeholders
Relationship to Headlam
How we support
How we engage
Our
Shareholders
The owners of the Company. Highly
important that the Board is aware
of and solicits their views, and then
evaluates these views in relation
to the strategic and corporate
objectives of the Company
Key joint focus on the long term
success and sustainability of the
Company
Operating with
the highest level of
governance and
delivering sustainable
returns
Our
Communities,
and the
environment
Key to supporting the success of the
Company’s regional and national
businesses. We actively recruit people
from local communities, so very
important to the ongoing success
of the Company by attracting
great people
Minimising environmental impact
is critical to managing climate
change, and the knock-on impact on
communities
Supporting
communities
and implementing
sustainable
operations
Frequent regulatory announcements
with high levels of disclosure
In-person presentations and
meetings, including offering
meetings at the Company’s sites.
Use of webinars and recordings to
allow all shareholders to hear and
view materials
Solicitation and consideration of
feedback, including on strategy and
its oversight
Engagement with colleagues
to ensure aware of local causes
and events
Advertise job vacancies through
word of mouth and locally
Locally focused Communities
Programme allowing for funded
donations, paid volunteering, and
flooring product donations to
local causes
Section 172 Statement Declaration
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 between members of
the Company.
30
Main event(s) impacting
Effect on decision making, and
Outcome, and benefits
stakeholder during the year
key decisions taken
to stakeholder(s)
High operational cost inflation across
Undertaking actions to help mitigate
Board changes adding greater expertise,
many industries, and impact on
the impact of cost inflation through
helping to more effectively oversee and
companies financial performances
more efficient operations
drive the Company’s strategy
UK cost of living crisis suppressing
Focus on the strategy of driving new
Company’s strategy providing a
volumes in consumer facing industries
revenue opportunities from a more
countermeasure against a weak UK
Increasing regulation, and need to
efficient operating base
residential sector backdrop
demonstrate sustainability credentials
Meaningfully developing and
Gaining market share, and
progressing the ESG strategy, with
demonstrating leading sustainability
Executive ESG Committee formed
credentials amongst direct peer group
Economic environment and
Locally focused Communities
Focus on celebrating and promoting
inflationary impact on cost of living
Programme launched (centrally
local causes
funded) and ongoing initiative
Continue to focus on recruiting from
Apprenticeship programme launched
local areas
Employment and development
opportunities
Increased focus on environmental
impact and climate change, and
knock-on impact on communities
helping to enrol new colleagues who
wish to obtain qualifications
Multiple decarbonisation actions being
pursued, with interim and Net Zero
emissions targets introduced
Reducing operational carbon emissions,
and impact on communities
Strategic Report Key stakeholders
Relationship to Headlam
How we support
How we engage
stakeholder during the year
key decisions taken
to stakeholder(s)
Main event(s) impacting
Effect on decision making, and
Outcome, and benefits
Our
Shareholders
The owners of the Company. Highly
Operating with
Frequent regulatory announcements
important that the Board is aware
the highest level of
with high levels of disclosure
of and solicits their views, and then
governance and
evaluates these views in relation
delivering sustainable
to the strategic and corporate
returns
objectives of the Company
Key joint focus on the long term
success and sustainability of the
Company
In-person presentations and
meetings, including offering
meetings at the Company’s sites.
Use of webinars and recordings to
allow all shareholders to hear and
view materials
Solicitation and consideration of
feedback, including on strategy and
its oversight
Our
Communities,
and the
environment
Key to supporting the success of the
Company’s regional and national
Supporting
communities
Engagement with colleagues
to ensure aware of local causes
businesses. We actively recruit people
and implementing
and events
sustainable
operations
from local communities, so very
important to the ongoing success
of the Company by attracting
great people
Minimising environmental impact
is critical to managing climate
change, and the knock-on impact on
communities
Advertise job vacancies through
word of mouth and locally
Locally focused Communities
Programme allowing for funded
donations, paid volunteering, and
flooring product donations to
local causes
High operational cost inflation across
many industries, and impact on
companies financial performances
Undertaking actions to help mitigate
the impact of cost inflation through
more efficient operations
Board changes adding greater expertise,
helping to more effectively oversee and
drive the Company’s strategy
UK cost of living crisis suppressing
volumes in consumer facing industries
Increasing regulation, and need to
demonstrate sustainability credentials
Focus on the strategy of driving new
revenue opportunities from a more
efficient operating base
Company’s strategy providing a
countermeasure against a weak UK
residential sector backdrop
Meaningfully developing and
progressing the ESG strategy, with
Executive ESG Committee formed
Gaining market share, and
demonstrating leading sustainability
credentials amongst direct peer group
Economic environment and
inflationary impact on cost of living
Employment and development
opportunities
Increased focus on environmental
impact and climate change, and
knock-on impact on communities
Locally focused Communities
Programme launched (centrally
funded) and ongoing initiative
Apprenticeship programme launched
helping to enrol new colleagues who
wish to obtain qualifications
Multiple decarbonisation actions being
pursued, with interim and Net Zero
emissions targets introduced
Focus on celebrating and promoting
local causes
Continue to focus on recruiting from
local areas
Reducing operational carbon emissions,
and impact on communities
The Board understands the importance of engagement
with its key stakeholders as only in this way 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.
Following consideration of the information contained
within Stakeholders and Engagement, and all other
activities and undertakings detailed in this Annual
Report, the Board considers it has fulfilled its duty in
respect of Section 172, both individually and collectively,
and that it has acted in the way it considers would be
most likely to promote the success of the Company for
the benefit of its members as a whole (having regard to
the stakeholders and matters set out in s172(1) (a) to (f)
of the Act) in the decisions taken during the year ended
31 December 2022.
Chris Payne
Signed on behalf of the Board
8 March 2023
Headlam Group PLC Annual Report & Accounts 2022
31
Strategic Report
PEOPLE, CULTURE
AND COMMUNITIES
Colleagues are at the heart of the
Company, and its greatest asset.
There are over 2,200 colleagues
at Headlam within a variety of
departments, including warehousing,
transport, sales, and administration.
The Company continues to focus on
making Headlam a great place to
work, and ensure colleagues share in
the Company’s long-term success.
Headlam continues to improve the support to
its colleagues, both financial and non-financial,
including through increased engagement, cultural
development, review of rewards and benefits, and
training and development opportunities. The key
focuses in 2022 are detailed on pages 32 to 35.
Engagement, Communication
and Feedback
Communication channels continued to be expanded
upon, with a particular focus on facilitating feedback.
Headlam always wants its colleagues to freely give
their views, including any concerns they may have.
A new ‘Speak Up’ policy was put in place in 2022
improving the Company’s existing whistleblowing
policy and practices. Colleagues are able to ring a
hotline or submit concerns online, anonymously if
they wish, with the service managed by a specialist
third-party.
32
Board Engagement and
Employee Forum
Chris Payne, who became Chief Executive in March
2022, and members of the Executive Team held newly
instigated ‘open forums’ across all the Company’s
distribution sites during 2022. The forums gave
colleagues from all departments the opportunity to
give feedback and ideas for improvement directly
to members of the senior team. These forums will
continue in 2023.
There has also been more frequent face-to-face
engagement by the Board’s Non-Executive Directors,
with a greater number of formal and informal
meetings at sites across the group. Additionally, the
format and scope of the established Employee Forum,
which has both Executive and Non-Executive Director
representation, has been enhanced to allow greater
interaction and mechanisms for feedback from a
wider cross-section of colleagues, who also visit other
sites while attending the Forums.
Diversity, Equity and Inclusion (DEI)
A DEI strategy is fundamental to providing an inclusive
and successful working environment where everyone
can progress and succeed. While improvements were
made during 2022 in localised areas, an expert in the
subject matter joined Headlam in early 2023 to focus
on formulating and rolling out a group-wide
DEI strategy.
Employees
Male
Female
Number of
employees
at 31
December
2022
Executive
Directors
Executive
Team Managers Other Total
1
0
1
1
3
4
248
1,510 1,760
57
447
507
305
1,957 2,267
Learning and Development
Towards the end of 2022, the Company formally
launched its Apprenticeship Programme to sit
alongside the already established learning and
training programmes in place. Headlam is now
actively promoting apprenticeships across the
business both internally and externally, and enrolling
new colleagues who wish to obtain qualifications.
Mental Health Support
Mental health and wellbeing sits firmly within the
Company’s focus on health and safety culture. The
Company has an established Employee Assistance
Programme in place, ‘Lifeworks’, which includes
mental health support. To build on this, during 2022
the Company trained an initial group of mental
health first aiders at sites across the group using a
specialist third-party, and will continue the roll-out of
this training along with further developing its mental
health strategy.
Cost of Living and National
Real Living Wage
To help address the prevailing inflationary
environment, its impact on cost of living, and support
more junior colleagues, the Company decided in
2022 to take a tiered approach to its annual pay
award in 2023. For 2023, lower salaried employees
received a higher percentage increase to their
salaries, with this percentage decreasing higher up
the scale. Importantly, following a review during 2022,
the Company ensured that everyone received the
equivalent of the National Real Living Wage.
Rewards, Benefits and Recognition
The Company has a number of established rewards
and benefits in place, including: pension provision;
death in service benefits; HMRC approved save-as-
you-earn (‘SAYE’) Sharesave scheme; and access
to retail discounts. Changes and improvements
implemented during 2022 included:
• Moving to one pension for all colleagues, providing
a more generous and flexible contribution
structure, and consistency and fairness across
the group
•
•
•
Enhancing and harmonising holiday entitlement
Putting in place equal sick pay for all colleagues
Partnering with Salary Finance which provides
responsible financial products, helpful tools and
support to improve financial wellbeing
During 2022, the Company also introduced a
Recognition Scheme, ‘Headlam Heroes’, to celebrate
colleagues’ great performances and commitment.
This has been widely embraced across the group
through the giving of eCards and vouchers.
Headlam Group PLC Annual Report & Accounts 2022
33
Strategic Report
PEOPLE, CULTURE
AND COMMUNITIES
CONTINUED
Local Communities
The local communities in which Headlam operates
are instrumental to the success of the Company’s
many regional and national businesses, both in terms
of recruiting great people from the communities as
well as securing sales. The Company actively recruits
from its local communities to help support the areas
in which it operates. In 2022, to further its support
and ties to communities, Headlam launched a locally
focused Communities Programme which allows for
funded donations to local causes, as well as paid
volunteering time and flooring product donations.
This Programme will be an ongoing initiative, with
the local causes celebrated across the group to help
promote their work.
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 2022
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 4.8%
(national average: 14.9%).
The proportion of men and women receiving bonuses:
Proportion Receiving a Bonus
HFD
MCD
PLC
Male
93.3%
95.4%
80.0%
Female
93.3%
93.3%
84.6%
“A locally focused Communities Programme was launched in
2022 to support local causes and promote their work”
From Florco, based at the Thatcham
distribution centre
Camilla Suggett, Customer Service Manager has worked with West
Berkshire Community Hospital, close to the Company's Thatcham
site to donate artificial grass for their rainbow garden. A new
outdoor space for end-of-life patients and their families to enjoy
whilst spending their final days together.
Camilla said: “I attended the open event along with the volunteer
gardeners, trustees, and companies who donated time and
goods to create the garden. It was a truly special event and the
staff really showed us just how grateful they are to be able to give
their patients a beautiful outdoor space away from home”.
34
Health and Safety
The ‘Headlam Way’
A strong and embedded health and safety culture
is imperative to keeping colleagues safe. Headlam
continues to invest in this area, and in early 2023
engaged with a leading consultant to reinforce
this priority.
It is with great sadness that during the year there was
an accident at one of the group's sites during which
a much-valued and long serving colleague died.
Headlam’s priority has been support for the family and
colleagues, as well as to continue to strive to provide
the safest working environment possible.
As of the date of this Annual Report, the local
authority’s investigation is ongoing. Safety is the
Board’s highest priority. The Executive and site
leadership teams widely and regularly communicate
this as the Company’s first behavioural value to
embed a strong health and safety culture across the
business.
Every business in the Headlam group brings
its own skills and expertise, built on a proud
history of serving their customers. The
‘Headlam Way’ is an expression of the shared
values that bring us together. It’s why people
choose to work with us.
Keep each other safe
and well, always
Work together,
with everyone
RIDDORs
2022
2021
Keep improving,
everywhere
Table of RIDDORs1
Type of incident
Handling
Struck by moving vehicle
Slip, trip, fall
Fall from height
Other
Total
7
3
4
1
4
19
6
5
4
4
-
19
Further 2023 Developments
The HR team has been expanded in 2023 to support
the delivering of all activities, and importantly also
provide further support to senior managers across
the group responsible for teams of people.
Further developments planned for 2023 include the
launch of the ‘Headlam Way’ focused on bringing the
Company’s values and vision to life and immersing
them in the business. Additionally, a Long Service
Awards Scheme is being launched to recognise
and applaud the long heritage of businesses and
colleagues across the group. The Scheme will award
colleagues after certain milestones of service with a
monetary gift and shares in the Company.
1 The Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations 2013
Lead by example,
we are all leaders
Act sustainably, use less,
waste less, give back
Get it done,
brilliantly
And always, do the right thing
Headlam Group PLC Annual Report & Accounts 2022
35
Q&A WITH THE
CHIEF EXECUTIVE
Chris Payne, Chief Executive
“Given here is a selection of questions we
typically get asked by a cross-section of
our stakeholders”
Q How resilient is your customer base,
particularly in times of economic and
market weakness?
A Our customer base has proven to be very
resilient over the many years we have
been operating, including through the
financial crisis of 2007/2008, COVID-19,
and the current UK cost of living crisis, and
we have a history of low customer credit
risk. For example, a large proportion of our
independent retailer customers and smaller
contractors tend to have only one shop
or location and relatively small overheads.
Because of this, they can quickly manage
and adapt their costs. Additionally, we
support our customers in a number of ways
including credit terms, which helps them
manage their working capital effectively.
Q How has the inflationary environment in
2022 impacted Headlam?
A High levels of cost inflation particularly in
energy and labour costs have been well
documented across many industries, and
we are experiencing both. Our energy costs
are expected to be £2.4 million higher in
2023 against 2022. However, to help offset
costs going forward, we are investing in solar
panels and hope to have them installed
across all our UK larger sites by the end of
2023. This will importantly also help reduce our
carbon emissions and support us reaching
our 2035 Net Zero target. Our people costs
are anticipated to be over 6% higher in 2023
against 2022 due to wage inflation as we
have sought to support our colleagues
through the cost of living crisis as best we
can. In January 2023 we gave a pay increase
to all our colleagues, but importantly
gave lower salaried colleagues a higher
percentage increase, and will continue to
ensure that everyone receives the equivalent
of the National Real Living Wage.
Q How have you helped your colleagues
during the current cost of living crisis?
A As above, we have given pay increases to
all our colleagues and supported our lower
salaried colleagues to a greater degree.
We are also providing many other forms of
financial and non-financial support. This
includes increased engagement, mental
health support, learning and development
opportunities, recognition schemes, and
long service awards. We are also focused
on supporting the communities in which
we operate including through our locally
focused Community Programme which
allows for funded donations to local causes,
as well as paid volunteering time and
flooring product donations.
Q How concentrated is your supplier and
customer base?
A We have relatively low concentration in
each, with diversification providing a good
source of protection. In 2022, our top 20
36
Strategic Report Q What is your risk of stock obsolescence
and inventory write-off?
A There is a relatively low risk of obsolescence,
partly due to flooring not tending to
follow 'fast fashion' trends like clothes for
example. Also, there is a low proportion of
branded and recognisable products in the
marketplace, and in the carpet category
(making up c 34% of our sales), fairly neutral
grey and beige styles continue to be
incredibly popular. We also have many, many
years of buying expertise and knowledge.
Additionally, with the acquisition of Melrose
Interiors, we have upselling capability for
surplus carpets (remnants) into samples
and pattern books.
Q How important do you consider ESG
and sustainability to be?
A A focus on sustainability and having a
comprehensive ESG strategy in place is
important on so many levels. It is vital in
order to attract and retain the best people,
and provide all colleagues with a safe
working environment and advancement
opportunities. It also helps safeguard
the reputation, financial stability, and
long-success of the business through proper
governance. And last, but definitely not
least, it means we are taking meaningful
action to reduce our impact on the
environment and contribution to climate
change. We are proud to have been judged
during 2022 to have the best sustainability
credentials amongst our direct peer group1,
which we will continue to build upon. During
2023, we are launching own-branded
sustainable ranges which will be recyclable.
This will not only help reduce used product
going to landfill but provide an important
competitive advantage in the marketplace.
1 Source: Inspired Energy
customers accounted for c 11% of UK
sales, and our top 20 suppliers c 61% of
UK purchases. Due to our size and leading
position we engage with most of the key
suppliers across the globe, including on
launching new products to help generate new
sales. The floorcovering industry’s customer
base is very diverse and fragmented, and
we are focused on adding new customers,
particularly larger customers and also
customers who may not be flooring specialists
but provide it as part of their offering.
Q Why would a larger customer / multiple
retailer use Headlam?
A Flooring tends to be bulky, and hard to store
and handle, with specific material handling
expertise and warehousing facilities required.
Many larger customers may not be flooring
specialists, instead selling a wide array
of products. We provide a tailored and
comprehensive service to them, including
helping with ranging and curation of
product using our product insight.
We can then undertake all the supply chain
management, dealing with the suppliers on
their behalf, and hold as much stock as they
need in our vast warehousing network before
processing it and distributing it directly to
any number of their sites nationwide. We can
do this as frequently as they require. It’s a
cost effective and value add service tailored
to them, and benefits both the customer
and supplier.
Q Will your growing trade counter network
cannibalise your existing revenues?
A The trade counter network typically caters for
customers who want to pre order products
and collect from their nearest location on
their way to fulfill a job. We currently only have
58 sites across the whole country, and the
expansion of the network is predominately
filling in areas where we don’t have a physical
presence. Importantly, we are also adding
totally new customers through the growing
network who provide flooring as part of their
overall service to their customers. We think we
can continue rolling out sites above the initial
target of 90 and still experience very little
cannibalisation.
37
Headlam Group PLC Annual Report & Accounts 2022 CHIEF EXECUTIVE REVIEW
Chris Payne, Chief Executive
“ We are proud to be a clear market
leader, and seek to build on our
heritage and strength through
delivering on the strategy”
38
Strategic Report Introduction
The Company has a long heritage, although many of the market leading
businesses and brands within the group have even longer, having been
established well before becoming part of Headlam.
The Company is proud to be a clear market leader,
and seeks to build on its heritage and strength
through delivering on the strategy, supporting all its
stakeholders, and having a shared vision across the
group of being the leading, most trusted experts in
flooring. Despite a difficult UK market backdrop, the
Company is pleased with many of the outcomes
during 2022, and looks to build upon them during 2023.
Financial Performance and
Marketplace
The Company’s financial performance is given in
detail in the Financial Review, but despite the adverse
external factors in the year, revenue was broadly
similar to 2021 at £663.6 million (2021: £667.2 million),
costs were effectively controlled and lower than 2021,
and underlying¹ profit before tax improved to £37.1
million (2021: £35.8 million). This reflected the revenue
development and efficiency actions undertaken in
the year.
The external factors affecting the marketplace
evolved as the year progressed. Industry wide supply
issues evident in the second half of 2021 continued
into the first half of 2022. These in large part
stemmed from the consequences of COVID-19, with
upstream raw material shortages and cost inflation
leading to product availability issues. This in turn led
to manufacturers implementing significant price
increases across many product categories, peaking
in the first half and then beginning to moderate in
the second.
The inflationary environment in the UK that had been
evident at the beginning of the year continued to
worsen ultimately leading to the cost of living crisis.
This backdrop particularly impacted consumer
spending on discretionary items. As a consequence,
the residential sector of the marketplace, which
accounts for approximately two-thirds of the
Company’s revenue, was notably weak in the year
with underlying volumes significantly down. However,
product price increases provided support to the
Company’s revenue performance, as did a recovery
in the commercial sector, pleasing performances
by the Continental European businesses, and early
contributions from the strategy, as described
below. The Company’s businesses in France and
the Netherlands are now all benefiting from strong
leadership coupled with more positive market
backdrops than that of the UK, and have been
positive contributors to overall performance.
Strategy and Operations
As summarised in the Chairman’s Statement, the
Company’s strategy is driving revenue growth from
a more efficient and modernised operating base. It
is about targeting, appealing to, and supporting a
wider base of customers beyond traditional flooring
specialists to capture an increased share of the overall
£3 billion² UK marketplace. It is about modernising and
being more efficient to both improve the customer
service proposition and increase shareholder returns.
It is about being front footed and capturing more
commercial opportunities, particularly as the market
and customer base evolves. This includes in the area of
sustainability where companies increasingly need to
demonstrate their credentials.
The key projects to drive revenue growth are detailed
in this review. Each of the projects began to contribute
to performance in 2022, both financially and
operationally, with full period effects and accelerating
contributions from this year onwards.
The Company has not lost sight of its 7.5% operating
margin ambition. However, it does require a base
of more normalised volume without the material
weakness seen in a large proportion of the market,
with the Company benefitting from operational
gearing on a partially fixed cost base. Underlying¹
operating margin was 5.9% in 2022 (2021: 5.6%), and
therefore the margin ambition shows the scope for
meaningful uplift to financial performance.
Headlam Group PLC Annual Report & Accounts 2022
39
Strategic Report
CHIEF EXECUTIVE REVIEW
CONTINUED
A continued focus on cost control, and ongoing
consolidation and integration actions, present the
most meaningful efficiency measures. Transport
integration, for example, has been very successful
in reducing the Company’s commercial fleet and
associated costs, with the project completing across
the country next month and moving to a continuous
improvement phase. Similarly, consolidation of
certain functions including in the area of sales have
continued, with a more unified approach to better
leverage central resources. The Company has many
regional and national businesses and brands, and
while it may seem unwieldy to have a large number,
they are all long-established customer facing
businesses that enable maximisation of reach and
sales opportunity at both a regional and national
level. Therefore, the focus is on greater collaboration
to minimise potential overlaps and generating
increased sales to increase productivity of the existing
assets. The shift to a collaborative approach has
taken time to achieve as it has been imperative that
all colleagues are invested in the strategy, and also
ensuring the foundations of the business are not
disrupted. During 2023, the Company will continue
to improve efficiencies and the service offering,
including through central transport planning and
vehicle telematics, centralisation of slower moving
stockholding, and more efficient order taking.
Key Revenue Drivers
The key revenue growth drivers are as follows, with
their purpose and progress to date:
Multiple Retailers and Other Larger Customers
Targeting the multiple retailer and other larger
customer segments where the Company is
significantly underweight to materially grow revenue
The Company had not previously actively targeted
this estimated £1 billion market despite having a good
track record in servicing a number of customers in this
segment, and had approximately £60 million of revenue
in 2021. Following the assembly of a dedicated team and
investment in the service proposition including digital
enabling work, the Company has successfully added a
number of new customers. These include Homebase, a
builders merchant, a furniture retailer with a new flooring
offering, and a top 10 UK housebuilder. Each offers
considerable potential for scalability through adding
further lines and product categories to the initial number
of SKUs. The Company has also successfully grown its
business with some existing customers, including Tapi,
the fastest growing carpet retailer in the UK with over 170
stores. The aim is to grow overall revenue in this area by
£100 million within five years.
Headlam is able to offer larger customers a
compelling and comprehensive service proposition
tailored to their specific needs through: product
insight and exclusive products; competitive purchase
rates; supply chain management; stockholding and
storage solutions; processing and national distribution
to any number of locations and frequency. All this
serves to reduce complexity and cost for customers,
and also suppliers.
The Company is targeting contributions from new
business of over £16 million in 2023, albeit likely to go
towards offsetting declines in existing revenue due to
the market backdrop. While gross margins are typically
below the Company average, operating margins from
this area remain strong due to scale benefits, with
modest incremental infrastructure and investment
required to support the targeted revenue growth.
Trade Counters
Accelerating roll-out of new and improved trade
counter sites across the UK, creating a truly
nationwide footprint that appeals to a wider range of
customers, thereby capturing greater market share
The improved trade counters offer a convenient, one-
stop shop for all trade customers who may supply and
fit flooring as part of their overall offering, enlarging
the Company’s customer base from traditional
flooring specialists and fitters. The network offers
a collection service (from any site), walk-in service,
exclusive products, accessories and workwear, all with
knowledgeable advice. The Company has a target
of 90 invested sites (new, relocated or refitted) by the
end of 2025 from the 53 uninvested sites in 2021. As at
31 December 2022, the Company had 58 sites of which
24 were invested.
Headlam will be the only flooring distributor to have
a national standalone trade counter network, with
potential to increase the geographic coverage and
density after the initial 90, continuing to fill in areas
where there is no physical presence and making the
sites more accessible and convenient for customers
by lowering travel time.
40
This fast growing business unit is targeted to add
approximately £120 million of revenue upon maturity
to the approximate £80 million reported for 2021
through a relatively modest total capital investment
of around £25 million (£6 million incurred so far by 31
December 2022).
have been very positive, with the brand being a 2023
finalist for a leading trade award and generating over
£8 million of sales since its launch. During 2023, the
Company expects to launch over 40 new products,
including existing range refreshes and new own
branded sustainable and recyclable ranges.
The first wave of invested sites are already
demonstrating strong KPIs against the uninvested
sites in terms of revenue, new account openings, and
margin. The five new sites in 2022, which are modelled
to breakeven end of year 2 with sales maturity in year 5,
are cumulatively ahead of budget. Collectively, revenue
from invested sites was up 10% against uninvested sites
in 2022. Due to the upfront investment required, the
project is expected to be profit diluting in 2023 and
2024, then profit enhancing from 2025 onwards.
Products and Brands
Leveraging the group’s established own product
brands, maximising their sales potential, and
launching and marketing new brands to capture
further market share and increase sales
The Company has a large portfolio of well
recognised and regarded own product brands,
many of which have been in the marketplace for a
number of years. Product brands are an important
point of differentiation in the marketplace as the
majority of flooring product is relatively unbranded.
Recognisable brands, particularly those at middle
/ upper price points, can attract higher margins
and be more immune to the inflationary impact on
consumer spend.
In recent years many of the Company’s brands have
been unleveraged and not sufficiently invested in
terms of digital presence, marketing spend, and new
product development. During 2022, several brands
were refreshed and relaunched, including investment
in social media awareness and improved websites. For
example, following its relaunch, Kingsmead Carpets,
one of the Company’s high quality carpet brands, has
already doubled its weekly social media users and
quadrupled organic traffic via Google searches.
During the second half of 2022, the Company also
launched a new and exclusive affordable brand,
Everyroom, which holds good appeal when consumers
are more cost conscious due to the inflationary
environment. Feedback and sales since the launch
Digital Strategy
Comprehensive strategy to build enhanced digital
and ecommerce capabilities and applications to
appeal to a wider customer base, support revenue
opportunities, and help lower the cost to serve
Through a combination of improved B2B websites and
the launch of its industry-leading app, myheadlam,
the Company achieved 26% of its sales coming from
digital channels by the end of 2022 from a base of 11%
in 2019.
The digital strategy is an important foundation
for all the revenue growth opportunities, including
improving supplier and customer engagement, and
product and brand awareness. A key deliverable
in 2022 was introducing a product information
management system (‘PIM’) to enable centralised
control and distribution of product data to all business
channels, including suppliers and customers, through
quick and effective automated flows. It allows the
acceleration of product to market, and richer more
detailed information and imagery for use internally
and externally by customers. The Company will seek
to leverage the PIM further in 2023 and drive sales
through better showcasing of product specifications,
upselling and cross selling, and collecting product
data from suppliers at source.
Other focus areas in 2023 include embedding a new
Order Management System (‘OMS’) that will provide
better aggregated stock visibility across the network,
allowing the Company to improve the service to
customers through near real time inventory feeds. The
OMS will also enable improvements to the Company’s
Drop Ship Vendor (‘DSV’) capabilities. The Company
introduced this service proposition in 2022, whereby
the Company can provide a full end to end fulfilment
service for customers, delivering orders direct to
their customers’ homes on their behalf (using carrier
partners). The digital strategy is closely aligned with
the product brands strategy, and the new websites
being launched in 2023 will have direct-to-consumer
sampling fulfilment, creating further brand awareness.
41
Headlam Group PLC Annual Report & Accounts 2022 Strategic Report
CHIEF EXECUTIVE REVIEW
CONTINUED
Summary
People
The ambition for the trade counter, larger customers
and product brands projects is collectively well in
excess of £200 million of new revenue within the next
five years, with additional revenue coming through
from the digital strategy, including new social media
audiences and greater awareness. However, if the
overall market backdrop continues to be weaker,
some new revenue may go towards offsetting declines
in existing markets.
The question typically arises on whether there is
cannibalisation of existing revenue from any of the
revenue growth projects, and thus far the Company’s
trading information suggests this is limited. Trade
counters are opening in areas where the Company
has no physical presence. The Company is significantly
underweight in multiple retailers and larger customers
and can concurrently service many different customers
in a wide spectrum of areas. New product launches are
targeted at areas of the market where the Company
is under represented, whether that be identified price
points such as the Everyroom value proposition or
product categories like Luxury Vinyl Tiles (‘LVT’).
Melrose Interiors and Acquisitions
As previously announced, in January 2023 the
Company acquired Melrose Interiors, the largest
independent supplier to the UK online rug industry,
which also has operations in third-party logistics,
recycling, and an in-house rug and sampling / pattern
book department.
Melrose Interiors is a great illustration of an acquisition
that is highly complementary to the Company and
its strategy. It introduces a number of new larger
customers to the group, including major high street
and online retailers, it operates in a product category
where the Company is underweight, it helps build
upon DSV and digital capabilities with its proven B2B
and B2C fulfilment. Melrose Interiors also has market
leading environmental credentials through its award
winning [Re]lay brand of recycled rugs and value
creating upcycling of surplus carpet from across the
industry into samples and pattern books.
Whilst the Company’s main focus currently is organic
growth and leveraging existing opportunities, it will
continue to review any acquisitions complementary to
the strategy and which may expedite progress.
Colleagues are at the heart of the business, and
the Company continues to focus on improving
the support to its people, of both a financial and
non-financial nature. Developments during 2022
included increased colleague engagement, ongoing
community support, new colleague recognition
schemes, and enhanced benefits. An area of pressing
importance was the inflationary impact on cost
of living, and to help address this the Company
undertook targeted pay reviews and also ensured
that everyone received the equivalent of the
National Real Living Wage. To further support more
junior colleagues, the Company has taken a tiered
approach to its annual pay award for 2023, with lower
salaried employees receiving a higher percentage
increase to their salaries, with this percentage
decreasing higher up the scale.
As outlined in the Chairman’s Statement, the
Board was refreshed in the year and significant
operational capability added to support delivery of
the strategy. The new Non-Executive Directors, Karen
Hubbard, Robin Williams, and Jemima Bird, have all
made important contributions since their joining.
Additionally, Adam Phillips who was announced as
the Company’s new Chief Financial Officer in late
2022 will be joining on 20 March 2023.
New senior management appointments during 2022
included a Managing Director of Trade Counters to
head-up the business unit, and a Chief Information
Officer to oversee the resilience and scalability of IT
systems and infrastructure including in support of the
strategy. Additionally, in early 2023 a Chief Customer
Officer joined to lead customer and digital strategy,
encompassing customer communications, brand
development, marketing, and ecommerce.
It is with great sadness that during the year there was
an accident at one of the group's sites during which
a much-valued and long serving colleague died.
Headlam’s priority has been support for the family and
colleagues, as well as to continue to strive to provide
the safest working environment possible. As of the
date of this report, the local authority’s investigation
is ongoing. Safety is the Board’s highest priority.
The Executive and site leadership teams widely and
regularly communicate this as the Company’s first
behavioural value to embed a strong health and
safety culture across the business.
42
Sustainability and
ESG Strategy
A comprehensive Sustainability Report is given on
pages 61 to 80. It contains full details on the Company’s
ESG (Environmental, Social and Governance) Strategy
which supports the long-term sustainability and
success of Headlam for the benefit of all stakeholders
and which, therefore, is closely aligned with the
strategy detailed above. The Board's priorities are
to reduce the Company's environmental impact,
make Headlam a great place to work by supporting
its people and communities, and being a business
of integrity with robust controls. The Board also sees
real opportunity from continuing to develop and
progress the associated actions as while they mitigate
risk and address regulation, they also confer greater
efficiency, help capture commercial opportunities,
and provide competitive advantage with both people
and customer attraction. As referred to in this report,
customers, particularly larger ones, are increasingly
requiring sustainability credentials in order to undertake
business with companies, and the Company is judged
to have the best credentials amongst its direct
peer group3.
Headlam Group PLC Annual Report & Accounts 2022
43
Strategic Report
CHIEF EXECUTIVE REVIEW
CONTINUED
Notable undertakings in 2022, and targets for this year, include the below
which are fully expanded upon in the Sustainability Report.
Environmental
Social
Governance
Key achievements in 2022:
Key achievements in 2022:
Key achievements in 2022:
•
•
•
•
Exceeded initial 50%
target of UK non-
commercial fleet being
electric / low emission
vehicles (31 Dec 22: 69%).
Initial trialling of
electric commercial
vehicles (albeit with
limited feasible options
currently).
Set Net Zero and SBTi
aligned interim4 targets
for Scope 1 and 2
emissions.
44% reduction achieved
for UK emissions against
2019 baseline (Scope 1
and 2).
• Good Energy and
Recycling Behaviours
workshops commenced
across the group.
Targets for 2023:
•
Installation of owned
solar panels across all
larger UK sites.
• Achievement of ISO
14001 environmental
certification at key sites.
• Over 80% of UK non-
commercial fleet being
electric / low emission.
•
Launch own branded
sustainable and
recyclable ranges.
• Moving to one pension for
all colleagues, providing a
more generous and flexible
contribution structure, and
consistency and fairness
across the group.
•
•
•
Enhancing and
harmonising holiday
entitlement, and putting in
place equal sick pay.
Targeted pay increases,
and ensuring everyone
receives at least the
equivalent of National Real
Living Wage.
Local Communities
Programme launched,
allowing for funded
donations to local causes,
as well as paid volunteering
time and flooring product
donations.
Targets for 2023:
• Group wide diversity
strategy established and
rolled-out.
•
Long Service Awards
Scheme introduced to
recognise and applaud
the long heritage of
businesses and colleagues
across the group.
• New ‘Headlam Way’
launched to bring the
Company’s Values to
life and immerse them
across the group.
• Roll-out of mental health
support and training.
•
Executive ESG Committee
established assisting the
Board on the progression
and development of the
ESG Strategy.
• Reformatted Risk
•
•
Committee and
Employee Forum making
them more effective.
Independently managed
whistleblowing platform
put in place, with
new ‘Speak Up’ policy
and embedding of
behaviours.
Investment in IT
(resilience, systems, and
people), with monthly
cyber security training for
all colleagues.
Targets for 2023:
•
Sedex accreditations
for all main sites and
businesses (focus on
ethical and responsible
practices).
• Building on disclosures,
including SBTi validation
of emission targets.
• Ongoing supplier
engagement, covering
areas including Ethical
Code of Conduct,
Sustainability Charter,
and Modern Slavery.
•
Positive stakeholder
feedback, and
maintenance of ‘low risk’
ESG scores.
44
Investments and Shareholder Returns
Post Period-End and Current Trading
As explained in the Chairman’s Statement, investment
in the business to support growth has been a priority
while maintaining a strong balance sheet to ensure
the financial stability of the Company. The balance
sheet, with almost wholly undrawn banking facilities
at the year end, is underpinned by the Company’s
inventory position and freehold UK distribution sites.
The valuation of these sites was updated in January
2023 using external valuers, and now stands at an
increased £138.5 million as detailed in the Financial
Review, though the Company has chosen to hold its
property at cost in the balance sheet.
The main investment areas, which are expanded
upon in the Financial Review on page 48, are the
trade counter roll-out, improvements to systems and
equipment to optimise performance and support
revenue growth, and in support of the ESG Strategy.
The upfront nature of some of the investment means
there is a lag on return, for example expected payback
on total capital employed for each of the trade
counter project and solar panels investment is from
year 3.
In line with the commitment to providing dividend
income for shareholders, the Board is proposing a 2022
final ordinary dividend of 11.2 pence per share (2021: 8.6
pence per share), subject to shareholder approval at
the forthcoming AGM in May 2023 with the timetable
given in the Financial Review on page 48. The final
dividend combined with the 2022 interim ordinary
dividend of 6.2 pence per share gives a total pay out
of 17.4 pence per share in respect of the 2022 financial
year, which is in line with the Company’s targeted
cover ratio of around 2x earnings.
In March 2022 at the time of its final results
announcement, the Company announced a total £30.0
million return of surplus capital to shareholders via a
special dividend plus a £15.0 million Share Buyback
Programme to repurchase its ordinary shares. A Share
Buyback Programme was considered one of the most
effective mechanisms to enact the return due to the
level of the ordinary shares, and therefore earnings
per share enhancing and one of the best uses of
the Company’s surplus capital. The Share Buyback
Programme completed on 2 March 2023.
In general, the residential sector has continued to
be weak since the beginning of the year. However,
growing revenue contributions from larger customers
since the start of the year, combined with a steady
commercial sector performance, has led to modest
positive overall sales metrics and a relatively robust
revenue performance at this early stage in the year.
Thanks to Colleagues
Lastly, almost exactly a year on from being formally
appointed Chief Executive, I would like to give my
personal thanks to all my colleagues at Headlam
following a year of challenges from many directions.
Having visited every one of our main sites in the past
12 months and endeavoured to meet as many of my
colleagues as possible, I truly believe we are galvanized
around our collective purpose and refreshed values.
We have improved Headlam as great place to work,
and will continue to do so.
Chris Payne
Chief Executive
8 March 2023
1 Underlying is before non-underlying items, which includes
i) impairment of intangibles, fixed assets and right of use assets,
ii) amortisation of acquired intangibles, iii) property disposal profits,
iv) impairment of property, plant and equipment and inventory
(following a fire), v) insurance proceeds (following fire) and vi) business
restructuring costs in 2021
2 Source: LEK Consulting, 2020
3 Source: Inspired Energy, 2022
4
Interim target of a 46% emissions reduction by 2030 against baseline
year set at 2019 (Scope 1 and 2). Targets not yet SBTi validated
Headlam Group PLC Annual Report & Accounts 2022
45
Strategic Report
LARGER CUSTOMERS
AT HEADLAM
Headlam offers its
customers a fully
comprehensive service
tailored to their specific
requirements
Larger Customers
Headlam is able to provide larger customers
with all or any of the following:
•
Product insight
• Competitive purchase rates
Exclusive products
•
•
•
•
Stockholding and
storage solutions
Processing expertise
Supply chain management
• National distribution
(any location / frequency)
All this serves to reduce time, complexity, and cost for customers.
“Successfully won a number of new larger customers in the
year, with good scope to scale up”
Larger (multiple) retailer -
Homebase
•
2 year contract signed in May 2022
• A leading home improvement retailer and garden
centre, with over 150 stores
• An initial number of laminate SKUs delivered to
entire store network
•
Potential to scale up, with range expansion and
further products
• Good start to 2023
46
Housebuilder -
A top 10 UK housebuilder
• Vast majority of all new UK homes sold with flooring
• Headlam’s first national contract with a housebuilder
•
•
•
2 year contract signed in August 2022
Providing a product range, sampling, training package
to regional sales centres
Sales coming through
Melrose Interiors
A leading distributor of rugs
with many larger customers
In January 2023, the Company
acquired Melrose Interiors,
a leading distributor of rugs.
Its addition to the group will
strengthen delivery of the strategy,
including through bringing a
number of new larger customers
to the group (including major high
street and online retailers), scaling
up Headlam’s existing Drop Ship
Vendor (‘DSV’) capabilities, and
enlarging the group’s sustainable
product offering.
Further details can be found on
page 66
Headlam Group PLC Annual Report & Accounts 2022
47
Strategic Report
FINANCIAL REVIEW
The following financial results represent continuing operations only, and
exclude the contribution from the Swiss business Belcolor AG (‘Belcolor’)
within the 2021 financial results following its disposal in May 2021 (as detailed
in Note 25 to the Financial Statements).
Revenue
Total revenue in the year was £663.6 million (2021: £667.2 million), with a 5.4% uplift in Continental Europe (France
and the Netherlands) helping to offset a 1.4% decline in the UK related to market weakness in the residential
sector. Revenue was supported in the year by manufacturer led product price increases due to raw material
and operational cost inflation. The UK and Continental Europe accounted for 87.1% and 12.9% of total revenue
respectively in the year (2021: UK 87.8%; Continental Europe 12.2%).
Within the UK, the commercial sector was a positive contributor, up 9.2%, as it recovered from COVID-19 related
impacts in the prior two years. Conversely, the residential sector declined 6.0%, being particularly affected
by the impact of the inflationary environment on consumer spending. Continental Europe was a positive
contributor across both the residential and commercial sectors, being up 5.6% and 5.0% respectively in the year.
For the group as a whole, residential sector revenue declined 4.7% in the year and accounted for 65.6% of
total revenue (2021: 68.5%), with commercial sector revenue increasing 8.6% and accounting for 34.4% of total
revenue (2021: 31.5%).
Revenue for the year ended 31 December 2021
UK
Continental Europe
Incremental items during the 12-month period to 31 December 2022
UK:
Like-for-like¹
Changes in working days
Continental Europe:
Like-for-like1
Changes in working days
Translation effect
Total movement
Revenue for the year ended 31 December 2022
UK
Continental Europe
£M
%
£M
%
585.8
81.4
87.8
12.2
(0.9)
(7.1)
4.5
0.2
(0.3)
(0.2)
(1.2)
5.5
0.2
(0.3)
577.8
85.8
87.1
12.9
667.2
100.0
(8.0)
(1.4)
4.4
(3.6)
5.4
(0.5)
663.6
100.0
1 Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2022
and 2021 periods, and is adjusted for any variances in working days.
48
No acquisitions were made in 2022 or 2021. After the year end, the
Company acquired Melrose Interiors Ltd and its parent company Birch
Close Trading Ltd. Further detail is given later in this Financial Review,
and in Note 29 to the Financial Statements.
Gross Margin
Gross margin for the year was similar to the prior year at 33.1% (2021: 33.0%),
with the benefit of product price inflation being offset by a reduced
proportion of revenue coming from the higher margin residential sector.
Within the residential sector, there was also a more marked reduction
in the proportion of revenue from cut length carpet which typically
offers the highest margin. In the first half of the year, gross margin was
temporarily lifted to a high of 33.7% due to the unprecedented inflationary
environment, with the manufacturer-led price increases being passed
directly through to customers and the Company benefiting from pricing
uplifts on its existing inventory position. As anticipated, the position
normalised in the second half of the year with price increases moderating.
Expenses
Underlying¹ distribution costs and administrative expenses in the
year decreased by £2.4 million to £180.8 million (2021: £183.2 million),
with widespread operational cost inflation being offset by efficiency
measures, including ongoing transport integration and cost control in
areas such as headcount. Performance-related bonus costs were also
lower in the year, and there was a reduction in the amounts provided
for bad and doubtful debts having previously been increased as a
precaution against any consequences of COVID-19, with ongoing good
cash collection. Underlying¹ distribution costs accounted for 71.6% (2021:
68.7%), and underlying¹ administrative expenses for 28.4% (2021: 31.3%),
of total underlying¹ operating expenses, with much of the Company’s
cost base fixed.
As previously indicated, the Company’s costs will be adversely impacted
in the 2023 financial year, with a significant rise in the Company’s energy
costs of approximately £2.4 million compared with 2022 due to the
increase in energy prices and expiry of a fixed price energy contract. The
installation of solar panels across the Company’s main UK sites during
2023 will help offset energy costs in the near-term. Additionally, people
costs are also anticipated to be over 6% higher year on year due to wage
inflation through the cost of living pay award at the beginning of the year.
Statutory distribution costs and administrative expenses in the year
were £182.3 million (2021: £191.4 million), higher than underlying¹ due to
non-cash amortisation of acquired intangibles, all detailed on page 50.
1 Underlying is before non-underlying items, which includes i) impairment of intangibles, fixed
assets and right of use assets, ii) amortisation of acquired intangibles, iii) property disposal
profits, iv) impairment of property, plant and equipment and inventory (following a fire), v)
insurance proceeds (following fire) and vi) business restructuring costs in 2021 .
Headlam Group PLC Annual Report & Accounts 2022
49
Strategic Report
FINANCIAL REVIEW
CONTINUED
Profit, Margin and Non-Underlying Items
The reduction in expenses led to an improved underlying¹ operating profit and underlying¹ profit before tax of
£39.2 million and £37.1 million respectively (2021: underlying¹ operating profit £37.3 million; underlying¹ profit before
tax £35.8 million), and the underlying¹ operating margin was 5.9% (2021: 5.6%).
Operating profit/(loss) 2021
Gross margin movement
Other operating income changes
Expense changes:
People costs (includes wage inflation offset by lower
performance-related bonus payments)
Operational cost inflation
Bad debt provision
Other
Total increase
Operating profit 2022
Underlying
£M
Non-
Underlying
£M
37.3
(1.0)
0.5
4.9
(3.5)
1.3
(0.3)
1.9
39.2
(8.2)
–
6.2
–
–
–
6.7
12.9
4.7
Total
£M
29.1
(1.0)
6.7
4.9
(3.5)
1.3
6.4
14.8
43.9
The statutory profit before tax for the year was £41.8 million (2021: £27.6 million), an uplift on underlying¹ due to a
net credit on non-underlying items.
Total non-underlying items before tax reflected a net credit of £4.7 million in the year, comprising £6.2 million
of proceeds from an insurance claim offset by a £1.5 million non-cash amortisation of acquired intangibles.
As previously detailed, in the 2021 financial results the Company recognised a non-underlying impairment of
£7.3 million (pre-tax) following a fire that completely destroyed its Kidderminster distribution centre in December
2021. The insurance claim item above includes the full settlement of the inventory losses as a result of the fire
along with interim payments for the losses relating to the building and contents.
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)
Non-underlying non-cash items
Insurance proceeds (following fire)
Property disposal profit
Business restructuring costs
Non-underlying cash items
Non-underlying items before tax ((credit) / cost)
2022
£M
2021
£M
–
1.5
–
1.5
(6.2)
–
–
(6.2)
(4.7)
2.1
1.6
7.3
11.0
–
(5.1)
2.3
(2.8)
8.2
In addition to the non-underlying insurance item, £0.5 million has been recognised as part of the insurance claim
as underlying other operating income, relating to compensation for business interruption, which offsets lost
revenue and related costs recognised through underlying profit.
50
Tax
The Company’s consolidated underlying effective tax
rate for the year was 20.1% (2021: 25.8%). This is higher
than the standard rate of corporation tax in the UK
of 19.0% primarily due to expenses not deductible for
tax purposes, albeit lower than 2021 which included
restatement of deferred tax balances. The planned
increase in the UK headline tax rate to 25% in April
2023 will increase the Company’s underlying effective
tax rate in 2023 to approximately 24%.
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’ (2021: ‘low’).
Earnings per share (‘EPS’)
Basic earnings per share on an underlying¹ basis
increased from 31.5 pence per share in the prior year
to 35.5 pence per share. 3.7 pence of this improvement
reflected the increased underlying profit performance
and 0.3 pence was as a result of the impact of the
Share Buyback Programme which reduced the
weighted average number of shares (excluding
treasury shares) (as detailed in Note 9 to the Financial
Statements). Statutory basic earnings per share was
40.1 pence (2021: 23.5 pence).
Investments
During the year key capital investments were made in
support of the strategy, although overall spend was
relatively modest in line with the capital light nature of
the strategy. The tangible capital expenditure of £12.6
million (2021: £6.1 million) was primarily focused on the
trade counter project, and investment in warehouse
equipment.
Capital expenditure for 2023 is anticipated to be
around £20 million, and will continue to be mainly
focused on trade counters and the ongoing
programme to modernise the operating base and
network. It also includes a £3.7 million investment
in solar panels, plus a further investment in the
associated battery storage.
Headlam Group PLC Annual Report & Accounts 2022
51
Strategic Report
FINANCIAL REVIEW
CONTINUED
Cash Flow
Cash flows from operating activities
Profit before tax
Adjustments for:
Depreciation, amortisation and impairment
Finance income and expense
Profit on sale of property, plant and equipment
Insurance proceeds for property, plant and equipment following fire
Loss on sale of subsidiary
Share-based payments
Change in inventories
Change in receivables
Change in payables
Cash generated from the operations
Interest and Tax
Disposal proceeds
Capital investment (including intangibles)
Insurance proceeds for property, plant and equipment following fire
Payments to acquire own shares (Share Buyback Programme)
Net repayment of borrowings
Lease payments
Dividends
Other
Net cash flows
2022
£M
2021
£M
41.8
33.4
20.2
2.1
–
(1.7)
–
0.9
(8.3)
(3.5)
(34.2)
17.3
(6.4)
–
(13.8)
1.7
(9.8)
(7.3)
(14.0)
(27.3)
0.2
(59.4)
30.0
1.5
(11.1)
–
0.1
1.2
(26.6)
(16.6)
5.4
17.3
(3.5)
16.2
(6.9)
–
–
(1.2)
(15.0)
(6.6)
0.7
1.0
There was a net cash outflow of £59.4 million in the year. This included £37.1 million of returns to shareholders,
comprising a £27.3 million dividend outflow (via both ordinary and special dividend payments) and £9.8 million
outflow in relation to the £15.0 million Share Buyback Programme.
There was also a working capital outflow relating to investment in inventory of £8.3 million in the year and a
decrease in payables of £34.2 million. The Company had built its inventory position towards the end of 2021 to
protect against product supply issues at the time, and maintained its investment in inventory during 2022 in
support of new product launches during 2022. Inventory at the year end was £139.8 million (31 December 2021:
£130.9 million), with the uplift from 2021 also partly due to price inflation. In line with its market leading position
and customer service proposition, the Company typically carries a large inventory position, with a relatively low
risk of obsolescence.
The decrease in payables followed the in-year settlement of amounts owed to suppliers resulting from the
inventory build at the end of 2021. The decrease in payables also included performance-related bonus accruals
reduced by £6.0 million against 2021. The increase in receivables included a reduction of £2.5 million in the
amounts provided for bad and doubtful debts, with a £4.2 million provision still remaining as at 31 December
2022. Following from the working capital outflow described above, cash conversion for the year was 39%
(2021: 59%).
52
Banking Facilities
The Company had a net funds position excluding lease liabilities of £1.8 million at 31 December 2022 (31
December 2021: £53.7 million) and a net debt position including lease liabilities of £35.9 million at 31 December
2022 (31 December 2021: £17.7 million net funds including lease liabilities), with the main reason for the
year-on-year movement being the large level of returns to shareholders and working capital movements
described above.
Cash at bank and in hand
Debt due within one year
Debt due after one year
Lease liabilities
Liabilities from financing activities
Net funds excluding lease liabilities
Net funds/(debt)
At
1 January
2022
£M
61.2
(0.6)
(6.9)
(36.0)
(43.5)
53.7
17.7
Non-cash
items
£M
Cash flows
£M
Foreign
exchange
movements
£M
At 31
December
2022
£M
(59.4)
0.3
2.1
–
–
–
(15.5)
(15.5)
0.3
7.0
14.0
21.3
–
(52.1)
(15.5)
(38.1)
–
(0.1)
(0.2)
(0.3)
0.2
–
(0.3)
–
(37.7)
(38.0)
1.8
(35.9)
Average net funds excluding lease liabilities for the year was £3.1 million (2021: £38.3 million).
Cash outflows in the first half of 2023 will include the completion of the Share Buyback Programme (£5.2 million),
the initial consideration in relation to Melrose Interiors (£4.1 million as detailed below), and the final ordinary
dividend payment, if approved by shareholders at the forthcoming AGM (£9.0 million).
At the year end the Company had total committed banking facilities available of £81.5 million (31 December 2021:
£76.6 million), all of which were undrawn as at 31 December 2022 (31 December 2021: £69.8 million undrawn). The
Company also had uncommitted banking facilities available at the year end of £18.8 million (31 December 2021:
£28.2 million) of which £18.5 million was undrawn as at 31 December 2022 (31 December 2021: £27.5 million undrawn).
In November 2022, the Company requested that its banks grant the one year extension option to the £81.5
million revolving credit facility to maximise the period of liquidity available to the Company. In February 2023 the
banks approved this extension such that the Company’s revolving credit facility will now expire in October 2027.
Headlam Group PLC Annual Report & Accounts 2022
53
Strategic Report
FINANCIAL REVIEW
CONTINUED
Dividends and Share Buyback Programme
As detailed in the Chief Executive Review, the Board have proposed a final ordinary dividend of 11.2 pence per
share (2021: final ordinary dividend 8.6 pence per share). If approved by shareholders at the 2023 AGM to be held
on 25 May 2023, it will be payable on 2 June 2023 to shareholders on the register as at 12 May 2023 and as above
equates to a cash outflow of £9.0 million.
Below is a table showing the dividend returns to shareholders in respect of the 2021 and 2022 financial years.
It includes the special dividend declared in 2022 as part of a total £30.0 million return of surplus capital to
shareholders announced in March 2022 which included the Share Buyback Programme.
Dividend of a nominal amount of 2.00p, paid 28 May 2021
Interim dividend in respect of 2021 financial year of 5.80p, paid 29 November 2021
Final dividend in respect of 2021 financial year of 8.60p, paid 27 May 2022
Special dividend of 17.70p, paid 27 May 2022
Interim dividend in respect of 2022 financial year of 6.20p, paid 28 November 2022
Final dividend (proposed) in respect of 2022 financial year of 11.2p, paid 2 June 2023
Payment
Year / Total
2023
£M
Payment
Year / Total
2022
£M
Payment
Year / Total
2021
£M
–
–
–
–
–
9.0
9.0
–
–
7.2
14.9
5.2
–
27.3
1.7
4.9
–
–
–
–
6.6
It is anticipated that an interim ordinary dividend, in line with the Company’s capital allocation priorities as
detailed below, will be declared in September 2023 and paid in November 2023.
The outflow in the year, related to the total £15.0 million Share Buyback Programme was £9.8 million. The
Programme completed on 2 March 2023, with a total of 4,689,343 ordinary shares purchased through the
Programme and all held in treasury. At 31 December 2022, the full £15.0 million was recognised in the treasury
reserve, with a £5.2 million liability recorded for share buyback amounts committed, but not yet purchased.
54
Capital Allocation Priorities
The Board regularly reviews and follows a clear capital allocation framework and set of priorities which is
given below. This set of priorities ensures a necessary balance of firstly ensuring the financial stability of the
Company, followed by investment in the business to support revenue growth and ESG strategies, followed by
shareholder returns.
Priority
Rationale
Maintain a strong
balance sheet
Ensures the financial stability and long term sustainability of the Company.
Targeted average net debt during a financial year of not more than 0.75x
EBITDA (unless exceptional or unforeseen circumstances prevail). On an
ongoing basis, is considered against the prevailing economic environment
and market backdrop, and could be adjusted accordingly.
Investment in the
business (including in
relation to the revenue
growth and ESG
strategies)
Investment to optimise performance and support growth, in turn leading
to improved financial performance. Key areas would be in support of
delivering on the strategy to drive new revenue, and ESG actions to
enhance the sustainability of the Company. 2022 and 2023 investments
include trade counters, network (sites and equipment), systems (IT and
digital) and solar panels.
1
2
3
Ordinary dividend
income for shareholders
4 Funding of potential
mergers and
acquisitions (M&A)
5 Potential return of
surplus capital
Recognising shareholders’ expectation of dividend income due to the cash
generative nature of the Company, market leading position, and relatively
modest investment required to deliver on the strategy. A targeted bi-
annual distribution (paid out of cash) and cover ratio of around 2x earnings
for the total annual pay out (higher weighting to final dividend). On an
ongoing basis, is considered against the prevailing economic environment
and market backdrop, and could be adjusted accordingly.
M&A supporting the strategic intent of driving and adding new revenue
and revenue streams. Potential investment in acquisition opportunities
would be aimed at growing the Company’s position and market share,
including in new / underweight product categories and customer
segments. An example would be the acquisition of Melrose Interiors
which adds new larger customers to the Company’s customer base, and
meaningful entry into the rugs and sampling market.
After applying all the priorities above, return surplus capital to
shareholders. Surplus cash would be considered after considering all
anticipated cash requirements as well as the prevailing factors at the
time, including the economic environment and market backdrop. The
Board would consider the most effective mechanism to do so at that
time, including consideration of special dividends and share buyback
programmes. For example, if the Company’s share price was considered
low, the Board may consider that purchasing the Company’s ordinary
shares through a share buyback programme to be one of the best uses
of the Company’s surplus capital. This was the case during 2022 when the
Company commenced its £15.0 million Share Buyback Programme.
Headlam Group PLC Annual Report & Accounts 2022
55
Strategic Report
FINANCIAL REVIEW
CONTINUED
Property Valuation
Alternative Performance Measures
The Company completed its triennial property
valuation in January 2023, using external valuers.
The latest valuation of the predominately freehold UK
distribution sites amounted to £138.5 million (January
2020: £101.4 million), and includes the new Ipswich site
completed in July 2020 which is not within the previous
2020 valuation and a reduction in the Kidderminster
site valuation as a result of the fire. External valuers
were also used to provide a valuation of the main
sites in France and the Netherlands for the first time,
which amounted to an additional £10.3 million. The
Company has chosen to hold its property at cost in
the balance sheet.
Pensions
The accounting valuation for the legacy defined
benefit pension scheme showed a surplus of £2.1 million
as at 31 December 2022. However, as the Company
does not have an unconditional right to a surplus
refund, the pension scheme is recorded as a deficit of
£3.2 million as at 31 December 2022 reflecting the level
of deficit recovery plan payments that the Company
committed to following the last actuarial valuation as
at 31 March 2020. The next actuarial valuation will be
performed as at 31 March 2023.
Post Year End Events -
Melrose Interiors Acquisition
On 4 January 2023, the Company completed
the acquisition of Melrose Interiors in line with
its strategy and capital allocation priorities of
making complementary acquisitions which drive
certain revenue streams. The Company recorded
a consideration of £4.7 million, and goodwill arising
on the acquisition of £2.0 million (see Note 29 to the
Financial Statements). The consideration consists of
£4.1 million of cash paid on completion and contingent
financial performance related consideration which
is expected to be £0.6 million over the next two
years. The potential amount of contingent financial
performance related consideration, whilst forecast to
be £0.6 million, could be between £nil and £3.0 million
depending on performance for the two years to
31 December 2024.
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
58 of this 2022 Annual Report and Accounts and a
reconciliation of the adjustments made to the Income
Statement to derive underlying profit measures is
shown on page 59. Underlying¹ 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 underlying¹ measures are relevant to
investors and other stakeholders, as supplementary
information, to fully understand the underlying
performance of the business. A limitation of
underlying¹ profit measures is that they exclude the
recurring amortisation of intangible assets acquired in
business combinations but do not similarly exclude the
related revenue.
Viability and Going Concern
Updates to principal risks and uncertainties against
those contained in the 2021 Annual Report and
Accounts are summarised below, and detailed on
pages 81 to 86. During the course of the year, the risks
have been reviewed and some reframed to increase
the focus on certain specific areas in alignment with the
Group’s internal risk register and strategy. As part of the
reframing, the previous ‘Market’ and ‘IT’ risks have each
been split into two parts, and the previous ‘Competition’
risk incorporated into one of the ‘Market’ risks.
56
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 and Uncertainties
The Company is exposed to a number of principal
risks which may affect its business model, future
performance, solvency or liquidity. The group has
a well-established framework for reviewing and
assessing these risks on a regular basis; and has put
in place appropriate processes, procedures and
actions to mitigate against them. However, no system
of control or series of mitigations can completely
eliminate all risks. The principal risks and uncertainties
that may affect the group were last reported on
within the 2021 Annual Report and Accounts and have
been considered and updated for this 2022 Annual
Report and Accounts.
No new principal risks have been identified, and the
scope of the principal risks remain broadly unchanged
since last reported. Although the level of risk of two
principal risks have considered to have lessened
slightly compared with the 2021 Annual Report and
Accounts, including due to enhanced mitigating
actions: IT (systems and infrastructure) principal risk;
and Supply chain principal risk. The only emerging risk
assessed as being of any significance continues to be
Impact of digitalisation, albeit not currently material
and not judged in any way a principal risk.
Chris Payne
Chief Executive
8 March 2023
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 impact of inflation on the results for
the year and the inflationary impact on consumer
spending which could contribute to the occurrence
of these scenarios has been considered as part of
the assessment.
The testing indicated that the Company would be
able to operate within its current facilities and meet
its financial covenants in both scenarios. A less likely,
more severe scenario (reverse stress test) was also
considered, where the Company experiences a revenue
year on year decline of 20% in 2023. 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.
As above, as at 31 December 2022 the Company
had a net funds position excluding lease liabilities
of £1.8 million and had total banking facilities
available of £100.3 million, including £81.5 million of
committed facilities which was undrawn. 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
Headlam Group PLC Annual Report & Accounts 2022
57
Strategic Report
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
Calculated as administrative expenses before items 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 on pages 59 to 60
Calculated as operating profit before items 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 on pages 59 to 60
Underlying
operating margin
None
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
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
Net funds / debt
excluding lease
liabilities
None
58
Calculated as profit before tax before items 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 on pages 59 to 60
Calculated as profit after tax before items 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 on pages 59 to 60
Calculated as basic earnings per share before items 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 on pages 59 to 60
Calculated as diluted earnings per share before items 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 on pages 59 to 60
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
Calculated as cash and cash equivalents less other interest-bearing
loans and borrowings
This is provided for use by investors, who used this metric before the
adoption of IFRS16 and continue to do so
Glossary of Alternative
Performance Measures
Closest equivalent
statutory measure
Definition and purpose
Average net funds /
debt
None
Like for like
revenue growth
Underlying selling,
general and
administrative costs
None
None
Return on capital
employed
None
Cash conversion
None
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
Adjusted Results Reconciliation
31 December 2022
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit/(loss)
Finance income
Finance expenses
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the year attributable to the equity shareholders
Earnings/(loss) per share
Basic
Diluted
Total Results
Amortisation
of acquired
intangibles
Insurance
proceeds
(following
a fire)
Adjusted
Results
(underlying)
£M
663.6
(444.1)
219.5
(129.5)
(52.8)
6.7
43.9
0.7
(2.8)
(2.1)
41.8
(8.2)
33.6
40.1p
39.8p
£M
–
–
–
–
1.5
–
1.5
–
–
–
1.5
(0.3)
1.2
1.4p
1.4p
£M
–
–
–
–
–
(6.2)
(6.2)
–
–
–
(6.2)
1.1
(5.1)
£M
663.6
(444.1)
219.5
(129.5)
(51.3)
0.5
39.2
0.7
(2.8)
(2.1)
37.1
(7.4)
29.7
(6.0)p
(6.0)p
35.5p
35.2p
Headlam Group PLC Annual Report & Accounts 2022
59
Strategic Report
ALTERNATIVE PERFORMANCE
MEASURES (‘APMs’)
CONTINUED
Adjusted Results Reconciliation
31 December 2021
Impairment
of property,
plant and
equipment
and
inventory
following
fire
Impairment
of goodwill
and
intangibles
Total Results
Amortisation
of acquired
intangibles
Business
restructuring
Property
disposal
Profit from
discontinued
operation
Adjusted
Results
(underlying)
£M
£M
£M
£M
£M
£M
£M
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
–
–
–
–
2.1
2.1
–
–
–
2.1
(0.2)
1.9
–
–
–
–
–
7.3
7.3
–
–
–
7.3
(1.0)
6.3
–
–
–
–
–
1.6
1.6
–
–
–
1.6
0.2
1.8
–
–
–
–
–
2.3
2.3
–
–
–
2.3
(0.4)
1.9
–
–
–
–
–
(5.1)
(5.1)
–
–
–
(5.1)
(0.1)
(5.2)
–
–
–
–
–
–
–
–
–
–
–
–
£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
–
(4.4)
0.1
24.4
1.9
6.3
1.8
1.9
(5.2)
(4.4)
26.7
23.5p
23.2p
2.3p
2.3p
7.5p
7.4p
2.2p
2.2p
2.2p
2.2p
(6.2)p
(6.2)p
–
–
31.5p
31.1p
5.3p
5.2p
–
–
–
–
–
–
–
–
–
–
(5.1)p
(5.0)p
0.2p
0.2p
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
60
OUR
SUSTAINABILITY
REPORT
Introduction
ESG Strategy
Environmental
Social
Governance
Task Force on Climate-related Financial Disclosures
(‘TCFD’)
Streamlined Energy and Carbon Reporting
(‘SECR’)
62
63
64
68
70
72
77
61
Headlam Group PLC Annual Report & Accounts 2022 INTRODUCTION
Chris Payne, Chief Executive and Chair of the ESG Committee
“ Pleasingly, during 2022, we were judged
by a leading sustainability adviser to
have the best sustainability credentials
amongst our direct peer group”
As a Board and a Company, we are focused on the
long-term sustainability and success of Headlam,
with our ESG (Environmental, Social and Governance)
Strategy being an important framework to achieve.
The ESG Strategy is closely aligned with our overall
Strategy page 14, mitigation of Principal Risks page
81, and approach to Corporate Governance page
96. Importantly, it is about capturing strategic and
commercial opportunity as well as mitigating risk,
and addressing regulatory and compliance matters.
The TCFD disclosure on page 72 details our ESG
governance framework, with the Board having direct
oversight responsibilities with respect to the ongoing
development of the ESG Strategy, which includes the
monitoring of climate related risks. ESG is a standing
Board agenda item, and formally discussed four times
annually. During 2022, we also established an Executive
ESG Committee, reporting to the Board and assisting
it in the fulfilling of its responsibilities. The Committee’s
Terms of Reference are publicly available on our
website, with me as the Company’s Chief Executive
being the Chair.
We are supported by specialists in the planning,
development, and reporting on our ESG Strategy.
Pleasingly, during 2022, we were judged by a
leading sustainability adviser to have the best
sustainability credentials amongst our direct
peer group. Additionally, the Company has been
independently evaluated to have ‘low risk’ ESG rating
scores. Following ongoing analytical work, including
in relation to the preparation of our second TCFD
disclosure, we currently consider the Company to have
low exposure to climate related risks, with a low level of
financial materiality from these risks. The Company’s
business model is deemed fit for purpose, with strategic
aims in place under our overall strategy to leverage the
opportunities and benefits from a well developed ESG
strategy. These currently lie in the areas of:
• efficiency measures, modernisation, and investment
which will reduce future operating costs;
•
•
taking a leading position in offering sustainable
products into the marketplace, including as
demand increases thereby capturing market share;
leading reputation for sustainability amongst
our direct peer group, serving to strengthen
relationships with customers and suppliers; and
• attracting and retaining colleagues.
All stakeholders1 are increasingly going to want
evidence of sustainability and ESG credentials, and
also a way of measuring delivery on ESG strategies.
KPIs and targets are included within this report to
allow measurement of our progress. Additionally,
an ESG metric has been introduced into Executive
Director and Executive Team performance related
variable remuneration in 2023.
Sustainability forms one of Our Values (page 2),
and we are committed to improving in all areas.
Chris Payne
Chief Executive and
Chair of the ESG Committee
8 March 2023
1 These stakeholders include regulators / legislators, customers,
suppliers, shareholders, and sustainability rating agencies.
The Company's considered key stakeholders are detailed
in the Section 172 Statement on page 28.
62
Strategic Report ESG STRATEGY
The key aims under the E, S and G pillars are given below, and capture and encapsulate the most Material Issues
and Principal Risks identified by the Materiality Assessment Mapping (below) and within the Risk Heat Map on
page 82. Delivery on these aims is highly important to various of our key stakeholders, as detailed in the
Section 172 Statement on page 28, and will serve to strengthen our engagement and relationships with them.
Environmental
Social
Governance
Reducing environmental impact
and contribution to climate change
• Reduce direct Greenhouse
Gas (‘GHG’) emissions (Scope
1 and 2), and contribution to
climate change
•
Increasing focus on sustainable
products and recycling,
including to capture growing
consumer demand
• Work with all stakeholders to
increase the sustainability of
the industry as a whole, and
transition to a circular economy
Making Headlam a great place
to work with a positive impact on
local communities
• Continual focus on support,
wellbeing, and health and
safety to keep people safe
and well
•
Increasing development
opportunities to make Headlam
a great place to work, and
attract / retain the best people
• Creating an inclusive and
collaborative culture to help
drive business performance,
and develop a DEI1 strategy
Managing risk, with robust
controls and frameworks in place
•
•
•
Focus on business integrity,
transparency, and robust
controls including to ensure
reputation
Supplier engagement on supply
chain risk, ethical business,
and commercial / strategic
opportunities
IT systems which are both
resilient and scalable, including
to support the Company’s
strategy
1 Diversity, Equity and Inclusion
Materiality Assessment Mapping
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10 Consumer behaviour
2 Health and safety
11 Training and education
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Importance to internal stakeholders
3 Product recyclability
4 Supply chain risk
5 Governance
6 IT resilience
7 Workforce culture
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Diversity and equal
opportunities
9 Scope 3 emissions
12
13
Fair business and
compliance
Labour practices and
human rights
14 Chemicals in products
15
Product packaging
and waste
16 Local communities
A Materiality Assessment Mapping exercise was undertaken in 2021 in conjunction with internal and external stakeholders as a foundational
element to initiate the Company’s ESG Strategy and published in the 2020 Annual Report and Accounts. The Map has subsequently been
reviewed and updated in conjunction with the Company’s sustainability adviser for both the 2021 and 2022 Annual Report and Accounts.
Headlam Group PLC Annual Report & Accounts 2022
63
Strategic Report
ENVIRONMENTAL
Key achievements in 2022:
•
•
•
Exceeded initial 50%
target of UK non-
commercial fleet being
electric / low emission
vehicles (31 Dec 22: 69%)
Set Net Zero and SBTi
aligned3 interim targets
for Scope 1 and 2
emissions
44% reduction achieved
for UK emissions against
2019 baseline (Scope
1 and 2)
• Net Zero workshop held
with Executive Team,
and Good Energy and
Recycling Behaviours
workshops commenced
across the group
Current focuses:
• Reducing Scope 1 and
2 emissions
•
•
Sustainable products,
waste, and water
Scope 3 emissions
engagement with supplier
Targets and KPIs for 2023:
•
Installation of owned
solar panels across all
larger UK sites
• Achievement of ISO
14001 environmental
certification at key sites
• Over 80% of UK non-
commercial fleet being
electric / low emission
• Achieve reduction
pathway required
for Scope 1 and 2
emissions to achieve the
interim target
•
Launch own brand
sustainable and
recyclable ranges
“85% of the Company's Scope 1 and
2 emissions arise from transportation
activities”
Reducing environmental
impact and contribution
to climate change1
Scope 1 and 2 Emissions
The Company has a Net Zero
emissions target (Scope 1 and 2)
by 2035 and is actively engaged in
transition planning. The Net Zero
Emissions timeline on page 65
shows the key actions and targets
to achieve, and includes an interim
target aligned with the Science
Based Targets initiative (‘SBTi’) of a
46% reduction by 2030 against a
baseline year set at 2019.
The Company will follow a ‘true’
Net Zero strategy aligned with
best practice, whereby it will focus
on actual decarbonisation in
achieving these targets and only
consider offsetting actions for
residual emissions, which will be
no more than 10% of the baseline.
The main decarbonisation actions
currently being pursued by the
Company are:
• Moving the whole non-
commercial fleet to electric or
low emission vehicles;
•
Trialling and roll-out of electric
commercial vehicles where
feasible;
• Ongoing Transport Integration
(i.e. more efficient deliveries
profile), further FORS
accreditations2, and focus on
driving behaviours;
•
•
•
•
•
Energy saving opportunity
surveys being completed at
key sites, and the identified
energy saving and efficiency
recommendations being rolled
out across the network;
Investment in the network
to modernise buildings and
equipment, and make more
energy efficient;
Promotion of Good Energy and
Recycling Behaviours across
the group, with associated
workshops;
Installation of owned solar
panels across all larger UK sites,
with a total capital investment
of over £3.7 million; and
Progressing of work towards
achieving ISO 14001
environmental certification
at key sites (includes focus on
resource use and efficiencies).
1 Environmental Policy: The Company publishes an Environmental Policy on its website, which
is reviewed and updated annually. It describes the approach and actions Headlam is taking
with its colleagues and external stakeholders (including customers and suppliers) and within
the commercial and operational areas of its business that have been identified as having the
greatest environmental impact.
2 Voluntary FORS Scheme demonstrating which fleet operators are achieving exemplary levels
of best practice, including in efficiency and environmental protection.
3 Not yet SBTi validated.
64
As disclosed within the Streamlined
Energy and Carbon Reporting
(‘SECR’) disclosure on page 77, 85%
of the Company’s total Scope 1
and 2 emissions arise from fuel
sources used in its transportation
activities, with the remainder
mainly accounted for by natural
gas usage and electricity
consumption at sites.
While excellent progress is being
made in moving the whole non-
commercial fleet to electric or
low emission vehicles, there is
currently limited feasibility to
move the commercial fleet to
electric or low carbon alternatives
due to technology and / or cost
constraints. The Company is
currently trialling early options,
and will continue to build on this
trialling profile. However, achieving
Net Zero (Scope 1 and 2) by 2035
following a ‘true’ strategy will
be reliant on low carbon HGV
technologies becoming more
commercially available. Based
on current trajectories, this is
expected to happen from 2030.
UK and Continental Europe
Scope 1 and 2 emissions
Net Zero Emissions Timeline
Key Achievements and Targets
2019
Baseline year for SBTi aligned interim reduction target of 46%
by 2030 (Scope 1 and 2)
2022
44% reduction in UK emissions achieved against 2019 baseline
69% of UK non-commercial fleet electric or low emission
(2021: 14%)
Initial trialling of electric commercial vehicles
Commenced Good Energy and Recycling Behaviours workshops
Investment in network (buildings and equipment)
(increasing energy efficiencies, ongoing)
2023
Installation of owned solar panels across all larger UK sites
Achievement of ISO 14001 environmental certification
at key sites (resource use and efficiencies)
Target of over 80% of UK non-commercial fleet
electric / low emission (by year-end)
Good Energy and Recycling Behaviours workshops held
at all larger sites
Expansion of trialling of electric / low carbon
commercial vehicles
Transport Integration complete, followed by continuous
improvement (reduction in fleet number, mileage and fuel)
2025
Target of 100% of UK non-commercial fleet electric /
low emission
Scope 3 targets introduced
2030
Interim target of 46% reduction against 2019
(Scope 1 and 2)
Roll-out of low carbon commercial vehicles
Potential heating electrification to reduce
gas consumption
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Scope 1: 91% (15,102.78 tCO2e)
2035
Scope 2: 9% (1,454.72 tCO2e)
Net Zero emissions target (Scope 1 and 2)
≤ 2050
Net Zero emissions target (Scope 1, 2 and 3)
Headlam Group PLC Annual Report & Accounts 2022
65
Strategic Report
ENVIRONMENTAL
CONTINUED
Sustainable Products,
Waste and Water
The transition to a circular
economy is a longer term
challenge for the floorcoverings
industry as there are both
technical and market based
challenges to overcome. The
majority of flooring product
categories are made up of
several layered materials, with
plastic used in the manufacturing
processes of most. The difficulty
of separating these layers, and
the limited recycling processes
and networks available, leads
to limited scalable recycling
solutions currently. Additionally, the
marketplace is still on the whole
relatively undeveloped in terms of
demanding sustainable products,
with sustainable products currently
making up a low proportion of the
overall offering. However,
the marketplace (customers
and end-consumers) will
increasingly signal a preference
for sustainable products and
focus on closed-loop recycling.
The Company aims to take a
lead in launching and marketing
sustainable products, capturing
competitive advantage, with a
particular focus on recyclable
ranges. Working closely with
selected suppliers, the Company
is currently at the trialling and
proof of concept stage of
new technology with a view
to launching own branded
sustainable ranges during the
second half of 2023. Launches
will initially be into the residential
sector, with opportunities in the
commercial sector also being
investigated for future launches.
In support of these launches, there
will be extensive education of the
Company’s sales representatives
to enhance the promotion of
sustainable products into the
marketplace and increase overall
awareness. The Company regularly
engages with customers on their
sustainability requirements and
preferences, including through its
bi-annual customer survey which
includes a sustainability section.
The Company also supports
several industry bodies focused
on the recyclability / recycling
of floorcovering products, and
reduction of floorcovering waste
to landfill. In early 2023, Melrose
Interiors became part of the
Headlam group. Melrose has
market leading environmental
credentials through its award
winning [Re]lay brand of recycled
rugs and upcycling operations.
Melrose Interiors
A leading distributor of rugs with award winning
environmental credentials
Melrose Interiors based in Bradford and trading for over
50 years is the largest independent supplier to the UK
online rug industry, and also has operations in third-party
logistics, recycling, and an in-house rug and sampling /
pattern book department. Melrose brings a number of
new larger customers to the group, including major high
street and online retailers, a customer segment where
the Company is targeting growth and will work with
Melrose to scale up opportunities. Melrose specialises in
both B2B and B2C fulfilment, and will enlarge Headlam’s
existing Drop Ship Vendor (‘DSV’) capabilities.
Melrose also has market leading environmental
credentials through its award winning [Re]lay brand
of recycled rugs, and its value creating upcycling of
surplus carpet from across the industry into samples and
pattern books. Each year [Re]lay diverts approximately
5,000 tonnes of carpet waste from landfill.
66
The Company is not a large
producer of waste, with protective
plastic packaging, cardboard
poles and wooden pallets making
up the bulk of the waste arising
from its operations. Almost
100% of the plastic packaging
the Company uses is now
manufactured from 100% recycled
polythene, and the Company has
policies and incentives in place for
collection and reuse of poles and
wooden pallets.
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. Remote readers were
installed at larger sites during
2022 to help monitor and lower
consumption. Water consumption
in 2022 was c18,722 cubic metres
(2021: c18,327 cubic metres)
(UK only).
Scope 3 Emissions
Following its first assessment in 2021,
the Company has undergone its
second exercise in measuring its
Value Chain (Scope 3) emissions,
and following the GHG Protocol
Corporate Value Chain (Scope 3)
Accounting Standard methodology.
Scope 3 emissions are GHG
emissions that Headlam is indirectly
responsible for outside its own
operations - from the goods the
Company purchases to the disposal
of floorcoverings once sold.
The exercise is undertaken as
part of the Company’s focus on
increasing the sustainability of the
industry as a whole. It is a valuable
tool in understanding supply chain
emissions, and importantly to
engage with suppliers on their own
environmental and sustainability
ambitions. 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. As
detailed in Governance section on
page 70, during 2022 the Company
engaged with its suppliers on
a Sustainability Charter which
outlined minimum expected
standards.
As detailed here, the Company’s
Scope 3 emissions far exceed and
dwarf Scope 1 and 2 emissions.
While the Company has a
responsibility towards reducing
these emissions, it is much harder
to influence them. However, the
Company anticipates increased
engagement with suppliers on
emissions and the Scope 3 emission
hotspots, and will look to develop
interim and Net Zero Scope 3
targets aligned with the SBTi
criteria. The Company anticipates
introducing Scope 3 targets in
2025 with an aim to reach Net Zero
(Scope 1, 2 and 3) by 2050 at the
very latest.
Scope 3 Emissions
Purchased goods and services
82.01% (834.61 ktCO2e)
Capital goods
1.02% (10.41 ktCO2e)
Fuel and energy-related
activities 0.41% (4.18 ktCO2e)
Upstream transportation
and distribution 2.29%
(23.32 ktCO2e)
Waste generated in operations
0.00% (0.03 ktCO2e)
Business travel 0.03%
(0.35 ktCO2e)
Employee commuting 0.26%
(2.67 ktCO2e)
End-of-life treatment of sold
products 13.97% (142.17 ktCO2e)
Total Scope 1, 2 and 3
Emissions: 1,034.29 ktCO2e
Scope 1 (Transportation
operations and natural gas):
1.5% (15.10 ktCO2e)
Scope 2 (Purchased electricity
and transportation): 0.1%
(1.45 ktCO2e)
Scope 3 (Value Chain):
98.4% (1,017.73 ktCO2e) activities
For more information see SECR
Disclosure on page 77
Headlam Group PLC Annual Report & Accounts 2022
67
Strategic Report
SOCIAL
receiving a higher percentage
increase to their salaries, with this
percentage decreasing higher up
the scale.
In terms of non-financial, the
Company is focused on building the
mental health support available,
and actions to embed a strong
health and safety culture. Headlam
continues to invest in this area, and
has appointed additional full-time
resource as well as engaging with a
leading consultant. The Company
monitors a number of health and
safety metrics including RIDDORs
and Lost Time Accidents. During
2022, the Company achieved
recertification to ISO 45001 health
and safety management across all
its main sites.
Key achievements in 2022:
• Moving to one pension
•
•
•
for all colleagues,
providing a more
generous and flexible
contribution structure,
and consistency and
fairness across the group
Enhancing and
harmonising holiday
entitlement, and putting
in place equal sick pay
for all colleagues
Targeted pay increases,
and ensuring everyone
received at least
the equivalent of
the National Real
Living Wage
Local Communities
Programme launched,
allowing for funded
donations to local
causes, as well as paid
volunteering time
and flooring product
donations
Making Headlam a
great place to work with
a positive impact on
communities
Support, Wellbeing and
Health and Safety
The Company has been taking
a more holistic approach to the
support for its colleagues, reviewing
and making improvements in both
financial and non-financial areas.
Due to the inflationary environment
prevailing in 2022 and into 2023,
and its impact on cost of living,
pay reviews and awards have
been a focus. Certain more junior
workforce groups were awarded
pay increases of up to 15% in
2022, and the Company also
ensured that everyone received
the equivalent of the National
Real Living Wage. For 2023, the
Company has taken a tiered
approach to its annual pay award,
with lower salaried employees
Tania Hall, Credit Control Manager
at Coleshill1 has been at the heart of
organising a food drive and donations
to a local foodbank.
Tania said: “If people get made redundant or get
an unexpected bill it can sometimes mean people
can’t feed their families. I’m passionate that we
support the local foodbank who help in these
times of crisis. We took all types of food, including
Christmas goods so people could enjoy some
festive treats too.”
Using the MyHeadlam Local Communities
programme, £2,000 worth of everyday essentials
were supplied along with a donation of £1,000 to help
with the daily operations at Kingfisher Foodbank.
They provide aid to those in crisis situations by
providing emergency food parcels, a listening ear,
and referrals to other helpful organisations.
Alistair Smiley, Financial Controller for Coleshill
shared: “The Coleshill staff have excelled themselves
this year with the generosity of their donations
made to the Kingfisher Foodbank. In addition to
this, I would like to thank the team that helped to
deliver the essential items and particularly to Tania
for the time and effort spent in organising the whole
project. It's great that we were able to help such a
worthwhile local cause, particularly at a time of year
when it is most needed.”
1 The Company’s largest distribution hub
68
Current focuses:
•
Support, wellbeing and
health and safety
• Ongoing cultural
development
• Diversity, Equity and
Inclusion
Targets and KPIs for 2023:
• New employee survey
conducted, with
improved scores and
retention
• Group wide diversity
strategy established
• RIDDOR and Lost Time
Accidents reduced
against 2022
•
Long Service Awards
Scheme launched
Ongoing Cultural
Development
Diversity, Equity and
Inclusion
As part of the ongoing focus on
cultural development, during
2023 the new ‘Headlam Way’ will
be launched. This is focused on
bringing the Company’s Values
and Vision to life as given on
page 2, and immersing them
in the business. Additionally, a
Long Service Awards Scheme is
being launched to recognise and
applaud the long heritage of
businesses and colleagues across
the group. The Scheme will award
colleagues after certain milestones
of service with a monetary gift and
/ or shares in the Company.
A Diversity, Equity and Inclusion
(‘DEI’) strategy is fundamental
to providing an inclusive and
successful working environment
where everyone can progress and
succeed. While improvements were
made during 2022 in specific areas,
an expert in the subject matter
has now joined the Company to
focus on formulating and rolling
out a group-wide DEI strategy.
As at 31 December 2022, the
Company’s gender and ethnicity
for its UK operations1 stood at
21.6% female and 6.2% ethnic
minorities respectively, and the
Company anticipates gradually
introducing targets as the strategy
is introduced.
Read about Our People on
pages 32–35
1 The Company to date has not compiled
data for its Continental European
operations.
Alistair Smiley, Financial Controller, Coleshill
“It's great that we were
able to help such a
worthwhile local cause,
particularly at a time
of year when it is
most needed”
Headlam Group PLC Annual Report & Accounts 2022
69
Strategic Report
GOVERNANCE
Key achievements in 2022:
•
Executive ESG
Committee established
assisting the Board on
the development of the
ESG Strategy
• Reformatted Risk
Committee and
Employee Forum
•
•
Independently managed
whistleblowing platform
put in place, with new
‘Speak Up’ policy and
embedding of behaviours
Investment in IT
(resilience, systems, and
people), with monthly
cyber security training for
all colleagues
Managing risk, with
robust controls and
frameworks in place
Business Integrity and
Robust Controls
Focus on corporate governance,
and the assessment / mitigation
of risks through robust controls
and frameworks, continues to be
a priority for the Company. The
framework of controls is given in
Risk Management on page 81, and
the Corporate Governance Report
on page 96 details the key focuses
for 2023.
As part of its ongoing focus
on business integrity and
transparency, the Company is
currently engaged in achieving
further Sedex accreditations
to cover all its main sites and
businesses. Sedex (‘Supplier Ethical
Data Exchange’) is an online
system that allows members to
maintain data on ethical and
responsible practices, and allows
them to share this information
with their customers. This work with
further support the Company’s
interaction with larger customers
as part of its strategy of increasing
market share in this area, with
this customer group increasingly
requesting sustainability
credentials and disclosures.
Additionally, during 2022, the
Company completed a voluntary
CDP disclosure.
70
Current focuses:
• Business integrity and
robust controls
•
•
Supplier engagement
IT systems
Targets and KPIs for 2023:
•
Sedex accreditations
for all main sites and
businesses
• Building on disclosures,
including SBTi validation
of emission targets
•
Positive stakeholder
feedback, and
maintenance of ‘low risk’
ESG scores
Supplier Engagement
Supply chain risk has been an
area of specific focus under
the ESG Strategy having been
identified as a Material Issue in
the first Materiality Assessment
exercise undertaken. The Company
is committed to eliminating
as much as is possible any
potential wrongdoing in this area,
thereby protecting people as
well as ensuring the Company’s
reputation for business integrity.
Engagement with suppliers has
centred around: Product Legislation
and Sourcing; Sustainability
Charter; Ethical Code of Conduct;
and Self-Assessment Questionnaire
(delivered by a third-party leading
social audit business). The Company
will engage with suppliers on an
individual basis on any remedial
action judged to be required
following assessment of returns. In
2022, the Company also held its
first Supplier Conference where the
Company presented its strategy,
including its ESG ambitions, and
discussed the areas that present
a significant opportunity to
strengthen supplier partnerships
and efficiencies. The Conference is
being held again in 2023.
IT Systems
Resilient and scalable IT systems
are imperative to business
continuity and supporting revenue
growth under the Company’s
strategy. Risk Management on
page 81 details the mitigating
actions put in place to ensure both
resilience and support delivery of
the strategy. These have included
the appointment of a new Chief
Information Officer, a full review
of systems and infrastructure (with
associated enhancement plan
being rolled out), and monthly
cyber training for all colleagues.
Headlam Group PLC Annual Report & Accounts 2022
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FINANCIAL DISCLOSURES (‘TCFD’)
The table below and continuing on pages 72 to 76 details the Company’s responses consistent with the TCFD
recommendations and pillars, with the exception of quantitative scenario analysis and Scope 3 emissions target
which will be introduced.
The Company has progressed its disclosures following its first TCFD disclosure in the 2021 Annual Report and Accounts.
The TCFD disclosure below and on pages 72 to 76 has been prepared in conjunction with a specialist sustainability
adviser and includes a full qualitative scenario analysis, which will be followed by a quantitative scenario analysis
published alongside the 2023 Annual Report and Accounts. The qualitative scenario analysis has helped further
corroborate the opinion that the Company has low exposure to climate related risks and associated financial
impact, which determined the staged approach to scenario analysis reporting.
Governance
Disclosure
The Board’s oversight of climate-
related risks and opportunities
Management’s role in assessing
and managing 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 2022. During 2022, an Executive ESG Committee was
established 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. The Committee’s Terms of Reference are publicly available on
the Company’s website, with the Chief Executive the Chair of the Committee.
While ultimate responsibility for risk governance sits with the Board, the Audit
Committee assists in risk oversight (as described within Risk Management on page 81).
The Company’s most material ESG issues per the Materiality Assessment Map on page
63 are included in the Company’s Risk Register. During 2022, these material issues were
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.
As above, the Company has an Executive ESG Committee, which as part of its remit
focuses on decarbonisation actions and reducing the Company’s contribution to
climate change. The Company also 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. The Company’s most material ESG issues per the
Materiality Assessment Map on page 82 are included in the Company’s Risk Register
which forms the basis for Committee discussions.
The Company also operates an ESG Working Group which 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 to both mitigate climate risk and capture opportunity. The
projects related to decarbonisation and reducing contribution to climate change are
given on page 64 of the Sustainability Report.
72
The Company has considered and taken into account the TCFD all-sector guidance and supplemental guidance for
financial and non-financial companies, and believes it to be consistent with the exception of quantitative scenario
analysis and Scope 3 emission target as noted on page 72.
This TCFD disclosure forms part of the Company’s overall Sustainability Report on pages 61 to 80, and should be
read as part of the full report which includes the key decarbonisation actions to reach Net Zero and reduce its
contribution to climate change, and KPIs and targets to measure progress.
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 on page 81 of the 2022 Annual Report and Accounts. Additionally,
the Company publishes an annually updated Materiality Assessment (on page 63).
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.
How processes for identifying,
assessing and managing
climate-related risks are
integrated into the organisation’s
overall risk management
Climate-related risks are considered as part of the ESG Strategy and ‘Environmental’
Principal Risk and, therefore, integrated into the Company’s overall risk management
process. Additionally, through preparation of the Company’s annually reviewed and
publicly disclosed Environmental Policy and TCFD disclosure, the Company gives full
consideration and commentary on climate related factors.
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
The Company has identified its climate-related risks and opportunities, and assessed
strategy resilience, through qualitative scenario analysis. The range of possible risks
and opportunities were analysed under two future climate forecasts. Both Physical
and Transition Risks were considered, modelled around the widely recognised
Representative Concentration Pathways (RCPs) and Shared Socio-economic
Pathways (SSPs). The scenarios chosen in conjunction with the Company's specialist
sustainability adviser were: global warming of 2ºC (RCP 3.4), considered the most likely
scenario; and global warming of 4ºC (RCP 8.5), considered a resilience scenario. Time
horizons have been chosen which best reflect the Company’s business plan, strategy,
and various financial accounting policies. The total time horizon considered is up to
2050, split into short term (3 years, 2023–2025), medium term (2026–2035) and long
term (2036–2050). The assumptions used in the scenario analysis, with reference to
Extended Producer Responsibility impact and the transition to a more sustainable fleet
are discussed in further detail in note 11 to the Financial Statements.
Factors
RCP
SSP
Temperature rise
Likelihood
Middle of the road
Fossil-fuelled growth
3.4
2
2ºC
High
8.5
5
4ºC
Moderate
Societal response
Proactive, Disorderly
Reactive
Headlam Group PLC Annual Report & Accounts 2022
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FINANCIAL DISCLOSURES (‘TCFD’)
CONTINUED
Scenario
Risk categories
Potential financial impact
(2023–2025)
(2026–2035)
(2036–2050)
Strategic response and resilience
Level of Materiality
Short Term
Medium Term
Long Term
1
Average global
temperatures
rising by 2ºC above
pre-industrial levels
by 2100
Market: Transitioning to more
sustainable business and
operating practices
Risk: Increased costs of operating a sustainable fleet
with low carbon technologies
Market: Transitioning to more
sustainable business and
operating practices
Risk: Increased capital investment, including in relation
to solar panel installation and modernising buildings
and equipment
Market: Transitioning to more
sustainable business and
operating practices
Opportunity: Greater efficiency leading to lower
operating costs. Reduced costs as a direct result of
solar panel installation and network modernisation
Market: Transitioning to more
sustainable business and
operating practices
Policy and Legal: Financial impact
of potential new legislation /
regulation (including product
legislation)
Opportunity: Increase in large customers attracted
by peer-leading sustainable business practices
and offering. Leading sustainable credentials also
attracting and retaining talented colleagues
Risk: Increased operating costs through Extended
Producer Responsibility (EPR) for bulky waste (carpets
and underlay)
Market: Changing consumer
preferences
Risk: Reduced demand for current product offering
Market: Changing consumer
preferences
Opportunity: Capture market share by responding to
the shift in consumer preferences quicker and better
than competitors
Market: Supply chain costs
Risk: Potential increases in downstream costs, with
suppliers passing cost increases upstream
Reputation: Targets and KPIs
Risk: Reputational damage due to failure to meet
publicly disclosed and / or regulatorily required
climate related targets (i.e. Net Zero targets)
2
Chronic and Acute: Supply chain
disruption
Risk: Potential raw material shortages and knock-on
impact on product availability from supply chain
disruption leading to loss of revenue
Average global
temperatures rising by
4ºC above pre-industrial
levels by 2100
Acute: Asset damage
Risk: Business interruption and loss of revenue following
damage to distribution network as a result of extreme
weather events. Consequential impairment of assets
and increased insurance premiums
74
Ongoing Transport Integration which will reduce the number of fleet as
well as fuel usage per vehicle. Reducing overall operating costs.
Currently trialing electric commercial vehicles.
Focus on more efficient driving behaviours.
See page 64 for all actions
One-off upfront expense which will help offset energy costs going
forward. Anticipated payback in three years.
Greater efficiency, including energy efficiency, from more modernised
estate which will payback in future years.
Payback of reduced electricity costs from solar panel installation
(expected payback from year 3).
Ongoing development and achievement of the ESG Strategy will further
secure the Company’s position.
More engagement with suppliers, including on supply chain efficiencies
and new sustainable product launches. Work more closely with those
suppliers able to offer efficiencies and collaboration.
Market preferences and the Company’s product offering likely to become
more weighted towards sustainable products, as they become available,
which will help limit the EPR cost to the Company.
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.
Already planning new sustainable product launches and
promotional campaigns.
Expanded product offering providing more diversification.
See Product and Brands at Headlam on page 20
Product price increases are typically passed direct through to customers,
with them being absorbed due to price inelasticity.
As a distributor, the Company benefits from price inflation.
See Marketplace on page 10
Comprehensive internal oversight in place, and specialist external support
in relation to target setting and transition planning.
Market leading position and strategic partnerships with suppliers should
enable the Company to preserve levels of availability.
Proliferation and homogeneous nature of certain products allowing for
substitution options.
High inventory levels typically maintained at any one time.
The Company’s assets are not expected to be exposed to high physical
climate-related risk due to geographies in which it operates.
Operations are disaggregated with business continuity plans in place if
specific sites are affected by isolated events.
Scenario
Risk categories
Potential financial impact
Market: Transitioning to more
Risk: Increased costs of operating a sustainable fleet
sustainable business and
operating practices
with low carbon technologies
1
Average global
temperatures
rising by 2ºC above
pre-industrial levels
by 2100
Market: Transitioning to more
Risk: Increased capital investment, including in relation
sustainable business and
operating practices
and equipment
to solar panel installation and modernising buildings
Market: Transitioning to more
Opportunity: Greater efficiency leading to lower
sustainable business and
operating practices
operating costs. Reduced costs as a direct result of
solar panel installation and network modernisation
Market: Transitioning to more
Opportunity: Increase in large customers attracted
sustainable business and
operating practices
by peer-leading sustainable business practices
and offering. Leading sustainable credentials also
attracting and retaining talented colleagues
Policy and Legal: Financial impact
Risk: Increased operating costs through Extended
of potential new legislation /
regulation (including product
legislation)
Producer Responsibility (EPR) for bulky waste (carpets
and underlay)
Market: Changing consumer
Risk: Reduced demand for current product offering
preferences
Market: Changing consumer
Opportunity: Capture market share by responding to
preferences
the shift in consumer preferences quicker and better
than competitors
Market: Supply chain costs
Risk: Potential increases in downstream costs, with
suppliers passing cost increases upstream
Reputation: Targets and KPIs
Risk: Reputational damage due to failure to meet
publicly disclosed and / or regulatorily required
climate related targets (i.e. Net Zero targets)
2
Chronic and Acute: Supply chain
Risk: Potential raw material shortages and knock-on
disruption
impact on product availability from supply chain
disruption leading to loss of revenue
Average global
temperatures rising by
4ºC above pre-industrial
levels by 2100
Acute: Asset damage
Risk: Business interruption and loss of revenue following
damage to distribution network as a result of extreme
weather events. Consequential impairment of assets
and increased insurance premiums
The qualitative assessment was completed at a high-level considering the likelihood and estimated financial
impact of each climate-related risk, including the impact of mitigating actions. The materiality of the overall
impact was categorised as:
Low (or presenting an opportunity)
Medium
High
The main areas of risk relate to: increases in costs and capital investment required; reputational damage; shift in
consumer demand; and supply chain. The intention is to conduct a quantitative scenario analysis and disclose
specific financial ranges within the 2023 Annual Report and Accounts.
Level of Materiality
Short Term
(2023–2025)
Medium Term
(2026–2035)
Long Term
(2036–2050)
Strategic response and resilience
Ongoing Transport Integration which will reduce the number of fleet as
well as fuel usage per vehicle. Reducing overall operating costs.
Currently trialing electric commercial vehicles.
Focus on more efficient driving behaviours.
See page 64 for all actions
One-off upfront expense which will help offset energy costs going
forward. Anticipated payback in three years.
Greater efficiency, including energy efficiency, from more modernised
estate which will payback in future years.
Payback of reduced electricity costs from solar panel installation
(expected payback from year 3).
Ongoing development and achievement of the ESG Strategy will further
secure the Company’s position.
More engagement with suppliers, including on supply chain efficiencies
and new sustainable product launches. Work more closely with those
suppliers able to offer efficiencies and collaboration.
Market preferences and the Company’s product offering likely to become
more weighted towards sustainable products, as they become available,
which will help limit the EPR cost to the Company.
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.
Already planning new sustainable product launches and
promotional campaigns.
Expanded product offering providing more diversification.
See Product and Brands at Headlam on page 20
Product price increases are typically passed direct through to customers,
with them being absorbed due to price inelasticity.
As a distributor, the Company benefits from price inflation.
See Marketplace on page 10
Comprehensive internal oversight in place, and specialist external support
in relation to target setting and transition planning.
Market leading position and strategic partnerships with suppliers should
enable the Company to preserve levels of availability.
Proliferation and homogeneous nature of certain products allowing for
substitution options.
High inventory levels typically maintained at any one time.
The Company’s assets are not expected to be exposed to high physical
climate-related risk due to geographies in which it operates.
Operations are disaggregated with business continuity plans in place if
specific sites are affected by isolated events.
Headlam Group PLC Annual Report & Accounts 2022
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FINANCIAL DISCLOSURES (‘TCFD’)
CONTINUED
Strategy and Risk Management
Disclosure
Resilience of the organisation’s
strategy, taking into
consideration different
climate-related scenarios
When taking into account the judged severity of the potential risks, time horizons
and mitigating actions, the Company is currently considered to have low exposure
to climate related risks, and remains a resilient business in both scenarios modelled
above. Overall, the business model is deemed fit for purpose, with strategic aims in
place to leverage the opportunities from its ESG strategy.
Metrics and Targets
Disclosure
Metrics used by the organisation
to assess climate-related risks
and opportunities
The Company uses the below KPIs and targets to both assess the risks and
opportunities as well as its progress in relation to its overall ESG Strategy.
KPI
•
•
•
Energy usage (per SECR disclosure)
Scope 1, 2 and 3 emissions (year on year)
Achieving reduction pathway required for Scope 1 and 2 emissions to achieve
interim target
• Number of sustainable product launches
•
•
•
ESG related capital investment
ESG rating agency scores
Physical asset damaged related insurance claims / premiums
Target
•
•
•
Installation of owned solar panels across all larger UK sites
100% of non-commercial fleet electric / low emission
Interim emissions target (Scope 1 and 2)
• Net Zero emissions target (Scope 1 and 2)
• Net Zero emissions target (Scope 1, 2 and 3)
An intensity metric is additionally given within the Company’s SECR Disclosure on
page 79.
An ESG metric has been introduced into Executive Director and Executive Team
performance related variable remuneration in 2023.
Link to Risks Link to KPIs
9 6
11
12
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
The Company’s Scope 1, 2 and 3 emissions are summarised on page 67 of the
Sustainability 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 Sustainability Reports. During 2022, the
Company introduced a Net Zero emissions target (Scope 1 and 2) and an interim
target aligned with the Science Based Targets initiative (‘SBTi’). The interim target is a
46% reduction by 2030. The Company anticipates introducing Scope 3 targets in 2025
with an aim to reach Net Zero (Scope 1, 2 and 3) by 2050 at the very latest.
76
STREAMLINED ENERGY AND
CARBON REPORTING (‘SECR’)
1 JANUARY 2022 TO 31 DECEMBER 2022 SUMMARY
This SECR disclosure forms part of the Company’s
overall Sustainability Report on pages 61 to 80, and
should be read as part of the full report.
Carbon Report) Regulations 2018 as they apply to
information supplied by Headlam Group PLC and its
energy suppliers.
This disclosure along with the full report summarises
the Company’s energy usage, associated emissions,
energy efficiency actions being undertaken and
energy performance 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 and includes
intensity metrics. With the energy efficiency actions
detailed in the full report, this disclosure fully complies
with the reporting regulations under the new SECR
legislation.
This disclosure, and full supporting documentation,
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
The following figures demonstrate year on year
changes in consumption and resulting emissions for
Headlam Group PLC for 2022 and 2021. The Company
has for the first time included its Continental
European operations (France and the Netherlands)
within this year’s disclosure, with no comparable
figures given for 2021. The Company’s Continental
European operations accounted for 12.9% of total
group revenue in 2022.
Definitions of the Scopes used in this disclosure:
•
•
•
Scope 1 consumption and emissions relate to the
direct combustion of natural gas, and fuels utilised
for transport operations associated with the
commercial fleet
Scope 2 consumption and emissions relate to
emissions associated with purchased electricity in
day to day business operations
Scope 3 consumption and emissions relate only to
emissions associated with the grey fleet, namely
the use of private vehicles for business travel
UK Overview
Overall UK Carbon Intensity
26.53 tCO2e per £m turnover
YOY -5.41%
15,323.65 tCO2e
tCO2e YOY -6.75%
UK Carbon and Consumption £m = £m Revenue
`
Natural Gas
4,593,411 kWh
838.48 tCO2e
Electricity
6,528,411 kWh
1,262.46 tCO2e
tCO2e YOY: -16.36%
tCO2e YOY: -15.19%
Transport
55,000,461 kWh
13,222.71 tCO2e
tCO2e YOY: -5.16%
UK Carbon Intensity Metric £m = £m Revenue
1.45 tCO2e per £m
YOY: -15.15%
2.19 tCO2e per £m
YOY: -13.97%
22.90 tCO2e per £m
YOY: -3.80%
Headlam Group PLC Annual Report & Accounts 2022
77
Strategic Report
STREAMLINED ENERGY AND
CARBON REPORTING (‘SECR’)
CONTINUED
Consumption (kWh) and Greenhouse Gas Emissions (tCO2e) Totals
The following figures show the consumption and
associated emissions for this reporting year for our
operations, with figures from the previous reporting
period included for comparison.
Scope 1 consumption and emissions relate to direct
combustion of natural gas, and fuels utilised for
transportation operations, such as company
vehicle fleets.
UK Totals
Scope 2 consumption and emissions relate to indirect
emissions relating to the consumption of purchased
electricity in day-to-day business operations.
Scope 3 consumption and emissions relate to
emissions resulting from sources not directly owned
by us. This relates to grey fleet (business travel
undertaken in employee-owned vehicles) only.
The total consumption (kWh) figures for reportable UK-based energy supplies are as follows:
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Gaseous and other fuels (Scope 1)
Transportation (Scope 1)
Transportation (Scope 2)
Transportation (Scope 3)
Total
2022
Consumption
kWh
2021
Consumption
kWh
6,528,411
7,010,536
4,593,411
54,729,552
5,473,079
58,875,7871
15,581
255,328
0
23,693
66,122,283
71,383,095
The total emission (tCO2e) figures for reportable UK-based energy supplies are outlined below.
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Gaseous and other fuels (Scope 1)
Transportation (Scope 1)
Transportation (Scope 2)
Transportation (Scope 3)
Total
2022
Consumption
tCO2e
2021
Consumption
tCO2e
1,262.46
838.48
13,160.80
3.01
58.89
1,488.55
1,002.45
13,937.251
0
5.49
15,323.65
16,433.74
1 2021 transport (Scope 1) figures restated to include additional data not previously available.
UK Intensity Metric
An intensity metric of tCO2e per £m has been applied for our annual total emissions. The methodology of the
intensity metric calculations is detailed in the appendix, and results of this analysis is as follows:
Intensity Metric
tCO2e / £m UK Revenue
2022 Intensity
Metric
2021 Intensity
Metric
26.53
28.05
78
Continental European Totals
Headlam Group PLC have sites that they are responsible for in France and in the Netherlands. The consumption
and emission figures for these are shown below:
France Totals
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Gaseous and other fuels (Scope 1)
Transportation (Scope 1)
Total
Netherlands Totals
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Gaseous and other fuels (Scope 1)
Transportation (Scope 1)
Total
UK and European Totals
Utility and Scope
Grid-Supplied Electricity (Scope 2)
Gaseous and other fuels (Scope 1)
Transportation (Scope 1)
Transportation (Scope 2)
Transportation (Scope 3)
Total
2022
Consumption
kWh
2022
Consumption
tCO2e
684,045
737,715
1,364,469
2,786,229
40.03
134.66
314.72
489.41
2022
Consumption
kWh
2022
Consumption
tCO2e
330,318
350,061
2,484,201
3,164,579
149.21
64.09
590.02
803.32
2022
Consumption
kWh
2022
Consumption
tCO2e
7,542,774
5,681,187
1,451.71
1,037.23
58,578,222
14,065.55
15,581
255,328
3.01
58.89
72,073,092
16,616.39
UK and European Intensity Metric
An intensity metric of tCO2e per £m has been applied for our annual total emissions. The methodology of the
intensity metric calculations is detailed in the appendix, and results of this analysis is as follows:
Intensity Metric
tCO2e / £m Group Revenue
2022 Intensity
Metric
25.05
Headlam Group PLC Annual Report & Accounts 2022
79
Strategic Report
STREAMLINED ENERGY AND
CARBON REPORTING (‘SECR’)
CONTINUED
These full year estimations were applied to one
electricity supply.
UK Scope 1 transportation figures have been
restated for 2021 from 12,191.01 tCO2e to 13,937.25
tCO2e due to previously unavailable data being
included in the annual comparison within this
report, with underlying kWh consumption also
restated.
For Headlam Group PLC’s Continental European
sites, country specific electricity grid greenhouse
gas emissions factors have been utilised from
Carbon Footprint for the electricity supplies.
Intensity metrics have been calculated using
total tCO2e figures and the selected performance
indicator agreed with Headlam Group PLC for the
relevant reporting period:
Total Group Revenue (£m)
Total UK Revenue (£m)
Total Continental Europe Revenue (£m)
£663.6m
£577.8m
£85.8m
Energy Efficiency Actions
The main energy efficiency and decarbonisation
actions that the Company is currently pursuing
are detailed on page 64. For the year ended 31
December 2022, the Company had achieved a 44%
reduction in UK Scope 1 and 2 emissions against 2019
(baseline year).
Reporting Methodology
Scope 1, 2 and 3 consumption and CO2e emissions
data has been calculated in line with the 2019 UK
Government environmental reporting guidance.
Emissions Factor Database 2022 has been used,
utilising the published kWh gross calorific value
(CV) and kgCO2e emissions factors relevant for
reporting period 01/01/2022 – 31/12/2022.
Estimations undertaken to cover missing billing
periods for properties directly invoiced to Headlam
Group PLC were calculated on a kWh/day pro-rata
basis at meter level. These estimations equated to
4% of reported consumption.
For properties where consumption data was not
available, an average consumption for properties
with similar operations was calculated at meter
level and applied to the properties with no
available data.
80
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 could
threaten its business model, future performance,
solvency or liquidity.
The table on pages 84 to 86 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 on page 82 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, compared with the 2021 Annual
Report and Accounts, is detailed on the Map. This 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 84 to 86.
No new Principal Risks have been identified. During
the course of the year, the risks have been reviewed
and some reframed to increase the focus on certain
specific areas in alignment with the Group’s internal
risk register and strategy. As part of the reframing,
the previous ‘Market’ and ‘IT’ risks have each been
split into two parts, and the previous ‘Competition’
risk incorporated into one of the ‘Market’ risks.
“ During the year the
Board carried out a
robust assessment of
the emerging and
principal risks facing
the Company”
81
Headlam Group PLC Annual Report & Accounts 2022 Strategic Report
RISK MANAGEMENT, PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Risk Governance
Risk is encountered as part of the ordinary course
of business as well as through the implementation
of the Company’s strategy as detailed on pages 14
to 15 which have been established to increase the
sustainability of the Company and 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 exercises an appropriate level of risk
management to support the achievement of its
strategy. 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.
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 Company’s internal risk register,
the adequacy of and any changes in controls, and
to undertake continuous identification of emerging
risks. The work of the Executive Risk Committee is
considered by the Audit Committee at each of
its four scheduled meetings during a year, and
informs the Audit Committee’s risk management
discussions which include an 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 most recent
review entailed detailed consideration of the current
risk assurance framework and planned adjustments
for 2023.
Risk heat map
Key
1
Market (economy and
competition)
2 Market (strategy)
IT (systems and
infrastructure)
IT (cyber security)
6
7
8
9
Health and Safety
Supply chain
Legislation, regulation
and reporting
Environmental and
decarbonisation
People
10
Change and
decision making
2
10
9
1
3
3
4
6
5
7
7
8
3
4
5
Impact
High
2021
2022
h
g
H
i
d
o
o
h
i
l
e
k
L
i
w
o
L
82
Risk Monitoring Structure
Board
The Board has overall responsibility for the group's system of risk management and internal control
Committees
Risk Identification
Risk Management
Audit
Committee
Nomination
Committee
Remuneration
Committee
1
e
c
n
a
r
u
s
s
a
t
n
e
d
n
e
p
e
d
n
I
Executive Risk Committee
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
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.
A new Head of Internal Audit appointed in 2022 will provide additional independent assurance during 2023.
Senior Leadership Team
Group functions
Business management
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.
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 continue to 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. However, the
Company continues to monitor and invest in this area
to facilitate mitigation as necessary.
Headlam Group PLC Annual Report & Accounts 2022
83
Strategic Report
RISK MANAGEMENT, PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Key
Increased
Unchanged
Decreased
Link to
Strategy
Risk
change
Risk and description
Mitigating actions
1 Market (economy and competition)
Failure to sustain
revenue and profit
performance as a result
of economic backdrop,
market demand, service
levels or competitive
dynamics.
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 enhanced sales
activity, operational efficiency, managing inventory levels, and cash
management.
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.
The Company’s strategy (pages 14 to 15) of driving new revenue to gain
market share from a more efficient operating base helped provide a
countermeasure against the economic led UK market weakness during
2022, and is expected to continue to do so during 2023.
2 Market (strategy)
Failure to develop and
deliver on new revenue
growth opportunities.
Investments were made in multiple areas to support delivery of the
revenue growth strategy during 2022, and will continue to be made
in 2023. These included in the areas of: new trade counters; people;
systems; and improving the existing network and equipment to support
revenue growth.
Two key areas are:
• A National Trade Counter Management Team has been assembled to
more effectively oversee the roll-out of the new and improved trade
counter network.
• The team dedicated to winning and servicing larger customers
has been enlarged, with further systems integration to support
larger customers
The Board has direct oversight of the Company’s strategy, and its
effective implementation, with the performance of each project team
monitored against clear targets and objectives.
In early 2023, a new Chief Customer Officer was recruited with the
remit of leading customer and digital strategy, encompassing all
aspects of customer communications, brand development,
marketing and ecommerce.
84
Link to
Strategy
Risk
change
Risk and description
Mitigating actions
3 IT (systems and infrastructure)
Failure to develop and
maintain IT systems and
infrastructure that is
resilient, scalable, and
able to support the
strategy.
During 2022, the IT team was enhanced and a new Chief Information
Officer appointed.
A full review of the IT systems and infrastructure was completed with a
plan being developed to strengthen and enhance systems, including
internal controls.
Investment made in the core operating system, and further systems
integration to support suppliers and customers.
4 IT (cyber security)
Failure to develop and
maintain adequate or
effective security and
cyber controls.
5 People
Failure to recruit and
retain the right people
with relevant skills,
values and behaviours.
6 Health and safety
Failure to provide a safe
place to work for our
people.
7 Supply chain
Failure to maintain
a supply chain that
provides innovative,
competitively priced,
environmentally sound
and legally compliant
products on a reliable
and ethical basis.
Annual IT audit performed (including penetration testing) covering
security and resilience. Recommendations incorporated.
Targeted use of specialist external advice and support.
A baseline framework of policies and procedures developed with
a bi-annual review for continual improvement, supported by a
third-party advisor.
Code of Conduct implemented.
Monthly employee cyber engagement program through a refresher email
requiring all colleagues to watch a short video and answer questions.
The Board continues to focus on making the Company a great place to
work, and ensure colleagues share in the Company’s long-term success.
During 2022, the Company further improved the support to its
colleagues, both financial and non-financial, including through
increased engagement, cultural development, review of rewards and
benefits, and training and development opportunities. For full details see
pages 32 to 35.
Health and safety is a standing agenda item at all Board Meetings.
The Company has a dedicated in-house health and safety team, which
was expanded in 2022.
The Company also commissions independent audit, and engages
external support, and is focused on having a strong and embedded
health and safety culture across the group. Improved metrics have been
developed for monitoring performance, including the number of near
miss reports, which are actively encouraged to aid learning.
As part of the Company’s ongoing certification, ISO 45001 audits have
been undertaken across all the UK’s main sites.
Increased engagement with suppliers to help mitigate against any
supply chain risk. Including on: Sustainability Charter; Ethical Code of
Conduct; and Self-Assessment Questionnaire (delivered by a third-party
leading social audit business).
Working closely with certain suppliers to launch new competitive and
sustainable ranges.
In 2022, the Company held its first Supplier Conference where the
Company presented its strategy and discussed the areas that
present a significant opportunity to strengthen supplier partnerships
and efficiencies.
Headlam Group PLC Annual Report & Accounts 2022
85
Strategic Report
RISK MANAGEMENT, PRINCIPAL RISKS
AND UNCERTAINTIES
CONTINUED
Link to
Strategy
Risk
change
Risk and description
Mitigating actions
8 Legislation, regulation and reporting
Failure to operate
with high standards of
governance supported
by a sound system of
internal control that
ensures compliance
with laws and
regulations, including
disclosure and reporting
requirements.
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 116.
The Company has an online compliance training portal with courses
related to Anti-Bribery, Modern Slavery and Human Trafficking, Cyber
Security and Social Media Awareness being rolled out to appropriate
staff members.
The Company has implemented a Code of Conduct, setting our clear
standards and expectations for all employees. (Also see Supplier Ethical
Code of Conduct on page 85)
All senior leaders are required to complete a twice-yearly standards and
controls attestation certificate.
9 Environmental and decarbonisation
Failure to reduce
environmental impact,
including failure to
deliver GHG reductions
in line with Net Zero
commitments and
contribution to
climate change.
The Company continues to meaningfully develop and progress its overall
ESG Strategy. For full detail on ‘Environmental’ related actions within this
Strategy, see the Sustainability Report on pages 61 to 80 which includes
the Company's TCFD disclosure. This disclosure details the climate-
related risks the Company has identified, and how it is specifically
assessing and addressing them.
The Company has previously committed to a Net Zero emissions target
(Scope 1 and 2) by 2035 and is actively engaged in transition planning.
To strengthen and ensure progress towards this commitment, the
Company introduced in November 2022 an interim target aligned with
the Science Based Targets initiative (‘SBTi’) of a 46% reduction by 2030
against a baseline year set at 2019.
The Company established an Executive ESG Committee during 2022,
reporting to the Board and assisting the Board in the fulfilling of its
oversight responsibilities with respect to the implementation and
development of the ESG Strategy.
There is transparent and regular external reporting to allow scrutiny by
all stakeholders on environmental performance.
10 Change and decision making
Failure to successfully
drive the cultural and
operating model
changes necessary to
deliver the strategy.
The Company’s strategy and strategic objectives continue to be
embedded through regular group-wide communications and
engagement.
Senior Leadership conferences are held regularly to discuss overall
progress and focus on specific elements of the strategy. Feedback is
sought from all participants, including on support needed.
The HR team was expanded in early 2023 to provide further support to
senior managers across the group responsible for teams of people and
delivery of the strategy.
As above, the Board has direct oversight of strategy and its progress,
and investment has been made in multiple areas in support of the
strategy. The strategy is now well resourced in terms of monetary
investment and people, with good governance in place through regular
reviews by both Board and the Executive Team.
86
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 2025, was
chosen for the purpose of the viability assessment,
consistent with prior years and which best aligns with
the Company's strategy, as outlined on pages 14 to 15,
including the timeline for the trade counter roll-out.
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 pages 81 to 86.
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 (economy and competition) could compromise
the Group’s viability in the assessment period.
The identified principal risks include environmental
and decarbonisation risk. It is the Board’s opinion that
environmental risks are unlikely to compromise the
Group’s viability over the assessment period, including
transition risks, which are considered the most likely
to occur. In particular, the timing of any new potential
legislation regarding extended producer responsibility
for bulky household waste items is unlikely to fall within
the assessment period. Whilst trialling of electric and
other commercial vehicles is underway, technological
advancements are required before moving the
whole fleet to an alternative, although the number
of vehicles are relatively modest. The Board considers
that any potential changes in consumer preferences
towards more sustainable products can be supported
by the Company reflecting these changes in its
product offering and may present opportunities to
gain competitive advantage against its direct peer
group. Climate change risks are discussed further in
the TCFD qualitative analysis on page 72, including
consideration of the impact of the risks over time
horizons longer than this assessment period. In
preparing the TCFD disclosures in conjunction with
a specialist ESG adviser, the Board consider the
Company to currently have relatively low exposure in
the medium term to climate change related risks
In respect of market (economy and competition)
risk, 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 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.
The impact of inflation on the results for the year and
the inflationary impact on consumer spending which
could contribute to the occurrence of these scenarios
have been considered as part of the assessment.
87
Headlam Group PLC Annual Report & Accounts 2022 VIABILITY STATEMENT
CONTINUED
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
2023 decline 4.0% compared with 2022, similar to
that experienced in 2008-2009, and then remain
flat during 2024 and 2025.
In this scenario, even in the absence of any
mitigating actions, the Group continues to
operate within its current banking facilities, as
detailed below, and the covenant restrictions set
out therein.
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 the following years. The majority of
the 2023 decline is modelled to be recovered in
2024, with year-on-year revenue growth of 13%,
and the remainder recovered in 2025.
In this scenario, even in the absence of any
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, more
severe scenario, where the Company experiences a
revenue year-on-year decline of 20% in 2023 (reverse
stress test). 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 Group continues to operate within its
current banking facilities, as 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
88
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
As at 31 December 2022, the Company had a net
funds position excluding lease liabilities of £1.8 million,
and had total banking facilities available of £100.3
million, including £81.5 million of committed facilities
which was undrawn.
The final dividend payment in June 2023 will reduce
the net funds position, by £9.0 million, as will the
acquisition of Melrose Interiors (see Note 29 to the
Financial Statements) and the completion of the
Share Buyback Programme with £5.2 million cash
used in 2023.
The Company is subject to financial covenants in
relation to its £81.5 million revolving credit facility
agreement which are tested and reported every
half year and year end. These comprise an Interest
Cover ratio of not less than 3:1 and a Leverage ratio
not exceeding 2.5:1. Interest Cover is the ratio of the
consolidated underlying operating profit of the Group
before interest, taxation and non-underlying items,
adjusted to exclude the impact of IFRS 16, (EBIT) to
Finance Charges. Leverage is the ratio of borrowings
and cash and cash equivalents, excluding IFRS 16
leases to EBIT after adding back amortisation and
depreciation.
Based on the financial impact of the scenarios
analysed and associated mitigating actions that
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
and Going Concern
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, with the going concern
assessment period no shorter than 12 months from the
date of approval of the financial statements.
Strategic Report 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 414CA and 414CB of the UK Companies Act 2006, and this, taken
together, comprises the Company’s Non-Financial Information Statement.
Reporting Requirement
Relevant policies
Additional Information
Matters
Environmental matters
ESG Policy
Sustainability Report – pages 61–80
Supplier Code of Conduct
SECR Disclosure – pages 77–80
People
Code of Ethics
Corporate Governance Report – pages 92–172
Stakeholder Engagement and Section 172
Statement – pages 28–31
Sustainability Report – pages 61–80
Corporate Governance Report – pages 92–172
Social matters
Equal Opportunities and
diversity policy
Stakeholder Engagement and Section 172
Statement – pages 28–31
Flexible working policy
Sustainability Report – pages 61–80
Corporate Governance Report – pages 92–172
Respect for Human Rights
Health and Safety Policy
Health and Safety – page 35
Modern Slavery Statement
Modern Slavery – page 170
Anti-Corruption and
Anti-Bribery matters
Anti-Corruption and
Bribery Policy
Speak Up Policy
Expenses Policy
Information disclosed in support of the matters
Business model
Principal risks, impact
and mitigation
Non-financial key
performance indicators
National Real Living Wage – page 33
Other Statutory Disclosures – pages 166–172
Corporate Governance Report – pages 92–172
Audit Committee Report – pages 116–125
Other Statutory Disclosures – pages 166–172
Business Model – page 12–13
Risk Management, and Principal Risks and
Uncertainties – page 81–86
Key Performance Indicators – page 24–27
Sustainability Report – page 61–80
This Strategic Report was approved by the Board on 8 March 2023 and signed on its behalf by
Chris Payne
Chief Executive
Headlam Group PLC Annual Report & Accounts 2022
89
GOVERNANCE
REPORT
Board of Directors and Executive Team
Chairman’s Introduction
Compliance Statement
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Other Statutory Disclosures
Statement of Directors’ Responsibilities
92
96
98
100
106
114
116
126
134
166
173
91
Headlam Group PLC Annual Report & Accounts 2022 Governance
BOARD OF DIRECTORS
The whole Board has oversight of the Company’s sustainability agenda and ESG Strategy, which incorporates
areas of focus including workforce engagement, health and safety, IT resilience, and DEI. Additional oversight
and individual accountability for specific focus areas is given through Board and Executive Team membership
of the ESG Committee, the Risk Committee, and the formal Employee Forum.
Committee Membership key
A Audit Committee
N Nomination Committee
E ESG Committee
R Remuneration Committee
F Employee Forum
N
Chair R
Keith Edelman
Non-Executive Chairman
E Chair F Chair
Chris Payne
Chief Executive
Chris joined the Company as Chief
Financial Officer in 2017, and was
appointed Chief Executive in 2022
having been a key architect of
the Company’s strategy centred
around growth, efficiency,
and modernisation. Chris was
previously 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.
Keith was appointed a
Non-Executive Director in 2018,
and Non-Executive Chairman
in 2022. Keith is currently
Non-Executive Chairman of
Revolution Bars Group Plc, and a
previous Non-Executive Director of
the London Legacy Development
Corporation. His last executive
appointment was Managing
Director of Arsenal Holdings Plc
where he was responsible for the
move from Highbury to Emirates
Stadium. 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.
A N R
Stephen Bird
Senior Independent
Non-Executive Director
Stephen was appointed a
Non-Executive Director in 2021,
and Senior Independent Director
in 2022. Stephen is Group Chief
Executive of Videndum plc
(formerly The Vitec Group plc), 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 Senior Independent
Director of Dialight plc, the global
leader in sustainable LED lighting
for industrial applications, stepping
down in 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. Prior to
joining Videndum plc, Stephen
was Divisional Managing Director
of Weir Oil & Gas, and held senior
roles at Danaher Corporation,
Black & Decker, and Technicolor
Group. He is a member of the
English National Ballet’s Finance
and General Purposes Committee.
92
Chief Financial Officer
On 20 March 2023, after the publication date of this
Annual Report, Adam Phillips will join the Board as
Chief Financial Officer.
Adam was previously Group Financial Controller at
National Express Group PLC, the FTSE 250 leading
international transport provider, where he was
responsible for group financial reporting and control. In
addition, he headed up other group finance functions
including Financial Planning and Analysis, and Investor
Relations. Prior to this Adam was at Halfords Group plc,
UK’s leading provider of motoring and cycling products
and services, where latterly he was Corporate Finance
Director and Group Strategy Director.
Adam is a qualified Chartered Accountant having
trained with KPMG and is a Fellow of the Institute of
Chartered Accountants in England and Wales.
A N R E F
A
Chair
N R
A N R Chair
Karen Hubbard
Independent Non-Executive Director
Robin Williams
Independent Non-Executive Director
Jemima Bird
Independent Non-Executive Director
Karen was appointed a
Non-Executive Director in 2022.
Karen has over 25 years’ experience
in retail, at both Executive and
Director levels across various
industries and markets. She was
previously Chief Executive Officer of
Card Factory plc, the UK's leading
specialist retailer of greeting cards,
gifts, wrap and bags, where she
diversified their income from a
UK High Street business to a Multi
Channel, International, Wholesale
and Franchised operation. Karen
has also served as Chief Operating
Officer at B&M, on the ASDA
Stores Executive Board as Director
for Property, Multi-Channel and
Format Development, in addition to
working for BP Oil’s retail divisions.
Karen currently serves as Chair
in privately backed businesses
Custom Materials Limited and
Character.com. In addition, she
is a Non-Executive Director of St
Austell Brewery.
Karen is a member of the ESG
Committee and the Employee
Forum, and the Independent
Director who has oversight of
Work Engagement.
Robin was appointed a
Non-Executive Director and
Chair of the Audit Committee
in 2022. Robin has over 30 years’
experience with listed companies,
including as founder CEO and
Executive Director with FTSE250
companies within the packaging
and the building materials
industries. He is currently Non-
Executive Chairman of Keystone
Law Group plc and FIH Group plc
(from which he is stepping down
in September 2023), and a Non-
Executive Director at Churchill
China plc and The Manufacturing
Technology Centre Ltd.
He was previously a Non-Executive
Director at Van Elle Holdings plc
and Non-Executive Chairman
of Xaar plc, stepping down in
2020 after 10 years on the Board.
Robin is a qualified Chartered
Accountant and brings experience
of Chairing Audit Committees as
well as insights from a wide range
of sectors as an Executive and
Non-Executive Board member of
public and private companies.
Jemima was appointed a
Non-Executive Director and Chair
of the Remuneration Committee
in 2022. Jemima has over 20
years’ retail experience working
with many of the UK’s leading
high street brands, and has held
numerous Executive Commercial,
Marketing and Operations
positions. She is currently Senior
Independent Director and Chair
of the Remuneration Committee
at Revolution Bars Group plc, and
was previously a Non-Executive
Director at Carpetright plc, a
leading floorcoverings and beds
provider, until it was taken private
in 2020.
Jemima is the Senior Trustee
for the Football Foundation,
the UK’s largest sports charity,
and also Chair of The Well HQ,
a leading women’s sporting
health consultancy.
Headlam Group PLC Annual Report & Accounts 2022
93
EXECUTIVE TEAM
Catherine Miles
Director of Investor Relations and ESG
Adrian Harris
Chief Operating Officer (UK)
Clare Moore
Chief People Officer
Catherine was appointed 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.
Catherine is the day-to-day
overseer of ESG strategy, activity
and reporting, and is a member of
the ESG Committee and the Risk
Committee.
Adrian was appointed in 2019.
His accountabilities include all
elements of the UK distribution
operations, delivering significant
parts of the Strategy and IT
programme. Previously Adrian
was Chief Operating Officer at
Yodel, one of the UK’s largest
delivery companies for B2B and
B2C orders. 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.
As part of his remit, he is the
day-to-day overseer of the
Company’s health and safety
activities. Adrian is a member of
the ESG Committee and the Risk
Committee.
Clare was appointed in 2022
having previously worked as the
Chief HR Officer at Midcounties
Cooperative Ltd, the UK’s
largest independent consumer
cooperative made up of Food
Retail, Travel, Childcare, Utilities,
and Healthcare. Prior to that she
held a number of roles at Halfords
Group Plc spanning 10 years where
she was eventually promoted to
the role of Group People Director.
Clare has also worked in HR in
businesses such as Barclaycard,
Aston Martin Lagonda Ltd
and Rolls Royce Plc. Clare
brings experience of colleague
attraction, engagement,
development and reward across a
broad range of colleagues.
Clare is a member of the ESG
Committee, the Risk Committee,
and the Employee Forum.
94
Governance Toni Wood
Chief Customer Officer
Toni was appointed in 2023, into
the new role of Chief Customer
Officer with the remit of leading
customer and digital strategy.
Toni was previously Chief
Marketing and Growth Officer
at ufurnish.com, the UK’s market
leading search and discovery
website for home furniture and
furnishings. Prior to that, she was
Chief Commercial and Marketing
Officer for DFS Furniture PLC,
where she was instrumental in
developing the brand, responsible
for merchandising and design,
and ran the stand-alone
manufacturing division.
Toni is a Fellow of The Marketing
Academy and the Chartered
Institute of Marketing, and in 2022
was recognised by Marketing
Week as one of the UK's Top 100
Marketers. She is a member of
the ESG Committee and the Risk
Committee.
Caroline Farbridge
Company Secretary
Caroline was appointed in 2022
and has over 25 years’ experience
across several business sectors
and extensive experience in all
governance and compliance
matters. She brings experience
of share schemes, insurance, HR,
health and safety, and facilities
management. Most recently she
was Deputy Company Secretary at
Croda International Plc, a FTSE 100
company. Prior to that she held
the position of Company Secretary
at Bonmarche Holdings PLC and
EMIS Group plc. Her previous
roles were at WYG plc, Provident
Financial plc, Heywood Williams
plc and Yorkshire Electricity plc.
Caroline is an Associate Member
of the Corporate Governance
Institute. She is a member of the
ESG Committee and the Risk
Committee.
95
Headlam Group PLC Annual Report & Accounts 2022 CHAIRMAN’S INTRODUCTION
Keith Edelman, Non-Executive Chair
“The Board and Senior Management
have a strong set of complementary skills
to support the delivery of the strategic
objectives of the Group”
On behalf of the Board, I am pleased to present the Governance Report for
the financial year ended 31 December 2022.
This report sets out our approach to
effective governance, outlines the
areas of focus for the Board and
the key activities undertaken.
My role and that of the Board
has been to guide the business
and the executive management
while ensuring the right strategy
is in place, supported by the right
people, to deliver it and drive the
business forward. The last financial
year has been an important
period and we have continued
to successfully strengthen the
foundations we have in place to
support our strategic ambition.
Board changes and
succession planning
Philip Lawrence, Amanda Aldridge
and Simon King stepped down
from the Board during the year. I
would like to thank them for their
dedication and commitment to
the Board.
We recruited three new
Non-Executive Directors,
Karen Hubbard, Jemima Bird
and Robin Williams following
formal and comprehensive
recruitment processes and
the recommendations of the
Nomination Committee.
sit alongside the Group’s strategy as
it is implemented.
Chris Payne was appointed as
our Chief Executive Officer on
8 March 2022 having fulfilled the
role as interim since the departure
of Steve Wilson in 2021.
These appointments, along with
that of Adam Philips as our Chief
Financial Officer, and other senior
management appointments
into key areas of the business
ensures that we have a strong
set of complementary skills and
breadth of experience across the
Board, Executive Directors and
the Executive Team to support the
delivery of the strategic objectives
of the Group.
Full details of the external search
processes undertaken for these
appointments can be found in
the report of the Nomination
Committee on page 126.
Strategy and Culture
The Board has made progress in
many key areas throughout the year,
including the review of our purpose
and ensuring the right set of values
Karen Hubbard assumed the role of
Non-Executive Director responsible
for employee engagement from
Simon King. This role and the review
of our People Strategy by our new
Chief People Officer, will ensure we
continue to develop our cultural
dash board. This will enhance the
quality of the information the Board
receives from our employees.
A new supplier code of conduct
was issued in 2022 and we held our
first supplier conference which was
attended by 30 of our key suppliers.
A revised colleague code of conduct
will also be rolled out in 2023.
Our on-going engagement work
with all our stakeholders will help
shape how the Board takes their
views into consideration to support
our decision making and ensure the
culture of the business is developing
in line with our stated purpose
and values. Information of our
engagement with stakeholders can
be found on pages 28 to 31 and
throughout this Governance report.
96
Governance is working well together. There is
already a high level of constructive
challenge and this will improve
over the coming year as the Board
works together to oversee and
support the implementation of the
strategy. More information on the
Board evaluation can be found on
page 114.
Our Colleagues
It has been a busy year with a
refreshed Board, a reviewed
strategy and the recruitment of a
number of highly skilled colleagues
at all levels of the business to drive
us forward.
The Board recognises the
significant contributions from all
our colleagues throughout the year
and thanks them for their hard
work and dedication.
Keith Edelman
Non-Executive Chair
8 March 2023
This commitment to guiding and
promoting a healthy culture is
underpinned by a significant
ongoing work programme to
develop a strong safety culture. The
building blocks have been put in
place, existing practices assessed
as required and key objectives
identified to promote and drive
forward this work.
We will be monitoring our culture
metrics as they continue to develop
so that we continue to understand
the changes and trends within
the business, deepen our on-
going relationships with all our
stakeholders and focus on overall
corporate responsibilities to our
colleagues and the communities
we serve.
Environmental, Social
and Governance (ESG)
Responsibilities
Our first ESG strategy report was
produced in 2021 after working
with an external specialist to
identify areas of key focus for the
business. This work has continued
throughout 2022 as a key work
stream and embedded into
the business through the newly
established ESG Committee which
is attended by Non-Executive
Director Karen Hubbard. ESG
updates have regularly been given
to our stakeholders. The highlights
from the year and our progress
in key areas are outlined in our
Sustainability report on pages
61 to 80.
The commitments to embedding
ESG across the organisation and
leading on sustainability and
environmental responsibility, as
well as making Headlam a great
place to work for everyone, are now
an integral part of our strategic
pillars. We have made great strides
forward during the course of the
year and as a Board we are focused
on delivering tangible progress in
the year ahead.
Diversity
The Board recognises that
diversity both on the Board and
in the wider organisation leads
to healthy debate which in turn
leads to better decisions and helps
support the Company become
more adaptable to the changing
environment. The Board reviews its
diversity policy annually and it was
a key consideration throughout
the process of recruiting for the
vacant Board positions. In making
our appointments we have aimed
to cultivate a broad spectrum
of attributes and characteristics
in the boardroom and we will
continue to keep the position
under review as we move forward
in all our succession planning
activity. Diversity across the
organisation will be a key pillar of
the revised People Strategy and
we will report back next year on
progress against agreed objectives.
Further information on diversity
can be found in the report of the
Nomination Committee.
Board Evaluation
An externally supported evaluation
was carried out at the end of the
year. This was to allow the new
Board members to have attended
a minimum of two meetings and
to have carried out their induction
activities before the evaluation took
place. At this early stage following
the Board appointments, the results
were pleasing and the new Board
97
Headlam Group PLC Annual Report & Accounts 2022 Governance
COMPLIANCE STATEMENT
It is the Board’s view that, throughout the financial year ended 31 December
2022, 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’).
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
166 to 172. 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. The 2018 UK Corporate Governance Code is available at www.frc.org.uk
Implementation of the Principles of the Code
Board leadership and company purpose
The Board is responsible for:
Board of Directors – pages 92–93
•
•
•
£Promoting the long-term sustainable success of
the Company and establishing the Company’s
purpose, values and strategy (ensuring that its
culture is aligned).
Leadership and purpose – page 100
Board activities during the year – page 110
Succession planning – page 126
Considering stakeholders in decision making – page 101
£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 Roles – page 106
Division of responsibilities – pages 106–109
Nomination Committee report – page 126
Dealing with Directors’ conflicts of interest – page 105
Division of responsibilities
The Chair leads the Board and is responsible for its
overall effectiveness in driving the Company.
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.
98
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.
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.
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 the 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.
Nomination Committee report – page 126
Appointments to the Board – pages 126–128
Diversity Policy – page 129
Board composition – pages 114 and 126
Board evaluation – page 114
Audit Committee report – page 116
Fair, Balanced and Understandable statement – page 124
Risk Management and Internal Control – pages 81–86
and page 119
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.
Remuneration Overview – page 138
Directors’ Remuneration Policy – page 139
Directors’ Annual Report on Remuneration – page 152
Statement of implementation of Remuneration Policy
in 2023 – page 162
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.
99
Headlam Group PLC Annual Report & Accounts 2022 Governance
BOARD LEADERSHIP AND
COMPANY PURPOSE
Our Board is ultimately responsible for the strategy, management,
performance and long-term sustainable success of the Group.
been reviewed and refreshed and
will be rolled out in the first half
of 2023.
As well as reviewing People KPIs at
the Board and the outputs from
the listening channels, the Board
has continued to influence and
monitor Group culture in a number
of additional ways:
•
Increasing the focus on the
health, safety and working
practices of our colleagues
and reviewing key health and
safety performance indicators
• Reviewing and revising
remuneration structures for
senior management
• Reviewing the people strategy
following the appointment of
the Chief People Officer
• Regular meetings with
management and inviting
presentations at the Board
and Committee meetings
from relevant managers and
colleagues
• Assessing other cultural
indicators such as the attitude
to risk, the implementation and
compliance with group-wide
policies such as Anti-Corruption
and Bribery, Fraud and Money
Laundering
It is the principal decision-making
forum for the Group, providing
entrepreneurial leadership,
both directly and through its
Committees and by delegating
authority to the Executive team.
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 2.
Through the strong governance
framework that it has in place,
the Board is able to deliver on
its strategy of providing strong
sustainable financial and
operational performance. The
Board is also accountable for
ensuring that in carrying out
its duties the Group’s legal and
regulatory obligations are being
met; and for ensuring that it
operates within appropriately
established risk parameters.
Culture
The Board is responsible for
monitoring and assessing culture.
The Board does not have a single
way to assess culture, instead
it draws on multiple sources to
understand the way colleagues
feel about the Company. This is
done through formal and informal
methods, through the outputs
from the Employee Forums and
the reports of the Chief Executive
to the Board which report on his
ongoing programme of Town Halls
across all areas of the business.
Colleagues are encouraged to
incorporate the values into work
every day, to work the Headlam
Way and deliver our long term
objectives, together.
Karen Hubbard is the Independent
Non-Executive Director
accountable for representing the
voice of our colleagues in Board
meetings. Simon King held the role
until he stepped down in October
2022. Simon attended four
Employee Forum meetings during
2022. The refreshed Employee
Forum will meet formally four times
during 2023 and the outputs will
be outlined in next years report.
Further information on how the
Board hears the employee voice
can be found on page 103.
Work continues to enhance
communication to ensure that
staff across the business, especially
those more remotely situated
and any new colleagues in the
Group’s businesses, do not feel
isolated. The Group-wide intranet
continues to be developed as a
place for colleagues to access all
communication and information
about benefits and personal and
financial well-being.
The revised Speak Up Policy
which now includes an externally
managed helpline was launched
during the year and this as well as
the long-established grievance
policy provides a mechanism for
colleagues to raise matters of
concern more formally. In addition,
the Headlam Code of Ethics has
100
Board Engagement with Stakeholders
Information on our Stakeholder Engagement and Section 172 Statement of the Strategic Report on
pages 28 to 31.
By understanding the interests and needs of all our stakeholders, the Board can take these views into account in
Boardroom discussions and decisions. The relevance of each stakeholder group may change depending on the
issue under discussion.
The Board had continued to develop its methods of engagement during the year and this work will be continued
during 2023.
Our Colleagues
Board members engage with a wide variety of colleagues. Karen Hubbard is our dedicated
Employee Non-Executive Director and attends the Employee Forum.
See page 32 and 103 for employee engagement.
Our Customers
The Board receives customer insights from the Chief Executive and Chief Operating
Officer, through Board reports and strategy presentations.
See page 10 for customer segments and page 28 for customer engagement.
Our Suppliers
Supplier relationships provide valuable insights through engagement with operations
teams and through the Chief Executive and Chief Operating Officer. The feedback from
our first supplier conference was discussed by the Board.
See page 28 for supplier engagement.
Our Shareholders
There is regular dialogue with our shareholders.
See page 30 and 104 for shareholder engagement.
Our Communities
and the Environment
It is important that we operate safely and sustainably and that we review the impact of our
operations on local communities and on the environment. The Board receives regular updates
on these activities.
Karen Hubbard is our dedicated ESG Non-Executive Director and attends the ESG Committee.
Further information can be found in our Sustainability Report on pages 61–80.
Headlam Group PLC Annual Report & Accounts 2022
101
Governance
BOARD LEADERSHIP AND
COMPANY PURPOSE CONTINUED
Examples of how the Board considered the interests of its key stakeholders
when making decisions.
Payment of
Dividends
The Board considered the
payment of a final, special
and interim dividend
having reviewed all capital
requirements.
The Board considered the
interests of all stakeholders
when reaching this decision.
They had regard to the balance
sheet strength, debt providers
and the need to continue to
support employees by ensuring
appropriate levels of pay and
benefits. Consideration was
also given to customers and
suppliers and that the payment
of the dividends would not have
a detrimental effect of them.
Taking all the factors into
account the Board concluded
that the payments were in the
best interests of the Company.
Stakeholders
For further information on
dividends see page 54.
Revised
Remuneration Policy
Acquisition
of Melrose
As the revised Remuneration
Policy was developed, the
Board were kept appraised via
the Remuneration Committee,
of the views of the investors
following the consultation
on the proposals that was
undertaken with them.
The long-term success of
the business for stakeholders
was a key consideration and
ensuing the right behaviours
were incentivised to deliver the
agreed strategy.
The Board were also given the
feedback of the employees
received from the Employee
Forum meeting where Executive
Remuneration was discussed.
Stakeholders
For further information on
remuneration see the report of
the Remuneration Committee
starting on page 134.
The Company acquired a
leading distributor of rugs shortly
after the year end.
The Board considered a wide
range of stakeholders through
the detailed papers from the
Interim Chief Financial Officer
and updates on progress within
the report of the Chief Executive
to the Board.
The acquisition will bring a
number of new larger customers
to the group and support the
delivery of our strategic aim to
expand into adjacent products
in an area where the Company
is targeting growth.
The acquisition will add
additional skills in third-party
logistics, recycling, and
an in-house rug and
sampling/pattern book
department which will help
improve our strategic aim
to improve our operational
capabilities.
Melrose will support our
sustainability strategic goals
through its upcycling of surplus
carpet from across the industry
into samples and pattern books,
Stakeholders
For further information on our
strategic aim to deliver new
opportunities for future growth,
see page 14.
102
Employees
The Board utilises a wide range of methods to ensure that we understand the interests and views of our
employees and take them into account when we make decisions to promote the long-term success of the
Company. The Board and its Committees regularly invite members of the management team to join meetings
and to present on the matters being discussed. A range of methods are used, both formal and informal to
ensure that two-way dialogue is facilitated.
Intranet and
Board
Company News
presentations
Speak up
Policy
People
Board Report
Employee Voice
Town Halls
report and pay
Non-Executive
Site Visits
Remuneration
Dedicated
discussions
Director
Simon King held the role of
dedicated Non-Executive Director
responsible for ensuring employee
views are represented in the
Board room. Karen Hubbard now
fulfills that role. Karen attends the
employee forum which provides a
platform to colleagues to express
their views, suggestions and
concerns to ensure they are heard
and acted upon where possible.
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.
Four Employee Forums were held
over the course of the year and
each provided an opportunity to
be updated on the performance
of the business and to ask
questions of the Chief Executive
in an open forum. The Employee
Forum considered the alignment
of executive remuneration with
that of the wider workforce.
Where the remuneration of the
Executive Directors was under
discussion, the Chief Executive
excused himself from the meeting.
Following each meeting, an
update is provided to the Board
by the Non-Executive Director
who attends the Forum. At the
meeting of the Forum in October
2022, it was agreed to increase
the membership of the Forum in
2023 and to include virtual check
in meetings between the in-person
sessions that will be used to
develop the agendas for the
in-person meetings around areas
of current employee interests
and concerns.
It is important that themes and
concerns are identified on an
ongoing basis. The Board will keep
the developing programme of
engagement under review through
the course of the coming year to
make sure it continues to evolve
and become an increasingly
valuable tool for providing
information to support the Board
decision making process.
During the year the Speak Up
Policy was reviewed and reissued.
It included the addition of an
externally managed helpline to
allow truly anonymous reports to
be filed.
The Board has received
presentations from management
and undertaken site visits. For
further information see page 106.
The results of pulse surveys provide
invaluable information for the
Board to gauge how employees
feel on these important topics.
In 2022, these included views on
diversity and inclusion and health
and safety matters.
Information on employees is
also received at Board meetings
through management reports,
with people KPIs in the HR report.
Each Director has the opportunity,
and is encouraged, to undertake
site visits.
Since his appointment as Chief
Executive Officer Chris Payne has
undertaken additional visits to
each site to present the strategy
Headlam Group PLC Annual Report & Accounts 2022
103
Governance
BOARD LEADERSHIP AND
COMPANY PURPOSE CONTINUED
of the Company and at these
visits he engaged with a wide
range of employees. Information
on these visits was fed back to the
Board through his regular Chief
Executive’s report.
These sessions, along with
the Forum and site visits are a
mechanism to gain diversity of
thought as well as enhancing the
relationship of the Directors across
a wider employee base.
The Board also considers annually
if the current framework continues
to be effective. Feedback from
2022 concluded that engagement
had started to establish
meaningful and genuine dialogue
with employees and this would be
enhanced through the addition of
the virtual check-in sessions.
Shareholders
Communication between the
Company and its shareholders
is considered by the Board to
be an essential element of a
sound governance framework.
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.
The majority of these meetings
take place after the results
announcements. Feedback
from these meeting and regular
market updates are prepared by
its brokers and presented to the
Board alongside regular market
updates to ensure the Board
has a good understanding of
shareholders’ views. This ongoing
two-way communication also
helps inform investors so they are
able to appraise the Company
performance and management
and understand it as an
investment proposition.
The Chair of the Remuneration
Committee undertook an investor
consultation in January and in
November 2022. These consultation
covered the proposals in relation
to remuneration policy during the
year and the proposed revised
remuneration policy that will be
submitted to shareholders at the
2023 AGM. Further information
is contained in the Report of the
Remuneration Committee starting
on page 134.
Other communication
tools include the regulatory
announcements; investor
presentations; webcasts; and
the Annual General Meeting
(‘AGM’). Feedback is sought and
considered by the Board after
these interactions as appropriate.
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 Board
receives a regular share register
analysis report.
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.
Any appropriate webcasts and
presentational materials are made
available to view by all on the
Company’s website. During 2022,
the Company also participated in
events and presentations aimed
specifically at private investors.
Non-Executive Directors, including
the Chair, are available to all
shareholders and would attend
either in person or virtually certain
meetings, events and briefings
where shareholders are present
in addition to the AGM as and
when required.
The Senior Independent
Director additionally makes
himself available to meet with
shareholders if they have any
concerns or if they consider that
an issue had not been adequately
resolved. Stephen Bird is our Senior
Independent Non-Executive
Director and he can be contacted
via headlamgroup@headlam.com
Annual Report
The Annual Report is available to
all shareholders and is published in
March each year. Shareholders can
opt to receive a hard copy or can
download a pdf. If shareholders
have difficulty in accessing a
copy through a nominee account,
they can contact the Company
Secretary to request a copy.
Corporate Website
The Headlam Group plc website,
www.headlam.com, has a
dedicated investor relations section
which includes annual reports,
results presentations and the
financial calendar . The website
also summarises our business
strategy and model, company
announcements and ESG activities.
Annual General Meeting
In 2022, the Company held an in
person Annual General Meeting
(‘AGM’) and continued to show
caution due to the coronavirus
pandemic. It was agreed that to
provide the opportunity for all
104
• Actual and potential conflicts
of interest are both included on
a register which is maintained
by the Company Secretary and
reviewed annually.
• Conflicts of interest are
considered as the first item
at every Board meeting.
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.
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.
shareholders to submit questions by
email in advance of the AGM and
receive a written answer in respect
of frequently asked questions.
Facilities were put in place to offer
shareholders the opportunity to
follow the business of the meeting
and ask questions remotely.
The Company is looking forward
to welcoming shareholders to its
2023 AGM. The Chair of the Board
and the Chair of each Board
Committee will be available at the
meeting to answer shareholders’
questions which can be asked
either in person or submitted in
advance of the meeting. The
Company has reviewed the use
and cost of the remote facility
and will not be providing it on this
occasion. This will be reviewed
on an annual basis. Voting on
all resolutions will be conducted
by poll.
Shareholders are encouraged
to engage and ask questions to
the Board or individual directors
regarding the running of the
Company at any time during the
year. The Board is always available
to all shareholders.
A summary of the questions and
answers at the meeting will be
posted on the investor website in
due course after the meeting.
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.
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.
Conflicts of interest
The Board has an established
process for declaring and
monitoring actual and potential
conflicts of interest.
• Directors are required
to disclose professional
commitments outside the
Company prior to appointment
and on an ongoing basis
where there are any changes.
Details of those professional
commitments are included in
the biographies on pages 92
and 93. The Board is satisfied
that these do not interfere or
conflict with the performance
of their duties for the Company.
• Conflicts are considered prior
to any Director taking on an
external appointment. Details
of changes to the Board
during the year are outlined
starting on page 126. For each
appointment it was agreed
that no potential conflict
existed and that the interests
of each candidate would allow
sufficient time to be dedicated
to their role with the Company.
Headlam Group PLC Annual Report & Accounts 2022
105
Governance
DIVISION OF RESPONSIBILITIES
Board balance
As at 31 December 2022 the Board
consisted of the Non-Executive
Chairman,the Chief Executive
Officer 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. After
his appointment as permanent
Chief Executive, Chris Payne
was supported by an interim
Chief Financial Officer whilst
the recruitment process for a
new Chief Financial Officer took
place. Adam Philips will join the
Group as Chief Financial Officer in
March 2023.
The Board undertook a review
of the size and balance of the
Board and confirmed that it was
appropriate to meet the business
and operational objectives.
Members of the Executive Team
provided additional insight at
board meetings during this period.
Further information on the changes
to the Board during the year
can be found in the Nomination
Committee Report on page 126.
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 Board operates within
a corporate governance
framework designed to support
the achievement of long-term
sustainable success. The Board
has overall responsibility for
setting the Group’s strategy and
setting objectives for the business
while taking into account the risk
appetite of the business. The Board
has a formal schedule of matters
reserved for its approval and then
delegates responsibilities to its
committees and management.
The list of the key matters
considered by the Board in 2022
can be found on page 111.
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 has been
reviewed during the year and
are also available on the
Company’s website.
Board Roles and
Responsibilities
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 on the
following page:
106
Non-Executive Chairman
The Chair leads the Board and sets the cultural tone
from the top. He ensures high standards of corporate
governance are maintained. He is responsible with the
Board for understanding the views of all key stakeholders
and ensuring they are considered in all decision making. He
ensures that all directors are able to participate in discussions
and constructive challenge and to promote effective
communication between the Executive and Non-Executive
Directors. The Chair leads the annual board effectiveness
review and ensures all new directors have a tailored induction.
Chief Executive
Chief Financial Officer
The Chief Executive leads the Group and ensures the
delivery of its commercial objectives while ensuring
that operational policies and practices are driving the
appropriate behaviour in line with the desired culture.
He proposes and develops the Group’s strategy in
consultation with the Executive Team, the Chair and
the Board and leads the communication programme
with all key stakeholders including employees. He is
responsible for overseeing Group health and safety and
Group diversity initiatives and ensuring the Board has all
the information they require.
The Chief Financial Officer is responsible for bringing
the commercial and financial perspective to the
Boardroom. He is responsible for managing the Group’s
finance function and ensuring that the appropriate
financial support and processes are in place to
support the implementation of the Group’s strategy.
He overseas and supports the relationship with the
investment community and shareholders. He chairs the
Executive Risk Committee which oversees the Group’s
risk profile and risk management process.
Senior Independent Director
Independent Non-Executive Directors
In addition to their role as a Non-Executive Director,
he acts as a sounding board for the Chair and acts as
an intermediary for other Directors when necessary.
He is available to shareholders where communication
through the Chair or Executive Directors may not
seem appropriate and to provide additional support
in resolving significant issues. He is also responsible for
leading the effectiveness evaluation of the Chair and
discussions regarding the term of appointment and
fees of the Chair.
The role of the Independent Non-Executive Director
is to provide strategic and specialist guidance with
effective and constructive challenge. They critically
assess the strategy and scrutinize the performance of
management in meeting agreed goals and objectives
within the risk and control framework set by the Board.
They ensure all stakeholders are considered in the
decision-making process. They have a prime role in
succession planning and setting appropriate levels of
remuneration for the Executive Directors and senior
management team.
Company Secretary
The Company Secretary is secretary to the Board
and its committees. The role is to support the
Chair and Chief Executive in fulfilling their duties
particularly in relation to induction, training and
board effectiveness evaluations. In addition, she
supports the Non-Executive Directors and provides
updates to the Board and advice on corporate
governance and compliance matters.
107
Headlam Group PLC Annual Report & Accounts 2022 DIVISION OF RESPONSIBILITIES
CONTINUED
Board and Committee structure as at 31 December 2022
Group Board
Nomination
Committee
Audit
Committee
Remuneration
Committee
Disclosure
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
See page 126
to read more
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.
See page 116
to read more
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.
See page 134
to read more
Meets as required
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
Meets quarterly to evaluate and propose policies and
processes to current and emerging risks.
Committee attendance
Membership of the Board and its Committees and attendance at meetings held during the year ended
31 December 2022.
Keith Edelman (Chair)1
Chris Payne
Stephen Bird
Jemima Bird2
Karen Hubbard3
Robin Williams2
Amanda Aldridge4
Simon King4
Philip Lawrence5
Board
13 (13)
13 (13)
13 (13)
2 (2)
4 (4)
2 (2)
10 (11)
8 (11)
5 (5)
Nomination
Committee
Audit
Committee
Remuneration
Committee
5 (5)
–
5 (5)
1 (1)
2 (2)
1 (1)
3 (3)
3 (3)
3 (3)
1 (1)
–
4 (4)
0 (1)
1 (1)
1 (1)
3 (3)
3 (3)
0 (0)
5 (5)
–
5 (5)
2 (2)
2 (2)
2 (2)
3 (3)
3 (3)
2 (2)
1 Keith Edelman served as Senior Independent Director until 19 May 2022 when he was appointed as Chair following the resignation of Philip
Lawrence.
Jemima Bird and Robin Williams were appointed to the Board on 10 October 2022. Jemima was unable to attend the meeting of the Audit
Committee immediately after her appointment due to prior commitments but was fully briefed on the outcomes of the meeting.
Karen Hubbard was appointed to the Board on 1 September 2022.
2
3
4 Amanda Aldridge and Simon King resigned from the Board on 10 October 2022.
5 Philip Lawrence resigned from the Board on 19 May 2022.
108
Governance Group Chief Executive
Group Chief Executive
Group Health and
Safety Committee
ESG
Committee
Group
Executive Team
Employee
Forum
The Committee meets
quarterly to monitor
progress against
the safety, health,
quality objectives and
targets and to review
safety performance. It
considers the need for
new or revised policies
and procedures.
For more information
on Health and Safety
see page 35
The Committee
meets quarterly to
further develop the
sustainability strategy
and to monitor progress
towards achieving the
agreed commitments.
It seeks to embed good
sustainability practices
across the group and is
attended by a group of
leaders from across the
business.
For more information
of the Sustainability
strategy see page 63
The Executive Team
meets every month to
develop and monitor
strategy, operational
plans and procedures
and to ensure
financial performance
against the budget
is monitored. The
committee assesses
and controls risk
and prioritises and
allocated resources to
deliver the strategy.
For more information
on Group Strategy
see pages 14
The Forum seeks to
allow colleagues to
express and discuss
their views on any
issue and provides an
opportunity for them to
influence and develop
a more inclusive
working environment.
The employee Forum
meets quarterly and
is chaired by the Chief
Executive. There are
additional check in
meetings between
the formal meetings
attended by
employee forum
representatives only.
For more information
on Employee Forum
see page 103
Board Committees and delegation
Various operational matters and decisions have been
delegated to Board or management committees.
The Company has long-established Audit, Nomination
and Remuneration Committees which oversee and
debate important issues of policy and assist the Board
in attending to its responsibilities.
During the year under review the ESG Committee was
established. 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.
Headlam Group PLC Annual Report & Accounts 2022
109
Governance
DIVISION OF RESPONSIBILITIES
CONTINUED
sufficient time is given to each
item under consideration.
A separate strategy day is held
during the year which is attended
by the Executive team and other
key management. This allows
detailed consideration of the
strategic plan and key focus areas
which then forms the basis of the
budget which is approved at the
end of the year. This provided the
Board with another opportunity
to meet senior leaders in a more
formal way and constructively
challenge the detailed direction of
strategy implementation.
For further detail on strategy,
see page 14
The Board receives an update
from the Company Secretary
on a quarterly basis including
updates on matters of corporate
governance. Matters requiring
attention between these quarterly
Company Secretarial updates are
shared at the next meeting, or
between meetings as required.
The Board performs deep dives
into areas of importance such
as sales, buying, e-commerce
and digital, and conducts post
implementation reviews of key
capital projects.
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.
Keith Edelman was considered
independent upon appointment
to the Board in 2018 and continued
to be so upon taking up his role as
Non-Executive Chair. The Senior
Independent Director is available
to shareholders if they have
concerns which are not resolved
through the normal channels of
the Chair, Chief Executive or Chief
Financial Officer, or for which such
contact is inappropriate.
The Non-Executive Chair 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 2023 AGM.
Board Activity in 2022
Board meetings provide the
forum for the debate, review and
challenge of strategic, operational
and governance matters.
The Board had 10 scheduled
meetings during the year to discuss
the latest operating and financial
information, key strategic items,
additional deep dives into specific
items and other topics requiring
discussion or decision. In addition
three ad-hoc meetings were held.
The agenda has strong links to the
strategic objectives of the Group
and is set via a collaborative
process between the Chair, Chief
Executive and the Company
Secretary. Sufficient time is
allocated to each item to ensure
effective discussion.
Standing agenda items include the
Chief Executive and Chief Financial
Officer on trading matters, health
and safety, people and financial
reports. The annual board work
programme ensures that the
view of all stakeholders, including
employees, suppliers, customers
and shareholders are taken into
consideration. This ensures that
the Directors discharge their duties
including those under section
172(1) of the Companies Act 2006.
Further detail on stakeholders can
be found on pages 28 to 31.
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
110
Key highlights of the Board discussions during the year under review are outlined.
Strategy
Financial and
People
and management
performance reporting
• Review of Group strategy and
• Review of the trading
priorities
• Review of organization structure
to deliver the strategy and the
resources required
• Consideration of the operational
strategy to deliver the
strategic goals
• Deep dives into strategic areas
• Sustainability strategy and
projects
• Consideration of the Melrose
acquisition opportunity
• Considered the impact of
Company culture on initiatives
and projects.
see page 14 for more on strategy
performance and the approval
of the Company’s annual and
half-year results
• Approval of the Company’s
dividend policy
• Reviewed the Company’s capital
allocation priorities
• Reviewed and approved the
Company’s 2023 budget,
forecasts and key performance
targets
• Considered the progress of the
share buy back
• Long term viability statement
and time frame over which it
should be considered
• Approved the UK Tax Strategy
see page 87 for long term viability
statement
• Review of purpose and culture
• Approval of the new board
appointments
• Senior management succession
planning. A Chief People Officer
and Chief Customer Officer were
appointed
• Consideration of Health and
Safety leadership
• Consideration of the external
review of Group diversity
• Gender pay gap reporting
• Modern slavery reporting
• Employee share grants and long
served awards
• Agreed a tiered pay award
see page 103 for employee voice
and page 129 for diversity
Internal controls and risk
ESG and stakeholder
Governance and culture
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
• Received updates on ESG
Committee activity on the
progress during the year and
the detail of the ESG strategy
• Received feedback from the
first Supplier Conference
see page 61 for Sustainability report
management
• Consideration of the
requirement for an internal
audit function. A Group internal
auditor was appointed during
the year
• 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 ongoing
implementation of
recommendations arising out of
the external review of IT security
• Received a presentation from
the newly appointed Chief
Information Officer
see page 122 for the appointment
of the Group Internal Auditor and
page 82 for information on risk
management
• Participated in and reviewed the
results of an externally facilitated
Board and Committee self-
evaluation exercise and agreed
areas of focus for 2023
• 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
• Reviewed the Company’s
Register of Conflicts
• Approved the Company’s
Anti-Corruption and Bribery
policy, procedures on gifts
& hospitality, Fraud and
Anti-Money Laundering policy
and Speak Up policy
• Received and considered
reports on compliance with
financial, regulatory, corporate
responsibility and environmental
commitments
111
Headlam Group PLC Annual Report & Accounts 2022
Governance
DIVISION OF RESPONSIBILITIES
CONTINUED
Outside the Boardroom.
Throughout the year the Board
undertook site visits across
the business.
In June they attended the Cheshire business
and in December the meeting took place at the
Tamworth site. Each visit includes a tour of the site
as well as presentations of site management on
the performance and opportunities for the business
including health and safety performance. The Board
also meets with a variety of employees during
these visits.
In addition the Directors undertook further site visits
individually which allowed an additional opportunity
to discuss areas relevant to the Board and meet a
variety of managers and employees.
See page 113 for further information on NED induction.
The Non-Executive Directors have access at any time
to the Executive Directors, Senior management and
employees.
All this activity allows the development of a deeper
understanding of the company and to ask questions
about any specific areas of interest. This improves the
constructive challenge at Board meetings.
The Chair is kept up to date about emerging issues
through regular interaction with the Chief Executive,
Chief Financial Officer and other members of
the Executive Committee. Given the number of
new appointments during the year, the Board has
scheduled time together before most meetings to
allow them to develop their personal relationships.
The Chair and Non-Executive Directors schedule
a meeting without the Executive Management
present at each meeting to allow an opportunity to
discuss the operation of the Board and any areas for
consideration are fed back to the Executive Directors.
The Senior Independent Director also held a meeting
of the Non-Executive Directors without management
or the Chair present.
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.
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 81 and in the Audit
Committee report on page 123.
A description of the risks identified,
together with details of how they
are managed or mitigated, is set
out on pages 81 to 86.
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.
112
and regulatory matters were
attended by the Directors as part
of their ongoing development.
As required, professional advisors
are invited to the Board meetings
to provide in-depth updates and
the Board also receive updates
on environmental, employee and
governance issues as appropriate.
The Company Secretary provides
regular updates on regulatory
matters. All Directors participate
in the inhouse online training
that all employees are required
to undertake. This year this has
included IT and cyber security
training. Presentations at the
Board during 2022 have covered
ESG updates, branding, culture,
cyber security, investor views and
market remuneration and policy
trends. In addition, the Company
Secretary provides regular updates
on developments in Corporate
Governance.
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 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 below.
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 and the
day-to-day challenges facing the
business. The Director is also able
to accompany a salesperson and
a driver for a day to help develop
an all-round understanding of the
roles and the challenges faced at all
levels of the organisation.
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. Briefings
are included on health and
safety, investor and workforce
engagement, culture, governance
and risk.
Meetings will also be scheduled
with each Committee Chair and
relevant advisors.
A comprehensive information pack
is provided which includes (but is
not limited to):
•
•
•
•
•
•
•
•
£Background information about
the Group and current strategy
documents;
£Board and committee minutes
and meeting procedures;
£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.
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.
The Directors keep their knowledge
and skills up to date and have the
opportunity to discuss areas for
development with the Chair. Virtual
seminars and on-line courses
run by professional bodies on
various commercial, operational
Headlam Group PLC Annual Report & Accounts 2022
113
Governance
COMPOSITION, SUCCESSION
AND EVALUATION
Board Evaluation
Evaluation Actions for 2022 and progress
Strategy
Culture and People ESG
Diversity
Actions
for 2022
To revisit the purpose
and agree a method of
ongoing monitoring of
its implementation.
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.
Progress
made
in 2022
We continued our focus
on the evolution of our
purpose and values.
The revised Board
People KPI report and
Code of Ethics will
assist in embedding our
purpose and keeping it
under review.
The Employee Forum
was refreshed during
the year and employee
views were reported into
the Board after each
meeting. A revised Board
People KPI report was
developed.
The Executive ESG
Committee was
established chaired by
the Chief Executive.
The outputs of the ESG
Committee are reported
to the Board after each
meeting.
To undertake a
business-wide diversity
assessment and develop
a cohesive plan for the
furtherance of diversity
targets within the
business.
A business-wide diversity
assessment was
undertaken during 2022.
The development of a
diversity and inclusion
plan has been assigned
to the new Chief People
Officer.
2022 Board Evaluation
The Code recommends that there should be a formal and rigorous annual evaluation of the performance of the
Board and its Committees and that this process is externally facilitated at least every three years.
The Board undertook an externally facilitated self-evaluation in 2022 based on a confidential online questionnaire
facilitated by Gould Consulting. Gould Consulting have no other connection to the Company or its Directors.
Preparation for the evaluation included a scoping discussion between Gould Consulting and the Chairman
together with the Company Secretary. The evaluation questionnaire was approved in advance by the Chairman.
This year one questionnaire was used to assess the performance of the Board and its Committees given the
changes to the Board during the year. The evaluation was conducted at the end of the year to allow the new
Non-Executive Directors to attend at least two Board meetings before completion. The questionnaire responses
were anonymous. The resulting report was received and analysed in draft by the Chairman prior to being
submitted to the Nomination Committee for review on behalf of the Board at its meeting in January 2023. Further
detail on the Nomination Committee deliberations can be found in the Nomination Committee report.
The evaluation noted the positive performance of the Board in several areas at this early stage given the recent
appointment of the three new Non-Executive Directors. In addition, it highlighted 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:
The strategy day had provided useful insights and provided a good framework for reviewing progress. There
is a clear strategy implementation plan.
The meetings are well structured, with good debate encouraged. The contributions from the Non-Executive
Directors reflect each individual's area of expertise.
•
•
114
At this early stage of the new Board working together, few issues were signposted through this evaluation and
these are outlined below.
2022 outcomes and actions
ESG
Risk
Diversity
Board Papers
2022
Outcomes
and actions
To ensure that ESG issues
are regularly considered
as the strategy evolves.
The Board will ensure
that it continues to
review the approach to
sustainability and that it
is embedded across the
business.
Risk is discussed in
detail at the Board and
within Committees. The
evaluation results were
good in this area but it
was identified that the
Board could heighten
awareness of emerging
risks over the coming
years.
To continue to focus
on developing diversity
throughout the
organisation.
To signpost the issues
that require Board
engagement and the
key areas for decision.
The Board will support
the development of the
Diversity and Inclusion
Plan.
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.
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 this review noted that
the Chairman was engaged and had shown strong commitment to his role. He was developing a culture in the
Boardroom which facilitated openness and debate. Regular contact with the Non-Executive Directors before
each Board meeting to give an additional opportunity to ensure their interests and concerns were brought into
the boardroom and assist in further improving the level of challenge. During the year he had been instrumental
in ensuring we had the most effective board composition and combination of skills to support the delivery of the
revised strategy.
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.
Headlam Group PLC Annual Report & Accounts 2022
115
Governance
AUDIT COMMITTEE REPORT
Robin Williams, Chair of the Audit Committee
“The influx of new ideas through recent
Committee appointments will continue
to enhance the contribution of the
Committee”
Audit, Risk and
Internal Control
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 2022.
I joined the Board and became
Chair of the Audit Committee
on the 10 October 2022 when
Amanda Aldridge stepped down.
I would like to thank her for her
contribution during her time on
the Committee. The experience of
each member of the Committee
is summarised on pages 86 and 87.
I have over 30 years' experience
with listed companies, including
as founder CEO and Executive
Director on the Boards of FTSE250
companies within the packaging
and the building materials
industries. I have Chaired a
number of Full List and AIM Audit
Committees in recent years as a
non-executive director.
I have undertaken a
comprehensive induction
programme during which I
met Board members, senior
management and I have
undertaken site visits. I have
been briefed on strategy and
operations and met a number of
times with the lead partner from
the External Auditors in addition to
meetings with all key members of
the finance team and the Head of
Internal Audit and the Company
Secretary.
These meetings will be an essential
part of my schedule going forward
to ensure I am fully briefed on the
key issues, technical matters and
judgements and to make sure that
sufficient time is devoted by the
Committee to key areas.
Chris Payne was appointed as
permanent Chief Executive on
8 March 2022. From April 2022,
he was supported by Patrick
Butcher on an interim CFO basis.
We were pleased to announce
the appointment of Adam Philips
on 21 November 2022 who will
join the Board as Chief Financial
Officer in March 2023, at which
point Patrick Butcher will leave
the company following a suitable
handover period. As described in
last year’s report, the Committee
was mindful to satisfy itself that
sufficient financial resource was in
Key responsibilities of the
committee are:
•
•
•
To monitor the integrity
of the Group’s financial
statements and results
announcements and
to review significant
financial reporting issues
and judgements, as
well as other required
disclosures.
To review the adequacy
and effectiveness of the
Group’s internal controls
and risk management
systems, and the
adequacy, effectiveness
and output of the
internal audit function.
To recommend the
external auditor
appointment and
removal, assess
audit quality, assess
independence and
approve fees, monitor
non audit services and
be responsible for audit
tendering.
116
and analyse the issues that are
discussed.
How the Committee
spent its time
The Chief Executive, Chief
Financial Officer, Chair and the
Auditor attend the Committee’s
meetings at the invitation of the
Committee Chair. The Director
of Group Finance and other
members of senior management
are 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. I hold meetings with the
Lead Audit Partner outside of the
formal meeting schedule and keep
in regular contact with the interim
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 during
the year.
Financial Reporting 30%
External Audit 30%
Internal Controls and Risk 25%
Governance 15%
place to support Chris Payne and
the Committee is content that this
has been the case throughout the
financial year.
In this report we share some of the
Committee’s discussions from the
year including the Committee’s
assessment of significant
accounting matters and key
judgements in relation to the
Group’s financial statements, as
well as further information about
how we have discharged our
duties over the year.
Membership and
Meetings
The Committee had four
scheduled meetings during the
year, which took account of the
financial calendar, the audit cycle
and provided time to address
other requirements and priorities.
All members of the Committee
are independent Non-Executive
Directors. Myself, (as Chair) have,
and my predecessor Amanda
Aldridge had, recent and relevant
financial experience. The Board
is satisfied that as a whole all
members of the Committee are
financially literate and have a
wide range of relevant expertise
which allows them to challenge
Headlam Group PLC Annual Report & Accounts 2022
117
Governance
AUDIT COMMITTEE REPORT
CONTINUED
Main role and key responsibilities
The Audit Committee is appointed by the Board and operates under written terms of reference (available in the
investors section at www.headlam.com)
In last year’s report, the Committee’s priorities for 2022 were outlined. The table below sets out how the
Committee has focused on these priorities during 2022.
Key Priorities for 2022
How they were addressed
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.
The Committee welcomed the refresh of the Company’s risk
management framework, which has enhanced the mapping of key
controls to business risks. Preparatory work has been done off the
back of this on reviewing minimum control standards by business
process, which will inform the internal assurance agenda for 2023.
The Committee considered and approved the job description for
a Head of Internal Audit and Mani Roberts joined the Group in
September 2022.
To consider the impact of the BEIS
consultation once the final report is
issued.
In May 2022, the government published its response to the BEIS
consultation. It appears that the government is intending to take an
incremental approach to the changes it wishes to implement. There
was, therefore, limited impact in 2022.
To develop the Company’s approach
to assurance over ESG disclosures.
The newly established ESG Committee held a discussion during the
year regarding external assurance of its sustainability report and
data. However, it was not deemed necessary at this time due to the
Company being supported by two specialist sustainability advisers
and in light of the concentration of its geographies in low risk areas,
the Company being outside the FTSE 350 Index, and the Committee
having confidence in the quality and outputs of its work and overall
ESG strategy.
The Committee intends, over the next year, to build on the progress made during 2022. Our main areas of focus
during 2023 will be:
•
•
•
The development by the executive of a plan to meet the emerging requirements from the BEIS review
The continued improvement of the system of internal controls, including any ERP development across
the Group
The development by the Head of Internal Audit of a robust internal assurance plan
• A specific focus on the assurance of the control framework around cyber risk.
•
Supporting a successful Chief Financial Officer transition.
118
Activities of the Audit Committee during the year
The key activities of the Audit Committee in discharging its principal areas of responsibility are outlined below.
Financial Reporting
External Audit
• Reviewed the half year and annual financial statements
and reports, and the significant financial reporting
judgements and estimates.
• Considered and approved the external audit plan, the
materiality level, the engagement risk profile and the
key members of the external audit team.
• Considered the impact of the inflationary environment
and other risk disclosures in the half year and annual
financial statements and reports.
• Reviewed the process established for ensuring that
the report and accounts are fair, balanced and
understandable, and provided the information
necessary for shareholders to assess the Group’s
performance, business model and strategy
• Considered liquidity risk and the basis for preparing the
half year and full year accounts on a going concern
basis and reviewed the related disclosures in the Annual
Report and Accounts
• Reviewed the financial modelling and stress testing
conducted for the going concern assessment.
• Reviewed and challenged the viability assessment
process in support of the long-term viability statement
based on scenarios arising from identified key risks and
their impacts.
• Reviewed the Auditor’s findings and recommendations,
and management’s response.
• Reviewed and approved the Committee Report to be
published in the Annual Report and Accounts.
• Discussed the audit fee and the increase proposed
due to increased regulatory requirements and
increased costs within the audit profession.
Information on the audit fees can be found on
page 207.
• Discussed the reports on audit findings and met with
the Auditor without management present. There were
no significant issues to report.
• Considered the independence and objectivity
of PwC LLP. The Committee confirmed the
independence of PwC. See page 122.
• Reviewed the effectiveness of the external audit
process. The committee concluded that the audit
was effective and a recommendation was made to
the Board on the reappointment of PwC at the AGM.
See page 118 for the conclusions of the AQR report.
Internal Controls and Risk
Governance
• Approved the establishment of an internal audit
• Reviewed and approved the Committee’s Terms of
Reference and annual programme of business.
• £Approved the Speak Up, Fraud and Anti-Money
Laundering and the prevention of Bribery Policies.
Further information can be found on page 118.
• £Considered the Company’s approach to the
avoidance of modern slavery and human trafficking.
• Received updates on corporate governance
requirements relevant to its responsibilities.
function and approved the job description for the
Head of Internal Audit. Following appointment, the
Committee received an initial view of the internal
control environment and draft work plan for 2023.
• Considered reports from management and
the Auditor on their assessment of the control
environment.
• Reviewed the effectiveness of the risk management
framework and considered the systems and processes
for identifying, managing and mitigating risks.
• Assisted the Board in its assessment of the
emerging and principal risks, reviewed minutes
from the Executive Risk Committee and challenged
management on its activities, ensured that the Board
reviewed and discussed the Risk Register.
• Reviewed reporting disclosures in relation to internal
controls, risk management, principal risks and
uncertainties and the work of the Committee.
Headlam Group PLC Annual Report & Accounts 2022
119
Governance
AUDIT COMMITTEE REPORT
CONTINUED
Significant financial reporting issues and areas of estimate and judgement
The Committee received and discussed reports and recommendations from management and the
Auditor setting out the significant areas of judgement and estimation.
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
are associated with the acquisition of
businesses and other items which by
virtue of their nature, size and 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.
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 amortisation of acquired intangible assets and insurance
proceeds (following fire). 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.
120
Significant issues and areas of
estimate and judgement
How they were addressed
Carrying value of assets
The Group had £7.6 million of goodwill
allocated on its balance sheet at
31 December 2022, 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.
Valuation of employee
benefit liabilities
In the UK, the Company operates a
defined benefit pension scheme (the
‘Scheme’), further details of which are set
out in note 21 to the financial statements.
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.
Recognition of insurance proceeds
Insurance proceeds are recognised when
their recovery is virtually certain and
the amounts can be measured reliably.
This requires management to exercise
judgement over whether the assets can
be measured reliably.
Management performed the annual impairment review of
goodwill, along with impairment reviews for other groups of
assets at both June 2022 and December 2022 where indicators
of impairment were identified. Management concluded that
no impairment was necessary during 2022. The key assumptions
used in an impairment review are the level of revenue growth,
gross margin and the discount rate. Climate change risks were
also considered by management and included in the sensitivity
analysis. Judgements are made by the Directors in identifying the
cash generating units ('CGU') and, during the year, there was a
change in the assessment of CGUs, now considering
each distribution centre to be the smallest groups of assets.
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.
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.
Management explained to the Committee the level of insurance
proceeds that had been received in the year following the fire
that destroyed a building in Kidderminster in December 2021,
along with the judgements that had been made relating to
the insurance proceeds for the reinstatement of the damaged
property and contents and why they could not be measured
reliably at December 2022. The Committee considered the
judgements made by management and discussed with the
Auditor the work they undertook in this area.
The Committee also reviewed the contingent asset disclosure.
Based on this the Committee was satisfied that the approach
taken was appropriate.
Headlam Group PLC Annual Report & Accounts 2022
121
Governance
AUDIT COMMITTEE REPORT
CONTINUED
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 had previously been
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 agreed with
management that assurance
activity would continue to increase
as a result of legislation and that
a central resource to aggregate
and review reporting would be
recruited to further develop
risk procedures and ongoing
monitoring and oversight over
all assurance reporting activities.
The Committee considered and
approved the job description
for a Head of Internal Audit and
Mani Roberts joined the Group in
September 2022.
The Internal Audit function once
fully established will support the
Group’s strategy and objectives
by evaluating and assessing the
effectiveness of risk management
systems, business policies and
procedures, systems and key
internal controls. Once any
recommendations to address
issues are made, they will be
reviewed by management and
the Internal Audit function will
then monitor implementation and
report back to the Committee at
each meeting.
External Auditor
Non-audit services
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. The general
policy is that the external Auditor
must not carry out any non-audit
services. The Group’s statutory
Auditor will only be engaged
to carry out non-audit services
in exceptional circumstances
or where there is a regulatory
request and any such engagement
would be approved by the Audit
Committee. This is to ensure the
independence of the Auditor is
safeguarded. The Committee
last reviewed its policy for the
provision of non-audit services
(‘Non-Audit Policy’) in 2021. 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.
The Non-Audit Policy can be viewed
in the Environmental, Social and
Governance section of the Company’s
website (www.headlam.com).
Independence and objectivity
The Committee annually reviews
the appointment of the Auditor
and considers their independence
and objectivity.
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 Committee considered the
conduct of the Auditor and the
level of challenge displayed during
the course of the year-end audit, in
particular the depth of discussions
and the challenge to the Group’s
approach to its significant
judgements.
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
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 on
the position of the business.
Effectiveness of External Audit
Following the 2021 year-end
audit, an effectiveness review
was performed which aimed to
ensure that the audit had been
robust and encouraged open
feedback and communication
between the Auditor and the
Committee. Feedback was
obtained from members of the
Committee, regular attendees
and members of the finance
team using a specifically designed
questionnaire. The questionnaire
covered several themes including
the calibre of the Auditor, the team
and relationship with the business
and the independence and
objectivity displayed. The progress
achieved against the agreed audit
plan and the competence with
122
which the auditor handled the key
accounting and audit judgements
were also considered.
The results were positive and of
particular note was the strength of
audit governance, independence
and objectivity demonstrated
by the Auditor and the technical
knowledge of the audit team.
In addition, the Committee noted
the results of the FRC Audit Quality
Review of the audit for the year
ended 2021. No key findings were
identified. See page 118 for further
information.
Following the review, the
Committee concluded that
the external auditor, PwC LLP,
remained independent and
that the external audit process
remained effective.
Consideration of Auditor
appointment
In determining whether to
recommend the Auditor for
reappointment this year, the
Committee considered the length
of tenure and ability to perform
an independent audit as well as
the quality of planning and the
ability to meet deadlines. They also
considered the expertise of the
Lead Audit Partner and the wider
audit team and concluded that a
comprehensive and timely audit
had been undertaken.
The Committee therefore
concluded that it was in the best
interest of Company shareholders
to reappoint PwC as the
Company’s external Auditor. The
Committee’s recommendation,
that a resolution to reappoint
PwC LLP be proposed at the AGM,
was accepted and endorsed by
the Board.
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.
Information security
and cyber risk
The Company has a clear
approach to identifying and
mitigating information security
risk which is outlined further on
page 85. 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.
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
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 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 of assurance: at each
meeting, the Committee reviews
the minutes of and considers
assurance provided by the
Executive Risk Committee
as part of its assessment of
the effectiveness of the risk
management framework; 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.
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
further improvements are planned
for 2023.
Headlam Group PLC Annual Report & Accounts 2022
123
Governance
AUDIT COMMITTEE REPORT
CONTINUED
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.
An overview of the risk
management framework and the
principal risks and uncertainties it
identifies, is set out on pages
81 to 86.
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.
Interaction with the FRC
The Company’s Interim Results for
the period ended 30 June 2021
were 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 made certain
disclosure enhancements as part
of the 2021 Annual Report and
Accounts (see page 188 of the
2021 Annual Report and Accounts)
in line with its commitment to
transparent reporting. The FRC
closed its enquiry in February 2022.
The Audit for the year ended
31 December 2021 was chosen by
the FRC for an Audit Quality Review
(AQR) as part of their routine
quality monitoring process. The
Chair of the committee, received
a full copy of the AQR report in
December and discussed the
findings with PwC before reporting
back to the Committee.
During the year, the Audit Quality
Review (AQR) team carried out
a review of PwC’s audit of the
Group’s 2021 Annual Report and
Accounts. PwC confirmed the
findings of the AQR to the Audit
Committee at the March 2023
meeting. The Audit Committee
discussed the content of the
AQR with PwC, noting that there
were no significant areas for
improvement identified within
the report, nor any material
issues in relation to the Financial
Statements. The Audit Committee
is pleased to note that none of
the AQR team's findings were
considered to be of sufficient
significance to be included in their
report, with the testing of supplier
rebates considered to be an
example of good practice.
Fair, balanced and
understandable
At the request of the Board, the
Committee reviewed the Group’s
Annual Report and Accounts and
considered if when taken as a
whole, it was fair, balanced and
understandable as required by
the Code.
The key themes are considered
early in the process which involved
various teams and individuals
within the Group including the
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.
Each Director has the opportunity
to review and feedback on a full
copy of the report which provides
additional oversight and seeks to
ensure the contact is balanced
with both negative and positive
factors being presented so that
stakeholders receive a balanced
picture of the performance of
the Company. This collaborative
approach also helps ensure
consistency between the Strategic
Report, the Governance section
and the Financial Statements.
It was recommended to the Board
that the 2022 Report and Accounts
did 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.
Speak Up Policy, Fraud
and the Bribery Policies
Following a comprehensive review
of the existing Whistleblowing
Policy the Group has launched
a new Speak Up 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.
The channels through which an
employee can raise concerns are
clearly defined and now include a
Speak Up Committee (speakup@
headlam.com) consisting of the
Chief People Officer, Company
Secretary, Director of Group
Finance and Head of Internal Audit.
In addition, an independent
external organisation has been
engaged to provide a further
channel for concerns to be raised
confidentially and anonymously
through a website or via the
telephone. When an incident is
logged the Policy clearly defines
124
the procedures in place to
investigate and to inform the Board
of the result of any investigations.
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. Further
information on Anti-Corruption and
Bribery is available on page 170.
Committee effectiveness
review
The effectiveness of the
Committee was evaluated as
part of the Board evaluation.
This was an externally facilitated
self-evaluation process using
questionnaires. Further details of
this can be found on page 114.
The review found that the
Committee is operating effectively.
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.
I will be available at the AGM to
answer any questions about the
work of the Audit Committee.
This report forms part of the
Corporate Governance Report
and is signed on behalf of the Audit
Committee by:
Robin Williams
Chair of the Audit Committee
8 March 2023
Headlam Group PLC Annual Report & Accounts 2022
125
Governance
NOMINATION COMMITTEE REPORT
Keith Edelman, Nomination Committee Chair
“Our Board appointments give us a full
complement of independent expertise
with strong skills and insight to drive
and oversee the delivery of the
Company's strategy”
Key responsibilities:
• Monitoring the structure,
size and composition
of the Board, its
committees and the
senior management to
ensure they have the
right balance of skills,
knowledge, experience
and diversity to lead the
Group effectively both
now and in the future.
• Making recommendations
to the Board of any
changes required
and leads the process
regarding appointments
to the Board, including
the role as Chair.
•
Succession planning for
the Board (including
Committee Chairs) and
senior management
and making
recommendations to
the Board.
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.
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 2022.
It has been a particularly busy
year for the Committee with the
focus on the recruitment of three
Non-Executive Directors and the
appointment of a Chief Financial
Officer.
Board composition and
Succession Planning –
The focus for 2022
The development of the revised
strategy during the year resulted
in the need to review the skills
and experience required on the
Board. Following a skills review,
the Nomination Committee led
the process to recruit individuals
with the comprehensive skills set
to deliver the strategic objectives
of the Group and to ensure its
continued success in delivering
value for all its stakeholders.
Chair
Philip Lawrence indicated that
he would be stepping down from
his role as Chair and not seeking
re-election at the 2022 Annual
General Meeting. He did not
participate in any discussions in
relation to potential candidates to
fill his role. The Committee agreed
that to ensure continuity during
this period of transition, they would
recommend to the Board that
I should be appointed as Chair
having already held the role as
Senior Independent Non-Executive
Director. I did not take part in
any discussions in relation to my
appointment to the role.
Senior Independent
Director and Remuneration
Committee Chair
As a result of my appointment
to Chair of the Board, it was
necessary to consider the
roles of Senior Independent
Non-Executive Director and Chair
of the Remuneration Committee
in line with the UK Corporate
Governance Code provision
32. The Committee therefore
decided that Simon King, having
served on a Remuneration
Committee for over 12 months
and given his experience be
appointed as Senior Independent
126
Non-Executive Director and Chair
of the Remuneration Committee.
Simon King did not take part
in any discussions in regard to
his appointment to these roles.
He held these positions until he
stepped down from the Board on
the 10 October 2022.
Chief Executive
As previously reported the
recruitment process was led by
Warren Partners LLP, who had no
other connection to the Company
or individual directors.
All the members of the Committee
had the opportunity to interview
each candidate and Chris
Payne was subject to the same
recruitment process as other
candidates who were short listed
for interview.
Following the process, it was
agreed that the Nomination
Committee recommend to the
Board that Chris Payne should be
appointed as Chief Executive.
The Committee agreed that Chris
had performed well as Interim
Chief Executive, establishing
momentum in the business and
moving the agreed strategy
forward.
Chief Financial Officer
Chris Payne was appropriately
supported by the Board, a senior
interim finance director and the
senior finance management
team while we undertook the
recruitment process for a Chief
Financial Officer.
The Committee, the Chief
Executive and the Chief People
Officer worked with Independent
Search Partnership to ensure a
thorough process was followed.
Seven candidates including two
female and an ethic minority
candidate were interviewed.
Three candidates were then short
listed for interview by the CEO
and the interim finance director
and the preferred candidate
was then interviewed by the
CEO and Chair and all the Non-
Executive Directors. As a result, the
Committee recommended the
appointment of Adam Philips as
Chief Financial Officer. Adam has
a proven track record of delivering
to a high level across a variety
of roles and he has significant
experience in financial accounting,
reporting and investor relations.
He is currently Group Financial
Controller at National Express
Group Plc.
Non-Executive
Director Changes
As reported in last years’ report,
it was the Board’s intention to
appoint a new Independent
Non-Executive Director. Following
an open recruitment process
using Teneo (formerly Ridgeway
Partners), Karen Hubbard was
appointed to the Board on
31 August 2022. The Committee
also recommended that she
should be appointed as a member
of the Audit, Nomination and
Remuneration Committees.
Karen has over 25 years'
experience in retail, at both
Executive and Director levels
across various industries and
markets. She has experience of
running multi-channel businesses,
as a Non-Executive Director and
in ESG matters. Her biography can
be found on page 93.
Amanda Aldridge stepped
down as a Non-Executive
Director and Chair of the Audit
Committee on 10 October 2022.
Simon King stepped down as
a Senior Independent Non-
Executive Director, Chair of the
Remuneration Committee and
as the Non-Executive Director
responsible for the Employee voice
on the Board on 10 October 2022.
Headlam Group PLC Annual Report & Accounts 2022
127
Governance
NOMINATION COMMITTEE REPORT
CONTINUED
In their time with the Company,
both made significant
contributions to the Board and the
Committees and helped shape
the revised strategy and we thank
them for all their hard work and
dedication.
The search process for a
replacement for a Chair of the
Audit Committee was conducted
by Eton Bridge and resulted in a
number of excellent candidates.
Following interviews, it was the
view of all Committee members
that Robin Williams presented as
the preferred candidate. Robin has
over 30 years’ experience with listed
companies, including as founder
CEO and Executive Director
with FTSE250 companies within
the packaging and the building
materials industries. His biography
can be found on page 93.
The Committee recommended
to the Board that Robin Williams
be appointed as a Non-Executive
Director and that he should be
invited to become Chair
of the Audit Committee and
join both the Nomination and
Remuneration Committees.
The recruitment agency was
also instructed to produce a list
of candidates for the additional
vacant NED position. Following
previous skill assessments of the
Board, it had been agreed that
the Board would benefit from
additional skills in marketing and
social media. It was also noted
that the required candidate
would need experience as a
Remuneration Chair.
Following the interview process,
the Committee agreed that
Jemima Bird, would be a good
addition to the Board bringing
over 20 years’ retail experience
working with many of the UK’s
leading high street brands. She
has also held numerous Executive
Commercial, Marketing and
Operations positions. Jemima also
has experience as Remuneration
Chair at Revolution Bars plc,
which met the requirements of
Provision 32 of the UK Corporate
Governance Code. As I had worked
for a number of years with Jemima
at Revolution Bars Group plc, I
stood down from the Committee
during the discussions concerning
her appointment. Her biography
can be found on page 93.
The recommendation was made
to the Board that Jemima Bird be
appointed as a Non-Executive
Director and that she should be
invited to become a member of
the Audit, Nomination and Chair of
the Remuneration Committee.
Each candidate was
considered on merit against the
comprehensive candidate brief
developed by the Committee.
A clear specification was agreed
for the independent search agents
and are selected on the basis
they will put forward a diverse
list of candidates.
Following the resignation of
Simon King, it was agreed to
recommend to the Board that
Stephen Bird be appointed as
Senior Non-Executive Director.
His profile and extensive
experience are outlined
on page 92.
Simon King undertook the role
as the Director accountable for
workforce engagement until
his resignation. Following his
resignation, Karen Hubbard was
appointed to the role. In December
2022, she was also appointed
as the Non-Executive Director
overseeing the ESG Committee.
The Committee agreed that these
appointments would give the Board
a full complement of independent
expertise with strong skills and
insight to drive and oversee the
Company’s strategy. The candidates
appointed were outstanding and
brought differing skills, style and
experience that would benefit the
Board. All our new Non-Executive
Directors are highly financially
literate. External references were
taken up on all appointees.
The Board evaluation confirmed
that although it was early days the
Board had already seen the value of
these appointments in the quality
of the discussions and increased
challenge at Board meetings.
The new Non-Executive Directors
have been completing a thorough
induction process since joining
the Company. This has included
meetings with a significant number
of senior managers and several site
visits as well as meeting with key
advisors. Further information can
be found on page 113.
Strengthening the Senior
Management Team
The Committee continued to
focus on the Company’s talent
management strategy with the
new Chief Executive to ensure the
right people with the right skills
were in place in key operational
roles to deliver the strategy and
ensure performance management
was strengthened throughout
the business.
128
As a result, a number of senior
appointments were made during
the year. Clare Moore joined us
as Chief People Officer and Toni
Wood as Chief Customer Officer.
Toni has the remit of leading
customer and digital strategy.
They both joined the Executive
Committee. Biographies can be
found on pages 94 and 95.
Kevin Williams, a highly
experienced Trade Counter
Managing Director joined us
to drive this key component
of our strategy.
Diversity
Board Diversity
Board diversity and the advantages
it can make to decision making
are acknowledged by the Board
and the Committee and were
considered throughout the year.
Appointments were made on
merit against objective criteria
and the recruitment agencies we
appointed during the year were
instructed to present a diverse list
of candidates for all roles. A wide
range of candidates representing
gender and ethnic diversity were
short listed and interviewed during
the recruitment process. Each short
list included a female candidate.
All appointments were made to
ensure the correct complementary
skills were on the Board and the
strength of the experience around
the table would give the right level
of support to the newly appointed
Chief Executive and Chief Financial
Officer. The Committee continues
to be committed to increasing
gender diversity at Board level and
will act positively to seek to achieve
this when the opportunity arises.
The Committee is aware of the
revised listing rule that requires
companies to report information
and disclose against targets on
the representation of women and
ethnic minorities on their boards
and executive management
on a comply or explain basis.
The required disclosures and
commentary will be included
in our 2023 Annual Report.
Gender and ethnic diversity were
considered at every stage of the
recruitment processes that we
undertook during the year. The
Board does not currently have
a director of colour or from an
ethnic minority background and
does not publish specific targets
on ethnicity but are committed
to increasing gender and ethnic
diversity at Board level when
the opportunity arises and the
appropriate candidate can be
identified. 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 the 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 from
ethnic minority backgrounds.
Board
67%
33%33%
Male 4
Female 2
Executive Team
25%25%
75%75%75%
Male 1
Female 3
Managers
81%81%
19%19%19%
Male 248
Female 57
The Board Diversity Policy can be found
on our website at www.headlam.com
For employee split see page 32
Headlam Group PLC Annual Report & Accounts 2022
129
Governance
NOMINATION COMMITTEE REPORT
CONTINUED
Board Tenure
4
2
0-3 years
3-6 years
See page 168 for further information
Board Age
2
1
3
50-55
55-60
60+
Further information on the Board
evaluation can be found on pages
1114 and 114
For information on the Employee
Voice see page 103
For information on the ESG
Committee, see page 109.
The Board biographies as at the
date of this report are detailed on
pages 92–93 of the 2022 Annual
Report and Accounts.
130
Group-wide diversity
Workforce Engagement
In order to increase diversity and
assist in providing a more diverse
pipeline for senior management
roles, the Committee approved
the appointment of a third-party
expert to conduct a business
wide diversity review in 2022. This
engaged with internal stakeholders
via an anonymous employee
survey, a desktop review of relevant
policies and documents, eight
one-to-one interviews with senior
leaders and influencers and six
focus groups with a wide range of
employees attending.
A detailed report was received
and the newly appointed
Chief People Officer alongside
the Chief Executive and the
Committee will be responsible
for planning the approach to
diversity as a result of this report
and to produce a comprehensive
plan to increase diversity. The
Committee acknowledges there
is work to be done in this area
and the Company has improved
the support within the People
team to ensure there is resource
available. For any diversity strategy
to be successful it needs to be
aligned to the culture and values
of the Company and linked to
company strategy. The Purpose,
values and strategy will be part
of a group wide communication
and education programme
early in 2023 and this needs to
be embedded to support the
successful implementation of any
identified and agreed diversity
objectives over the longer term.
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.
The Committee considered the
appointment of a designated
Non-Executive Director for
workforce engagement and
agreed that one should be
appointed. Further information on
the establishment of the Employee
Forum and how the employee
voice is heard in the boardroom
can be found on page 103.
Retirement and
Re-election of Directors
All Board members will stand for
election or re-election at the
2023 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 set
against the agreed strategy.
Following this review the
Committee and subsequently the
Board has concluded that each
Director continues to make an
effective and valuable contribution
and demonstrates commitment
to their role. It is recommended
that shareholders approve the
resolutions to be proposed to the
forthcoming AGM relating to the
re-election of each Director.
This report and the information on
pages 132 and 133 forms part of
the Corporate Governance Report
and is signed on behalf of the
Nomination Committee by:
Keith Edelman
Chair of the Nomination
Committee
8 March 2023
A year of change
This has been a year of significant
Board change, which when Adam
Philips joins us later in the year, will
be completed.
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 and I would
like to thank my fellow directors
and colleagues for their significant
contributions in supporting the
work we have undertaken to ensure
that we have a strong and capable
Board and management team to
dive forward our ambitions.
Priorities for 2023
Over the coming year,
our focus will be to:
• Review the
recommendations
arising from the diversity
assessment with the new
Chief People Officer and
ensure a plan is in place
to improve diversity for
the business as a whole.
• Continue to strengthen
the breadth and
diversity of pipeline for
management succession
across the business.
Headlam Group PLC Annual Report & Accounts 2022
131
Governance
NOMINATION COMMITTEE REPORT
CONTINUED
Membership and
Attendance at Meetings
Held in 2022
The Nomination Committee is
chaired by Keith Edelman. Philip
Lawrence chaired the Committee
until his resignation from the
Board on 19 May 2022. The
Committee comprises a majority
of Independent Non-Executive
Directors as required by the Code
and their biographies are set out
on pages 86 and 87. Appointments
to the Nomination Committee
are made by the Board. The
Committee considers the
composition of the Board and its
committees on an annual basis.
The Nomination Committee met
on five occasions in order to fulfil
its responsibilities delegated to it
by the Board. Attendance is shown
in the table on page 108.
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.
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.
The Chair and the other
Non-Executive Directors are
appointed for an initial period
of three years which, with the
approval of the Nomination
Committee and the Board
would normally be extended
for a two further three years
terms. All appointments are
subject to annual election
by the shareholders.
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.
Time commitments
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, with careful
consideration to their external
appointments, that they can
continue to dedicate sufficient
time to the Group’s business.
All directors have demonstrated
strong time commitment to their
roles during the year and have
all been part of the recruitment
process for Board positions.
The Committee confirms that
they are fully satisfied that each
Director dedicates the appropriate
amount of time to their roles on
the Board and the Committee.
Board and Committee
Evaluation
The effectiveness of the
Committee was evaluated as
part of the Board performance
evaluation process. Full details
of this process can be found on
page 114. The review found that
the Committee was operating
effectively and that its role and
remit remained appropriate. No
significant matters were raised.
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. The Committee
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.
132
Activities of the Nomination Committee during the year
The Nomination Committee agrees an annual workplan and 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
Governance
•
Led the process for the appointment of the
Chief Financial Officer
• Reviewed the structure, size and composition
of the Board and its Committees
• Reviewed the skills and experience required
• Reviewed and updated the terms of reference
by the Board in the context of wider business
needs and culture, long-term strategic
objectives and stakeholder feedback
• Reviewed the skills and experience of
Non-Executive Directors to fully support
the achievement of the Group’s strategic
objectives
•
Led the process for the appointment of
three Non-Executive Directors
• Considered the methods for gathering the
views of the workforce and appointment of a
dedicated Non-Executive Director to the role
• Reviewed succession plans for Board,
Executive team and senior management
•
Supported the recruitment of key
management positions
of the Committee and its annual plan
• Reviewed the time commitment required
of Non-Executive Directors and evaluated
whether enough time had been 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 positions
• Considered and reapproved the policy
on approving external Appointments
• Approved the Board diversity Policy
Evaluation
Reporting
• Reviewed the results of the Board
• Considered and recommended to the Board
effectiveness in relation to the Board
and its own performance
•
£Considered the composition, size and
diversity of the Board
the Nomination Committee Report for
inclusion in the Annual Report and Accounts
Headlam Group PLC Annual Report & Accounts 2022
133
Governance
DIRECTORS’ REMUNERATION REPORT
Jemima Bird, Chair of the Remuneration Committee
“Our focus over the last year has
been to review the Policy to ensure
it remains appropriate and aligned
to our strategy”
Annual Statement
from the Chair of
the Remuneration
Committee
On behalf of the Board,
for the first time as Chair
of the Remuneration
Committee, I am
pleased to present the
Directors’ Remuneration
Report for 2022.
The Report includes this Annual
Statement, a revised Directors’
Remuneration Policy (‘Policy’)
and the Annual Report on
Remuneration for the financial
year ended 31 December 2022.
The Directors’ Remuneration
Report (excluding the Policy)
will be subject to an advisory
shareholder vote at the AGM on
25 May 2023 and the Policy will be
subject to a binding shareholder
vote at the same meeting. This
new Policy, subject to the approval
of shareholders, will last for three
years from the date of approval or
until another policy is approved at
a general meeting in the interim.
Proposed changes
to Policy
Shareholders approved our current
Policy at the 2020 AGM with over
93% of votes cast in favour. The
Policy was updated a year later
to align it to the UK Corporate
Governance Code although
shareholder approval was not
required given the Policy changes
were positive for shareholders
and negative for Directors. The
three-year term of the current
Policy is due to expire in 2023 and
the Committee therefore wishes to
seek approval for a new Policy at
the 2023 AGM.
Some of the changes we are
proposing formalise some of the
features we have already been
operating in practice since the
2021 AGM. In addition, against
a background of the Policy
expiry, progress on strategy and
strengthening of the leadership
team both at Board and Executive
Committee level, and in light
of shareholder feedback, the
Committee is proposing
a number of further changes.
The Committee’s key conclusions
in this regard are as follows:
Key responsibilities:
• Designing the framework
and policy for Executive
Directors' remuneration
and determining
remuneration packages
for the Executive
Directors, Chair and
Senior Managers
• Establishing
remuneration schemes
that promote long-term
shareholding by
Executive Directors and
that support alignment
with Shareholders'
interests, both in post
and post cessation.
• Reviewing workforce
remuneration and
related policies
134
• No changes to the overarching
framework – The Committee
believes that the current
Policy framework continues
to be appropriate and that
no significant changes
are required at this stage.
We operate a simple and
transparent structure which
is well understood by the
management team. The
framework comprises salary,
benefits, workforce-aligned
pension plus an annual
bonus and Performance
Share Plan (the ‘PSP’), both
of which are subject to
stretching performance
conditions. Incentive pay
is subject to withholding
and recovery provisions and
a part of any annual bonus
payment is deferred into
shares for a period of time.
A post-vesting holding period
operates for the PSP and
significant in-employment and
post-cessation share ownership
guidelines apply. These features
enhance the alignment of
interests between our Executive
Directors, shareholders and
other key stakeholders and
contribute to an appropriate
level of risk mitigation.
• PSP award limit – The current
incentive Policy for Executive
Directors is based on a 125% of
salary maximum annual bonus
in combination with up to 100%
of salary PSP awards (noting
that past PSP awards were
typically granted at 80% of
salary). The Committee believes
this has resulted in packages
being overly skewed towards
the short, rather than the
long term. Following a review,
and noting feedback from a
number of shareholders in this
regard, the Committee wishes
to increase the PSP award
limit in order to rebalance
Executive Director packages
towards the longer term and
to ensure remuneration levels
are market aligned. As such,
the Committee is proposing to
increase the PSP award limit
from 100% to 150% of salary
whilst maintaining the annual
bonus maximum at 125% of
salary. Reflecting the increased
award potential, the 200% of
salary exceptional award limit
in the PSP rules will be removed
and financial and non-financial
performance targets will be
set to reflect the additional
potential. A separate resolution
to amend the PSP rules for the
above will be presented at the
2023 AGM.
Pension contributions – The
maximum pension provision
in the current shareholder-
approved Policy for incumbents
is 15% of salary. However, we
have been operating with
a lower cap of 11% of salary
since the 2021 AGM. The Policy
maximum will now be reduced
further to 8% of salary. This
aligns with the contribution
level: (i) received by a
significant proportion of our
employees; and (ii) available
to all new joiners under the
Headlam Master Trust Pension
Scheme.
Post-employment shareholding
requirement – We have been
operating a post-employment
shareholding requirement
since the 2021 AGM and we are
now taking the opportunity
to formally build this into
•
•
our new Policy. We are also
strengthening our requirement
by bringing it into line with
The Investment Association’s
guidance such that 200% of
salary will need to be held for a
full two years.
The Committee has considered
the proposed changes to the
Policy and our approach to
implementation carefully, taking
account of feedback from
shareholders and proxy voting
agencies. We are confident that
the changes will meet our aims of
strengthening the link between
strategy and incentives, more
closely aligning with the market,
and enhancing protection for
shareholders and other key
stakeholders.
Changes to the Board
Chris Payne was appointed Chief
Executive on 8 March 2022 having
previously acted as Interim Chief
Executive (from 7 October 2021)
and as Chief Financial Officer prior
to that. On promotion to Chief
Executive, Chris’s salary was set
at £425,000 and was increased
to £475,000 from 1 January 2023
following satisfactory individual
and Company performance.
Adam Phillips will be appointed
as Chief Financial Officer on
20 March 2023. Adam’s salary was
set at £290,000 with an increase
to £325,000 from 1 January 2024
subject to individual and Company
performance.
Headlam Group PLC Annual Report & Accounts 2022
135
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Business performance
and incentive out-turn
for 2022
As stated in the Chair's statement
on page 6, 2022 was a busy
year, with many achievements
including pleasing progress in early
stage delivery on the strategy.
However, the year also presented
very challenging headwinds, not
least significant operational cost
increases and an inflationary
environment which resulted in
a cost of living crisis, materially
impacting a large proportion
of the Company’s domestic
marketplace. This served to subdue
overall financial performance and
mask early contributions from the
strategy, although they served as
an important counterbalance to
the weak UK residential sector so
that group revenue was broadly
maintained year on year.
For 2022, the Chief Executive
had a maximum annual bonus
opportunity equal to 125% of base
salary, with 70% of the bonus
assessed against the Company’s
underlying profit before tax
performance and 30% against
key strategic and ESG-related
objectives as detailed on page
155. Following the Committee’s
assessment, the performance
against the profit before tax
targets was between threshold
and target and the strategic and
ESG-related targets were met
in full resulting in a total bonus
payment of 38% of maximum
awarded to Chris Payne.
In respect of PSP awards granted in
September 2020 which will vest in
September 2023, which are based
on a relative Total Shareholder
Return measured against the
constituents of the FTSE SmallCap
Index (excluding investment
trusts), Headlam’s TSR was just
below median based on interim
performance to 31 December 2022.
Further details of the 2020 PSP
award are set out on page 156.
Discretion
The Remuneration Committee
is conscious of its role in
ensuring that remuneration is
appropriate when considering
the performance of the business
and the individual directors.
During the year it considered the
formulaic outcomes of the annual
bonus plan and the long-term
incentive plan and was satisfied
that the payments made under
these incentive schemes were
appropriate. Therefore, no
discretion has been exercised
in respect of the year ended
31 December 2022,
Remuneration for 2023
Base salary
As set out in last year’s report,
following his appointment as
Chief Executive on 8 March 2022,
Chris Payne’s base salary was set
at £425,000 from appointment
and increased to £475,000
from 1 January 2023 following
a Committee assessment of
both individual and Company
performance. This remains below
the level of Chris’s predecessor
(£494,000 at the point of cessation
in 2021).
Adam Phillips will join the Board
as Chief Financial Officer on
20 March 2023 with a base
salary set at £290,000. Subject
to individual and Company
performance as reviewed by the
Board this base salary will increase
to £325,000 from 1 January 2024.
This remains below Chris Payne’s
salary as Chief Financial Officer
(£364,000).
Pension
Executive Directors will receive an
8% of salary pension contribution
which aligns with the contribution
level: (i) received by a significant
proportion of our employees; and
(ii) available to all new joiners
under the Headlam Master Trust
Pension Scheme.
Annual bonus and PSP
Maximum bonus potential will
remain at 125% of salary and,
consistent with last year, 70% of
the annual bonus opportunity
will be based on a sliding scale
underlying profit before tax
target and 30% will be based on
a number of key strategic and
ESG-related objectives. The profit
before tax target and strategic
and ESG objectives, which are
considered to be commercially
sensitive at this time, together with
the level of achievement, will be
detailed in the 2023 Annual Report
and Accounts.
Subject to shareholder approval
of the revised Policy, it is the
Committee’s intention to make
PSP awards up to 150% of salary
following the 2023 AGM. As per
last year’s award, vesting will
be subject to EPS targets for
the majority of the award and
relative TSR targets for a minority
element. However, in addition,
and reflecting the increasing
importance of the Company’s
ESG strategy, a target based on
achieving the reduction pathway
required for Scope 1 and 2 total
136
of market value options below
the executive team to focus and
incentivise senior managers for
multi-year strategy delivery.
Conclusion
We remain committed to
a responsible approach to
executive pay, as I trust this
Directors’ Remuneration Report
demonstrates. I would be happy to
meet or speak with shareholders
if there are any questions or
feedback on our approach to
executive remuneration.
Jemima Bird
Chair of the
Remuneration Committee
8 March 2023
emissions compared to baseline to
achieve the interim target aligned
with the Science Based Targets
initiative (‘SBTi’) will be introduced
for a minority of the 2023 (and
subsequent) awards.
The combination of a holding
period requirement under the
PSP, the deferral into shares under
the annual bonus scheme and
the shareholding guidelines will
continue to provide alignment
between the interests of Executive
Directors, the shareholders and
delivery of the strategy.
Shareholder views and
voting outcomes
The Remuneration Committee
conducted a consultation exercise
with our larger shareholders and
the major proxy voting agencies
during the course of 2022 on the
changes we are proposing to
our approach for 2023 and was
grateful for the responses and the
level of support received. As such,
no changes were made to the
original proposals. The Committee
was pleased with the level of
support received for the Directors’
Remuneration Report at the 2022
AGM with over 96% of votes cast
in favour of the advisory resolution.
We hope we will again receive your
support at the forthcoming AGM.
2023 AGM Resolutions
In addition to the resolutions
to approve this Directors'
Remuneration Report, the
proposed Remuneration Policy
and changes to the PSP limit,
we will also be seeking approval
for a new below Board level share
plan. The Headlam Management
Incentive Plan will enable the grant
Headlam Group PLC Annual Report & Accounts 2022
137
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
At a glance remuneration overview
Executive Remuneration for the year ending 31 December 2023
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Salary
Workforce Aligned Pension
Benefits
(c. 30% of total reward assuming maximum performance)
Annual Bonus
Performance Share Plan
Link to Strategy
Performance measures support Group
strategy to:
Performance measures support Group strategy to
deliver:
•
increase profitability for shareholders
• higher returns to shareholders
• deliver key strategic and ESG-related priorities
•
•
increased earnings
the ESG strategy
Potential
(Maximum 125% of Salary)
(Maximum 150% Salary)
1/3rd deferred into shares under the Deferred
Bonus Plan
Two year post vesting holding period
Dividend equivalents accrue to extent
awards vest
Performance measures support Group
strategy to:
Performance measures support Group strategy to
deliver:
•
increase profitability for shareholders
• higher returns to shareholders
• deliver key strategic and ESG-related priorities
•
•
increased earnings
the ESG strategy
FY2023 Performance Metrics
• Underlying Profit Before Tax – 70%
(to support profitability of the business)
• Underlying Basic Earnings Per Share (EPS) –
70% (to support the growth of earnings)
• Key strategic and ESG-related objectives –
• Relative Total Shareholder Return (TSR) – 20%
30% (to support business growth and
ESG objectives)
(to align the interests of Directors with those of
shareholders)
In employment
•
200% of salary
•
•
ESG-related objectives – 10%
(to support key strategic and ESG objectives)
Post employment
Lower of shareholding at cessation of
employment and 200% of salary to be held for
two years post cessation
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138
Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out the
Directors’ Remuneration Policy for the Company.
The three-year term of our current
shareholder-approved Directors’
Remuneration Policy expires in 2023
and, as a result, we are seeking
approval for a new Policy at the
2023 AGM. The Policy in this report
will therefore be put to a binding
shareholder vote at the AGM on
25 May 2023 and will take formal
effect from that date, subject to
shareholder approval. The Policy
will formally apply for three years
beginning on the date of approval
unless a new Policy is presented
to shareholders in the interim.
Following approval all payments to
Directors will be consistent with the
approved Policy.
Considerations when
determining the
remuneration policy
The overarching objective of the
remuneration policy is to promote
the long-term success of the
Group. In seeking to achieve this
objective the policy has been
designed based on the following
key principles:
•
•
To operate remuneration
arrangements which are simple
and transparent, and which
help to build and maintain
a sustainable performance
culture;
To appropriately align
executive reward with the
Group’s strategic objectives
and with the best interests of
shareholders and other key
stakeholders;
•
•
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.
In reviewing our Policy during the
course of 2022, and in planning
for its implementation, we have
been careful to take full account
of the provisions of the Code. In
summary, with regard to how we
have sought to comply with the
six factors outlined in Provision 40
of the UK Corporate Governance
Code, the following are worthy of
particular note:
• Clarity – Our Policy is
transparent and well
understood by our senior
executive team. It has
been clearly articulated
to our shareholders and
representative bodies (both on
an ongoing basis and during
consultation when changes are
being made).
•
Simplicity – A key objective
of the Committee is to
ensure that our remuneration
framework is straightforward to
communicate and operate. We
have operated the same simple
and transparent overarching
structure for many years and
applied it on a consistent basis
across all employees.
• Risk – Our Policy has been
designed to ensure that it is
aligned with the Board’s system
of risk management and risk
appetite. Any inappropriate
risk-taking is discouraged
and mitigated through, for
example (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, non-financial 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-
employment shareholding
guidelines), (iii) the deferral of
a proportion of annual bonus
into shares and the operation
of a post-vesting holding
period for the PSP, and (iv) the
operation of robust recovery
and withholding provisions.
Headlam Group PLC Annual Report & Accounts 2022
139
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
•
•
Predictability – Our incentive
plans are subject to individual
caps, with our share plans
also subject to market
standard dilution limits.
The Remuneration Committee
has full discretion to alter
the pay-out levels or vesting
outcomes to ensure payments
are appropriately aligned with
the underlying performance of
the Company.
Proportionality – There is a
clear link between individual
awards, delivery of strategy and
our long-term performance.
Ensuring our Executive
Directors are not rewarded
for failure underscores our
approach (e.g. through the
significant proportion of our
packages based on long-term
performance targets linked
to the KPIs of the Company,
our ability and openness to
the use of discretion to ensure
appropriate outcomes, and
the structure of our Executive
Directors’ contracts).
• Alignment to culture – Our aim
is to align our Remuneration
Policy to Headlam’s culture
and values. The Remuneration
Committee strives to instil
a sustainable performance
culture at the management
level that cascades
throughout the Company.
The Board sets the framework
of KPIs against which we
monitor the performance
of the Company and the
Remuneration Committee links
the performance metrics of
our incentive arrangements
to those KPIs. We are keen
to foster a culture of share
ownership throughout the
Company and operate all-
employee share scheme
arrangements in pursuit of this
objective.
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. The Company
operates an Employee Forum at
which aspects of remuneration
across the Group (including
Executive Director remuneration)
is discussed. In addition, the
Chair of the Remuneration
Committee receives feedback
on remuneration matters
directly from the designated
workforce engagement
Non-Executive Director and the
Group People Director updates
the Remuneration Committee
periodically on remuneration
arrangements and employment
conditions across the Group.
Shareholder views
The Committee is committed
to an ongoing dialogue with
shareholders and welcomes
feedback on Executive and
Non-Executive Directors’
remuneration. The Committee
will seek to engage directly with
larger shareholders and their
representative bodies should
any material changes be made
to the Policy. The Committee
also considers shareholder
feedback received in relation
to the remuneration-related
resolutions each year following
the AGM. This, plus any additional
feedback received from time to
time, is then considered as part
of the Committee’s annual review
of remuneration policy and its
implementation.
Changes to the
remuneration policy
approved at the
2020 AGM
Shareholders approved our current
Remuneration Policy at the 2020
AGM with 93% of votes cast in
favour. The Policy was updated
a year later at the 2021 AGM to
align it to the 2018 UK Corporate
Governance Code although
140
•
strengthening our requirement
by bringing it into line with best
practice guidance such that
100% of the ‘in-employment’
shareholding guideline
(i.e. 200% of salary) will need
to be held for a full two years
(to date we have set the
required holding at 100% of the
in-employment shareholding
guideline for the first year and
50% of the in-employment
guideline for the second year).
In-employment shareholding
guidelines – We toughened
the approach to our in-
employment shareholding
guidelines at the 2021 AGM such
that rather than requiring 50%
of the net of tax shares which
vest from the PSP and Deferred
Bonus Plan to be retained
against the shareholding
guideline, 100% of the net of
tax shares will be required to
be retained until such point as
the shareholding guideline has
been achieved. This will now be
formally adopted into the new
Policy.
shareholder approval was not
required given the Policy changes
were positive for shareholders
and negative for Directors. Some
of the changes we are proposing
formalise some of the features
we have already been operating
in practice since the 2021 AGM. In
addition, against a background
of the Policy expiry, progress on
strategy and strengthening of
the leadership team both at
Board and Executive Committee
level, and in light of shareholder
feedback, the Committee is
proposing a number of further
changes. Details of the substantive
changes proposed in the new
Policy, along with the rationale for
each, are provided in the annual
statement on page 134. We set out
below a summary of the changes:
• PSP award limit – The
Committee wishes to increase
the PSP award limit in order
to rebalance Executive
Director packages towards
the longer term and to ensure
remuneration levels are
market aligned. As such, the
Committee is proposing to
increase the PSP award limit
from 100% to 150% of salary
whilst maintaining the annual
bonus maximum at 125% of
salary. Reflecting the increased
award potential, the 200% of
salary exceptional award limit
in the PSP rules will be removed
and financial and non-financial
performance targets will be
set to reflect the additional
potential. A separate resolution
to amend the PSP rules for the
above will be presented at the
2023 AGM.
• Safeguards and flexibility –
Some more flexibility has been
built into the Policy to ensure
that (i) the parameters within
which performance measures
for the incentive arrangements
can be selected are sufficiently
broad and (ii) the Committee
has the appropriate latitude
to adjust formulaic outcomes
in light of overall Group
performance.
• Pension contributions – The
maximum pension provision
in the shareholder-approved
Policy for incumbents is 15% of
salary. However, we have been
operating with a lower cap
of 11% of salary since the 2021
AGM. The Policy maximum will
now be reduced further to 8%
of salary to align with workforce
contributions going forward.
• Post-employment shareholding
requirement – We have been
operating a post-employment
shareholding requirement
since the 2021 AGM and we are
now taking the opportunity
to formally build this into
our new Policy. We are also
141
Headlam Group PLC Annual Report & Accounts 2022 Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Summary Policy table for Executive Directors
Component
Base salary
Purpose and
link to strategy
Operation
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.
Benefits
To provide broadly
market competitive
benefits as part
of the total
remuneration
package.
Retirement
benefits
Annual bonus
To provide
employees with
long-term savings to
allow for retirement
planning.
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.
142
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.
Awards are based on performance typically measured over one year.
125% of base salary.
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 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.
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, ESG-related and/or 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.
Maximum opportunity
Performance measures
While there is no maximum salary, increases will normally be
Although there are no formal performance conditions,
in line with the typical range of salary increases awarded (in
any increase in base salary is only implemented after
percentage of salary terms) to the wider workforce.
careful consideration of individual contribution and
performance and having due regard to the factors set
out in the Operation column of this table.
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.
Whilst the Committee has not set an absolute maximum on
Not applicable.
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.
Workforce aligned (currently 8% of base salary).
Not applicable.
Summary Policy table for Executive Directors
Component
Purpose and
link to strategy
Operation
Base salary
To provide a
Salaries are usually reviewed annually, with any increases typically effective
competitive base
1 January.
salary for the market
in which the Group
operates to attract
and retain Executives
of a suitable calibre.
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.
Benefits
To provide broadly
Executive Directors receive benefits in line with market practice, and these
market competitive
include life assurance, private medical insurance, company car or car allowance
benefits as part
and, where relevant, relocation expenses. Executive Directors are also provided
of the total
remuneration
package.
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).
Retirement
benefits
To provide
The Group may offer participation in a defined contribution pension plan or
employees with
may permit Executive Directors to take a cash supplement in lieu of pension up
long-term savings to
to the same value.
allow for retirement
planning.
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.
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 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.
Maximum opportunity
Performance measures
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:
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.
• 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.
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.
Workforce aligned (currently 8% of base salary).
Not applicable.
Annual bonus
Rewards
Awards are based on performance typically measured over one year.
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, ESG-related and/or 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.
Headlam Group PLC Annual Report & Accounts 2022
143
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Component
Performance
Share Plan
(‘PSP’)
Purpose and
link to strategy
Operation
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 Committee retains discretion to adjust vesting levels in exceptional
circumstances, including but not limited to regard of the overall performance of
the Company or the grantee’s personal performance.
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 (normally in 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.
Maximum opportunity
150% of salary.
Performance measures
PSP performance measures may include, and are not
limited to, relative TSR, EPS, strategic measures and
ESG-related objectives.
A maximum of 25% of any element vests for achieving
the threshold performance target and 100% for
maximum performance.
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.
Shareholding
guidelines
To further align the
Executive Directors’
long-term interests
with those of
shareholders.
In employment:
200% of salary.
Not applicable.
Until the guideline has been reached Executive Directors are required to retain
all of the net number of vested shares from the PSP and DBP. Vested shares
which are subject to a holding period under the PSP and shares which are
subject to DBP awards will count towards the limit (on a net of assumed tax
basis).
Post employment:
Executive Directors will normally be required to hold shares at a level equal to
the lower of their shareholding at cessation of employment and 200% of salary
for two years post cessation in respect of any share awards granted after the
2021 AGM and excluding own shares purchased.
Non-Executive Directors (including the Chairman)
Component
Annual Fee
Purpose and
link to strategy
Operation
To attract individuals
with appropriate
knowledge and
experience.
Fees are normally reviewed annually taking into account factors such as the
time commitment and contribution of the role and market levels in companies
of comparable size and complexity.
The Chairman is paid an all-inclusive fee for all Board responsibilities.
Fees for the other Non-Executive Directors may include a basic fee and
additional fees for further responsibilities (for example, chairmanship of Board
committees or holding the office of Senior Independent Director).
In exceptional circumstances, if there is a temporary yet material increase in the
time commitments for Non-Executive Directors, the board may pay extra fees
on a pro rata basis to recognise the additional workload.
Maximum opportunity
Performance measures
Neither the Chairman nor the Non-Executive Directors
Not applicable
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.
144
Component
Purpose and
link to strategy
Operation
Performance
To incentivise
Awards will be in the form of nil-cost share options, conditional shares or other
Executive Directors,
such form as has the same economic effect.
Share Plan
(‘PSP’)
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 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 Committee retains discretion to adjust vesting levels in exceptional
circumstances, including but not limited to regard of the overall performance of
the Company or the grantee’s personal performance.
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 (normally in 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.
Shareholding
guidelines
To further align the
Executive Directors’
long-term interests
with those of
shareholders.
Until the guideline has been reached Executive Directors are required to retain
all of the net number of vested shares from the PSP and DBP. Vested shares
which are subject to a holding period under the PSP and shares which are
subject to DBP awards will count towards the limit (on a net of assumed tax
basis).
Post employment:
Executive Directors will normally be required to hold shares at a level equal to
the lower of their shareholding at cessation of employment and 200% of salary
for two years post cessation in respect of any share awards granted after the
2021 AGM and excluding own shares purchased.
Non-Executive Directors (including the Chairman)
Purpose and
link to strategy
Operation
Component
Annual Fee
To attract individuals
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.
with appropriate
knowledge and
experience.
The Chairman is paid an all-inclusive fee for all Board responsibilities.
Fees for the other Non-Executive Directors may include a basic fee and
additional fees for further responsibilities (for example, chairmanship of Board
committees or holding the office of Senior Independent Director).
In exceptional circumstances, if there is a temporary yet material increase in the
time commitments for Non-Executive Directors, the board may pay extra fees
on a pro rata basis to recognise the additional workload.
Maximum opportunity
150% of salary.
Performance measures
PSP performance measures may include, and are not
limited to, relative TSR, EPS, strategic measures and
ESG-related objectives.
A maximum of 25% of any element vests for achieving
the threshold performance target and 100% for
maximum performance.
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.
In employment:
200% of salary.
Not applicable.
Performance measures
Not applicable
Maximum opportunity
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.
Headlam Group PLC Annual Report & Accounts 2022
145
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
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, ESG-related 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
2023 will be based on underlying
basic Earnings Per Share (‘EPS’),
relative Total Shareholder Return
(‘TSR’) and ESG-related metrics.
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; and ESG-related
objectives are being built in to
reflect the increasing importance
of this aspect of the Group’s
overall strategy. 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.
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:
•
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
146
• We have aligned pension
contributions for Executive
Directors with 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.
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
Such other exceptional
circumstances which, in the
Remuneration Committee’s
absolute discretion, justify such
reimbursement being imposed.
Discretion retained by the
Committee in operation
of the incentive plans
The Committee will operate
the Company’s incentive plans
according to their respective
rules and consistent with normal
market practice, the Listing Rules
and HMRC rules where relevant,
including flexibility in a number
of regards. These include making
awards and setting performance
criteria each year, dealing
with leavers, and adjustments
to awards and performance
criteria following acquisitions,
disposals, special dividends,
changes in share capital and
to take account of the impact
of other merger and acquisition
activity, and to settle awards in
cash. The Committee also retains
discretion within the policy to
adjust the targets, set different
measures and/or alter weightings
for the annual bonus plan and
PSP, pay dividend equivalents
on vested shares up to the date
those shares can first reasonably
be exercised and, in exceptional
circumstances, under the rules of
the long-term incentive plans to
adjust performance conditions to
ensure that the awards fulfil their
original purposes (for example, if
an external benchmark or measure
is no longer available).
All assessments of performance
are ultimately subject to the
Committee’s judgement. Any
discretion exercised, and the
rationale, will be disclosed in the
Annual Remuneration Report.
Differences in pay policy
for Executive Directors
compared to employees
more generally
The Remuneration Policy applied
to the Executive Directors is
similar to the policy for the wider
senior management team in
that a significant element of
remuneration is dependent on
Group performance and the key
principles of the remuneration
philosophy are applied consistently
across the Group below this level,
taking into account seniority and
market practice. Key features
include:
• We aim to provide market
competitive levels of
remuneration across the
workforce in order to recruit
and retain high calibre
employees at all levels;
Headlam Group PLC Annual Report & Accounts 2022
147
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Illustrations of application of remuneration policy
The charts below set out for the Chief Executive and Chief Financial Officer an illustration of the application for
2023 of the proposed Remuneration Policy set out above. The charts show the split of remuneration between
fixed pay and annual bonus and PSP on the basis of minimum remuneration, remuneration receivable for
performance in line with the Group’s expectations, maximum remuneration (not allowing for any share price
appreciation) and maximum remuneration (assuming 50% share price growth).
0
0
0
£
'
£2,200
£2,100
£2,000
£1,900
£1,800
£1,700
£1,600
£1,500
£1,400
£1,300
£1,200
£1,100
£1,000
£900
£800
£700
£600
£500
£400
£300
£200
£100
£0
£2,194
17%
£1,837
39%
32%
32%
27%
£1,006
17%
30%
£531
100%
53%
29%
24%
Share price growth
Long-term incentive
Annual bonus
Fixed
£613
17%
30%
53%
£323
100%
£1,338
16%
£1,121
39%
33%
32%
27%
29%
24%
Minimum
On-target
Maximum
Chief Executive
Max with
growth
Minimum
On-target
Maximum
Chief Financial Officer
Max with
growth
In illustrating the potential reward, the following assumptions have been made.
Fixed pay
Annual bonus
PSP
Fixed elements of
remuneration only – base
salary (being the salary
effective 1 January 2023
(or date of joining if later),
an estimated value for
benefits and cash in lieu of
pension of 8% of salary
Minimum
performance
On-target
(performance in line
with expectations)
Maximum
performance
Maximum
performance
plus 50% share
price growth
No annual bonus award.
No vesting.
50% of maximum
awarded (equivalent
to 62.5% of salary)
for achieving target
performance.
125% of salary awarded
for achieving maximum
performance.
25% of maximum award
vesting (equivalent to 37.5%
of salary) for achieving target
performance.
100% of maximum award
vesting (equivalent to 150% of
salary) for achieving maximum
performance.
100% of maximum award
vesting (equivalent to 150% of
salary) for achieving maximum
performance plus hypothetical
share price growth of 50%.
Notes to the scenarios methodology:
• Annual bonus includes amounts deferred into shares.
•
PSP is measured at face value, i.e. no assumption for dividends or share price growth
(other than in the fourth scenario).
• Any potential amounts relating to all-employee share schemes have been excluded.
148
Recruitment
remuneration
The policy aims to facilitate
the appointment of individuals
of sufficient calibre to lead
the business, to execute the
Group’s strategy effectively
and to promote the long-term
success of the Group for the
benefit of shareholders and other
stakeholders. When appointing
a new Executive Director, the
Committee seeks to ensure that
arrangements are in the best
interests of the Group and not to
pay more than is appropriate.
The Committee will take into
consideration a number of relevant
factors, which may include the
calibre and experience of the
individual, the candidate’s existing
remuneration package, and the
specific circumstances of the
individual, including the jurisdiction
from which the candidate was
recruited.
When hiring a new Executive
Director, the Committee will
typically align the remuneration
package with the above Policy.
The Committee may include other
elements of pay which it considers
are appropriate; however, this
discretion is capped and is subject
to the principles and the limits
referred to below.
• Base salary will be set at a level
appropriate to the role and the
experience of the Executive
Director being appointed
and the circumstances of the
appointment. This may include
agreement on setting the
salary at below the market rate
with a series of future staged
increases planned in order to
bring the salary up to a market
level, in line with progression in
the role, increased experience
and/or responsibilities,
and subject to satisfactory
performance, where it is
considered appropriate.
• Retirement benefits will be
workforce aligned and other
benefits will be provided in line
with the above policy.
•
•
•
•
If the Executive Director will
be required to relocate in
order to take up the position,
it is the Group’s policy to allow
reasonable relocation, travel
and subsistence payments. Any
such payments will be at the
discretion of the Committee.
The Committee will not offer
non-performance related
incentive payments (for
example a ‘guaranteed
sign-on bonus’).
If an Executive Director
is recruited at a time in
the year when it would be
inappropriate to provide a
bonus or long-term incentive
award for that year as there
would not be sufficient time
to assess performance,
subject to the limit on variable
remuneration set out below,
the quantum in respect of the
months employed during the
year may be transferred to
the subsequent year so that
reward is provided on a fair and
appropriate basis.
The Committee may also alter
the performance measures,
performance period, vesting
period, deferral period
and holding period of the
annual bonus or PSP, if the
Committee determines
•
•
that the circumstances of
the recruitment merit such
alteration. The rationale
will be clearly explained
in the following Directors’
Remuneration Report.
The maximum level of variable
remuneration which may be
granted (excluding ‘buyout’
awards as referred to below)
is 275% 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
Headlam Group PLC Annual Report & Accounts 2022
149
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
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
Payments for loss of office
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.
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 base 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 (i.e. normal
good leaver provisions) and their contribution to the business during the annual bonus
period in question. Any annual bonus award amounts paid in respect of a good leaver 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) and normally subject to
deferral policy. 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).
150
Policy
PSP
The extent to which any unvested award will vest will be determined in accordance with the
rules of the PSP.
Unvested awards will normally lapse on cessation of employment. However, if a participant
leaves due to death, ill health, injury, disability, the sale of his employer or any other reason at
the discretion of the Committee, the Committee shall determine whether the award will be
released at cessation or on the normal release date or at some other time (such as following
the end of the performance period). In any case, the extent of vesting will be determined
by the Committee taking into account the extent to which the performance condition is
satisfied and, unless the Committee determines otherwise, the period of time elapsed from
the date of grant to the date of cessation relative to the performance period. Awards may
then be exercised during such period as the Committee determines.
If a participant leaves for any reason (other than summary dismissal) after an award has
vested but before it has been released (i.e. during a ‘holding period’), his award will ordinarily
continue until the normal release date when it will be released to the extent it vested. The
Committee retains discretion to release awards when the participant leaves.
Awards (in the form of nil cost options) which have vested and been released but remain
unexercised at the date of cessation may be exercised, for such period as the Committee
determines, if a participant leaves for any reason (other than summary dismissal).
Change of
control
The extent to which unvested awards under the DBP and PSP will vest will be determined in
accordance with the rules of the relevant plan.
Mitigation
Other
payments
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.
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.
Headlam Group PLC Annual Report & Accounts 2022
151
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Where a buy-out award is made under the Listing Rules then the leaver provisions would be determined at the
time of the award.
Where the Committee retains discretion, it will be used to provide flexibility in certain situations, taking into
account the particular circumstances of the Director’s departure and performance.
There is no entitlement to any compensation in the event of Non-Executive Directors’ fixed-term agreements
not being renewed or the agreement terminating earlier.
Existing contractual arrangements and historical awards
The Committee retains discretion to make any remuneration payment or payment for loss of office outside the
policy in this report (including exercising any discretions available to it in connection with any such payment):
• where the terms of the payment were agreed before the policy came into effect (including the satisfaction
of options granted under the CIP), provided in the case of any payment whose terms were agreed after the
previous Directors’ Remuneration Policy was approved and before the policy in this report became effective,
the remuneration payment or payment for loss of office was permitted under that former policy;
• where the terms of the payment were agreed at a time when the relevant individual was not a Director of
the Group and, in the opinion of the Committee, the payment was not in consideration of the individual
becoming a Director of the Group.
External appointments
The Board believes that experiences of other companies’ practices and challenges is valuable both for the
personal development of its Executive Directors and for the Group. Any external appointments are subject to
board approval (which would not be given if the proposed appointment would lead to a material conflict of
interest). Fees received by Executive Directors in respect of external non-executive appointments are retained
by the individual Director. Details of such appointments are included in the Annual Report on Remuneration.
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 2022 and 2021.
Executive Directors’ remuneration as a single figure – 2022 (audited)
Base
salary/
fees
£000
416
Non-salary
benefits2
£000
Pension
related
benefits3
£000
Annual
performance
bonus4
£000
Share-
based
incentive
schemes5
£000
19
35
204
–
Executive Director
Chris Payne1
Total
£000
674
Total
fixed
£000
470
Total
variable
£000
204
1 Chris Payne served as interim Chief Executive up to 28 February 2022 and was appointed Chief Executive from 1 March 2022.
2 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.
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 Details of the annual bonus award are set out on the following page.
5 As a result of the COVID-19, the grant of 2020 PSP awards was delayed until 11 September 2020 with performance based on relative Total
Shareholder Return measured against the constituents of the FTSE SmallCap Index (excluding investment trusts) over the three years from
grant. Based on an interim assessment as at 31 December 2022, Headlam’s TSR was below median (suggesting nil vesting) albeit the final
outcome will not be known until September 2023.
152
Executive Directors’ remuneration as a single figure – 2021 (audited)
Base
salary/
fees
£000
Non-salary
benefits1
£000
Pension
related
benefits2
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes3
£000
364
378
742
18
13
31
40
–
40
455
473
928
–
–
–
Executive Director
Chris Payne
Former Director
Steve Wilson4
Total
Total
£000
877
864
1,741
Total
fixed
£000
422
391
813
Total
variable
£000
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 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.
3 Performance conditions for the PSP were tested after 31 December 2021 and 0% of the award vested in March 2022.
4 Steve Wilson stepped down from the Board on 6 October 2021.
The following tables report the total remuneration receivable in respect of qualifying services by each of the
Non-Executive Directors for the years 2022 and 2021.
Non-Executive Directors’ remuneration as a single figure – 2022 (audited)
Base
salary/
fees
£000
Non-salary
benefits
£000
Pension
related
benefits
£000
Annual
performance
bonus
£000
Share-based
incentive
schemes
£000
Total
£000
Total fixed
£000
Total
variable
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58
59
118
62
52
17
13
13
58
59
118
62
52
17
13
13
392
392
–
–
–
–
–
–
–
–
–
Philip Lawrence1
Amanda Aldridge2
Keith
Edelman3
Simon King4
Steven Bird5
Karen Hubbard6
Robin
Williams7
Jemima Bird7
Total
58
59
118
62
52
17
13
13
392
1 Appointed 01.06.18. Left 19.05.22
2 Appointed 01.02.18. Left 10.10.22
3 Appointed 01.10.18. Chair from 19.05.22
4 Appointed 14.05.21. Left 10.10.22
5 Appointed 13.09.21
6 Appointed 01.09.22
7 Appointed 10.10.22
Headlam Group PLC Annual Report & Accounts 2022
153
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Non-Executive Directors’ remuneration as a single figure – 2021 (audited)
Director
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.
Annual performance bonus in respect of financial year 2022
Total
£000
143
53
14
61
28
13
312
Total fixed
£000
Total
variable
£000
143
53
14
61
28
13
312
–
–
–
–
–
–
–
For 2022, the Interim Chief Executive/Chief Executive had a maximum annual bonus opportunity equal to 125%
of base salary with 50% of maximum payable for a target level of performance. The bonus was assessed against
the Company’s underlying profit before tax (PBT) (70% of bonus opportunity) and against the achievement of a
number of key strategic and ESG-related objectives (30% of bonus opportunity) as shown in the tables below:
Performance
metric
Underlying PBT
Strategic/ESG
objectives
Weighting
Threshold
performance
Target
performance
Maximum
performance
Actual
performance
70%
30%
100%
£36.9m
£41.0m
£49.2m
£37.1m
See table
right
Bonus
earned
(% max)
12%
100%
Bonus
Receivable
(£)
Chris Payne
44,444
159,375
38%
203,819
154
Strategic and ESG-related objectives
The following non-financial strategic objectives for Chris Payne were designed to focus on the achievement of
certain key elements of Company strategy.
Potential
Bonus
Bonus
achieved
(% of bonus
(% of bonus
Objective
Target
Committee Assessment
opportunity)
opportunity)
Key Accounts
(Growth)
Sign at least three
material new, or
materially expanded,
customer contracts
in 2022.
Target met. Two new material
contracts were secured
during 2022 and one material
contract was significantly
expanded.
7.5%
7.5%
Trade
Counters
(Growth)
Customer
(Growth)
Carbon
Footprint
ESG
Continue with the trade
counter roll-out and
deliver at least one new
counter or major refit
per month in 2022.
Target met. Five new trade
counters, six refits and three
counter relocations were
delivered (i.e. 14 in total
against a target of 12)
Develop a proposition
in respect of a material
contract with the house
builder or contractor
during 2022.
Develop and implement
a new ESG Committee
during 2022 and
increase plug-in hybrid
and low emission
vehicles across the fleet
to at least 50% by the
end of 2022.
Target met. The board
was pleased to see a new
contract signed with a major
house builder during the year.
Target met. The ESG
Committee was successfully
established in 2022 and
the proportion of the non-
commercial fleet increased to
69% in respect of plug-in and
low emission vehicles.
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
Total
30%
30%
Consistent with the remuneration policy, one-third of the bonus award will be deferred into shares for
a two-year period.
Headlam Group PLC Annual Report & Accounts 2022
155
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
2020 PSP due to vest in 2023
Awards granted under the PSP in September 2020 are based on relative TSR performance with an underlying
financial performance underpin measured over the three-year period from grant. As described in the 2020
annual report, the Committee had originally intended to make PSP awards in 2020 in line with the normal
approach at that time of basing vesting 80% on EPS and 20% on relative TSR. However, given the onset of the
pandemic, the Committee concluded that due to the uncertainty surrounding the full impact of COVID-19,
the awards should be delayed by six months and that relative TSR should govern 100% of the headline level of
vesting. The interim performance outcome as at 31 December 2022 (noting that the final assessment will not be
calculated, and the final vesting value known, until September 2023) was as follows:
Vesting (% of maximum)
0%
25% (threshold)
100% (maximum)
Interim assessment at 31 December 2022
Forecast vesting as at 31 December 2022
Director
Chris Payne
TSR relative performance against
constituents of the FTSE SmallCap Index
(excluding investment trusts)
Below median
Median
Upper quartile
Just below median
–
Shares
vesting
(estimate)
Value of
shares
vesting
(estimate)
–
–
Shares
granted
103,669
Share awards granted during the financial period
PSP awards
PSP awards were granted to the Chief Executive on 8 April 2022 as follows (audited):
Director
Chris Payne
Number of
nil-cost
options
over which
award
granted
111,548
Value of
Award
£000
425
% of
salary
100
% of award
vesting at
threshold
Date of
grant
Performance
period
25
8 April 2022
3 years
The share price used to determine the number of shares under the PSP was 381 pence, being the average
mid-market closing share price for the five business days prior to the date of award.
156
The Awards are subject to an underlying Basic 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
Straight-line vesting between points.
Underlying Basic
EPS growth
(80% of award)
Less than 6% p.a.
6% p.a.
10% p.a.
% vesting
–
25
100
TSR relative performance
against constituents of
the FTSE SmallCap Index
(excluding investment
trusts)
(20% of award)
Below median
Median
Upper quartile
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.
DBP awards
In addition, following payment of the annual bonus in respect of the financial year ended 31 December 2021, the
Company granted nil-cost options to Chris Payne over 39,822 shares under the Deferred Bonus Plan (“DBP") on
8 April 2022. The award will not vest until the second anniversary of the grant date, and is subject to dividend
equivalents in the form of additional shares. The number of ordinary shares over which the awards were granted
was calculated based on a share price of 381 pence per ordinary share as per the PSP award above.
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 estimated at 4% 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 22 to the financial statements.
Pension-related benefits
Chris Payne received pension contributions from the Company equivalent to 11% of his base salary for the period
prior to his promotion to Chief Executive. On promotion to Chief Executive his pension contributions reduced
to 8% of base salary which aligns with the contribution level (i) received by a significant proportion of our
employees and (ii) available to all new joiners under the Headlam Master Trust Pension Scheme.
Headlam Group PLC Annual Report & Accounts 2022
157
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Payment for loss of office and to past Directors (audited)
As disclosed in last year’s Directors’ Remuneration Report, Steve Wilson stepped down from the Board
on 6 October 2021. Steve was paid £423,833 in lieu of basic salary and benefits for the remainder of his
twelve-month notice period during 2022 and received private medical expenses insurance at the same
level of cover enjoyed at the time of his departure with a value equal to £1,919.
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
2021
Shares /
options
granted
Shares /
options
lapsed
Shares /
options
exercised
Scheme
PSP
PSP
DBP
PSP
DBP
PSP
PSP
SAYE
–
111,548
64,137
–
–
39,822
103,669
24,076
63,707
2,770
7,929
–
–
–
–
–
–
–
–
–
–
63,707
–
–
Number
of shares/
options at
31 December
2022 Date of grant
111,548 8 April 2022
64,137 9 April 2021
39,822 8 April 2022
103,669 11 Sept 2020
24,076 11 Sept 2020
– 10 April 2019
– 25 Sept 2017
–
–
–
–
–
–
2,770
–
7,929 5 Oct 2020
Share
price
at grant
(pence)
Exercise
price
(pence)
Market
price
on
exercise
date
(pence)
Vesting
date Expiry date
381
454
381
281
281
448
536
271
Nil
Nil
Nil
Nil
Nil
Nil
Nil
– April 20251 April 2032
– April 20241 April 2031
– April 2024 April 2032
– Sept 20231 Sept 2030
– Sept 2022 Sept 2030
– Mar 2022 April 2029
380 Mar 2020 Sept 2027
227
– Nov 2023 April 2024
1 Award vests on date shown but is subject to a further two-year holding period during which time the option may not be exercised.
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 2022
were as set out below. There have been no changes to those interests between 31 December 2022 and the date
of signing of these financial statements and reports.
Interests in Share Schemes
Directors
Chris Payne
Keith Edelman
Jemima Bird
Stephen Bird
Karen Hubbard
Robin Williams
Former Directors2
Philip Lawrence
Amanda Aldridge
Simon King
Owned
Shares at
31 December
2022
1,489
19,479
Nil
5,000
Nil
Nil
11,184
Nil
25,933
PSP
Deferred
Bonus
279,354
63,898
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Shares under
Shareholding
Guidelines1
Guidelines
achieved
(%)
35,355
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
13
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
SAYE
7,929
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
CIP
Nil
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1 This includes all owned shares plus those vested scheme interests included on a net of tax basis as allowed under the Company’s share
ownership policy.
2
Interests shown to the date of stepping down from the Board.
158
TSR graph
The graph below shows the value at 31 December 2022 of £100 invested in the Company on 1 January 2013
compared to the value of £100 invested in the FTSE SmallCap Index, making the assumption that dividends
are reinvested to purchase additional equity.
300
250
200
150
100
50
)
0
0
1
o
t
d
e
t
a
t
s
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
0
31 Dec 12
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
Headlam Group plc
31 Dec 18
31 Dec 19
FTSE SmallCap Index
31 Dec 20
31 Dec 21
31 Dec 22
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.
Chief Executive remuneration table
The table below sets out the remuneration of the Chief Executive for the latest ten financial year periods.
Period
2022
2021
2021
2020
2019
2018
2017
2016
2015
2014
2013
Chief Executive
single figure of total
remuneration
(£000)
Annual bonus
(% of maximum
opportunity)
Long-term
incentive
vesting rates
against maximum
opportunity (%)
Chris Payne
Chris Payne
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
674
2051
8642
514
798
588
1,069
1,0673
7374
1,175
1,134
927
38
100
100
–
45.5
–
65.8
76.8
n/a
87.1
81.4
42.7
–
–
–
–
5.7
53.5
97.5
98.6
88.9
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.
Headlam Group PLC Annual Report & Accounts 2022
159
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
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, 2021
and 2022. Going forward, this disclosure will build up over time to cover a rolling five-year period.
Director
Executive Director
Chris Payne
Non-Executive Directors
Keith Edelman6
Stephen Bird4
Jemima Bird7
Karen Hubbard7
Robin Williams7
Former Directors
Philip Lawrence8
Amanda Aldridge8
Simon King4
Steve Wilson5
Alison Littley5
All employees1
2022
2021
2020
Salary and
fees
(% change)
All taxable
benefits
(% change)
Annual
bonuses3
(% change)
Salary /
fees
(% change)
All taxable
benefits2
(% change)
Annual
bonuses
(% change)
Salary /
fees
(% change)
All taxable
benefits
(% change)
Annual
bonuses
(% change)
25
27
(55)
95
282
N/A
N/A
N/A
(60)
12
120
N/A
N/A
3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(6)
(74)
–
–
N/A
N/A
N/A
N/A
–
–
N/A
(23)
(75)
–
(10)
100
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(24)
N/A
5
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100
N/A
100
2
–
N/A
N/A
N/A
N/A
–
–
N/A
2
8
2
–
(100)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2
N/A
(14)
N/A
N/A
N/A
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 This reflects annual bonus paid for performance during 2022, with payments made in March 2023, as per the single figure table.
4 Stephen Bird and Simon King joined the board on 13 September 2021 and 14 May 2021 respectively. Simon King stepped down from the Board
on 11 October 2022.
5 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.
6 Keith Edelman was promoted from Senior Independent Director to Non-Executive Chairman on 19 May 2022.
7 Jemima Bird and Robin Williams joined the Board on 11 October 2022 and Karen Hubbard joined the Board on 1 September 2022.
8 Philip Lawrence stepped down from the Board on 19 May 2022 and Amanda Aldridge stepped down from the Board on 11 October 2022.
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.
2022
£000
27,292
94,766
2021
£000
6,588
101,426
% change
314.3
(6.6)
Dividends1
Pay
1
Includes dividends paid during the financial year.
160
CEO pay ratio
The data shows how the Chief Executive’s single figure remuneration for 2022 (as taken from the single figure
remuneration table) compares to equivalent single figure remuneration for the year ended 31 December 2022
for full-time equivalent UK employees, on a Group basis, ranked at the 25th, 50th and 75th percentile.
2022
20211
2020
2019
25th
percentile
ratio
Median
(50th
percentile)
ratio
75th
percentile
ratio
29.2:1
51.1:1
25.8:1
39.3:1
24.0:1
38.9:1
20.7:1
31.8:1
16.9:1
26.5:1
14.4:1
22.7:1
Method
Option A
Option A
Option A
Option A
1 The remuneration for comparison for 2021 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 been included for the period in which Chris Payne was Chief Executive to align with his pay package.
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
2022
Percentile
Salary
(£)
Total pay
and benefits
(£)
25th percentile
22,518.00
23,060.86
Median
27,403.14
28,092.41
75th percentile
34,484.36
39,767.78
The CEO pay ratios for 2022 are lower than those for 2021. This is primarily due to the CEO single figure reducing
year on year which reflects the lower annual bonus award for 2022 (38% of maximum) compared to 2021 (100%
of maximum). As such, given that the change in the ratios is due to the CEO’s performance related pay (which
will by its nature fluctuate year on year) rather than a material change to employee pay, the Remuneration
Committee considers the median CEO pay ratio to be representative of the UK employee base.
Executive Directors’ service contracts
Chris Payne was appointed on 13 September 2017 and the date of his current service contract is 8 March 2022.
His service contract may be terminated on 12 months’ notice from either party.
Non-Executive Directors’ letters of appointment
Details of the current Non-Executive Directors’ appointment dates are set out below:
Non-Executive Director
Date of appointment
Expiry of current term
Keith Edelman
Jemima Bird
Stephen Bird
Karen Hubbard
Robin Williams
1 October 2018
30 September 2024
11 October 2022
10 October 2025
13 September 2021
12 September 2024
1 September 2022
31 August 2025
11 October 2022
10 October 2025
Headlam Group PLC Annual Report & Accounts 2022
161
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Statement of implementation of remuneration policy in 2023
Details of how the Company will operate the Remuneration Policy in 2023 are provided below.
Base salaries for 2022
Chris Payne’s salary increased from £425,000 to £475,000 effective 1 January 2023. This was the second of two
planned increases following Chris’s promotion to Chief Executive and follows an assessment by the Committee
of individual and Company performance.
Adam Phillips will join the Board as Chief Financial Officer on 20 March 2023 with a base salary set at £290,000.
Subject to individual and Company performance as reviewed by the Board this base salary will increase to
£325,000 on 1st January 2024. This remains below Chris’s salary as Chief Financial Officer (£364,000).
Pension
Executive Director annual pension contribution is 8% salary.
Annual bonus
The maximum annual bonus opportunity for 2023 will remain at 125% of base salary and on-target bonus will
continue 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 and
ESG-related objectives. The strategic targets relate to various measurable objectives that underpin Company
growth and ESG strategy. Full disclosure of the targets will be provided in the 2023 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 2023 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 Basic EPS Growth and relative TSR. However,
in addition, and reflecting the increasing importance of the Company’s ESG strategy, an ESG target will be
introduced for 10% of the 2023 (and subsequent) awards. The ESG target for the 2023 PSP awards will be based
on a reduction in greenhouse gas emissions based on an interim target aligned with the SBTti of a 46% reduction
by 2030 against a 2019 baseline (noting the Company's commitment to get to net zero emissions (Scope one
and two) by 2035). Subject to the approval of our revised Policy, awards in respect of 2023 will be granted in the
form of nil cost options over ordinary shares in the Company at the level up to 150% of salary.
The proposed performance targets are set out in the table below:
Vesting
(% of maximum)
0%
25%
100%
Straight-line vesting between points.
Underlying Basic
EPS for 2025
(70% of award)
TSR v
FTSE SmallCap
(ex ITs)
(20% of award)
tCO2e%
reduction
(10% of award)
Less than 32.5p
Below median
Less than 22%
32.5p
38.5p
Median
Upper quartile
22%
25%
In addition to the above performance targets, the Committee will consider whether there has been any windfall
gains at the point of vesting.
162
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.
Non-Executive Directors’ fees for 2023
The following fees are to be applied for the financial year ended 31 December 2023.
Role
Chairman fee
Non-Executive Director base fee
Senior Independent Director fee
Audit Committee chair fee
Remuneration Committee chair fee
Employee Forum and ESG committee fee
Remuneration Committee activity
Fees
effective
1 Jan 2023
£000
Fees
effective
1 Jan 2022
£000
150.0
50.0
10.0
7.5
7.5
7.5
150.0
50.0
10.0
7.5
7.5
–
The Board approved the terms of reference, delegating certain responsibilities to the Remuneration Committee,
most recently on 21 September 2022. 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
Jemima Bird1
Stephen Bird
Karen Hubbard1
Robin Williams1
Former Member
Philip Lawrence2
Amanda Aldridge2
Simon King2
Meetings
attended
Eligible to
attend
5
2
5
2
2
2
3
3
5
2
5
2
2
2
3
3
1 Jemima Bird and Robin Williams joined the Committee on 10 October 2022 and Karen Hubbard joined the Committee on 1 September 2022
2 Philip Lawrence stepped down from the Board and Committee on 19 May 2022 and Amanda Aldridge and Simon King stepped down from the
Board and Committee on 10 October 2022.
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 Consultants LLP. 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 2022
163
Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
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
Remuneration Committee Activities
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.
The key matters discussed at the meetings of the Remuneration Committee in 2022 were as follows:
Remuneration
Governance
• Reviewed wider workforce remuneration arrangements,
• Undertook a comprehensive review of the Directors’
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 2019 PSP;
• Approved the Annual Bonus payments for 2022;
• Approved the PSP Award and targets;
• Considered remuneration for Executive Directors,
Senior Management and the Chairman; using updated
benchmarking data where appropriate; and
• Considered appropriate package for the new Chief
Financial Officer.
Remuneration Policy which culminated in the
preparation of a revised Policy. This Policy is to be put
to shareholders for approval at the 2023 AGM;
• Sought the views of our major shareholders and the
main voting agencies as part of a comprehensive
investor consultation exercise to inform the design
process for the revised Policy;
• Reviewed guidance from investor bodies and
institutional shareholders;
• Consulted with proxy voting recommendation
agencies prior to the AGM;
• Received feedback from the Employee Forum in
December 2022 on matters relating to remuneration;
• Received an AGM debrief and governance update
and considered recommendations made by the
voting agencies in their AGM reports;
• Reviewed its own terms of reference; and
• Approved its annual workplan.
Reporting
Effectiveness
• Approved the Remuneration Report (including CEO
• Reviewed the Committee’s effectiveness; and
pay ratio and Gender pay gap disclosure).
• Reviewed the performance of its independent advisor
FIT Remuneration and determined that they should
remain in office.
164
Remuneration Committee effectiveness
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.
Advisers
FIT Remuneration Consultants LLP (FIT) has served as
independent adviser to the Remuneration Committee
throughout the year under review. FIT also provided
additional related advice to the Company in relation
Statement of shareholders’ votes
to drafting this report, share plan rule drafting and
Non-Executive Director fee benchmarking. FIT’s fees
in respect of advice provided during the year ended
31 December 2022 were £38,444 (excluding VAT) and
were charged on a time and disbursements basis. FIT
is a member of the Remuneration Consultants Group
and as such voluntarily operates under its Code of
Conduct in relation to executive remuneration in
the UK. The Remuneration Committee reviewed the
performance of the FIT and was satisfied that all
advice received was of good quality, objective and
independent.
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 2022 AGM.
2020 Remuneration Policy
2022 Directors’ Remuneration Report
% of
votes cast
For
% of
votes cast
Against
92.57
96.06
7.43
3.94
Number of
shares
Withheld
6,513,388
1,438
This report has been approved by the Board of Directors and signed on its behalf by Jemima Bird, Chair of the
Remuneration Committee.
Jemima Bird
Chair of the Remuneration Committee
8 March 2023
Headlam Group PLC Annual Report & Accounts 2022
165
Governance
OTHER STATUTORY DISCLOSURES
The Directors present their report, together with the audited financial
statements, for the year ended 31 December 2022. 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 6 to the Statement of
Directors’ Responsibilities on page 173, this section constitutes the Directors’
Report in accordance with the Companies Act 2006 and the Management
Report as required by DTR 4.1.5 R(2).
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 247. Further details
of the Group’s activities and future
plans are set out in the Strategic
Report on pages 10 to 89.
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 pages 10 to 89.
The Strategic Report includes
certain disclosures required to
be contained in the Directors’
Report as follows: the viability
statement (page 87), approach
to diversity (pages 32 and 130),
workforce engagement (pages
32 and 103), an indication of likely
future developments (page 38,
Chief Executive’s Review), and the
approach to risk management
(pages 81 to 86).
Post balance sheet
events
Directors
The following were Directors of the
Company during the period ended
31 December 2022 and at the date
of this report unless otherwise
stated:
• Keith Edelman
• Chris Payne
•
•
Stephen Bird
Jemima Bird – appointed
10 October 2022
• Karen Hubbard – appointed
1 September 2022
• Robin Williams – appointed
10 October 2022
• Amanda Aldridge – resigned
•
•
10 October 2022
Simon King – resigned
10 October 2022
Philip Lawrence – resigned
19 May 2022
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 98 and
is incorporated into this report by
reference.
Acquisitions
There were no acquisitions during
the period under review.
In the period from 1 January 2023
to 2 March 2023 1,566,622 shares
were purchased by the Company.
The Group requested a one-year
extension to existing banking
facilities which was granted by the
banks in February 2023 and will
now expire in October 2027.
On 4 January 2023 the Group
acquired 100% of the issued share
capital of Birch Close Trading
Limited, and its subsidiaries, for a
consideration of £4.7 million. The
acquired group trades as Melrose
Interiors (‘Melrose’), which is the
largest independent supplier to
the UK online rug industry, and
has operations in third-party
logistics, recycling and an in-house
rug, sampling and pattern book
department. Melrose brings a
number of new larger customers
to the Group, including major
high street and online retailers,
a customer segment where the
Group is targeting growth and
will work with Melrose to scale up
opportunities.
Financial results and
ordinary dividends
The results for the year and
financial position at 31 December
2022 are shown in the
166
Consolidated Income Statement
on page 184 and Statements of
Financial Position on page 186.
3 March 2023 was 4,997,717 Ordinary
Shares ( 6.2 % of the Company’s
total issued share capital).
An interim dividend of 6.2 p per
ordinary share (2021: 5.8p) was
paid on 28 November 2022 to
shareholders on the register
at the close of business on
28 October 2022. The Directors
propose a final dividend of 11.2p
per ordinary share (2020: 8.6p)
in respect of the financial year
ended 31 December 2022. The
payment of the final dividend will
be subject to shareholder approval
at the AGM. If approved the total
dividend for FY22 will be 17.4 p per
ordinary share.
The final dividend (if approved
by shareholders) will be paid on
2 June 2023 to shareholders on the
register of members at the close
of business on 12 May 2023, the
associated ex-dividend date being
11 May 2023.
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 2022. During
the year, the Company purchased
3,122,721 shares into treasury
pursuant to the authority granted
by shareholders at the Company’s
Annual General Meeting on 21 May
2021 and 19 May 2022, and 1,566,622
shares were purchased into treasury
since 1 January 2023 to the date of
the signing of this Report.
The balance of shares in treasury
stock following completion of the
Share buy Back programme on
Details of share capital are set
out in note 23 to the financial
statements.
Details of the Company’s share
capital are set out in note 23 to the
financial statements, which should
be treated as forming part of this
report. Subject to the provisions
of the Articles of Association and
the Companies Act 2006, shares
may be issued with such rights or
restrictions as the Company may
by ordinary resolution determine
or, if the Company has not so
determined, as the Directors
may decide. There are, however,
no restrictions on the transfer of
securities in the Company, except
that certain restrictions may from
time to time be imposed by law
or regulation, for example, insider
trading laws, and pursuant to
the Listing Rules of the Financial
Conduct Authority (the ‘Listing
Rules’), and the UK Market Abuse
Regulation, whereby certain
employees require the approval
of the Company to deal in the
Company’s shares On a show
of hands at a general meeting
of the Company every holder of
ordinary shares present in person
and entitled to vote shall have one
vote, and on a poll every member
present in person or by proxy and
entitled to vote shall have one vote
for every ordinary share held. The
Notice of AGM specifies deadlines
for exercising voting rights and
appointing a proxy or proxies to
vote in relation to resolutions to be
passed at the AGM. All proxy votes
are counted and the numbers for,
against or withheld in relation to
each resolution are announced
at the AGM and published on the
Company’s website by the next
business day after the meeting.
The holders of ordinary shares
are entitled to receive the Annual
Report and Accounts, to attend
and speak at general meetings of
the Company, to appoint proxies
and to exercise voting rights. The
Company is not aware of any
agreements between holders
of securities that may result
in restrictions on voting rights.
Further shareholder information
is available in the Notice of AGM
which contains explanations as to
the resolutions proposed.
Subject to certain limits, at the
AGM on 19 May 2022, 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.
The Company announced a share
buyback programme (‘SBB’) on
9 March 2022. The first purchases
under this SBB were undertaken on
10 March 2022 using the authority
granted at the 2021 AGM where
authority was given to purchase
shares in the Company up to 10%
of the issued share capital. Under
this authority there was a minimum
and maximum price to be paid for
such shares.
From 10 March 2022 to market
close on 31 December 2022, the
Company purchased 3,122,721
Ordinary Shares through the SBB
(all held in treasury) for a total
consideration of £9.8 million.
It was announced on 28 November
2022 that the Company in
discussions with its brokers,
Panmure Gordon and Peel Hunt
(the 'Joint Brokers'), had agreed
that the SBB may on any given
trading day exceed 25 per cent but
remain below 50 per cent of the
Headlam Group PLC Annual Report & Accounts 2022
167
Governance
OTHER STATUTORY DISCLOSURES
CONTINUED
average daily trading volume and, accordingly, the Company would not benefit from the exemption contained
in Article 5(1) in MAR. The Company previously announced on 9 March 2022 that the SBB would be conducted so
as to fall within the exemption contained in Article 5(1) of MAR.
On 3 March 2023 the completion of the SBB was announced.
In line with usual practice, the Directors will also seek to renew the authority to purchase shares under the at the
forthcoming 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 55 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 92 and 93.
Changes to the Board during the period are set out on page 166. Details of the Directors’ service agreements
are set out below:
Date of appointment
Date of original letter of
appointment/service
agreement
Effective date of current
letter of appointment/
service agreement
Next due for
election/
re-election
Executive Directors
Chris Payne
13 September 2017
n/a
8 March 2022
25 May 2023
Non-Executive Directors
Keith Edelman (Chair)
1 October 2018
15 August 2018
1 October 2021
25 May 2023
Stephen Bird
Jemima Bird
Karen Hubbard
Robin Williams
13 September 2021
10 August 2021
13 September 2021
25 May 2023
10 October 2022
10 October 2022
10 October 2022
25 May 2023
1 September 2022
1 September 2022
1 September 2022
25 May 2023
10 October 2022
10 October 2022
10 October 2022
25 May 2023
Remaining service agreement term for Non-Executive Directors as at 31 December 2022 (in whole months)
• Keith Edelman – 21 months
Stephen Bird – 19 months
•
Jemima Bird – 33 months
•
• Karen Hubbard – 32 months
• Robin Williams – 33 months
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.
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.
168
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 2022, Kleinwort Hambros, as trustee of the Headlam Group Employee Trust Company Limited
(‘Trust’) held 715,612 shares, approximately 0.84% of the issued share capital of the Company (excluding treasury
shares) for the purpose of satisfying options and awards under the various employee share schemes operated
by the Company. Kleinwort Hambros waives dividends due on all but 0.01p per share of their total holding.
Details of employee share schemes are set out in note 22 to the Financial Statements. Details of long-term
incentive schemes for the Directors are shown in the Remuneration Report starting on page 134.
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 2022, the persons set out in the table below have notified the Company, pursuant
to DTR 5.1, of their interests in the voting rights in the Company’s issued share capital.
Ordinary shares of 5p each
Aberforth Partners LLP
JO Hambro Capital Management Limited
As at 8 March 2023, one further notification had been received as outlined below.
Ordinary shares of 5p each
Ruffer LLP
Number of
shares1
% of total
voting rights2
8,400,426
10.11%
4,190,238
less than 5%
Number of
shares1
% of total
voting rights2
4,042,500
4.95%
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 2022
169
Governance
OTHER STATUTORY DISCLOSURES
CONTINUED
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
and up to the date of approval of
the financial statements, 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.
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 undertook a full
audit of our supplier base to 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 works 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.
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.
Employment Policies
The Group is an equal opportunities
employer and we are committed
to the elimination of unlawful
and unfair discrimination and
the fair and equal treatment of
all colleagues and applicants
during the recruitment and
selection process, training and
career development. We have
a zero-tolerance approach
to matters of discrimination,
harassment and bullying across
the business. Polices are in place
for reporting and dealing with
such matters.
This commitment applies
regardless of anyone’s physical
ability, sexual orientation or
gender identity, pregnancy and
maternity, race, religious beliefs,
age, nationality or ethnic origin.
Our Company policies ensure
this is reflected in the culture
of the business and include an
Equal Opportunities policy and
an Inclusion and Respect at Work
policy. Full consideration is given
to employment applications from
people with diverse backgrounds,
including disabilities whenever
suitable vacancies exist. If a
colleague becomes disabled
efforts are made to ensure their
continued employment within
the company with appropriate
training as required.
170
Further details on diversity are
included in the Nomination
Committee Report on page 126.
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
103), our full employee or pulse
surveys, or more informal methods
such as the dedicated internal
communications email address or
MyHub portal.
Further information can be found on
page 32
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 pages 101 to 103.
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 2022, approximately
24% UK employees participate
in one or more of the active
Sharesave Schemes.
Engagement with
suppliers, customers and
other stakeholders
An outline of the Company’s
approach to charitable donations
is given as part of the People
Report on page 32.
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 28 to 31.
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 173 and a
statement by the Auditor on their
responsibilities is given on page 176.
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
(2021: £nil).
Charitable donations
The Company has in place a Local
Communities Programme which
supports locally-focused charitable
giving and community involvement
by each of the Company’s
businesses, allowing local
communities to benefit directly.
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
£50,866 (2021: £6,854).
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
24 to the financial statements on
pages 190 to 247.
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 2023 AGM.
Headlam Group PLC Annual Report & Accounts 2022
171
Governance
OTHER STATUTORY DISCLOSURES
CONTINUED
•
Information for shareholders
can be found on the
Company’s website.
• A list of the Company’s overseas
subsidiaries is on page 247.
This report was approved by the
Board and signed on its behalf by:
Caroline Farbridge
Company Secretary
8 March 2023
Company registration number:
00460129
AGM
This year’s AGM will be held at the
Company’s head office in Coleshill
on Thursday, 25 May 2023 at
11.00am. 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.
Other disclosures
Certain information that is
required to be included in the
Directors’ Report can be found
elsewhere in this document as
referred to below, each of which is
incorporated by reference into the
Directors’ Report:
•
•
•
Information on greenhouse
gas emissions can be found
on page 78.
Information on energy
consumption can be found
on page 78.
Information on energy
efficiency can be found
on page 80.
•
•
For the purposes of Listing Rule
(LR) 9.8.6R(8) the information
on climate-related financial
disclosures consistent with the
TCFD recommendation and the
TCFD recommended disclosure
can be found on pages 72 to 76.
Further details of the actions
which the Group is taking to
reduce emissions can also
be found in the Sustainability
Report.
• An indication of likely future
developments in the Group’s
business can be found
throughout the Strategic
Report, starting on page 9.
•
•
The long-term viability
statement can be found
on page 87.
Information on the
appropriateness of adopting
the going concern basis of
the accounts can be found
on page 88.
• Our approach to risk
management can be found
on pages 81 to 86.
Listing Rule (LR) 9.8.4R information Section
(1)
(2)
(3)
(4)
Capitalised interest
Publication of unaudited financial information
Smaller related party transactions
Details of long-term incentive schemes established
specifically to recruit or retain a Director
(5) (6) Waiver of emoluments by a Director
(7) (8) Allotments of equity securities for cash
(9)
(10)
Participation in a placing of equity securities
Contracts of significance
(11) (14) Controlling shareholder disclosure
(12) (13) Dividend waiver
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Not applicable
Page 232
172
STATEMENT OF DIRECTORS'
RESPONSIBILITIES
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,
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
the Annual Report and Accounts
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.
Chris Payne
Director
8 March 2023
Headlam Group PLC Annual Report & Accounts 2022
173
FINANCIAL
STATEMENTS
Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Statements of Financial Position
Statement of Changes in Equity – Group
Statement of Changes in Equity – Company
Cash Flow Statements
Notes to the Financial Statements
Financial Record
Advisers
176
184
185
186
187
188
189
190
248
250
175
Headlam Group PLC Annual Report & Accounts 2022 Financial Statements
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
2022 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
as applied in accordance with the provisions of the
Companies Act 2006; and
• have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements, included
within the Annual Report and Accounts 2022 (the
“Annual Report”), which comprise: the Group and
Company Statements of Financial Position as
at 31 December 2022; 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 87% of
consolidated revenue and 94% of consolidated
underlying profit before tax.
•
In addition, we targeted significant balances in
other components. These were identified as cash
balances within the components of Headlam BV,
LMS and Dersimo. We also tested a sample of LMS
cost of sales transactions to supporting proof of
purchase and cash payment.
• All work was performed by the group team and no
reliance was placed upon the work of component
auditors. Our audit of the Company Financial
Statements included substantive procedures over
all material balances and transactions.
•
Finally, we performed analytical procedures
on insignificant trading components for group
reporting purposes.
176
Key audit matters
• Supplier arrangements (group)
•
Impairment assessment (group and parent)
Materiality
• Overall group materiality: £1,800,000 (2021:
£1,800,000) based on 5% of underlying profit
before tax.
• Overall company materiality: £1,700,000 (2021:
£1,700,000) based on 1% of total assets, capped
at allocated component materiality of £1,700,000
(2021: £1,700,000).
• Performance materiality: £1,350,000 (2021:
£1,350,000) (group) and £1,275,000 (2021:
£1,275,000) (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.
Key audit matters
Key audit matters are those matters that, in the
auditors’ professional judgement, were of most
significance in the audit of the financial statements
of the current period and include the most significant
assessed risks of material misstatement (whether or
not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team.
These matters, and any comments we make on the
results of our procedures thereon, were addressed in
the context of our audit of the financial statements as
a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by
our audit.
The disposal of Belcolor, which was a key audit matter
last year, is no longer included because of the disposal
and associated accounting implications were relevant
to 2021 and have no impact on the 2022 financial year.
Otherwise, the key audit matters below are consistent
with last year.
Key audit matter
How our audit addressed the key audit matter
Supplier arrangements (group)
Refer to the Audit Committee Report on
page 120 and the use of estimates and
judgements in the Accounting Policies
on page 191. 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-terminous 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.
We tested a sample of rebate balances by requesting
confirmations directly from the counterparty. For those
balances where no counterparty confirmation was subsequently
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
for any amounts not yet settled, we assessed the recoverability,
for example, through consideration of any evidence to suggest
the counterparty was not able to pay the amounts due and
the timing of payments received in previous years. 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.
177
Headlam Group PLC Annual Report & Accounts 2022
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
Key audit matter
How our audit addressed the key audit matter
Impairment assessment (group and parent)
Refer to the Audit Committee Report on
page 121 and the use of estimates and
judgements in the Accounting Policies
on page 192. The directors are required
to perform an annual assessment of
the carrying value of goodwill. The
determination of the appropriate level at
which to define a cash-generating unit
(CGU) is disclosed as a judgement and
has been reassessed by the directors in
the current year to reflect the evolving
business strategy. 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. We focused on this area, as the
estimation of future discounted cash
flows is inherently subjective and involves
judgement and therefore was an area of
significant audit effort. The assumptions
which are deemed to be the most
significant in these forecasts are in respect
of revenue, gross margin and discount rate.
We evaluated management's judgement that distribution
centres are the appropriate level at which to define a CGU
compared to the requirements of IAS 36, being that a CGU is the
smallest group of assets generating largely independent cash
inflows. We concluded that it was appropriate, on the basis that
given the evolving business strategy, management now budget,
review performance, and make decisions at a distribution centre
level and the locations within each distribution centre have a high
level of interdependence.
We evaluated management's assessment of potential impairment
triggers across all of the Group's CGUs (Group) and investments
(Company) to identify any potential indicators of impairment in
light of current and future market conditions. 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 and
implementation of sustainable vehicle fleets. We corroborated
management's conclusion that no CGUs required any impairment
and that none of the CGUs were materially sensitive to reasonably
possible movements in the key assumptions.
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 and investments to be supportable.
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.
In addition, we targeted significant balances in other
components. These were identified as cash balances
within the components of Headlam BV, LMS and
Dersimo. We also tested a sample of LMS cost of sales
transactions to supporting proof of purchase and
cash payment.
178
Financial Statements 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.
The impact of climate risk on our audit
As part of our audit, we made enquiries of
management to understand their process to assess
the extent of the potential impact of climate change
risks on the Group and its financial statements.
Management's assessment has considered the
climate-related risks disclosed in the Annual
Report including the Group's transition to its net
zero emissions targets in 2035 (Scope 1 & 2) and
2050 (Scope 1, 2 & 3), and potential exposure to
increased costs of transitioning to a more sustainable
business and potential new legislation. In particular,
management considered the extent to which:
•
•
•
The group may incur costs in the transition to net
zero, for example, replacements to renewable
energy, buildings and vehicles;
The group may be exposed to government
imposed end-of-life disposal taxes on bulky waste
(extended producer responsibility); and
The group may be exposed to changing consumer
preferences towards more sustainable flooring
products.
As disclosed within note 11 of the financial statements,
management considers that the impact of climate
change does not give rise to a material financial
statement impact based on the assumption that the
increased cost of sustainable products is passed onto
consumers as consumer preferences shift towards
more sustainable products in the medium term.
In response, we used our understanding of the
Group to evaluate management's assessment; in
particular, we considered how climate change risks,
both physical and transitional, would impact the
assumptions made in the forecasts prepared by
management used in their impairment analyses and
in their going concern and viability assessments. We
concluded that climate change risks do not materially
impact the Group's financial statements. We also read
the disclosures made in relation to climate change
in the other information within the Annual Report,
and considered their consistency with the financial
statements and our knowledge from the audit.
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
How we
determined it
Rationale for
benchmark
applied
Financial statements - group
Financial statements - company
£1,800,000 (2021: £1,800,000).
£1,700,000 (2021: £1,700,000).
5% of underlying profit before tax
1% of total assets, capped at allocated
component materiality of £1,700,000 (2021:
£1,700,000)
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.
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.
Headlam Group PLC Annual Report & Accounts 2022
179
Financial Statements
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
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 £407,000 and
£1,700,000. Certain components were audited to a
local statutory audit materiality that was also less
than our overall group materiality.
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% (2021:
75%) of overall materiality, amounting to £1,350,000
(2021: £1,350,000) for the group financial statements
and £1,275,000 (2021: £1,275,000) 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) (2021: £90,000)
and £85,000 (company audit) (2021: £85,000) as well
as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
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:
•
•
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.
• Confirmed the extension of existing banking
facilities which was agreed on 17 January 2023.
• Assessing the adequacy of disclosures in the going
concern statement on page 88 and statements in
note 1a of the notes to the financial statements.
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.
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.
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.
180
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 2022 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.
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.
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, included
within the Governance section 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 and company 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 2022
181
Financial Statements
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
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:
•
Inquiries of management and reviewing
minutes of meetings of those charged with
governance regarding any known or suspected
instances of fraud or non-compliance with laws
and regulations.
• Review of correspondence and discussions with
legal advisors.
182
• 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.
• 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.
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.
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:
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 7 years, covering the years ended
31 December 2016 to 31 December 2022.
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 will be 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
8 March 2023
Headlam Group PLC Annual Report & Accounts 2022
183
Financial Statements
CONSOLIDATED
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit/(loss)
Finance income
Finance expenses
Net finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) from continuing
operations
Profit from discontinued
operation
Profit/(loss) for the year
attributable to the equity
shareholders
Earnings per share for profit from
continuing operations
Basic
Diluted
Earnings 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
Note
2
2
6
6
3
7
25
9
9
9
9
23
23
23
Non-
underlying
(Note 3)
2022
£M
Underlying
2022
£M
663.6
(444.1)
219.5
(129.5)
(51.3)
0.5
39.2
0.7
(2.8)
(2.1)
37.1
(7.4)
29.7
—
—
—
—
—
(1.5)
6.2
4.7
—
—
—
4.7
(0.8)
3.9
—
Non-
underlying
(Note 3)
2021
£M
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
—
—
—
—
(8.2)
—
(8.2)
—
—
—
(8.2)
1.5
(6.7)
4.4
Total
2022
£M
663.6
(444.1)
219.5
(129.5)
(52.8)
6.7
43.9
0.7
(2.8)
(2.1)
41.8
(8.2)
33.6
—
Total
2021
£M
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
29.7
3.9
33.6
26.7
(2.3)
24.4
35.5p
35.2p
—
—
31.5p
31.1p
0.2p
0.2p
40.1p
39.8p
—
—
6.20p
11.20p
—
23.5p
23.2p
5.3p
5.2p
5.80p
8.60p
17.70p
184
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Profit for the year attributable to the equity shareholders
Other comprehensive income/(expense)
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans
Related tax
Note
21
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
25
Other comprehensive income/(expense) for the year
Total comprehensive income attributable to the equity shareholders for the year
Total comprehensive income/(expense) attributable to the equity shareholders for the year arising from:
Continuing operations
Discontinued operations
34.1
—
34.1
2022
£M
33.6
2021
£M
24.4
0.1
—
0.1
0.4
—
0.4
0.5
34.1
(2.6)
0.8
(1.8)
(1.2)
(4.8)
(6.0)
(7.8)
16.6
16.9
(0.3)
16.6
Headlam Group PLC Annual Report & Accounts 2022
185
Financial Statements
STATEMENTS OF FINANCIAL POSITION
AT 31 DECEMBER 2O22
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
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
Note
10
10
18
11
12
14
15
16
15
17
18
19
21
8
17
18
20
13
21
23
23
Group
Company
2022
£M
119.9
—
36.7
17.8
—
174.4
139.8
119.1
2.1
261.0
—
—
261.0
435.4
(0.3)
(11.4)
(153.2)
(1.0)
(1.9)
(167.8)
—
(26.3)
(1.7)
(12.1)
(2.7)
(42.8)
(210.6)
224.8
4.3
53.5
(15.8)
182.8
224.8
2021
£M
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
2022
£M
2.6
89.6
0.7
3.0
101.1
197.0
—
16.7
20.7
37.4
12.6
12.6
50.0
247.0
—
(0.1)
(42.5)
(1.0)
(2.5)
(46.1)
—
(0.7)
—
(8.0)
(2.2)
(10.9)
(57.0)
190.0
4.3
53.5
2.7
129.5
190.0
2021
£M
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
The notes on pages 190 to 247 are an integral part of these consolidated financial statements.
The Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its
individual income statement, however the profit for the year attributable to the equity shareholders is £2.1 million
(profit in 2021: £36.7 million).
The financial statements on pages 184 to 249 were approved by the Board of Directors on 8 March 2023 and
were signed on its behalf by
Chris Payne
Director
Company Number: 00460129
186
STATEMENT OF
CHANGES IN EQUITY – GROUP
FOR THE YEAR ENDED 31 DECEMBER 2022
Note
Share
capital
£M
Share
premium
£M
4.3
53.5
Capital
redemption
reserve
£M
Special
reserve
£M
Translation
reserve
£M
Treasury
reserve
£M
Retained
earnings
£M
Total
equity
£M
(5.9)
158.8
220.0
Balance at 1 January 2021
Profit for the year attributable
to the equity shareholders
Other comprehensive
expense
Total comprehensive
(expense)/income for the
year
Transactions with equity
shareholders, recorded
directly in equity
Share-based payments
22
Share options exercised by
employees
Deferred tax on share options
Dividends to equity holders
23
Total contributions by
and distributions to equity
shareholders
Balance at 31 December 2021
Balance at 1 January 2022
Profit for the year attributable
to the equity shareholders
Other comprehensive income
Total comprehensive income
for the year
Transactions with equity
shareholders, recorded
directly in equity
Share-based payments
22
Share options exercised by
employees
Deferred tax on share options
Repurchase of own shares
Dividends to equity holders
23
Total contributions by
and distributions to equity
shareholders
Balance at 31 December 2022
—
—
—
—
—
—
—
—
4.3
4.3
—
—
—
—
—
—
—
—
—
4.3
—
—
—
—
—
—
—
—
53.5
53.5
—
—
—
—
—
—
—
—
—
53.5
0.1
—
—
—
—
—
—
—
—
0.1
0.1
—
—
—
—
—
—
—
—
—
0.1
1.5
—
—
—
—
—
—
—
—
1.5
1.5
—
—
—
—
—
—
—
—
—
1.5
7.7
—
(6.0)
(6.0)
—
—
—
—
—
1.7
1.7
—
0.4
0.4
—
—
—
—
—
—
2.1
—
—
—
—
1.0
—
—
1.0
(4.9)
(4.9)
—
—
—
—
0.4
—
(15.0)
24.4
24.4
(1.8)
(7.8)
22.6
16.6
1.2
(0.3)
0.2
(6.6)
1.2
0.7
0.2
(6.6)
(5.5)
(4.5)
175.9
175.9
33.6
0.1
232.1
232.1
33.6
0.5
33.7
34.1
0.9
0.9
(0.2)
(0.2)
—
0.2
(0.2)
(15.0)
(27.3)
—
(27.3)
(14.6)
(19.5)
(26.8)
182.8
(41.4)
224.8
Headlam Group PLC Annual Report & Accounts 2022
187
Financial Statements
STATEMENT OF
CHANGES IN EQUITY – COMPANY
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes
Share
capital
£M
Share
premium
£M
4.3
53.5
Capital
redemption
reserve
£M
0.1
—
—
—
—
—
—
—
—
0.1
0.1
—
—
—
—
—
—
—
—
—
0.1
Special
reserve
£M
Treasury
reserve
£M
Retained
earnings
£M
22.1
(5.9)
124.9
Total
equity
£M
199.0
—
—
—
—
—
—
—
—
22.1
22.1
—
—
—
—
—
—
—
—
—
—
—
—
1.0
—
—
1.0
(4.9)
(4.9)
—
—
—
—
0.4
—
(15.0)
—
36.7
(2.0)
36.7
(2.0)
34.7
34.7
1.2
(0.3)
0.1
(6.6)
(5.6)
154.0
154.0
2.1
0.1
2.2
1.2
0.7
0.1
(6.6)
(4.6)
229.1
229.1
2.1
0.1
2.2
0.9
0.9
(0.2)
(0.1)
—
(27.3)
0.2
(0.1)
(15.0)
(27.3)
—
22.1
(14.6)
(19.5)
(26.7)
129.5
(41.3)
190.0
—
—
—
—
—
—
—
—
4.3
4.3
—
—
—
—
—
—
—
—
—
4.3
—
—
—
—
—
—
—
—
53.5
53.5
—
—
—
—
—
—
—
—
—
53.5
Balance at 1 January 2021
Profit for the year attributable to
the equity shareholders
Other comprehensive expense
Total comprehensive income for
the year
Transactions with equity
shareholders, recorded directly
in equity
Share-based payments
22
Share options exercised by
employees
Deferred tax on share options
Dividends to equity holders
23
Total contributions by
and distributions to equity
shareholders
Balance at 31 December 2021
Balance at 1 January 2022
Profit for the year attributable to
the equity shareholders
Other comprehensive income
Total comprehensive income for
the year
Transactions with equity
shareholders, recorded directly
in equity
Share-based payments
22
Share options exercised by
employees
Deferred tax on share options
Repurchase of own share
Dividends to equity holders
23
Total contributions by
and distributions to equity
shareholders
Balance at 31 December 2022
188
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Cash flows from operating activities
Profit 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
Finance income
Finance expense
Profit on sale of property, plant and equipment
Insurance proceeds for property, plant and equipment
following fire
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/(used in) the operations
Interest paid
Interest received
Tax (paid)/received
Net cash flow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Disposal of discontinued operation, net of cash disposed of*
Acquisition of property, plant and equipment
Insurance proceeds for property, plant and equipment
following fire
Acquisition of intangible assets
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from the issue of treasury shares
Payment to acquire own shares**
Proceeds from borrowings
Repayment of borrowings
Principal elements of lease payments
Dividends paid
Net cash flow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
* For cash flows of discontinued operations see note 25.
Group
Company
Note
2022
£M
41.8
—
41.8
7.7
12.5
(0.7)
2.8
—
(1.7)
—
—
0.9
63.3
(8.3)
(3.5)
(34.2)
17.3
(1.2)
0.6
(5.8)
10.9
—
—
(12.6)
1.7
(1.2)
(12.1)
0.2
(9.8)
25.0
(32.3)
(14.0)
(27.3)
(58.2)
(59.4)
61.2
0.3
2.1
3
3
6
6
3
28
22
25
28
23
23
16
2021
£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
2022
£M
3.2
—
3.2
1.8
—
(0.7)
1.5
—
(0.5)
—
—
0.2
5.5
—
(8.0)
(1.1)
(3.6)
(1.4)
0.7
0.8
(3.5)
—
—
(1.6)
0.5
(1.1)
(2.2)
0.2
(9.8)
25.0
(25.0)
(0.1)
(27.3)
(37.0)
(42.7)
63.4
—
20.7
2021
£M
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
**During the period 3,122,721 shares were acquired for £9.8 million under the Group’s Share Buyback Programme
Headlam Group PLC Annual Report & Accounts 2022
189
Financial 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
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 in conformity with the requirements of the
Companies Act 2006 and the disclosure guidance and transparency rules sourcebook of the United Kingdom’s
Financial Conduct Authority. On publishing the Company’s financial statements here together with the Group
financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006
not to present its individual income statement and related notes that form a part of these approved financial
statements.
The Company and Group financial statements were authorised for issuance on 8 March 2023.
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.
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 07 and Chief Executive’s Review on pages
39 to 45.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in
the Financial Review on pages 48 to 57. In addition, note 24 to the financial statements includes the Group’s
objectives, policies and processes for managing its capital; its financial risk management objectives; details
of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group meets its day-to-day working capital requirements through its banking facilities. On 17 January 2022,
the Group refinanced its banking facilities. 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, with maturity in October 2027 following the one-year extension option being requested by the
Group and agreed by the banks in February 2023.
190
The Group also has short term uncommitted facilities of £15.0 million and €4.2 million which are renewable on an
annual basis.
As at 31 December 2022, the Company had cash and loans excluding lease liabilities of £1.8 million and had total
banking facilities available of £100.3 million, of which £100.0 million was undrawn. Lease liabilities are excluded
from this metric to be consistent with measurements used in the facility agreement and to allow comparison to
total banking facilities available.
As detailed on pages 87 to 88 under Viability and Going Concern, the Directors have reviewed the Company’s
resilience to the principal risks and uncertainties by considering stress tested 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.
(b) Use of accounting estimates and judgements
Estimates
The preparation of financial statements in conformity with UK adopted International Accounting Standards
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 have significant risk
of 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 2022, rebates receivable are estimated to be fully recoverable.
• Employee benefits
The deficit relating to the Group’s defined benefit plans is assessed annually in accordance with IAS 19 and
after taking independent actuarial advice. The principal assumptions are set out in note 21. The amount of
the deficit is dependent on plan asset and liability values and the actuarial assumptions used to determine
the deficit. The assumptions include pension increases, price inflation, discount rate used to measure
actuarial liabilities and mortality rates. Sensitivities in respect of these assumptions are detailed in note 21.
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1 Presentation of the Financial Statements and Accounting Policies continued
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, which requires application of judgement. 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;
Impairment of property, plant and equipment and inventory (following a fire) as it is a significant,
non-recurring item;
Insurance proceeds (following fire) as it is a non-recurring item; and
• Business restructuring cost which is a significant cash item that fell across 2020 and 2021, and for which
no further costs are expected.
• Recognition of insurance proceeds
Insurance proceeds are recognised when their recovery is virtually certain and the amounts can be measured
reliably. This, therefore, requires judgement over whether the assets can be measured reliably. The Directors
judge that the insurance amounts relating to the reinstatement of the damaged property and contents,
following the fire that destroyed a building in Kidderminster in December 2021, cannot be measured reliably
at 31 December 2022 because the decision to progress with the reinstatement was not final and a change
to that decision would cause the insurance refund to be based on a negotiated settlement (dependent on
negotiations with insurers) rather than the like-for-like reinstatement costs and the resulting values could be
materially different. In addition, the competitive tendering process for the construction has not concluded
and so the construction costs were not known. It has therefore been concluded that the insurance proceeds
for the insurance claim relating to the reinstatement of the damaged property and contents should not be
recognised (other than for the interim payments received in the year) but that a contingent asset should be
disclosed (see note 28).
Other estimates and judgements
•
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. Judgements are made by the Directors in identifying the cash generating units ('CGU'),
being the smallest groups of assets that generate independent cash flows, with the development of the
business strategy, as well as in assessing whether any CGUs trigger an impairment review. Estimations are
required of the value in use of the CGUs to which the assets are allocated. Estimating the value in use requires
192
the Group to make an estimate of the expected future cash flows from the CGU and also to choose a
suitable discount rate in order to calculate the present value of those cash flows. No impairment has been
recognised in the current year. Further details on the impairment review can be found in note 11.
(c) Impact of newly adopted accounting standards
There were no newly adopted accounting standards by the Group and Company in 2022.
(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
Basis of consolidation
The Group financial statements consolidate those of the Company and its subsidiaries which together are
referred to as the ‘Group’. The Company’s financial statements present information about the Company as a
separate entity and not about its Group.
Subsidiaries are entities controlled by the Group. Control exists when the Group has 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 acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group.
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net
assets acquired. Any goodwill that arises is tested annually for impairment and any gain on a bargain purchase
is recognised in the Consolidated Income Statement immediately. Transaction costs are expensed as incurred,
with the exception of costs that relate to the issue of debt or equity securities.
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.
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1 Presentation of the Financial Statements and Accounting Policies continued
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.
When a foreign subsidiary is disposed of in its entirety or partially such that control, significant influence or joint
control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified
to profit or loss as part of the gain or loss of disposal.
Note 24 contains information about the foreign currency exposure of the Group and risks in relation to foreign
exchange movements.
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.
194
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.
Goodwill and other intangible assets
Goodwill
All business combinations are accounted for by applying the acquisition method. Goodwill arises on the
acquisition of subsidiaries and represents the excess of the fair value of the consideration of the business
combination over the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities
acquired. 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
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1 Presentation of the Financial Statements and Accounting Policies continued
Financial assets
At initial recognition, the Group measures a financial asset (unless it is a trade receivable without a significant
financing component) 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. A trade receivable
without a significant financing component is initially measured at the transaction price. 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 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.
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.
Trade and other receivables
Trade receivables are recognised at the transaction price 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. The impairment methodology applied depends on whether
there has been a significant increase in credit risk. For trade receivables, the Group applies the simplified
approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition
of the receivables, see note 24.
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.
Provisions to write down inventory to its net realisable value are calculated by reference to each individual
product, based on the ageing profile, consideration of inventory sold for less than its carrying value, and
consideration for discontinued items.
196
Cash and cash equivalents
Cash and cash equivalents are carried in the Statement of Financial Position at amortised cost.
Cash and cash equivalents relate to cash balances held. Bank overdrafts that are repayable on demand and
form an integral part of cash management of both the Company and Group are included as a component of
cash and cash equivalents for the purpose only of the Cash Flow Statement.
Impairment
The carrying amounts of the Group’s assets, other than financial assets, inventories and deferred tax assets,
are reviewed at each Statement of Financial Position date to determine whether there is any indication of
impairment. If any such indication exists, the asset’s recoverable amount is estimated. Financial assets are
assessed using an expected credit loss model.
Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment annually.
For the purposes of impairment testing, assets are grouped together into cash generating units, being 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. During the year, there has been a change in the assessment of cash
generating units. With the development of the business strategy, performance is now assessed at a higher level,
with each distribution centre (including satellite trade counters) reviewed, considering these to be the smallest
groups of assets generating independent cash flows. In the prior year, each individual trading operation within
each distribution centre was classified as a cash generating unit.
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.
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.
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 has 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.
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Headlam Group PLC Annual Report & Accounts 2022 Financial Statements
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FINANCIAL STATEMENTS
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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.
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.
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.
Contingent asset
Contingent assets are possible assets whose existence will be confirmed by the occurrence or non-occurrence
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 the
defined benefit plans are held in independent trustee-administered funds. The pension cost is assessed in
accordance with the advice of a qualified actuary.
Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement as incurred.
Defined benefit plans
The Group’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount
of future benefit that employees have earned in return for their service in the current and prior periods. That
benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The
liability discount rate is the yield at the Statement of Financial Position date using AA rated corporate bonds
that have maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by
a qualified actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by
employees is recognised as an expense in the income statement immediately.
To the extent that any benefits vest immediately, the expense is recognised directly in the income statement.
198
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, or reduction in future contribution, under IFRIC 14. Consequently, the
surplus balance sheet position at 31 December 2022 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.
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 134 to 165.
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 number of awards for which the related service and non-market performance conditions
are expected to be met, such that the amount ultimately recognised is based on the number of awards that
meet the related service and non-market performance conditions at the vesting date. For share-based
payment awards with non-vesting and market conditions, the grant-date fair value of the share-based
payment is measured to reflect such conditions and there is no true-up for differences between expected
and actual outcomes.
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.
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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. Where the Group has committed to buy back its own shares,
but not yet repurchased them, the amount of the commitment is recognised as a deduction from equity with
a corresponding amount recognised as a liability. When treasury shares are sold or reissued subsequently, the
amount received is recognised as an increase in equity and the resulting surplus or deficit on the transaction is
transferred to or from retained earnings.
Own shares held by Employee Benefit Trust
Transactions of the Group sponsored Employee Benefit Trust are included in the Group financial statements.
In particular, the Trust’s purchases of shares in the Company are debited directly to equity.
Revenue
Revenue from the sale of floorcoverings is measured at the fair value of the consideration and excludes
intra-group sales and value added and similar taxes. The primary performance obligation is the transfer of
goods to the customer. Revenue from the sale of floorcoverings is recognised when control of the goods is
transferred to the customer (which is typically the point at which goods are received by the customer), at an
amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods.
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.
Insurance proceeds
Insurance proceeds are recognised when recovery is virtually certain and the amounts can be measured reliably.
Insurance proceeds recognised are shown as other operating income, separately from any related costs.
Insurance proceeds recoverable at the period end are recognised within other receivables.
Leases – Group as a lessee
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
The Group recognises a right-of-use asset and a corresponding lease liability at the lease commencement
date, with the exception of short-term leases (defined as leases with a lease term of 12 months or less) and
leases of low-value assets, comprising mainly of IT equipment.
The Group has elected to use a practical expedient as permitted by IFRS 16, not to separate non-lease
components and instead account for the lease and non-lease component as a single lease component.
200
Lease liability
Assets and liabilities arising from a lease are initially measured at the present value of the future lease payments,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate.
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 liability is measured at amortised cost using the effective interest method, by increasing the carrying
amount to reflect interest in the lease liability and reducing the carrying amount to reflect the lease payments
made. The lease liability is subsequently remeasured when there is a change in future lease payments arising
from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be
payable under a residual guarantee, if the Group changes its assessment of whether it will exercise a purchase,
extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability
is remeasured, an equivalent adjustment is made to the right-of-use asset unless its carrying amount is reduced
to zero, in which case any remaining amount is recognised in the income statement.
The lease liability is presented separately in the Statement of Financial Position.
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 (in line with property, plant and
equipment) and the lease term on a straight-line basis. In addition, right-of-use assets are periodically reduced
by impairment losses, if any, and adjusted for remeasurements of the corresponding lease liability.
The right-of-use assets are presented separately in the Statement of Financial Position.
Short-term and low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low-value assets
and short-term leases, including IT equipment. The Group recognises the lease payments associated with these
leases as an expense on a straight-line basis over the lease term.
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Headlam Group PLC Annual Report & Accounts 2022 Financial Statements
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Sale and leaseback of property, plant and equipment
In determining whether a transaction is a sale-and-leaseback, the Group 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 Group derecognises the underlying asset
and applies the lessee accounting model as per IFRS 16. The Group 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.
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.
Dividends
Paid
Interim, final and special dividends are recognised when they are paid or when approved by the members in a
general meeting. Final and special dividends proposed by the Board and unpaid at the end of the year are not
recognised in the financial statements.
Received
The Company receives dividends from its UK and Continental European subsidiaries. Dividends are recognised in
the financial statements when they have been received by the Company.
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 the related tax is also 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.
202
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the Statement
of Financial Position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised.
Non-underlying items
In order to illustrate the underlying trading performance of the Group, presentation has been made of
performance measures excluding those items which it is considered would distort the comparability of the
Group’s results. These non-underlying items are defined as those items that 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;
•
Impairment of property, plant and equipment and inventory (following a fire) as it is a significant,
non-recurring item;
•
Insurance proceeds (following fire) as it is a significant, non-recurring item;
• Business restructuring cost which is a significant cash item that fell across 2020 and 2021, and for which no
further costs are expected.
See page 58 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 income statement 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.
203
Headlam Group PLC Annual Report & Accounts 2022 Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
2 Segment reporting
As at 31 December 2022, the Group had 16 operating segments in the UK and three operating segments in
Continental Europe. Each segment represents an individual distribution centre 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. In the prior year each individual trading operation within each
site was classified as a segment. With the development of the business strategy, performance is now assessed
at a higher level, with each distribution centre (including satellite trade counters) reviewed.
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.
The assets and liabilities in the prior year have been re-presented to better reflect their segmental allocation.
Continuing operations
Revenue
External revenues
Reportable segment underlying
operating profit
Reportable segment assets
Reportable segment liabilities
UK
Continental Europe
Total
2022
£M
Restated
2021
£M
577.8
585.8
36.8
371.0
37.0
378.8
2022
£M
85.8
3.4
40.7
(173.8)
(201.4)
(22.8)
Restated
2021
£M
2022
£M
Restated
2021
£M
81.4
663.6
667.2
3.1
30.3
(27.7)
40.2
411.7
(196.6)
40.1
409.1
(229.1)
During the year there were no inter-segment revenues for the reportable segments (2021: £nil).
204
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total underlying operating profit for reportable segments
Non-underlying items
Unallocated expense
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit from continuing operations
Profit from discontinued operations
Profit for the year
Assets
Total assets for reportable segments
Unallocated assets:
Intangible assets
Cash and cash equivalents
Total assets
Liabilities
Total liabilities for reportable segments
Unallocated liabilities:
Income tax payable
Deferred tax liabilities
Total liabilities
2022
£M
2021
£M
40.2
4.7
(1.0)
43.9
0.7
(2.8)
41.8
(8.2)
33.6
—
33.6
40.1
(8.2)
(2.8)
29.1
0.4
(1.9)
27.6
(7.7)
19.9
4.5
24.4
2022
£M
Restated
2021
£M
411.7
409.1
3.0
20.7
435.4
—
63.4
472.5
(196.6)
(229.1)
(1.9)
(12.1)
(1.0)
(10.3)
(210.6)
(240.4)
Headlam Group PLC Annual Report & Accounts 2022
205
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
2 Segment reporting continued
Continuing Operations
Other material items 2022
Capital expenditure
Depreciation
Depreciation of right of use assets
Non-underlying items
Other material items 2021 (Restated)
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 impairments)
Continental
Europe
£M
UK
£M
Reportable
segment
total
£M
Unallocated
£M
Consolidated
total
£M
12.1
5.9
10.7
(4.8)
5.7
1.2
0.9
7.3
4.8
11.6
(1.1)
0.5
0.3
1.8
0.1
0.4
—
—
—
0.4
1.9
(0.1)
12.6
6.2
12.5
(4.7)
6.1
1.2
0.9
7.3
5.2
13.5
(1.2)
—
—
—
—
—
—
—
—
—
—
—
12.6
6.2
12.5
(4.7)
6.1
1.2
0.9
7.3
5.2
13.5
(1.2)
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:
Revenue
Residential
Commercial
UK
Continental Europe
Total
2022
£M
382.8
195.0
577.8
2021
£M
407.2
178.6
585.8
2022
£M
52.5
33.3
85.8
2021
£M
49.7
31.7
81.4
2022
£M
435.3
228.3
663.6
2021
£M
456.9
210.3
667.2
206
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
Reduction in impairment loss allowance (note 15)
Profit on sale of property, plant and equipment
2022
£M
6.2
12.5
1.5
(1.7)
—
2021
£M
5.2
13.5
4.0
(0.4)
(11.1)
Non-underlying income for continuing and discontinued operations after tax of £3.9 million (expense 2021: £2.3
million) relate to the following:
Continuing operations:
Impairment of intangibles, fixed assets and right of use assets
Amortisation of acquired intangibles
Property disposal
Impairment of property, plant and equipment and inventory (following a fire)
Insurance proceeds (following fire)
Business restructuring cost
Taxation on non-underlying items
Discontinued operation:
Disposal of subsidiary (including Swiss property disposal)
2022
£M
2021
£M
—
1.5
—
—
(6.2)
—
(4.7)
0.8
(3.9)
—
(3.9)
2.1
1.6
(5.1)
7.3
—
2.3
8.2
(1.5)
6.7
(4.4)
2.3
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 amounted to
£4.7 million and covered the period July 2020 to December 2021.
See page 58 of the Financial Review for details on alternative performance measures.
Auditors' remuneration:
Audit of these financial statements
Amounts received by the Auditors and their associates in respect of:
Audit of financial statements of subsidiaries of the Company
2022
£M
0.2
0.3
0.5
2021
£M
0.2
0.3
0.5
Headlam Group PLC Annual Report & Accounts 2022
207
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
4 Staff numbers and costs
The monthly average number of people employed, including Executive Directors, during the year, analysed by
category, was as follows:
Number of employees
Group
Company
2022
2021
2022
2021
By sector:
Floorcoverings
Central operations
By function:
Sales and distribution
Administration
The aggregate payroll costs were as follows:
Wages and salaries
Equity settled share-based payment expense (note 22)
Social security costs
Other pension costs (note 21)
2,152
27
2,179
1,964
215
2,179
2,077
22
2,099
1,912
187
2,099
—
27
27
—
27
27
Group
Company
2022
£M
79.6
0.9
10.4
3.8
94.7
2021
£M
85.0
1.2
10.8
4.5
101.5
2022
£M
2.9
0.2
0.4
0.1
3.6
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
2022
£M
1.1
0.3
1.4
—
22
22
—
22
22
2021
£M
3.0
0.4
0.4
0.2
4.0
2021
£M
2.1
0.3
2.4
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 134 to 165.
Payment for loss of office 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. Not included in the table above is a further
£0.4 million (2021: £0.1 million included in the table above) in relation to payments made for loss of office for the
period 1 January 2022 to 6 October 2022. Further details can be found in the Directors' Remuneration Report on
page 158.
208
6 Finance income and expense
Interest income:
Bank interest
Other
Finance income
Interest expense:
Bank loans, overdrafts and other financial expenses
Interest on lease liability
Net interest on defined benefit plan obligations (note 21)
Other
Finance expenses
7 Taxation
Recognised in the income statement
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expense:
Origination and reversal of temporary differences
Effect of change in UK tax 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 charged/(credited) to equity
Deferred tax on:
Share options
Deferred tax on other comprehensive expense:
Defined benefit plans
Total tax reported directly in reserves
2022
£M
2021
£M
0.6
0.1
0.7
(1.3)
(1.4)
(0.1)
—
(2.8)
2022
£M
7.2
(0.6)
6.6
0.8
0.3
0.5
1.6
8.2
8.2
—
0.3
0.1
0.4
(0.4)
(1.3)
(0.1)
(0.1)
(1.9)
2021
£M
6.4
(0.3)
6.1
—
2.7
0.2
2.9
9.0
7.7
1.3
2022
£M
2021
£M
0.2
—
0.2
0.2
(0.2)
(0.8)
(1.0)
(1.0)
Factors that may affect future current and total tax charges
The UK headline corporation tax rate for the year was 19.0% (2021: 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 been calculated at a rate of 25% (2021: 25%).
Headlam Group PLC Annual Report & Accounts 2022
209
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
7 Taxation continued
Reconciliation of effective tax rate
Profit before tax on continuing operations
Profit before tax on discontinued operations
Total profit 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
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
2022
%
19.0
0.7
(0.7)
1.2
(0.3)
(0.2)
19.7
£M
41.8
—
41.8
7.9
0.3
(0.3)
0.5
(0.1)
(0.1)
8.2
(0.8)
—
7.4
37.1
Adjusted effective tax rate excluding non-underlying items
20.1%
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%
8 Income tax payable
The Group’s current tax liability of £1.9 million (2021: £1.0 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 £2.5 million (2021: £0.7 million) represents the amount of income tax payable in respect of current and
prior year periods which exceed any amounts recoverable.
9 Earnings per share
Continuing operations earnings
Earnings for basic and diluted earnings per share
Earnings for underlying basic and underlying diluted earnings per share
Discontinued operations earnings
Earnings for basic and diluted earnings per share
Earnings for underlying basic and underlying diluted earnings per share
2022
£M
33.6
29.7
—
—
2021
£M
19.9
26.6
4.5
0.1
210
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
83,626,126
84,484,084
2022
2021
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
83,626,126
84,484,084
615,584
1,070,830
Weighted average number of ordinary shares for the purposes of diluted earnings per share
84,241,710
85,554,914
Continuing operations earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
Discontinued operations earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
40.1p
39.8p
35.5p
35.2p
—
—
—
—
23.5p
23.2p
31.5p
31.1p
5.3p
5.2p
0.2p
0.2p
At 31 December 2022, the Company held 4,046,617 shares (2021: 1,013,991) in relation to treasury stock and shares
held in trust for satisfying options and awards under employee share schemes. These shares have been disclosed
in the treasury reserve and are excluded from the calculation of earnings per share.
Headlam Group PLC Annual Report & Accounts 2022
211
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
10 Property, plant and equipment
Group property, plant and equipment
Land and
buildings
£M
Plant and
equipment
£M
Under
construction
£M
Total
£M
139.8
1.8
(10.8)
—
(3.1)
0.2
(0.7)
127.2
127.2
4.8
(0.4)
0.3
131.9
34.2
2.4
(5.1)
—
(0.8)
(0.3)
30.4
30.4
2.6
(0.4)
0.2
32.8
105.6
96.8
99.1
44.9
4.1
(1.8)
(2.9)
—
(0.2)
(0.4)
43.7
43.7
3.5
(7.1)
0.3
40.4
28.6
2.8
(1.3)
(1.5)
—
(0.4)
28.2
28.2
3.6
(7.1)
0.2
24.9
16.3
15.5
15.5
1.0
—
—
—
—
—
—
1.0
1.0
4.3
—
—
5.3
—
—
—
—
—
—
—
—
—
—
—
—
1.0
1.0
5.3
185.7
5.9
(12.6)
(2.9)
(3.1)
—
(1.1)
171.9
171.9
12.6
(7.5)
0.6
177.6
62.8
5.2
(6.4)
(1.5)
(0.8)
(0.7)
58.6
58.6
6.2
(7.5)
0.4
57.7
122.9
113.3
119.9
Cost
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
Balance at 1 January 2022
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Accumulated depreciation and impairment
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
Balance at 1 January 2022
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Net book value
At 1 January 2021
At 31 December 2021 and 1 January 2022
At 31 December 2022
212
Company investment properties and plant and equipment
Cost
Balance at 1 January 2021
Disposals
Balance at 31 December 2021
Balance at 1 January 2022
Additions
Balance at 31 December 2022
Accumulated depreciation
Balance at 1 January 2021
Disposals
Depreciation charge for the year
Balance at 31 December 2021
Balance at 1 January 2022
Depreciation charge for the year
Balance at 31 December 2022
Net book value
At 1 January 2021
At 31 December 2021 and 1 January 2022
At 31 December 2022
Investment
properties
£M
Plant and
equipment
£M
Plant and
equipment
under
construction
£M
Plant and
equipment
Total
£M
122.3
(5.5)
116.8
116.8
—
116.8
25.0
(1.6)
2.0
25.4
25.4
1.8
27.2
97.3
91.4
89.6
—
—
—
—
0.8
0.8
—
—
—
—
—
—
—
—
—
0.8
1.0
—
1.0
1.0
0.8
1.8
—
—
—
—
—
—
—
1.0
1.0
1.8
1.0
—
1.0
1.0
1.6
2.6
—
—
—
—
—
—
—
1.0
1.0
2.6
The Company holds investment properties which are predominantly freehold distribution centres, occupied
by its UK subsidiary companies for trading purposes. The Company obtains a valuation triennially, by an
external valuer. Investment properties were valued by an independent professional valuer on 18 January 2023.
This valuation of the investment properties, not including those under construction at the same date was
£138.5 million, however the Company has chosen to hold them at cost. External valuers were also used to
provide a valuation of the main sites for the Company’s subsidiaries in France and the Netherlands, for the
first time, which amounted to £10.3 million.
Headlam Group PLC Annual Report & Accounts 2022
213
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
11 Intangible assets
Goodwill
£M
Order
book
£M
Customer
relationships
£M
Brand
names
£M
Non-
compete
£M
Supply
agreements
£M
Software
development
£M
Total
£M
Group
Cost
Balance at 1 January 2021
Disposal
Additions
Balance at 31 December
2021
Balance at 1 January 2022
Additions
Balance at 31 December
2022
Impairment and
amortisation
42.1
(4.2)
—
37.9
37.9
—
37.9
6.5
—
—
6.5
6.5
—
6.5
Balance at 1 January 2021
33.3
6.5
Impairment charge for the
year
Amortisation charge for
the year
Disposal
Balance at 31 December
2021
Balance at 1 January 2022
Amortisation charge for
the year
Balance at 31 December
2022
Net book value
At 31 December 2021 and 1
January 2022
At 31 December 2022
1.2
—
(4.2)
30.3
30.3
—
30.3
7.6
7.6
—
—
—
6.5
6.5
—
6.5
—
—
7.4
—
—
7.4
7.4
—
7.4
2.4
0.4
0.8
—
3.6
3.6
0.8
4.4
3.8
3.0
7.6
—
—
7.6
7.6
—
7.6
1.7
0.5
0.6
—
2.8
2.8
0.7
3.5
4.8
4.1
0.1
—
—
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
0.1
—
0.1
0.1
0.1
1.1
—
1.0
2.1
2.1
1.2
65.0
(4.2)
1.0
61.8
61.8
1.2
3.3
63.0
—
—
0.3
—
0.3
0.3
—
43.9
2.1
1.9
(4.2)
43.7
43.7
1.5
0.3
45.2
1.8
3.0
18.1
17.8
Software development is internally generated and includes an amount of £3.0 million (2021: £1.8 million) not
currently being amortised as they are still in the course of development.
The remaining useful economic lives of intangible assets is as follows: customer relationships is 4 years; brand
names is 10 years; and supply agreement is 2 years.
Amortisation charged during the year of £1.5 million (2021: £1.9 million) is presented within Administration
expenses in the Consolidated Income Statement.
Cumulative impairment losses recognised in relation to goodwill is £30.3 million (2021: £30.3 million).
In the prior year £1.2 million goodwill impairment was recognised in relation to CECO (Flooring) Limited.
214
Company
Cost
Balance at 1 January 2021
Additions
Balance at 31 December 2021
Balance at 1 January 2022
Additions
Balance at 31 December 2022
Net book value at 31 December 2021 and 1 January 2022
Net book value at 31 December 2022
Software
Development
£M
1.1
0.8
1.9
1.9
1.1
3.0
1.9
3.0
Impairment tests for cash-generating units containing goodwill (‘CGU’)
Goodwill is attributed to the distribution centre operations identified below for the purpose of testing
impairment. These businesses are the lowest level at which goodwill is monitored and represent operating
segments and cash generating units. In the prior year each individual trading operation at each site was
classified as a CGU. With the development of the business strategy, performance is now monitored and
assessed at a higher level, with each distribution centre (including satellite trade counters) reviewed, considering
these to be the smallest groups of assets generating independent cash flows. Prior year figures below have been
updated to align with the newly defined cash generating units as outlined above.
The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
Tamworth
Coleshill
Ipswich
Stockport
Other
Impairment
Reported
segment
2022
£M
UK
UK
UK
UK
UK
6.2
0.8
0.2
0.2
0.2
7.6
2021
£M
6.2
0.8
0.2
0.2
0.2
7.6
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 an operation 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.
No impairment has been recognised as a result of impairment testing in the current year.
Key assumptions
Cash flows were projected based on actual operating results, the approved 2023 business plan and
management’s assessment of planned performance in the period to 2027. For the purpose of impairment
testing the cash flows were assumed to grow into perpetuity at a rate of 2.0% beyond 2027.
The main assumptions within the operating cash flows used for 2023 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.
Headlam Group PLC Annual Report & Accounts 2022
215
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
11 Intangible assets continued
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: a pre-tax weighted average cost of capital of 11.9% (2021: 11.2%). The CGUs
in Continental Europe operate under a different regulatory environment which is reflected in the risk factor
used to determine the discount rates. In the Netherlands, the pre-tax weighted average cost of capital is 12.2%
(2021: 12.2%).
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 a more sustainable business with the use of
electric or hydrogen HGVs and significant changes in consumer preferences towards more sustainable products.
A high degree of uncertainty remains around 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. 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.
Uncertainty also exists around the technological advancements required for a cost effective, electric or
hydrogen long distance HGV solution to be widely available. This risk is not included in the base case models
due to the levels of uncertainty. Sensitivity analysis has been performed assuming that commercial vehicle costs
increase by 20% after year 5 in the model, corresponding with the most likely time horizon when transition to a
sustainable fleet becomes possible. The Directors have assessed that such a scenario would not cause further
material impairment.
Consumer preferences are expected to shift more towards sustainable products in both the residential and
commercial sectors, initially at a low rate in the short term (next five years) but increasingly so over the medium
term. The Group works closely with suppliers on examining and promoting sustainable product offerings.
Due to its leading position, the Group is well placed to promote new products into the market and quickly
alter its product offering to reflect changes in preferences. Opportunities may therefore exist to take market
share by responding to the shift in the market better than competitors. It is assumed likely that the majority of
any increased cost of sustainable products is passed on to consumers who become willing to pay a premium,
as their attitudes change. This risk is therefore assumed not to have a significant financial impact and is not
included in the base models.
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 2% 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%.
Headroom remains on all CGUs tested after any of the sensitivities are applied, individually or combined.
216
12 Investments in subsidiary undertakings
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2021
Share options granted to employees of subsidiary undertakings
Disposal of subsidiary
Balance at 31 December 2021
Balance at 1 January 2022
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2022
Impairment
Balance at 1 January 2021 and 31 December 2021
Balance at 1 January 2022 and 31 December 2022
Carrying value
At 1 January 2021
At 31 December 2021
At 31 December 2022
£M
122.4
0.8
(6.2)
117.0
117.0
0.7
117.7
(16.6)
(16.6)
105.8
100.4
101.1
A full list of the Group’s subsidiaries is listed on page 247. 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 243.
13 Deferred tax assets and liabilities
Group
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
Tax assets/(liabilities)
Set-off of tax
Assets
Liabilities
2022
£M
—
—
—
1.5
0.2
1.7
(1.7)
—
2021
£M
—
—
—
1.7
0.5
2.2
(2.2)
—
2022
£M
(11.3)
(2.1)
(0.4)
—
—
(13.8)
1.7
(12.1)
2021
£M
(9.7)
(2.5)
(0.3)
—
—
(12.5)
2.2
(10.3)
Net
2022
£M
(11.3)
(2.1)
(0.4)
1.5
0.2
(12.1)
—
(12.1)
2021
£M
(9.7)
(2.5)
(0.3)
1.7
0.5
(10.3)
—
(10.3)
Headlam Group PLC Annual Report & Accounts 2022
217
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
13 Deferred tax assets and liabilities continued
Movement in deferred tax during the year
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
Movement in deferred tax during the prior year
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
1 January
2022
£M
Removed on
disposal
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2022
£M
(9.7)
(2.5)
(0.3)
1.7
0.5
(10.3)
—
—
—
—
—
—
(1.6)
0.4
(0.1)
—
(0.3)
(1.6)
—
—
—
(0.2)
—
(0.2)
(11.3)
(2.1)
(0.4)
1.5
0.2
(12.1)
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 (2021: £nil) is expected to be recovered or settled within 12 months from the reporting date.
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
Assets
Liabilities
Net
2022
£M
—
1.2
1.2
(1.2)
—
2021
£M
—
1.4
1.4
(1.4)
—
2022
£M
(9.2)
—
(9.2)
1.2
(8.0)
2021
£M
(9.2)
—
(9.2)
1.4
(7.8)
2022
£M
(9.2)
1.2
(8.0)
—
(8.0)
2021
£M
(9.2)
1.4
(7.8)
—
(7.8)
1 January
2022
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2022
£M
(9.2)
1.4
(7.8)
—
(0.1)
(0.1)
—
(0.1)
(0.1)
(9.2)
1.2
(8.0)
218
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
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)
Unrecognised deferred tax assets and liabilities – Group and Company
At 31 December 2022, the Group and Company has unused capital losses of £8.8 million (2021: £9.4 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 £1.5 million (2021 £1.7 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.
14 Inventories
Goods for resale
Balance as at 31 December
Group
Company
2022
£M
139.8
2021
£M
130.9
2022
£M
—
2021
£M
—
During the period, inventories of £444.1 million (2021: £446.7 million) were recognised as an expense and included
in cost of sales in the Consolidated income statement. Included within this expense is a £0.3 million release (2021:
£0.8 million release) in the provision for obsolete inventory and a £8.5 million charge (2021: £6.9 million charge)
for write-downs of inventory to net realisable value.
15 Trade and other receivables
Current
Trade receivables
Prepayments and accrued income
Other receivables
Amounts due from subsidiary undertakings
Derivative assets (note 24)
Non Current
Amounts due from subsidiary undertakings
Group
Company
2022
£M
83.2
9.7
26.1
—
0.1
119.1
2021
£M
72.9
5.6
35.5
—
—
114.0
2022
£M
—
0.7
0.1
15.9
—
16.7
Group
Company
2022
£M
—
—
2021
£M
—
—
2022
£M
12.6
12.6
2021
£M
—
0.1
0.3
5.8
—
6.2
2021
£M
14.4
14.4
Amounts due from subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
£1.7 million (2021: £0.4 million reduction) 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 2022
219
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
15 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
Group
Company
2022
£M
0.6
0.2
0.8
2021
£M
0.4
0.2
0.6
2022
£M
—
—
—
Further details on the impairment of trade receivables is provided in note 24.
16 Cash and cash equivalents
Cash
Cash and cash equivalents per Statement of Financial Position
Group
Company
2022
£M
2.1
2.1
2021
£M
61.2
61.2
2022
£M
20.7
20.7
2021
£M
—
—
—
2021
£M
63.4
63.4
Cash and cash equivalents of £2.1 million (2021: £61.2 million) is shown net of overdrawn bank accounts of £90.5
million (2021: £117.7 million) that have a right of set-off under the UK overdraft facilities. Gross cash without the
set-off agreement is £92.6 million (2021: £178.9 million).
17 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 UK banking facilities which will expire
in October 2027, following the one-year extension option being requested and agreed by the banks in
February 2023.
At 31 December 2022, the Group had 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 Group had
short term uncommitted facilities of £15.0 million in the UK and €4.2 million facility in Continental Europe. These
are renewable on an annual basis. The total banking facilities available to the Group at 31 December 2022 were
£100.3 million (2021: £104.8 million).
Sterling RCF
Euro RCF
Sterling uncommitted facilities UK
Euro uncommitted facilities Continental Europe
Facilities
31 December
2022
£M
31 December
2021
£M
81.5
—
15.0
3.8
100.3
68.5
8.1
25.0
3.2
104.8
For more information about the Group’s and Company’s exposure to interest rate and foreign currency risk, see
note 24.
220
Current liabilities
Interest-bearing loan
Non-current liabilities
Interest-bearing loans
Group
Company
2022
£M
2021
£M
2022
£M
2021
£M
0.3
0.3
—
—
0.6
0.6
6.9
6.9
—
—
—
—
—
—
—
—
The Group has undrawn borrowing facilities at 31 December 2022, which amounted to £100.0 million
(2021: £97.3 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.
Covenant calculations have been prepared for the year ending 31 December 2022 and there were no breaches.
The undrawn borrowing facilities are as follows:
UK
Netherlands
France
Interest
rate
%
4.9
4.7
3.1
Interest
rate
%
1.44
1.76
1.31
2022
£M
96.5
1.7
1.8
100.0
2021
£M
93.5
2.9
0.9
97.3
The undrawn borrowing facilities consisted of £81.5 million committed and £18.5 million uncommitted facilities
(2021: £69.8 million committed and £27.5 million uncommitted).
All the borrowing facilities above bear interest at floating rates.
Changes in net funds / (debt)
Cash at bank and in hand
Debt due within one year
Debt due after one year
Lease liabilities
Liabilities from financing activities
Net funds excluding lease liabilities
Net funds/(debt)
At
1 January
2022
£M
61.2
(0.6)
(6.9)
(36.0)
(43.5)
53.7
17.7
Non-cash
items
£M
—
—
—
(15.5)
(15.5)
Cash
flows
£M
(59.4)
0.3
7.0
14.0
21.3
—
(52.1)
(15.5)
(38.1)
Foreign
exchange
movements
£M
At
31 December
2022
£M
0.3
—
(0.1)
(0.2)
(0.3)
0.2
—
2.1
(0.3)
—
(37.7)
(38.0)
1.8
(35.9)
Non-cash items relate to lease additions, modifications and interest.
Headlam Group PLC Annual Report & Accounts 2022
221
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
18 Leases
The group leases various properties, 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.
Information about leases for which the Group is a lessee is presented below.
Right-of-use assets
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
Net book value at 1 January 2022
Additions
Contract modifications
Depreciation
Effect of movements in foreign exchange
Net book value at 31 December 2022
Group
Non-
property
£M
Properties
£M
11.3
2.3
1.1
(3.9)
(1.2)
(0.2)
9.4
9.4
3.2
2.9
(3.7)
0.1
11.9
30.8
4.6
(0.2)
(9.6)
—
—
25.6
25.6
7.9
—
(8.8)
0.1
24.8
Total
£M
42.1
6.9
0.9
(13.5)
(1.2)
(0.2)
35.0
35.0
11.1
2.9
(12.5)
0.2
36.7
Company
Properties
£M
0.7
—
—
—
—
—
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.
Lease liabilities
Current
Non-current
Group
Company
2022
£M
11.4
26.3
37.7
2021
£M
10.5
25.5
36.0
2022
£M
0.1
0.7
0.8
2021
£M
0.1
0.7
0.8
The lease liabilities are split on the balance sheet between current and non-current.
222
Amounts recognised in the Consolidated Income Statement
Interest on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low-value assets
Gain on sale and leaseback*
Group
2022
£M
1.4
—
0.1
—
2021
£M
1.3
0.1
0.1
(5.8)
* During the prior year the Group benefited from a gain on a sale of leaseback of its property in Switzerland, see note 25.
The total cash outflow for leases during the year ended 31 December 2022 was £14.1 million (2021: £15.2 million) for
the Group and £0.1 million (2021: £0.1 million) for the Company.
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.
19 Trade and other payables
Current
Trade payables
Taxation and social security
Non-trade payables and accrued expenses
Amounts due to subsidiary undertakings
Derivative liabilities used for economic hedging:
Other derivatives at fair value
Group
Company
2022
£M
110.7
15.2
27.3
—
—
153.2
2021
£M
126.8
14.5
36.6
—
0.1
178.0
2022
£M
0.5
2.1
8.9
31.0
—
42.5
2021
£M
0.1
1.8
4.8
30.0
—
36.7
Amounts due to subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 24.
20 Provisions
Balance at 1 January
(Credited)/charged to the income statement:
Additional provisions
Release of provisions
Utilisation of provisions
Balance at 31 December
Property
2022
£M
2.7
—
(0.9)
(0.1)
1.7
2021
£M
2.1
0.8
(0.2)
—
2.7
The property provisions relate to property dilapidations. Dilapidation provisions are expected to be utilised
between 1 and 111 years as the individual lease term comes to an end.
Headlam Group PLC Annual Report & Accounts 2022
223
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
21 Employee benefits
During the year, the Group operated a UK defined benefit plan and defined contribution plans in the UK, France
and the Netherlands. During the prior year the Group also operated a Swiss defined benefit plan which was
disposed of on 17 May 2021 as part of the disposal of Belcolor AG, a subsidiary of Headlam Group PLC.
UK defined benefit plan
The Headlam Group PLC Staff Retirement Benefits Scheme (the 'plan') is the 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 is closed to
new members and from 31 March 2020 was 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 though does not have an unconditional right to a refund.
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 sole corporate trustee. 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 2022. 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 long term investment strategy is a target asset allocation of 67.5% Growth Assets, 25% Liability
Hedging Assets and 7.5% Cashflow Matching Credit Assets. Where the macroeconomic environment causes the
actual allocation to be materially different from the target, the plan would look to rebalance the allocation over
the medium term.
The plan holds a number of annuity policies which match a portion of the pensions in payment.
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.
224
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 mechanism 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 13 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 was included in the disposal and therefore, from that date, the results of the plan are no
longer consolidated in these Financial Statements.
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.
Present value of funded defined benefit obligations
Fair value of plan assets
Surplus 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
Interest cost
Net remeasurement gains – financial
Net remeasurement gains – demographic
Net remeasurement losses/(gains) – experience
Benefits paid
Disposal of Swiss plan
Effect of movements in foreign exchange
At 31 December
Group
Company
2022
£M
(72.0)
74.1
2.1
(5.3)
(3.2)
(0.5)
(3.7)
(1.0)
(2.7)
(3.7)
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
(0.6)
(4.9)
(1.0)
(3.9)
(4.9)
2022
£M
(72.0)
74.1
2.1
(5.3)
(3.2)
—
(3.2)
(1.0)
(2.2)
(3.2)
Group
Company
2022
£M
107.0
2.0
(35.8)
(0.5)
5.4
(6.1)
—
—
72.0
2021
£M
134.9
1.7
(3.8)
(0.2)
(0.5)
(9.9)
(14.5)
(0.7)
107.0
2022
£M
107.0
2.0
(35.8)
(0.5)
5.4
(6.1)
—
—
72.0
2021
£M
(107.0)
119.1
12.1
(16.4)
(4.3)
—
(4.3)
(1.0)
(3.3)
(4.3)
2021
£M
119.7
1.7
(3.8)
(0.2)
(0.5)
(9.9)
—
—
107.0
Headlam Group PLC Annual Report & Accounts 2022
225
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
21 Employee benefits continued
Movements in fair value of plan assets
At 1 January
Interest income on plan assets
Return on assets, excluding interest income
Contributions by employer:
Past service deficit contributions
Contributions by members
Benefits paid
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
Liability and currency hedging
Cash and other
Group
Company
2022
£M
119.1
2.2
(42.2)
1.1
—
(6.1)
—
—
74.1
2021
£M
129.7
1.6
9.3
0.7
—
(9.9)
(11.8)
(0.5)
119.1
2022
£M
119.1
2.2
(42.2)
1.1
—
(6.1)
—
—
74.1
Group
Company
2022
£M
17.1
44.4
13.5
0.9
(11.1)
9.3
74.1
2021
£M
46.7
39.7
15.7
1.4
(2.5)
18.1
119.1
2022
£M
17.1
44.4
13.5
0.9
(11.1)
9.3
74.1
2021
£M
117.4
1.6
9.3
0.7
—
(9.9)
—
—
119.1
2021
£M
46.7
39.7
15.7
1.4
(2.5)
18.1
119.1
* 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.
Movements in the effect of the asset ceiling
At 1 January
Interest income on the asset ceiling
Changes in the effect of the asset ceiling excluding interest income
At 31 December
Group
Company
2022
£M
16.4
0.3
(11.4)
5.3
2021
£M
—
—
16.4
16.4
2022
£M
16.4
0.3
(11.4)
5.3
2021
£M
—
—
16.4
16.4
226
Expense recognised in the Consolidated Income Statement relating to defined benefit obligation
Net interest expense on the net defined benefit liability (note 6)
Total
Net interest is charged to Net finance costs.
Group
2022
£M
0.1
0.1
2021
£M
0.1
0.1
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
Principal actuarial assumptions
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
Group
2022
£M
42.2
(35.8)
(0.5)
5.4
(11.4)
(0.1)
2021
£M
(9.3)
(3.8)
(0.2)
(0.5)
16.4
2.6
2021
%
1.9
3.4
3.4
3.4
UK
2022
%
4.8
3.5
3.5
3.5
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
98%(M)/107%(F) of the S3PA tables
with future improvements from
2013 in-line with the CMI _2021
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 2021 weighting
parameter of 0%.
98%(M)/107%(F) of the S3PA tables
with future improvements from
2013 in-line with the CMI _2021
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 2021 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 _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%.
Headlam Group PLC Annual Report & Accounts 2022
227
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
21 Employee benefits continued
The mortality assumption implies the expected future lifetime from age 65 is as follows:
Non-pensioner male
Pensioner male
Non-pensioner female
Pensioner female
Company
Group
2022
Years
24.3
22.7
26.1
24.4
2021
Years
24.3
22.7
26.3
24.6
The principal actuarial assumptions for the Company are the same as those disclosed for the UK above.
Sensitivity analysis
The table below show the impact on the defined benefit obligation of changing each of the most significant
assumptions in isolation.
Impact on scheme
liabilities
2022
Impact on scheme
liabilities
2021
Effect in £M
Discount rate
Rate of inflation (RPI)*
Assumed life expectancy
Change in assumption
Increase
Decrease
Increase
Decrease
1.0% movement
0.25% movement
One-year movement
(8.1)
1.7
2.3
10.0
(1.6)
(2.4)
(15.6)
3.5
4.9
20.2
(3.3)
(4.8)
* With corresponding changes to the salary and pension increase assumptions.
The figures in the table as at 31 December 2022 have been calculated using the same valuation method
that was used to calculate the defined benefit obligation at the same date. The figures in the table as at
31 December 2021 have been calculated by applying the same percentage increase or decrease as at
31 December 2022.
Extrapolation of the sensitivity analysis beyond the ranges shown may not be appropriate.
The plan exposes the Group to a number of risks, principally short-term asset volatility from holding equities and
life expectancy changes which can affect the value of the liabilities.
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 2022 is £0.5 million (2021: £0.6 million). This is
reported as other long-term employee benefits within the employee benefits disclosure.
228
Total Group pension costs
Included within the total staff costs as disclosed in note 4 are costs relating to the Group’s defined contribution
plans. The pension cost for the year represents contributions payable by the Group to the plans and amounted
to £3.8 million (2021: £4.4 million). Contributions amounting to £0.5 million (2021: £0.3 million) in respect of the
December 2022 payroll were paid in January 2023.
The total Group cost of operating the plans during the year was £3.8 million (2021: £4.5 million) and, at
31 December 2022, there was an amount of £0.5 million (2021: £0.3 million) owed to the plans, being employer
and employee contributions due for December 2022, which was paid in January 2023.
22 Share-based payments
Group and Company
Executive Directors and executive management currently participate in executive share option schemes.
The Group operates a 2017 HMRC approved scheme and a 2008 unapproved scheme, the Headlam Group
Performance Share Plan 2017 and the Headlam Group Co-Investment Plan 2008. Further details of these
schemes and plans are given in the Remuneration Report on pages 134 to 165.
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 16 September 2022 when employees with over one month’s service were invited to participate.
Headlam Group PLC Annual Report & Accounts 2022
229
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
22 Share-based payments continued
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of
shares:
Grant date/employees entitled
Headlam Group Co-Investment Plan
2008 granted to key management
6 May 2016*
Five-year Sharesave scheme granted to
other employees 4 May 2016
Headlam Group Performance Share
Plan 2017 granted to key management
5 July 2017*
Five-year Sharesave scheme granted to
other employees 3 May 2017
Three-year Sharesave scheme granted
to other employees 1 May 2018
Five-year Sharesave scheme granted to
other employees 1 May 2018
Headlam Group Performance Share
Plan 2017 granted to key management
10 April 2019*
Three-year Sharesave scheme granted
to other employees 3 May 2019
Headlam Group Performance Share
Plan 2017 granted to key management
11 September 2020*
Three-year Sharesave scheme granted
to other employees 5 October 2020
Headlam Group Performance Share
Plan 2017 granted to key management
9 April 2021*
Three-year Sharesave scheme granted
to other employees 6 October 2021
Headlam Group Performance Share
Plan 2017 granted to key management
8 April 2022*
Three-year Sharesave scheme granted
to other employees 16 September 2022
Headlam Group Performance Share
Plan 2017 granted to key management 7
October 2022
Number of instruments
2022
—
—
767
Contractual life
of options
07/05/19 – 07/05/26
2021 Vesting conditions
21,860 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%
149 Continuous service
01/07/21 – 01/01/22
12,705 Awards will vest between 25%
06/07/20 – 06/07/27
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
7,751
8,953 Continuous service
01/07/22 – 01/01/23
—
4,064 Continuous service
01/07/21 – 01/01/22
16,344
18,546 Continuous service
01/07/23 – 01/01/24
—
297,475 Awards will vest between 25%
11/04/22 – 09/04/29
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
151,077
185,356 Continuous service
01/07/22 – 01/01/23
389,418
494,422 Awards will vest between 25%
12/09/23 – 11/09/30
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
931,297
1,069,722 Continuous service
01/11/23 – 30/04/24
200,474
200,474 Awards will vest between 25%
10/04/24 – 09/04/31
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
131,625
212,319 Continuous service
01/11/24 – 30/04/25
198,476
— Awards will vest between 25%
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
09/04/25 – 08/04/32
533,326
— Continuous service
01/11/25 – 30/04/26
36,976
— Awards will vest between 25%
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
08/10/25 – 07/10/32
Total share options
2,597,531
2,526,045
* Further details are provided on pages 134 to 165 of the Remuneration Report.
230
The number and weighted average exercise prices of share options are as follows:
Weighted
average
exercise
price
(pence)
2022
Number
of options
2022
Weighted
average
exercise
price
(pence)
2021
Outstanding at the beginning of the year
161.1
2,526,045
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
122.7
158.4
2.0
221.1
303.6
172.9
364.1
(57,054)
778,924
(379,461)
(107,009)
(163,914)
2,597,531
159,595
165.9
350.3
180.5
127.3
113.5
263.2
161.1
38.6
Number
of options
2021
3,132,480
(197,082)
483,529
(505,049)
(235,729)
(152,104)
2,526,045
38,778
The weighted average share price for options exercised during the year was 379.0p (2021: 471.9p).
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 3.9 years (2021: 1.7 years).
The fair value of services received in return for share options granted are measured by reference to the fair
value of share options granted. In order to estimate the fair value of the services received the Company uses an
appropriate option pricing model, either the Black–Scholes or the Monte Carlo option pricing model.
It is expected that the options will be exercised as soon as they reach maturity.
The expected volatility is based on historic volatility calculated over the weighted average remaining life of the
share options.
Details of share options granted during 2022 are shown below:
2022
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
2017
Three-year
performance
Share Plan
2017
Three-year
Sharesave
scheme
198,476
36,976
543,472
—
333.40
302.00
—
44.0%
—
208.20
302.00
—
45.0%
87.16
–
302.00
227.00
45.0%
three years
three years
three years
5.1%
1.6%
5.2%
4.2%
5.2%
3.0%
Headlam Group PLC Annual Report & Accounts 2022
231
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
22 Share-based payments continued
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
2017
Three-year
Sharesave
scheme
265,360
218,169
—
415.39
428.00
—
43.0%
127.70
—
428.00
400.00
40.0%
three years
three years
3.9%
0.1%
3.9%
0.5%
The total expenses recognised for the year arising from share-based payments are as follows:
Total expense recognised
23 Capital and reserves
Share capital
Number of shares
Authorised
In issue at 1 January and 31 December
Fully paid
In issue at 1 January and 31 December
Allotted, called up and fully paid
Ordinary shares of 5p each
Shares classified in Shareholders’ funds
Group
Company
Subsidiaries
2022
£M
0.9
2021
£M
1.2
2022
£M
0.2
2021
£M
0.4
2022
£M
0.7
2021
£M
0.8
Ordinary shares
2022
2021
107,840,000
107,840,000
85,639,209
85,639,209
2022
£M
4.3
4.3
2021
£M
4.3
4.3
At 31 December 2022, the Company held 4,046,617 shares (2021: 1,013,991) 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 4.7% (2021: 1.2%) of the issued share capital
as at 31 December 2022 with a nominal value of £0.2 million (2021: £0.1 million).
232
During the year 3,122,721 shares were purchased by the Company in accordance with the terms of its share
buyback programme, as announced on 9 March 2022 and subsequently on 28 November 2022, and which has
a total commitment of up to £15.0 million. The shares were acquired at an average price of 314p per share, with
prices ranging from 236p to 394p.
In the period from 1 January 2023 to 2 March 2023 1,566,622 shares were purchased by the Company.
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to
one vote per share at meetings of the Company.
Dividends
Dividend of a nominal amount of 2.00p paid 28 May 2021
Interim dividend for 2021 of 5.80p paid 29 November 2021
Final dividend for 2021 of 8.60p paid 27 May 2022
Special dividend of 17.70p paid 27 May 2022
Interim dividend for 2022 of 6.20p paid 28 November 2022
2022
£M
—
—
7.2
14.9
5.2
27.3
2021
£M
1.7
4.9
—
—
—
6.6
The Board of Directors have declared a final dividend of 11.2p per share which if approved by shareholders at the
forthcoming AGM, will be payable on 2 June 2023.
The total value of dividends proposed or declared but not recognised at 31 December 2022 is £9.0 million
(2021: £22.1 million).
Reserves
Other reserves
Other reserves as disclosed on the Statement of Financial Position comprise the capital redemption reserve,
translation 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 2022, this reserve was £1.5 million and there were no changes to this special reserve
during the current or previous year.
Headlam Group PLC Annual Report & Accounts 2022
233
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments
The main financial risks arising in the normal course of the Group’s business are credit risk, liquidity risk, and
market risks arising from interest rate risk and foreign currency risk. This note presents information about the
Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing risks and the Group’s management of capital. Further quantitative disclosures are included
throughout these financial statements.
Credit risk and credit quality
Credit risk arises from cash and cash equivalents, contractual cash flows of debt investments carried at
amortised cost, at fair value through other comprehensive income 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.
234
The carrying amount of financial assets at the Statement of Financial Position date was:
Trade and other receivables (note 15)
Cash and cash equivalents (note 16)
Derivative assets (note 15)
Group
Company
2022
£M
109.3
2.1
0.1
111.5
2021
£M
108.4
61.2
-
169.6
2022
£M
28.6
20.7
-
49.3
2021
£M
20.5
63.4
-
83.9
The fair values of the above financial assets at both 31 December 2022 and 2021, are deemed to approximate to
carrying value due to the short-term maturity of the instruments.
The ageing of trade receivables at the Statement of Financial Position date was:
Group
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
2022
2021
Gross
£M
Impairment
£M
Gross
£M
Impairment
£M
50.4
24.3
12.7
87.4
(0.1)
(0.1)
(4.0)
(4.2)
44.0
24.0
11.6
79.6
(0.2)
(0.3)
(6.2)
(6.7)
All other receivables and derivative financial assets are not past due (2021: not past due).
The Company had trade receivables of £nil (2021: £nil).
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31
December 2022 or 31 December 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.
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 2022 is
determined as follows;
Ageing based on invoice date
31 December 2022
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
Ageing based on invoice date
31 December 2021
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
Current
< 30 days
30–60
days
60–90
days
Over 90
days
0.2%
50.4
0.1
0.5%
24.3
0.1
24.0%
47.1%
8.9
2.2
3.8
1.8
Current
< 30 days
30–60
days
60–90
days
Over 90
days
0.3%
44.0
0.1
1.0%
24.0
0.2
40.9%
100.0%
8.9
3.7
2.7
2.7
Total
87.4
4.2
Total
79.6
6.7
Headlam Group PLC Annual Report & Accounts 2022
235
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
The maximum exposure to credit risk for trade receivables at the Statement of Financial Position date by
geographic region was:
UK
Continental Europe
Group
Company
2022
£M
71.4
11.8
83.2
2021
£M
63.4
9.5
72.9
2022
£M
—
—
—
2021
£M
—
—
—
During the year the Group’s impairment reversal as a percentage of revenue amounted to 0.3% (2021: 0.1%).
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 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
2022
£M
6.7
(1.7)
(0.8)
—
—
4.2
2021
£M
8.1
(0.4)
(0.6)
(0.3)
(0.1)
6.7
Company Trade
receivables
2022
£M
2021
£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 assesses the expected credit loss associated with amounts due from subsidiary undertakings on
a forward-looking basis, relying upon cash flow forecasts of the subsidiary to determine expected recoverability.
The company has loss allowances against amounts due from subsidiary undertakings of £3.0 million (2021: £0.8
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 2022, cash and cash equivalents covered the amounts of borrowings maturing in the next
12 months with a net positive liquidity of £1.8 million (2021: £53.7 million). Details of the total facilities that the
Group has access to are given in note 17.
236
The following are the contractual maturities of financial liabilities:
31 December 2022
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Lease 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 2022
Company
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
31 December 2021
Company
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Carrying
amount
£M
Contractual
cash flows
£M
0.3
138.0
37.7
176.0
(0.3)
(138.0)
(42.2)
(180.5)
Carrying
amount
£M
Contractual
cash flows
£M
7.5
163.4
36.0
0.1
207.0
(7.6)
(163.4)
(37.5)
(0.1)
(208.6)
1 year
or less
£M
(0.3)
(138.0)
(12.4)
(150.7)
1 year
or less
£M
(1.0)
(163.4)
(11.0)
(0.1)
(175.5)
1–2
years
£M
—
—
(9.8)
(9.8)
1–2
years
£M
(6.6)
—
(8.6)
—
(15.2)
2–5
years
£M
5 years
or more
£M
—
—
(15.9)
(15.9)
—
—
(4.1)
(4.1)
2–5
years
£M
5 years
or more
£M
—
—
(14.2)
—
(14.2)
—
—
(3.7)
—
(3.7)
Carrying
amount
£M
Contractual
cash flows
£M
1 year
or less
£M
1–2 years
£M
2–5 years
£M
5 years
or more
£M
40.4
0.8
41.2
(40.4)
(1.9)
(42.3)
(40.4)
(0.1)
(40.5)
—
(0.1)
(0.1)
—
(0.1)
(0.1)
—
(1.6)
(1.6)
Carrying
amount
£M
Contractual
cash flows
£M
1 year
or less
£M
1–2 years
£M
2–5 years
£M
5 years
or more
£M
34.9
0.8
35.7
(34.9)
(0.8)
(35.7)
(34.9)
(0.1)
(35.0)
—
(0.1)
(0.1)
—
(0.1)
(0.1)
—
(0.5)
(0.5)
The value of the Group’s and Company’s financial liabilities as detailed above at 31 December 2022 and 2021
were not materially different to the carrying value. Fair values were calculated using market rates, where
available. Where market values are not available, fair values have been estimated by discounting expected
future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued
at the exchange rate prevailing at the Statement of Financial Position date.
Headlam Group PLC Annual Report & Accounts 2022
237
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
The table below sets out the Group’s accounting classification of each class of financial assets and liabilities at
31 December 2022 and 2021.
31 December 2022
Cash and cash equivalents
Borrowings due within one year
Trade payables
Non-trade payables
Leasing liabilities
Trade receivables
Other receivables
Provisions
Derivative assets
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
Fair value
through
profit
or loss
(FVPL)
£M
Amortised
cost
£M
Total
Carrying
Value
£M
—
—
—
—
—
—
—
—
0.1
0.1
2.1
(0.3)
(110.7)
(27.3)
(37.7)
83.2
26.1
(1.7)
—
2.1
(0.3)
(110.7)
(27.3)
(37.7)
83.2
26.1
(1.7)
0.1
(66.3)
(66.2)
Fair value
through
profit
or loss
(FVPL)
£M
Amortised
cost
£M
Total
Carrying
Value
£M
—
—
—
—
—
—
—
—
—
(0.1)
(0.1)
61.2
(7.2)
(0.3)
(126.8)
(36.6)
(36.0)
72.9
35.5
(2.7)
—
(40.0)
61.2
(7.2)
(0.3)
(126.8)
(36.6)
(36.0)
72.9
35.5
(2.7)
(0.1)
(40.1)
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 at floating rates. Deposits are in sterling, euros and at floating rates.
Floating rate borrowings are linked to the Sterling Overnight 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.
238
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments
Financial assets
Financial liabilities
Sensitivity analysis
Group carrying
amount
Company carrying
amount
2022
£M
2.1
(0.3)
1.8
2021
£M
61.2
(7.5)
53.7
2022
£M
20.7
—
20.7
2021
£M
63.4
—
63.4
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 2021.
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
31 December 2022
Variable rate
instruments
31 December 2021
Variable rate
instruments
Foreign currency risk
—
—
0.6
(0.6)
—
—
—
—
0.2
(0.2)
0.6
(0.6)
—
—
—
—
The Group and Company are exposed to movements in currency exchange rates arising from transaction
currency cash flows and the translation of the results and net assets of overseas subsidiaries. The currencies
giving rise to this risk are primarily the euro, and 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 an asset at 31 December 2022
amounted to £0.1 million (2021: liability of £0.1 million).
Headlam Group PLC Annual Report & Accounts 2022
239
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
Derivatives
The Group has the following derivative financial instruments in the following line items in the balance sheet:
Current assets
Foreign currency forwards – cash flow hedges
Current liabilities
Foreign currency forwards – cash flow hedges
Total current derivative financial instrument liabilities
Group
Company
2022
£M
2021
£M
2022
£M
2021
£M
0.1
—
0.1
—
(0.1)
(0.1)
—
—
—
—
—
—
Derivatives are only used for economic hedging purposes and not as speculative investments.
The movements in respect of derivative financial instruments were as follows:
Foreign
currency
forwards
£M
(0.1)
0.2
0.1
Total
£M
—
—
—
—
Total
£M
—
0.1
—
0.1
Opening balance 1 January 2022
Credit to profit or loss
Closing balance 31 December 2022
The exposure to foreign currency risk was as follows:
Euro
amount
£M
0.1
0.3
(1.6)
(1.2)
Euro
amount
£M
0.1
0.3
(2.3)
(1.9)
Group
Other
amount
£M
—
0.2
(0.5)
(0.3)
Group
Other
amount
£M
0.1
0.1
(1.0)
(0.8)
Euro
amount
£M
Company
Other
amount
£M
—
—
—
—
—
—
—
—
Euro
amount
£M
Company
Other
amount
£M
—
0.1
—
0.1
—
—
—
—
Total
£M
0.1
0.5
(2.1)
(1.5)
Total
£M
0.2
0.4
(3.3)
(2.7)
2022
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2021
Trade and other receivables
Cash and cash equivalents
Trade and other payables
240
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 2021.
Euro
Other
Group
Company
2022
£M
(0.1)
—
2021
£M
(0.2)
(0.1)
2022
£M
—
—
2021
£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 categorised according to their valuation method.
The different levels have been defined below:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly, as prices or indirectly, derived from prices.
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The group 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.
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.
Headlam Group PLC Annual Report & Accounts 2022
241
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
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 subsidiaries of the Company 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 2027 following the one-year extensions option being requested and agreed by the banks in
February 2023.
At 31 December 2022, the Group had 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 Group had
short term uncommitted facilities of £15.0 million in the UK and €4.2 million facility in Continental Europe. These
are renewable on an annual basis. The total banking facilities available to the Group at 31 December 2022 were
£100.3 million (2021: £104.8 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 2022 and
31 December 2021.
Covenants
The Group is subject to financial covenants in relation to its £81.5 million revolving credit facility agreement
which are tested and reported every half year and year end. These comprise an Interest Cover ratio of not less
than 3:1 and a Leverage ratio not exceeding 2.5:1. Interest Cover is the ratio of the consolidated underlying
operating profit of the Group before interest, taxation and non-underlying items, adjusted to exclude
the impact of IFRS 16, (‘EBIT’) to Finance Charges. Leverage is the ratio of borrowings and cash and cash
equivalents, excluding IFRS 16 leases to EBIT after adding back amortisation and depreciation.
The Group met both these covenants during the year and there is headroom in both of these covenants at
31 December 2022 and forecast to be so in the going concern period as detailed on pages 87 to 88 under
Viability and Going Concern.
242
25 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.
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.
The subsidiary was sold on 28 April 2021 with effect from 17 May 2021 and was reported in the financial
statements for the year ending 31 December 2021 as a discontinued operation.
The information reported within this note for Belcolor relates to the prior year only as the business was
discontinued on 17 May 2021. 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
Revenue
Expenses
Other gains (profit on sale of building)
Profit before tax
Attributable tax expense
Profit after tax of discontinued operation
Loss on sale of subsidiary after tax
Profit from discontinued operation
Reclassification of foreign currency translation reserve on disposal of subsidiary
Other comprehensive income from discontinued operation
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
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
Loss on sale after tax
Cash flows from discontinued operation
Net cash outflow from ordinary activities
Net cash inflow from investing activities
Net increase in cash generated by the subsidiary
Total
£M
9.1
(9.0)
5.8
5.9
(1.3)
4.6
(0.1)
4.5
4.8
4.8
Period
ended
17 May
2021
£M
0.9
(0.1)
0.8
(5.7)
(4.9)
4.8
(0.1)
(1.8)
12.4
10.6
Headlam Group PLC Annual Report & Accounts 2022
243
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
25 Discontinued operations continued
Effect 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
Period
ended
17 May
2021
£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.
26 Capital commitments
Group
As at 31 December 2022, the Group entered into commitments to purchase property, plant and equipment for
£1.1 million and intangibles of £1.1 million (2021: £0.4 million and £1.9 million respectively).
Company
At 31 December 2022, the Company had commitments to purchase intangibles of £1.1 million (2021: £1.9 million).
27 Related parties
Group and Company
Identity of related parties
The Group has a related party relationship with its subsidiaries and with its Directors and executive officers.
Transactions with key management personnel
The Group annually re-evaluates its interpretation of key management personnel and considers that this relates
to the Executive and Non-Executive Directors of the Group as identified on pages 92 and 93.
As at 31 December 2022, Directors of the Company and their immediate relatives controlled 0.1% of the total
voting rights of the Company (2021: 0.1%).
Non-Executive Directors receive a fee for their services to the Board.
244
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 (2021: £0.3 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
2022
£M
Balance at
31 December
2022
£M
Highest
during
2021
£M
Balance at
31 December
2021
£M
31.5
(31.0)
28.5
(31.0)
21.6
(30.5)
20.2
(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 (expense)/income
28 Contingent asset
For year
ended
31 December
2022
£M
For year
ended
31 December
2021
£M
11.0
—
3.2
(0.1)
10.1
40.0
2.4
0.2
At 31 December 2022, the Group and Company identified a contingent asset relating to parts of an insurance
claim for losses arising from damage to the Group’s property and contents, as a result of the Kidderminster
fire in December 2021, whilst the asset relating to the inventory losses has been recognised in the financial
statements.
The insurers have accepted liability in respect of the Kidderminster fire claim. However, the refund relating to the
property and contents damage could not be reliably measured at 31 December 2022 because the decision to
progress with the reinstatement was not final and a change to that decision would cause the insurance refund
to be based on a negotiated settlement (dependent on negotiations with insurers) rather than the like-for-like
reinstatement costs and the resulting values could be materially different. In addition, the competitive tendering
process for the construction had not concluded and so the construction costs were not known.
An amount of £1.7 million was recognised in the Group financial statements at 31 December 2022 (2021: £nil)
relating to refunds for property and contents damage, having been received in cash.
Headlam Group PLC Annual Report & Accounts 2022
245
Financial Statements
NOTES TO THE
FINANCIAL STATEMENTS
CONTINUED
28 Contingent asset continued
The £4.5 million insurance claim refund relating to inventory losses as a result of the Kidderminster fire was
recognised in the Group financial statements at 31 December 2022 (2021: £nil) and was received in cash during
the year.
29 Subsequent events
Management have given due consideration to any events occurring in the period from the reporting date to
the date these Financial Statements were authorised for issue and have concluded that there are no material
adjusting or non-adjusting events to be disclosed in these Financial Statements with the exception of the
following:
In the period from 1 January 2023 to 2 March 2023 1,566,622 shares were purchased by the Company.
The Group requested a one-year extension to existing banking facilities which was granted by the banks in
February 2023 and will now expire in October 2027.
On 4 January 2023 the Group acquired 100% of the issued share capital of Birch Close Trading Limited, and its
subsidiaries, for a consideration of £4.7 million. The acquired group trades as Melrose Interiors (‘Melrose’), which
is the largest independent supplier to the UK online rug industry, and has operations in third-party logistics,
recycling and an in-house rug, sampling and pattern book department. Melrose brings a number of new larger
customers to the Group, including major high street and online retailers, a customer segment where the Group is
targeting growth and will work with Melrose to scale up opportunities.
The financial effects of this transaction have not been recognised at 31 December 2022. The operating results
and assets and liabilities of the acquired group will be consolidated from 4 January 2023.
Details of the consideration transferred are:
Purchase consideration
Cash paid
Contingent consideration
Total purchase consideration
£M
4.1
0.6
4.7
The fair values of the assets and liabilities of Birch Close Trading Limited group as at the date of acquisition are
as follows:
Fair Value
Property, plant and equipment
Right of use assets
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Lease liabilities
Trade and other payables
Deferred tax liabilities
Net identifiable assets acquired
Goodwill
Net assets acquired
£M
0.5
2.7
1.7
1.8
1.5
0.4
(2.7)
(2.8)
(0.4)
2.7
2.0
4.7
The goodwill is attributable to the access to new larger customers to the Group and the ability to produce
sampling and pattern books in house. None of the goodwill is expected to be deductible for tax purposes.
246
The contingent consideration arrangement requires the Group to pay the former owners of the Birch Close
Trading Limited group an amount of £0.8 million plus £2 for every £1 of EBITDA exceeding £1.0 million or minus
£1 for every £1 miss of EBITDA of £1.0 million for the years ended 31 December 2023 and 31 December 2024 up to
a maximum undiscounted amount of £3.0 million. EBITDA for the calculation of the contingent consideration is
earnings before interest, tax, depreciation and amortisation. The potential undiscounted amount of all future
payments that the Group could be required to make under this arrangement is between £nil and £3.0 million.
The fair value of the contingent consideration of £0.6m has been estimated by calculating the present value
of the future expected cash flows. The estimates are based on a discount rate of 4.6%.
The fair value of acquired trade receivables is £1.4 million. The gross contractual amount for trade receivables
due is £1.4 million, with a loss allowance of £nil recognised on acquisition.
30 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 Limited
Crossforge Limited
Holding
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Headlam Group Employee Trust Company Limited
Direct
Headlam Group Pension Trustees Limited
Headlam Ireland Limited
Tileco Limited (in liquidation)
Surface Tiles 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)
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Type
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Place of incorporation
Great Britain*
Great Britain*
Great Britain*****
Great Britain*
Netherlands**
Netherlands****
France***
Holding Company Great Britain*
Holding Company Great Britain*****
Holding Company Netherlands**
Holding Company France***
Holding Company Great Britain*
Holding Company Great Britain*
Holding Company Great Britain*
Holding Company Great Britain*
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Ireland******
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
Great Britain*
A subsidiary of the Company, Gorsey Twenty Limited, was dissolved on 19 April 2022.
The ordinary share capital of all of these subsidiaries are wholly owned. The principal activities of the trading
companies 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.
****** Registered address for Irish subsidiary: 3rd Floor Kilmore House, Park Lane, Spencer Dock, Dublin 1.
Headlam Group PLC Annual Report & Accounts 2022
247
Financial 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 per share for profit from continuing
operations
Earnings 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
2022
£M
663.6
219.5
(180.3)
39.2
(2.1)
37.1
(7.4)
29.7
—
41.8
2021
£M
667.2
220.5
(183.2)
37.3
(1.5)
35.8
(9.2)
26.6
0.1
27.6
2020
£M
609.2
188.9
(171.0)
17.9
(2.0)
15.9
(3.9)
12.0
—
(17.1)
2019
£M
719.2
229.4
(187.2)
42.2
(2.7)
39.5
(6.9)
32.6
—
35.2
2018
£M
708.4
229.1
(184.8)
44.3
(0.9)
43.4
(7.8)
35.6
—
40.4
40.1p
23.5p
(24.2)p
34.0p
40.0p
35.5p
—
14.8p
17.7p
—
11.2p
—
119.9
36.7
17.8
—
174.4
139.8
119.1
2.1
261.0
—
261.0
435.4
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
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
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
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
248
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
* IFRS 16 adopted from 1 January 2019.
2022
£M
—
(0.3)
(11.4)
2021
£M
—
(0.6)
(10.5)
2020
£M
—
(2.0)
(12.5)
2019
£M
—
(0.2)
(13.9)
2018
£M
(0.2)
(0.2)
—
(153.2)
(178.0)
(178.4)
(181.9)
(181.3)
(1.0)
(1.9)
(1.0)
(1.0)
—
(0.2)
—
(5.0)
—
(6.8)
(167.8)
(191.1)
(193.1)
(201.0)
(188.5)
—
(26.3)
—
(1.7)
(12.1)
(2.7)
(42.8)
(210.6)
224.8
(6.9)
(25.5)
—
(2.7)
(10.3)
(3.9)
(49.3)
(240.4)
232.1
(7.2)
(30.8)
—
(2.1)
(8.7)
(5.5)
(54.3)
(247.4)
220.0
(6.2)
(30.7)
—
(2.3)
(7.6)
(4.3)
(51.1)
(252.1)
245.1
(6.8)
—
(2.6)
(2.2)
(8.1)
(5.9)
(25.6)
(214.1)
235.1
** 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 – 2018 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 2022
249
Financial Statements
ADDITIONAL INFORMATION
ADVISERS
Auditor
PricewaterhouseCoopers LLP
Donington Court
Pegasus Business Park
Castle Donington
DE74 2UZ
Taxation advisers
Deloitte LLP
Four Brindleyplace
Birmingham
B1 2HZ
Solicitors
Pinsent Masons LLP
55 Colmore Row
Birmingham
B3 2FG
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
Stockbroker
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Panmure Gordon
40 Gracechurch Street
London
EC3V 0BT
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
250
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
The production of this report supports the work of the
Woodland Trust, the UK’s leading woodland conservation
charity. Each tree planted will grow into a vital carbon store,
helping to reduce environmental impact as well as creating
natural havens for wildlife and people.
HEADLAM GROUP PLC
PO Box 1
Gorsey Lane
Coleshill
Birmingham
B46 1LW
UK
T: 01675 433 000
F: 01675 433 030
E: headlamgroup@headlam.com
S N: B46 1JU
www.headlam.com
Company number: 00460129
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