H
e
a
d
l
a
m
G
r
o
u
p
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
3
Investing for
the future
Annual Report and Accounts
for the year ended 2023
INTRODUCING OUR
2023 ANNUAL REPORT
The UK’s leading floor covering distributor
Our Purpose
Creating great places for our
communities to live, work and play
Our Vision
The leading, most trusted experts
in flooring
Our Values
Every business in the Headlam group brings its own skills and expertise, built on a proud history of serving its 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
Act sustainably, use less,
waste less, give back
Get it done,
brilliantly
And always, do the right thing
Our Culture
Colleagues are at the heart of our business, and are our
greatest asset. There are over 2,300 colleagues at Headlam
within a variety of departments, including warehousing,
transport, sales, and administration. We continue to focus
on making Headlam a great place to work, and ensure
colleagues share in the Group’s long-term success.
Our investment proposition
Strong Financial Foundations
Market Leading Position
Improving Future Performance
•
Strong balance sheet
• Cash generative business model
• Low capital requirements
• Market leader with established
operational expertise and
unrivaled scale
•
Significant growth opportunity
from market recovery
• Building revenue streams
• Opportunity to further broaden
from strategic initiatives
market presence
• Large addressable market
•
Increasing efficiencies to
support margins
Financial Review
Our Strategy
Our Marketplace
For more information see
pages 32 to 39
For more information see
pages 18 to 23
For more information see
pages 14 to 15
Governance
Chair's Introduction
Compliance Statement
Board of Directors and
Executive Team
Board Leadership and
Company Purpose
Q&A with Karen Hubbard
Division of Responsibilities
Composition, Succession and
Evaluation
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors' Report
Statement of Directors’
Responsibilities
78
80
82
86
89
92
100
102
110
116
140
145
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
Alternative Performance
Measures
Financial Record
Additional Information
148
155
156
157
158
159
160
161
208
212
214
Contents
Overview
Our Year in Review
Our Performance
Our Business at a Glance
Chair's Statement
Chief Executive Review
Strategic Report
Market Overview
Our Business Model
Our Growth Strategy
Our Strategy in Action
KPIs
Stakeholder Engagement
Financial Review
Sustainability Report
Environmental
Social
Governance
Task Force on Climate-Related
Financial Disclosures (TCFD)
Streamlined Energy and Carbon
Reporting (SECR)
Risk Management
Principal Risks
Viability Statement
Non-Financial and Sustainability
Information Statement
02
03
04
06
08
14
16
18
20
24
28
32
40
44
48
54
56
61
65
68
72
74
01
Headlam Group PLC Annual Report & Accounts 2023Overview OUR YEAR IN REVIEW
Chris Payne, Chief Executive
“ These are a few of the
common questions
we are asked by
stakeholders ”
02
Q What has been the most challenging
aspect of 2023?
A 2023 has undeniably been a very challenging
year for the flooring market, reflecting a number
of macroeconomic and industry headwinds,
including lower RMI (residential maintenance and
improvement) spend, a reduction in the number of
housing transactions, and a decline in consumer
spending. Home improvements has been one of
the hardest hit categories of retail spend in 2023
as households cut back on discretionary spend.
Added to which there was high operational cost
inflation in areas such as energy costs and wages.
This combination of lower demand and higher
costs has weighed on profitability, although we
worked hard to successfully offset a proportion
of it by taking mitigating action.
Q What are your views on the timing
of recovery in the marketplace after
this suppressed period of time?
A I’ll leave it to the economists to predict the
macroeconomic outlook for the years ahead,
but what we do know is that volumes in the UK
flooring market are around 20% lower than in
2019 and we would expect those volumes to come
back over the next few years. There is a significant
opportunity ahead, as and when those volumes
recover. We have a relatively high fixed cost base,
which means that declining volume can have a
significant impact on profitability, but the reverse
happens as volumes grow. Whilst the short-term
outlook is uncertain, I feel optimistic about the
medium-term prospects, with the recovery in the
market combining with the results of our current
strategic investments to create meaningful
profit improvement.
Q What are your key focuses for
2024, including to recover
financial performance?
A The key focuses are to grow with new and existing
customers and continue to deliver great service,
whilst controlling costs and driving through
efficiencies. By doing so we will drive volume
growth whilst also supporting and improving
margins. The macroeconomic conditions have
been challenging, but we will continue to invest
in the business to position it well for when the
market improves.
OUR PERFORMANCE
Revenue
(1.1)%
£656.5m
(2022: £663.6m)
Statutory basic earnings per share
23
22
21
656.5
663.6
667.2
(76.1)%
9.6p
(2022: 40.1p)
23
22
21
9.6
23.5
40.1
Underlying1 operating profit
Total ordinary dividend2
16.1
(58.9)%
£16.1m
(2022: £39.2m)
Statutory operating profit:
£12.2m (2022: £43.9m)
23
22
21
39.2
37.3
(42.5)%
10.0p
(2022: 17.4p)
23
22
21
10.0
17.4
16.4
Underlying1 profit before tax
Average net (debt)/funds3
(70.4)%
£11.0m
(2022: £37.1m)
23
11.0
22
21
37.1
35.8
(1,209.7)%
£(34.4)m
(2022: £3.1m)
23
(34.4)
22
21
3.1
38.3
Statutory profit/(loss)before tax
Net (debt)/funds including lease liabilities4
(83.0)%
£7.1m
(2022: £41.8m)
7.1
23
22
21
41.8
27.6
(103.3)%
£(73.0)m
(2022: £(35.9)m)
23
(73.0)
22
21
(35.9)
17.7
The financial results for 2021 represent continuing operations only and exclude the contribution from the Swiss business,
Belcolor AG, in 2021 following its disposal during 2021. Commentary on the Company’s use of Alternative Performance
Measures (‘APMs’) alongside International Financial Reporting Standards (‘IFRS’) Measures is given on pages 206 to 207.
1
To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before
non-underlying items. These items are detailed in note 3 and principally comprise amortisation of acquired intangibles and other acquisition-
related costs, impairment of intangibles, property, plant and equipment and right-of-use assets, insurance proceeds (following fire), profit on
sale of property, plant and equipment and business restructuring and change-related costs.
2
Total ordinary dividend for 2021 includes the 2.0p nominal dividend announced in March 2021.
3 Average net (debt)/funds is calculated by aggregating the net debt position, excluding lease liabilities, for each business day and dividing by
the total number of business days.
4 Net (debt)/funds is as at 31 December, and includes lease liabilities of £43.4 million in 2023 (2022: £37.7 million; 2021: £36.0 million).
03
Headlam Group PLC Annual Report & Accounts 2023Overview OUR BUSINESS AT A GLANCE
Who We Are
Operating for over 30 years, Headlam is the UK’s leading
floor covering distributor.
The Company works with suppliers across the globe manufacturing the broadest
range of products, and gives them a highly effective route to market, selling their
products into the large and diverse trade customer base.
The Company has an extensive customer base spanning independent and
multiple retailers, small and large contractors, and house builders. It provides
its customers with a market-leading service through the largest product range,
in-depth knowledge, ecommerce and marketing support, and nationwide next
day delivery service.
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.
31
Years operating
67
Businesses and
trade brands
2,338
People
22
Distribution
hubs and
centres
67
Trade
counters
Revenue
88%
12%
65%
35%
UK
Residential
Continental Europe
Commercial
04
Our Customer Segments
Traditional Retailers
A mix of large and small stores,
independently owned
Key needs:
• Product availability
• Next day delivery
• Customer service and strong
relationships with fast response
to queries
• Reliable quality
• New product launches, sampling
and promotions
Tradespeople, Fitters and
Small House Builders
Often self-employed with or without a
delivery address
Key needs:
• Nearby trade counter for collection
• Quick, one stop shop
• Product advice and sampling
showcase for end-consumer
• Ability to check stock and order
out of hours and on the move
Progressive/Lifestyle Retailers
Showroom style stores, selling other
home decor items
Key needs:
• On trend, design-led products
and 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
Large scale, with premises and
contracts that span sectors
Key needs:
• Quick ordering and delivery
lifecycle
• Able to supply nationwide and
to site
• Account management and
contracts all in one place
•
Sustainability credentials
Major Multiple Retailers
Flooring specialists and generalists
with nationwide premises
Key needs:
•
Fast and accurate delivery
nationwide
• Digital systems, real-time data
sharing and automated ordering
•
•
Supply chain management
and stockholding
Sustainability credentials, exclusive
products and insight
Large House Builders and
Housing Associations
Nationwide with multiple developments
Key needs:
•
Single account management with
contracts in place
• Able to supply nationwide at scale
and to site
• Product insight, with tailored
ranges, point-of-sale materials
and showcase options for
end-consumer
Online Retailers
Online business only (with no physical
retail premises)
Key needs:
• Delivery to fulfilment centre or DSV
• Well recognised product brands
with social media appeal
• Direct to customer sample
fulfilment
• Digital systems, real-time data
sharing and automated ordering
05
Headlam Group PLC Annual Report & Accounts 2023Overview CHAIR'S STATEMENT
Keith Edelman, Non-Executive Chair
“ Despite 2023 being a difficult year for
the industry, we made good progress
with the implementation of our strategy
to enhance the growth potential of the
business, improve customer service and
deliver efficiencies ”
06
capacity and infrastructure. However, this has also meant
our colleagues having to contend with considerable change,
and doing so in a very challenging trading environment. So,
on behalf of the Board, I thank them for their commitment
and hard work.
During 2024, we will continue with the implementation of
our strategy whilst also undertaking particular scrutiny of
operational performance, efficiencies, and the cost base.
As a Board, we constantly appraise the strategy and its
performance. We believe our strategy is the right one, and
whilst the short-term outlook for the market is forecast
to remain challenging, the business is fundamentally in
a much better position. Once volumes improve from the
unprecedented current lows, we will be able to restore and
build profitability, particularly given the ongoing execution
and maturity of our strategy.
I would like to thank all our stakeholders for their support
during what has been a difficult year for most.
Keith Edelman,
Non-Executive Chair
5 March 2024
2023 proved to be a difficult year for the
industry as a whole, and for many businesses
exposed to consumer discretionary spend.
Financial performance was hampered not
just by the cost-of-living crisis, but also
by high operational cost inflation. These
combined to meaningfully reduce industry
volumes and put significant pressure
on margins.
Despite this backdrop, we made good progress with the
implementation of our strategy to enhance the growth
potential of the business, improve customer service, and
deliver efficiencies. However, due to the roll out and maturity
cycles of certain initiatives, coupled with the upfront
investment required to deliver them, the impact was more
than offset by the economic and industry headwinds.
Additionally, the Company’s regional distribution business,
which is heavily weighted to smaller residential sector orders,
was particularly impacted by both the trading environment
and competitive pricing.
As a Board, despite the backdrop and considerable pressure
on financial performance, we decided to continue investing
in the strategy and for the future. This is aligned with our
fundamental belief that the long-term success of the
business and the expansion of its market-leading position
is of most benefit to all stakeholders. Therefore, despite our
profit performance in the year, we are pleased with progress
and remain committed to our strategy.
As a business, we have achieved a lot over the past few
years as we have sought to modernise the business, grow
revenue opportunities through broadening our presence
in the marketplace, and invested in associated people
Headlam Group PLC Annual Report & Accounts 2023
07
Overview CHIEF EXECUTIVE REVIEW
Chris Payne, Chief Executive
“ Whilst the short-term outlook remains
difficult to forecast, the medium-term
market recovery, combined with the
impact of our current investments
to broaden the base of the business,
provide opportunity for material
profit improvement ”
08
Headlam is a clear market leader with
strong foundations, and through the
implementation of our strategy we are
broadening the base of the business,
providing good growth opportunities by
accessing additional areas of the market.
During the year, we successfully serviced an increasingly
diverse range of customer types, spanning independent
retailers, tradespeople, major multiple retailers,
housebuilders, online retailers and contractors.
2023 presented challenging macro and industry-specific
headwinds, which hampered financial performance;
however, we made good strategic progress and we remain
optimistic about our medium-term prospects. Our strategy
and the investments we have been making in the business
position it well for when the market recovers.
Financial summary and marketplace
During the year, the unprecedented levels of inflation and
rising cost of borrowing brought significant headwinds.
RMI (repair, maintenance and improvement) spend was
projected to have declined 11% in 2023; and residential
property transactions declined 20% year-on-year.
Consequently, home improvements and DIY was one of
worst performing categories of retail spend in 2023, with
spend significantly declining year on year, particularly in
the latter months. These factors caused volumes to
materially decline in the residential sector of the flooring
market, which accounts for approximately two-thirds of
the value of the market.
The Group’s overall UK volumes improved from high
single-digit decline at the start of the year to almost
flat compared to 2022 in July and August. However, and
consistent with observations from similar markets, the
market deteriorated significantly in September and this
persisted through the rest of the year, albeit we did see
an improvement in the Group’s trading during our peak
residential month of November. Over the year as a whole,
the Group’s UK volumes declined 5%, in line with the market
(according to commissioned external research from MTW
Research). Continental Europe revenue declined 7.7%,
reflecting weak markets, particularly in the Netherlands.
In addition to the volume weakness in the market, there was
£10 million of operational cost inflation, driven by elevated
pay and energy costs. Furthermore, the temporary benefit
in 2022 from manufacturer-led price increases unwound
in 2023, which further impacted profitability. Overall, this
resulted in a reduction in underlying profit before tax from
£37.1 million in 2022 to £11.0 million in 2023. Further detail on
the year-on-year movement in profit is contained in the
Financial Review.
Testament to the strength of the business model, operating
cash generation was strong, allowing us to continue
investing for the future. The Group generated £26.0 million
of Underlying Operating Cash Flow, higher than either
of the previous two years, reflecting a stabilised working
capital position. Additionally, during H2 2023, we agreed a
settlement with insurers for the Kidderminster building, which
was destroyed by a fire in 2021, and subsequently separately
sold the land, resulting in combined cash proceeds, net
of fees, of £9.7 million. We invested £18.2 million in capital
expenditure, £6.1 million in acquisitions and returned £17.4
million to shareholders in the form of dividends and the share
buyback programme, which completed in March 2023. Net
debt increased by £31.4 million in the year to £29.6 million,
reflecting these investments and shareholder returns.
The Board is recommending a 2023 final ordinary dividend
of 6.0 pence per share (2022: 11.2 pence per share), subject to
shareholder approval at the forthcoming AGM in May 2024,
taking the full year dividend to 10.0 pence per share (2022:
17.4 pence per share). In recommending this final dividend
the Board acknowledges that the short-term outlook
remains challenging; however, also takes into account that
the medium-term prospects remain strong, and that the
Group has a strong balance sheet and good operating
cash flow generation, supplemented by lower capital
expenditure requirements going forward. Furthermore, the
Board also recognises the non-underlying cash proceeds
received in 2023 in respect of insurance settlement and
property disposal, and the intention to release more capital
from disposal of surplus property in 2024. Accordingly, and
as signalled at the half year results in September 2023, the
Group will temporarily lower its dividend cover in respect of
the ordinary dividend. The Group intends to retain a lower
level of cover through 2024 and then re-evaluate with a view
to building back to 2.0x cover over the medium-term as the
market and Group earnings improve.
Strategic progress
Despite the macro and industry headwinds, we made good
progress in many areas of our strategy, the outputs of which
have been masked by the impact of the external headwinds
on overall financial performance. We invested in people,
in new and enhanced capabilities, and in the network
and infrastructure; all supporting growth, efficiency, and
customer service. These strategically important investments
have strengthened the foundations of the business, and
position us well for growth across a broader spectrum of
the marketplace. The key strategic growth initiatives
delivered good results in the year. Revenue from Larger
Customers and Trade Counters in the UK, the two main
revenue growth drivers, was up 26% and 8.5%, respectively,
compared with 2022, offsetting the 7.0% decline in the
Regional Distribution business.
Larger Customers
Revenue grew by 26% in the year to £83.3 million, reflecting
the scaling of existing customer relationships, adding further
product lines and categories, combined with new customer
wins. We successfully grew sales and partnerships with a
broader range of customers, including flooring retailers,
homeware retailers, builders’ merchants, housebuilders and
online retailers. Towards the end of the year, we launched
trials in a chain of builders’ merchants and in a national
discount retailer; both involve only a small proportion of their
respective estates initially, with the potential for nationwide
rollouts over time. Furthermore, at the end of the year,
starting with the Boxing Day sale, we significantly increased
our share of the flooring category with a nationwide retailer.
We have a dedicated account management team who
develop new, and service existing, customer relationships.
We increased the size of this team in the year, including
sales expertise in particular segments of the market, such
as housebuilders, where we look to build upon our initial
entry point.
09
Headlam Group PLC Annual Report & Accounts 2023Overview CHIEF EXECUTIVE REVIEW
CONTINUED
We have a strong pipeline of growth, across both existing
and new customers, providing opportunity to grow revenue
from Larger Customers to a targeted £200 million over the
coming years.
Trade Counters
Revenue for the year was £97.1 million (2022: £89.5 million),
an increase of 8.5%, and 2,400 new customer accounts
were opened across the trade counter network. Collectively,
'invested’ trade counters (new, relocated or refitted)
performed in line with the business case, despite the
weak market. The key ingredients for a successful trade
counter are location and colleagues, supported by a
dedicated management team focusing on the rollout and
performance management of all sites.
12 new trade counters were opened in the year and a
further 11 were refurbished or relocated. This took the total
number of trade counters to 67 at the end of the year, of
which 47 have been invested in (31 December 2022: 58 total,
24 invested). We closed two sites during the year and also
merged two sites.
In 2024, we are targeting to invest in at least 20 sites, around
half of which could be new sites, taking our total number of
trade counters to around 80.
Our aim is to create a nationwide footprint that services
the fitter and general contractor market; a segment of the
overall flooring market to which we cannot currently provide
nationwide service and, as such, is an important growth
opportunity. During the year, we increased our target to a
total of 100 invested sites by the end of 2025 (from a previous
target of 90), in order to reach 80% of the UK population
within a circa 20-minute drive time. We expect this increase
in total site numbers to require no increase in the previously
expected total capital expenditure due to savings made in
the cost of each trade counter investment as we build our
expertise and drive efficiencies and economies of scale.
Our aim is to grow revenue in Trade Counters to £200 million.
Regional Distribution
Our Regional Distribution business incorporates all
our local business brands across the UK and supports
operations across the Group through its national network
and processing and delivery capabilities. This part of our
business, which accounted for 64.2% of total UK revenue
in 2023 (2022: 69.0%), was particularly impacted by the
trading environment as it predominantly comprises a high
volume of smaller individual residential orders, which have
been particularly impacted by consumers cutting back their
spending on home improvements. Accordingly, revenue
declined by 7.0% to £370.8 million (2022: £398.9 million).
Competition has also been heightened in this part of the
market, with aggressive pricing at times; despite this, our
gross margins have been stable and well-controlled.
Despite the industry headwinds, we made considerable
progress in upgrading the network to increase the level of
service to all customers, whilst also creating operational
efficiencies. Investments included new cutting tables and
sortation units in three of our largest distribution centres,
and the installation of owned solar panels across most of
our larger UK sites. The combined capital expenditure in
the Regional Distribution business was over £9 million; this
was higher than in previous years, reflecting a busy year of
upgrade and replenishment, combined with the one-off
investment in solar panels, and we expect it to reduce
going forwards.
Headlam’s scale and reach remains a competitive
advantage for its Regional Distribution business, with great
service and breadth of product providing compelling
reasons to use Headlam.
We have a large portfolio of established Own Product
Brands, an important point of differentiation in the
marketplace. Revenue from Own Product Brands was up
2.7% in the year and represented 34.5% of the revenue
through the Regional Distribution channel. This revenue
growth was supported by the successful launch of the
Group's newest brand Everyroom in the second half of 2022.
Everyroom has quickly won traction and wide recognition,
including winning a leading trade award in March 2023.
During 2023, we enhanced the team leading this area of
the business, and invested in social media awareness, new
B2B2C websites for our leading Crucial Trading and Kersaint
Cobb product brands, and new product development to
support the increased appeal to a wider cross-section of
customers/consumers. Alongside Everyroom, several of
our other brands also received prestigious awards during
2023, including Kingsmead Carpets, Kersaint Cobb, Crucial
Trading, and Manx Tomkinson.
Digital & IT transformation
34% of revenue in 2023 was through digital channels; this
includes electronic ordering from Larger Customers. Digital
transformation and ecommerce initiatives serve as an
important foundation for all areas of our strategy. We are
focused on moving our business to a more digitally-enabled
Q You are investing for the future. What are your expectations for investment in 2024?
And how quickly does the investment provide returns?
A Capital expenditure during 2023 was £18 million, which will reduce to around £12 million in 2024. During 2023,
investment in new cutting tables and associated safety equipment was largely completed, as well as the majority
of the total £3 million investment in solar panels. As with 2023, Trade Counters will continue to be the largest area of
investment in 2024 as the roll-out continues to a total of around 100 trade counters by the end of 2025. Due to the
upfront investment required and modelled sales profile, the Trade Counter business unit diluted the Group’s profit by
£3.0 million in 2023 and is expected to be slightly year-on-year profit diluting again in 2024, before becoming profit
enhancing over 2025/2026. The payback for the solar panels investment is 3 to 4 years and has delivered a positive
in-year profit impact in 2023 from the reduction in electricity consumption; this investment is largely complete with a
final amount of around £1m expected in the first half of 2024.
10
and multi-channel model, providing many benefits including:
more efficient order-taking processes; quick and effective
automated information flows; better supplier and customer
engagement; greater product and brand awareness; and a
lower cost to serve.
During 2023, we rolled out a drop ship vendor proposition
to larger retailers and launched a Headlam brand website
(www.headlamgroup.com) to better showcase who we are
and our experience, knowledge, products and services.
To support the digital improvements, and to provide a more
agile and flexible IT platform to support the future growth
of the business, during the year we made the decision to
replace the core IT system used in the UK. This will take place
over the next three years and will involve modular, cloud-
based systems; we will continue to operate the current
system and can accommodate a period of dual running
until fully ready to switch over, in order to ensure a smooth
transition with minimal disruption.
Efficiencies and mitigating actions
Efficiency is a key part of the overall strategy, and further
efficiency and mitigating actions were introduced during
2023 to help support margins and better align costs with the
weak market backdrop. These included flexing operational
headcount, implementing targeted price increases, and
ongoing optimisation of transport operations. The latter
was centred around the implementation of dynamic route
planning, which reduces fuel and other transport costs
through the optimisation of journeys.
Efficiency and mitigating actions contributed £10.3 million in
2023, providing a partial offset against the impact of volume
decline and operational cost inflation.
During the year we reviewed the size and location of our
network and, even after taking account of the volume
growth anticipated over the coming years, made the
decision to exit our Stockport distribution centre, given an
overlapping service presence and stockholding capability
in the north of England. In its place we have agreed a lease
on a cross-dock facility, which we expect to move into in the
coming weeks. Overall, this network optimisation adjustment
results in a lower operating cost, whilst still providing
capacity for significant growth, and releases capital through
the disposal of the Stockport freehold, which we expect to
occur over the coming months.
Whilst we have successfully implemented material
mitigations in 2023, the flooring distribution business model
has an inherent fixed cost element that drives relatively
high operating leverage. As volumes decline, this can weigh
heavily on profitability. However, as volumes recover, it can
also have a significantly positive impact on profit.
Sustainability and our people
We have made good progress on our sustainability agenda
during 2023. From an environmental perspective, this has
included a reduction in carbon emissions aided by our
investment in solar panels; the transition of over 85% of our
non-commercial vehicle fleet to low or no emission; and
transport efficiencies, which have reduced fuel consumption.
The safety of our colleagues, and any visitors to our sites, is
of utmost importance to us. The Board, Executive Team, and
site leadership teams widely and regularly communicate
safety as Headlam’s first behavioural value in order to
embed a strong health and safety culture. Every meeting
starts with a ‘safety moment’, and we have seen meaningful
improvements in H&S culture and reporting.
Other priorities for our people include having an inclusive
and collaborative culture where everyone can succeed.
We held a ‘Lead the Way’ conference in October 2023 for
all management colleagues in the UK business, the first
time this had been done, with a focus on delivering success
together. Building skills to succeed now and in the future
is another priority area and is being supported by the
comprehensive learning and development programmes
being rolled out. During the year we also conducted our first
colleague engagement survey, providing valuable insight
into what is working well and what we can do better to
engage our colleagues.
Outlook
The market weakness observed at the end of 2023 has
continued into the first few weeks of 2024. We have seen
negative volumes across our UK and Continental European
businesses, despite continued growth in Larger Customers
and Trade Counters. Group revenue in February 2024 was 6%
lower than 2023, albeit ahead of January 2024. External data
on housing transactions and consumer spending on home
improvements, and latest projections for RMI and flooring
spend in 2024, indicate a delayed market recovery.
The medium-term market outlook remains strong; flooring
market volumes in 2023 were around 20% lower than in 2019
and we expect volumes to improve significantly over the
coming years as the market recovers. The combination of
this market recovery and our strategic initiatives to grow
revenue to £200m in each of Larger Customers and Trade
Counters provides opportunity for material uplift to revenue
and profit given the operational leverage within the business.
Furthermore, the Group’s capital expenditure requirements
are expected to decline in 2024 and then again in 2025,
providing a boost to cash generation
Summary
The Group is well positioned despite the market backdrop,
with ongoing expansion of its market-leading position,
broadening of its market presence, and ongoing efficiencies;
all of which will support future financial performance as the
market improves.
We continue to focus on supporting the needs and
requirements of all our stakeholders. We are confident in
our strategy and look forward to the positive long-term
prospects for the Group, and rebuilding of returns for
shareholders. The Board thanks all the Group’s colleagues for
their continued hard work during this challenging period for
the flooring market.
Chris Payne,
Chief Executive
5 March 2024
11
Headlam Group PLC Annual Report & Accounts 2023Overview 12
STRATEGIC
REPORT
Market Overview
Our Business Model
Our Growth Strategy
Our Strategy in Action
KPIs
Stakeholder Engagement
Financial Review
Sustainability Report
Environmental
Social
Governance
Task Force on Climate-Related Financial
Disclosures (TCFD)
Streamlined Energy and Carbon Reporting (SECR)
Risk Management
Principal Risks
Viability Statement
Non-Financial and Sustainability
Information Statement
14
16
18
20
24
28
32
40
44
48
54
56
61
65
68
72
74
13
Headlam Group PLC Annual Report & Accounts 2023 MARKET OVERVIEW
Our Market at a Glance
£3bn UK market
2023 was a very challenging year for the
flooring market, reflecting a number
of macroeconomic factors including
unprecedented levels of inflation and the
rising cost of borrowing.
This led to lower RMI (residential, maintenance and
improvement) spend, which was projected to have
declined 11% in 2023, and a material decline in residential
property transactions, with data for April to November 2023
showing a 20% year-on-year decline. Consequently, home
improvements and DIY was one of the worst-performing
categories of retail spend in 2023, with spend significantly
declining year on year. All of these factors caused volumes
to materially decline in the residential sector of the flooring
market, which accounts for approximately two-thirds of the
value of the market.
Headlam’s UK volumes declined by 5% in 2023, which was in
line with the market, and was driven by the residential sector.
A further dynamic of the flooring market in 2023 was the lack
of manufacturer-led price increases. There were significant
increases in 2022, which flowed from manufacturers and
through distributors and onto customers, which supported
revenues in the market despite high volume decline. This
provided a margin boost in 2022 to distributors as selling
prices in the market increased, but the distributors had stock
at previous prices. However, there were only limited price
increases in 2023 and this positive impact was, therefore,
not repeated.
The macroeconomic factors described above, along with
the after effects of COVID-19, has caused the traditional
seasonality to trading to be less pronounced in the last
three years. COVID-19 has been thought to have pulled
forward some home improvements works, whilst the cost-
of-living crisis is thought to be causing consumers to be
deferring work.
Looking ahead to 2024 and beyond, a number of
macroeconomic indicators are looking more positive:
inflation is dropping rapidly, real pay is returning to growth,
and interest rates are projected to have peaked and some
are predicting declines during 2024, all of which should
support improved consumer confidence.
However, this could take some time before it impacts on the
RMI and flooring markets, which are projected, by external
research, to remain subdued during 2024.
Nonetheless, whilst the short-term outlook remains
uncertain for the market, the medium-term prospects look
positive. Volumes in the UK flooring market are around 20%
lower than in 2019 and we would expect the market to
recover back to those levels over time.
14
UK residential property transactions
)
s
n
o
i
l
l
i
m
(
s
n
o
i
t
c
a
s
n
a
r
T
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
2014
2015
2016 2017 2018 2019 2020 2021 2022 2023
Source: www.gov.uk/government/statistics/monthly-property-
transactions-completed-in-the-uk-with-value-40000-or-above
Home improvements and DIY
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10%
Jan 23
Jul 23
Jan 24
Source: www.barclayscorporate.com/insights/industry-expertise/
uk-consumer-spending-report
RMI
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
21%
9%
0%
0%
-13%
-11%
2018
2019
2020
2021
2022
2023
Source: Construction Products Association, Autumn 2023 update
Q What proportion of Headlam’s revenue
comes from RMI versus new building?
A In the residential side of our business we are
currently much more reliant on people replacing
flooring in their existing homes. However, our
strategy is to broaden into other areas and
customer groups, including housebuilders. By
customer group, housebuilders accounted
for a very small proportion of our revenue in 2023
and in previous years, and is a targeted new
customer group for us. We have invested in a team
to engage directly with housebuilders, developed
and honed a compelling service offering for them,
and targeted a growing revenue contribution from
this area in 2024 and beyond.
Q How important are branded products
in the marketplace?
A Product brands are an important point of
differentiation in the marketplace as the majority
of flooring product is relatively unbranded.
Branded and recognisable brands, particularly
those at middle/upper price points, can
attract higher margins and be slightly more
immune to the inflationary impact on consumer
spend. Additionally, an increasing proportion
of end-consumers now use social media and
websites to search for, or look at, products before
purchasing. Having branded products makes them
stand out, helps cut through product filtering, and
enhances their SEO (search engine optimisation).
Our Mitigating Actions
Swift, effective action taken in response
to market conditions
In response to the macroeconomic and industry headwinds,
we implemented a range of mitigating actions in the year.
This included: aligning costs with the market backdrop,
through flexing operational headcount; implementing
targeted, selected price increases; transport cost savings,
through the implementation of dynamic route planning; and
network optimisation, whereby we have identified savings
through consolidating our Stockport distribution centre.
We also concluded on the insurance settlement for the
Kidderminster building, and completed the sale of the land,
in order to boost cash generation, as well as taking measures
to tightly control stock.
Headlam's Market Opportunity
The flooring market is worth around £3 billion1. Headlam has previously operated primarily in the traditional retailers and
tradespeople/fitters elements of the market. The Group’s strategy is to broaden the base of the business to access the areas
of the market where Headlam is underweight, such as contractors, multiple retailers or housebuilders. Good progress was
made in 2023, with 26% and 8.5% growth in revenue from Larger Customers and Trade Counters, respectively; however, there
remains a significant opportunity for further growth as the Group continues to execute its strategy.
High
Existing Headlam Weighting
Low
Traditional
Retailers
Tradespeople
and Fitters
Progressive
Retailers
Contractors
(including
government)
Multiple
Retailers
Larger
Customers
Larger
Housebuilders
Online
(pure online)
1 Source: LEK Consulting, 2020.
15
Headlam Group PLC Annual Report & Accounts 2023Strategic Report OUR BUSINESS MODEL
We create value by
leveraging our key
relationships, supply
chain expertise, and
innovative approach
to deliver products
that are both
sustainable and fit
for purpose.
16
What we rely on
Our people
Attracting and retaining the best
people to provide the highest
levels of customer service, and
working together to deliver
success.
Our culture
A shared group of values,
including to ensure a business of
integrity with robust controls and
ethical conduct.
Our expertise
Ensuring we retain and build
upon our market leading
expertise through ongoing
investment in people and
the business.
Our sustainable mindset
Ensuring the long-term success
of the business through a focus
on a sustainable business model
and working closely with all
stakeholders.
Our relationships
Actively engaging with all stakeholders, including people,
customers and suppliers, to support each other and deliver
success together.
Supporting our suppliers
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.
What differentiates us
Our customer-led approach
Broadest product offering; next day delivery and collection; industry-leading
app; improved B2B website.
Our differentiated offering/routes to market
The broadest offering across the different customer groups, with significant
opportunity for future growth by leaveraging our scale and reach.
Our material handling and processing capabilities
Largest inventory holding amongst peers. Able to process a high volume of
orders for next day delivery.
What we do
The Value we Create
Purchasing
Sourcing and purchasing leading,
innovative and exclusive products
from a wide range of suppliers/
manufacturers from across
the globe.
Customer service
Providing our customer base with
the widest range of products
and comprehensive service
propositions tailored to their
specific needs.
Solutions
Offering an array of solutions
across the value chain, including
stockholding and storage
solutions, product insight and
knowledge, curated exclusive
ranges, and sales support.
Delivery
Providing a truly nationwide
delivery service, with next
day delivery or trade counter
network collection service for
all customers.
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.
Our extensive distribution network
Headlam is the only truly nationwide business in the UK. Next day delivery
and an increasing number of collection points are key facts of our offer.
Our product knowledge and ranging
Unrivalled product knwledge and expertise. Able to provide valuable insight
to both customers and suppliers.
Our Colleagues
Providing an inclusive and
collaborative working environment
where people are supported, and
can develop and succeed.
Our Customers
Helping our customers grow their
businesses through an outstanding
service, and giving them
competitive advantages.
Our Suppliers
Providing a highly effective and
efficient route to market for their
products and access to a large and
fragmented customer base.
Our Shareholders
A focus on ensuring the long-term
success of the businesses, and
improving financial performance
to ensure increasing shareholder
returns.
Our Communities
and the Environment
Supporting local communities
through employment and
engagement activities, and
reducing our impact on the
environment through our
sustainability strategy.
17
Headlam Group PLC Annual Report & Accounts 2023Strategic Report OUR GROWTH STRATEGY
How we are achieving
our vision to deliver
success together
Q What is the most
exciting aspect of
your strategy?
A Being able to deliver great
service across the different
customer segments, from
traditional retailers, to
fitters and contractors,
to housebuilders and
multiple retailers;
broadening the base
of the business whilst
continuing to look
after our traditional
customers. By doing so,
we can grow revenue
and add new customers,
as well as retaining our
long-standing, loyal
customers.
18
Maximising sales through
great service, solutions,
pricing and range
Developing new
opportunities for
future growth
Description
Description
•
Secure and increase share
with independent and
progressive retailers - through
service, price and range
offerings
•
Tailored propositions
for larger commercial
customers, contractors and
housebuilders – expanding
market positioning and share
• Remain number 1 for service¹ -
• Expand and enhance the
following ongoing validation
from latest customer survey
• Launch new award-winning
products - to gain market
share and expand the
customer base
Progress made
•
Significant investment in
cutting tables, sortation units
and other equipment.
• Good revenue growth in Own
Product Brands, supported
by award-winning Everyroom
brand, launched in 2022
Link to Risks
1 2 7
See pages 68 to 71
Link to KPIs
1 2 3 4 5
See pages 24 to 27
1 According to internally
commissioned customer survey.
Trade Counter service-focus
on delivery in line with the
business case with strong
growth metrics
•
Increase online brand
awareness and engagement
- ongoing ecommerce and
brand development
Progress made
• 8.5% revenue growth in Trade
Counters, with sites increased
to 67, of which 47 are new or
refurbished
•
•
•
2,400 new trade customer
accounts opened in Trade
Counters
26% revenue growth from
Larger Customers. from
growing existing and winning
new accounts
Investment in dedicated
management and account
teams for Trade Counters and
Larger Customers
Link to Risks
1 2 3 7 10
See pages 68 to 71
Link to KPIs
1 2 3 4 5 6
See pages 24 to 27
Improving our operational
capabilities and
effectiveness
Leading on sustainability
and environmental
responsibility
Making Headlam a
great place to work
for everyone
Description
Description
Description
• Optimise the branch network
• Updated ESG strategy
•
•
and transport – to facilitate
operating efficiencies and
associated cost savings
Investment in sites and
equipment - supporting
growth and customer service
Investing in people and
processes - to improve
capability, expertise and
efficiencies
Progress made
•
Transport integration
completed and dynamic
route planning implemented
• New capability added,
including Ecommerce
Director and Group Marketing
Director
Link to Risks
1 3 4 10
See pages 68 to 71
Link to KPIs
2 3 4 5 7
8 9 11 12
See pages 24 to 27
launched in 2023 - continues
to be progressed and
developed to remain leader
amongst direct peer group
• Notification to SBTi of
intention to submit Net Zero
and interim emission targets
- focus on reducing carbon
footprint
• Maintain good and ‘low risk’
ESG scores - achieved AAA
ESG rating with MSCI
Progress made
• Reduction in emissions, driven
by solar panel installations,
transition of non-commercial
fleet to low emission, and
transport efficiencies
• Over 85% of non-commercial
vehicle fleet now hybrid or full
electric
• Achieved ISO 14001
environmental certification
at key sites
Link to Risks
2 7 8 9
•
Inclusive open two-way
engagement - with
Employee Forum and CEO
town halls on site
• Revised values launched and
embedded - ‘Headlam Way’
with safety as first value
• Build inclusive and
collaborative performance
culture - to support long term
success
Progress made
• Engagement survey
conducted for the first time
• New training and
development materials,
including online induction
• Developed our first Inclusion
& Wellbeing strategy
Link to Risks
5 6
See pages 68 to 71
Link to KPIs
9 10
See pages 68 to 71
See pages 24 to 27
Link to KPIs
11 12
See pages 24 to 27
19
Headlam Group PLC Annual Report & Accounts 2023Strategic Report OUR STRATEGY IN ACTION
Maximising sales through
great service, solutions,
pricing and range
Regional Distribution
Overview
Headlam’s Regional Distribution business is the mainstay of the group and
supports all the businesses and projects across the group through its national
network and processing and delivery capabilities. We continue to invest in the
network and people to increase the level of service to all customers, whilst also
creating operational efficiencies.
Key fact
Revenue -7.0% in 2023 to
£371 million
Highlights in 2023
• Material investment in cutting tables, sortation units and MHE
(material handling equipment).
• Machine guarding and other safety features introduced in
the warehouses.
•
Transport integration completed, and ongoing optimisation of
transport with resulting efficiencies.
•
Installation of owned solar panels across all larger UK sites.
Q How can you build your position in your Regional
Distribution business given your already market-leading
position?
A Despite our market-leading position, Headlam has relatively low
market share in certain geographical areas; added to which, there
are opportunities in certain product categories where the Group is
underweight, and good growth opportunities in the commercial sector
of the marketplace. We invested meaningfully in our network during
2023, including in cutting tables and other machinery and equipment
to enhance the service proposition; we also added new people
and capability.
20
Maximising sales through
great service, solutions,
pricing and range
Own Product Brands
Overview
This is about leveraging Headlam’s established large portfolio of Own Product
Brands to increase sales, and investing in social media awareness, marketing
and new product development to appeal to a wider cross-section of customers/
end-consumers. Furthermore, we can launch new brands in underweight product
or pricing categories to capture further sales. The goal is to have the brand of
choice for customers and end-consumers in each product category.
A key fact
34%
Own Product Brands as a proportion
of UK revenue in 2023¹
Highlights in 2023
• Grown revenue despite brands being mainly residential focused
•
Strong revenue contribution in 2023 from newest brand Everyroom,
launched in 2022
• Enlarged and enhanced team
• Number of industry awards across the brand portfolio
• New B2B2C websites launched for two of our brands
Q How has demand for different flooring categories
altered over time, and what do you think it will do
in the future?
A The most notable trend in recent years is the increase in demand for
hard flooring as people have shifted from having mostly soft flooring
downstairs to more hard flooring like Luxury Vinyl Tiles (LVT), laminates,
woods and ceramics. As a consequence, carpet now accounts for a lower
proportion of the overall market. For example, carpet as a proportion of
our overall revenue has moved from circa 41% in 2010 to 33% in 2023. LVT
has been a notable growth area, becoming increasingly popular since
2016, supported by advances in technology, which mean it is incredibly
durable and can look just like real wood or stone, for example, but at a
more affordable price.
1 Excludes revenue from Larger Customers, Trade Counters and revenue from our ceramics specification businesses.
21
Headlam Group PLC Annual Report & Accounts 2023Strategic Report OUR STRATEGY IN ACTION
CONTINUED
Developing new
opportunities for
future growth
Trade Counters
Overview
We are accelerating 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. We have increased the target
to a total of 100 invested1 sites by the end of 2025 (previous target 90) with a total
capital expenditure of £26 million.
Key facts
Revenue +8.5% in 2023 to
£97 million
Long-term revenue target
£200 million
Highlights in 2023
• Creation of a central management team
•
•
•
•
23 site investments completed during 2023
Total of 67 sites at 31 December 2023, of which 47 invested in (total of 53
sites in 2021, all uninvested)
Invested sites collectively performing in line with business case
2,400 new customer accounts opened
• Lowered capital investment requirements per site
Q How does the Trade Counter business model work? And
what are your aspirations for this area of your business?
A The aim is to create a nationwide footprint of trade counters that appeals
to a wide range of trade customers, outside of solely flooring specialists.
The counters offer a collection service (from any site), a walk-in service,
expert advice, and exclusive products, accessories and workwear all on
offer on site. Given the positive performance of the invested sites to date,
along with further modelling of the optimal geographic footprint, we
have increased our original target of a total of 90 invested sites to around
100 by the end of 2025. This can be achieved with the same anticipated
total capital investment of, approximately, £26 million due to us having
been able to reduce the investment required to open a typical new site by
around 15%. Upon maturity, these 100 sites are anticipated to generate
£2 million per annum.
22
1
'Invested', means either a new site or the refurbishment or relocation of an existing site.
Developing new
opportunities for
future growth
Larger Customers
Overview
Headlam is underweight in the Larger Customers segment of the market, having
just £83 million in 2023 of an estimated £1 billion market. There is opportunity
to grow this by offering a fully comprehensive service tailored to their specific
requirements, and growing sales and partnerships with a broad spectrum of new
and existing customers, including: flooring retailers; homeware retailers; builders
merchants; DIY; housebuilders; and online retailers.
Key facts
Revenue +26% in 2023 to
£83 million
Long-term revenue target
£200 million
Highlights in 2023
• Revenue growth in existing accounts combined with new customer wins
•
First sales secured with a top 10 UK housebuilder
• Dedicated team expanded, including new housebuilder team
• Expanded DSV capability to include palletised goods
Q Why would a multiple/larger retailer use Headlam?
And how do you work alongside the manufacturer in
servicing and supporting them?
A We are able to offer larger customers a compelling and comprehensive
service proposition tailored to their specific needs through: product
insight and exclusive products; competitive purchasing; supply chain
management; stockholding and storage solutions; processing and
national distribution to any number of locations and frequency. All this
serves to reduce complexity, cost and working capital for customers.
We work in tandem with suppliers who manufacture the products, and
have joint business plans creating further efficiencies and
margin enhancements.
23
Headlam Group PLC Annual Report & Accounts 2023Strategic Report 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 Group’s financial, operational,
and social performance towards the achievement of its strategy. Commentary on
the Group’s use of Alternative Performance Measures (‘APMs’) alongside International
Financial Reporting Standards (‘IFRS’) Measures is given within the Financial Review on
pages 32 to 39, and below.
The financial results for 2021 represent continuing operations only and exclude the contribution from the Swiss business,
Belcolor AG, following its disposal during 2021.
Financial KPIs
1 Like-for-like1
revenue growth (%)
APM
23
(2.8)
22
21
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
0.5
16.3
Why it’s important and relevant
Allows a consistent measure of
year-on-year performance.
2 Gross profit margin (%)
Measurement
Measured as a % of revenue.
23
22
21
31.7
33.1
33
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
and administrative costs (%)
APM
23
22
21
29.2
27.2
27.5
Measurement
Measured as a % of revenue.
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 2023
and the comparator year(s), and is adjusted for any variances in working days.
2 To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before
non-underlying items. These items are detailed in note 3 and, principally, comprise amortisation of acquired intangibles and other
acquisition-related costs, impairment of intangibles, property, plant and equipment and right-of-use assets, insurance proceeds
(following fire), profit on sale of property, plant and equipment and business restructuring, and change-related costs.
24
4 Underlying2 operating
profit margin (%)
APM
2.5
23
22
21
5.9
5.6
Measurement
Measured as a % of revenue.
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
prior to exceptional costs/items.
Initiatives and actions for
improvement
Strategy to improve operating and
financial performance including
revenue growth on a partially fixed cost
base (see Chief Executive's Review on
page 08).
Link to Strategy
5 Statutory basic earnings/
(loss) per share (‘EPS’) (p)
Measurement
Profit after tax divided by average basic
weighted number of shares.
Initiatives and actions for
improvement
In line with statutory profit performance.
23
9.6
22
21
40.1
23.5
Why it’s important and relevant
Shows the level of profit per share
attributable to shareholders.
Link to Strategy
6 Underlying return on capital
employed (‘ROCE’) (%)
APM
Measurement
Measured as underlying2 operating profit
as a % of capital employed.
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's Review on page 38).
Link to Strategy
Why it’s important and relevant
Demonstrates the relative level of
underlying profit generated by the
capital employed. Underlying2 is used
to show the underlying performance
of the business without exceptional
costs/items.
Measurement
Measured as underlying operating
cash flow as a % of underlying
operating profit.
Why it’s important and relevant
Cash conversion measures the success
of the Group 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
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.
Link to Strategy
7.6
23
22
21
19.6
21.7
7 Cash conversion (%)4
APM
161
23
22
21
33
53
3 To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before
non-underlying items. These items are detailed in note 3 and principally comprise amortisation of acquired intangibles and other acquisition-
related costs, impairment of intangibles, property, plant and equipment and right of use assets, insurance proceeds (following fire), profit on
sale of property, plant and equipment and business restructuring and change-related costs.
4 Restated to calculate using underlying operating cash flow and underlying operating profit as this provides a more relevant metric for
investors.
25
Headlam Group PLC Annual Report & Accounts 2023Strategic Report
KEY PERFORMANCE INDICATORS (‘KPIs’)
CONTINUED
Non-Financial KPIs
8 Inventory turn
23
22
21
3.2
3.2
3.7
9 Employee retention (%)
23
22
21
81
81
73
Measurement
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.
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
Measurement
Retention measures the ability to retain
employees in the current year compared
with previous years. It is 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
10 Reportable incidents
(‘RIDDOR Reports’)
23
22
21
25
19
19
11 Deliveries per
commercial vehicle
23
22
21
14
14
15
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.
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.
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.
Link to Strategy
Initiatives and actions for
improvement
Completion of the roll-out of the
Transport Integration project, moving to
continuous improvement phase.
Link to Strategy
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.
Why it’s important and relevant
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
reduction1
23
22
21
47%
44%
40%
Measurement
Percentage reduction in UK Scope 1 and
2 emissions (tCO2e) against a baseline
year set at 2019 on a location basis.
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 40.
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 page 40
Headlam Group PLC Annual Report & Accounts 2023
27
Strategic Report
STAKEHOLDER ENGAGEMENT
Acting in the interests of stakeholders is vital in delivering our purpose
The Board has responsibility for managing the business to promote its success, and having regard to how its decisions and
events impact its stakeholders, enegaging with and supporting them appropriately
Our Colleagues
Our Customers
Our Suppliers
Our Shareholders
Relationship to Headlam
Colleagues are at the heart of our business, and are our
greatest asset. There are over 2,300 colleagues at Headlam
within a variety of departments, including warehousing,
transport, sales, and administration.
How we support
We continue to focus on making Headlam a great place to
work, and ensure colleagues share in the Group's long-term
success
How we engage
The Chief Executive, Chief Financial Officer, Executive Team,
and Non-executive members of the Board all have frequent
interaction with colleagues, including site visits and both
formal and informal meetings and forums (inclusive
of the Employee Forum).
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Investing in and embedding a strong health and safety
culture, seeing meaningful improvements in H&S culture and
reporting.
Relationship to Headlam
Imperative to our success and the growth of the Company.
We have an extensive customer base spanning independent
and multiple retailers, small and large contractors, and
house builders.
How we support
We provide our customers with a market-leading service
through the largest product range, in-depth knowledge
ecommerce and marketing support, and nationwide next
day delivery service
We help our customers grow their businesses through
providing them with competitive advantages.
How we engage
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.
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Comprehensive learning and development programmes
rolled out.
Considerable investment and progress in upgrading the
network to increase the level of service to all customers
Conducted a first colleague engagement survey, providing
valuable insight into what is working well and what can be
done to better engage our colleagues.
Took the decision to again tier our cost-of-living increases to
ensure lowest-paid colleagues got the greatest increase.
Continue to improve the service propositions for all customer
segments, including: i) rolling out the trade counter network
to create a nationwide footprint that services both the fitter
and general contractor market; and ii) rolling out a DSV
proposition to larger retailers.
Relationship to Headlam
Relationship to Headlam
Key to ensuring we can supply the best product at a
The owners of the Company. Highly important that the Board
competitive price in a timely manner to customers / end-
is aware of and solicits their views, and then evaluates these
consumers.
views in relation to the strategic and corporate objectives of
We work with suppliers across the globe manufacturing the
the Company.
broadest range of products, and give them a highly effective
Key joint focus on the long term success and sustainability of
route to market into the fragmented customer base
the Company.
How we support
How we support
Helping and supporting manufacturers with selling their
Focus on delivering a long-term sustainable business that
products into our large and diverse trade customer base.
operates with the highest level of governance.
How we engage
How we engage
Frequent visits to suppliers’ sites and premises. Second
Frequent regulatory announcements with high levels of
Supplier Conference held to share our insights and strategy
disclosure
with them, and how we can more effectively work together.
Sharing of sales data, and insight into customer and end-
meetings at the Company’s sites. Use of webinars and
consumer buying
recordings to allow all shareholders to hear and view materials.
In-person presentations and meetings, including offering
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Solicitation and consideration of feedback, including on
strategy and its oversight.
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
Further digital transformation and ecommerce initiatives
success of the business and the expansion of its market-
focused on moving the business to a more digitally-enabled
leading position is of most benefit to all stakeholders.
and multi-channel model. Providing many benefits for
suppliers including: more efficient order-taking processes;
quick and effective automated information flows; better
supplier and customer engagement; and greater product
and brand awareness.
Continued to work closely on sharing data, and ensuring an
efficient and ethical supply chain.
Further efficiency and mitigating actions introduced during
2023 to help support margins and better align costs with
the weak market backdrop. Ongoing scrutiny of operational
performance, efficiencies, and the cost base.
Lowering the dividend cover ratio from the Group's long-term
average targeted cover ratio of 2.0x. With this reflecting the
Board's confidence in the medium-term prospects.
28
Our Colleagues
Our Customers
Our Suppliers
Our Shareholders
Relationship to Headlam
Relationship to Headlam
Colleagues are at the heart of our business, and are our
Imperative to our success and the growth of the Company.
greatest asset. There are over 2,300 colleagues at Headlam
within a variety of departments, including warehousing,
transport, sales, and administration.
We have an extensive customer base spanning independent
and multiple retailers, small and large contractors, and
We decided to continue investing in the strategy, and for
Focus groups, including on new product launches.
We continue to focus on making Headlam a great place to
work, and ensure colleagues share in the Group's long-term
How we support
success
How we engage
The Chief Executive, Chief Financial Officer, Executive Team,
and Non-executive members of the Board all have frequent
interaction with colleagues, including site visits and both
formal and informal meetings and forums (inclusive
of the Employee Forum).
Effect on decision making, outcome,
and benefits to stakeholder
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Investing in and embedding a strong health and safety
culture, seeing meaningful improvements in H&S culture and
reporting.
rolled out.
Comprehensive learning and development programmes
Conducted a first colleague engagement survey, providing
valuable insight into what is working well and what can be
done to better engage our colleagues.
house builders.
How we support
We provide our customers with a market-leading service
through the largest product range, in-depth knowledge
ecommerce and marketing support, and nationwide next
day delivery service
We help our customers grow their businesses through
providing them with competitive advantages.
How we engage
Frequent interaction through sales representatives,
dedicated service teams, and communications channels.
Six monthly customer surveys, and feedback mechanisms
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Considerable investment and progress in upgrading the
network to increase the level of service to all customers
Continue to improve the service propositions for all customer
segments, including: i) rolling out the trade counter network
to create a nationwide footprint that services both the fitter
and general contractor market; and ii) rolling out a DSV
Took the decision to again tier our cost-of-living increases to
ensure lowest-paid colleagues got the greatest increase.
proposition to larger retailers.
Relationship to Headlam
Key to ensuring we can supply the best product at a
competitive price in a timely manner to customers / end-
consumers.
We work with suppliers across the globe manufacturing the
broadest range of products, and give them a highly effective
route to market into the fragmented customer base
Relationship to Headlam
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.
How we support
Helping and supporting manufacturers with selling their
products into our large and diverse trade customer base.
How we support
Focus on delivering a long-term sustainable business that
operates with the highest level of governance.
How we engage
Frequent visits to suppliers’ sites and premises. Second
Supplier Conference held to share our insights and strategy
with them, and how we can more effectively work together.
Sharing of sales data, and insight into customer and end-
consumer buying
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Further digital transformation and ecommerce initiatives
focused on moving the business to a more digitally-enabled
and multi-channel model. Providing many benefits for
suppliers including: more efficient order-taking processes;
quick and effective automated information flows; better
supplier and customer engagement; and greater product
and brand awareness.
Continued to work closely on sharing data, and ensuring an
efficient and ethical supply chain.
How we engage
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.
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Further efficiency and mitigating actions introduced during
2023 to help support margins and better align costs with
the weak market backdrop. Ongoing scrutiny of operational
performance, efficiencies, and the cost base.
Lowering the dividend cover ratio from the Group's long-term
average targeted cover ratio of 2.0x. With this reflecting the
Board's confidence in the medium-term prospects.
Headlam Group PLC Annual Report & Accounts 2023
29
Strategic Report STAKEHOLDER ENGAGEMENT
CONTINUED
Our Communities and the Environment
Relationship to Headlam
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.
How we support
Support communities through employment and
engagement activities, and also by reducing our impact on
the environment through our sustainability strategy
How we engage
Engagement with colleagues to ensure aware of local
causes and events
Actively advertise job vacancies through word of mouth
and locally.
Locally focused Communities Programme which gives
colleagues the opportunity to both volunteer and donate to
projects and charities in their local community.
Effect on decision making, outcome,
and benefits to stakeholder
We decided to continue investing in the strategy, and for
the future, despite the difficult economic backdrop. This
is aligned with our fundamental belief that the long-term
success of the business and the expansion of its market-
leading position is of most benefit to all stakeholders.
Building on the Headlam Communities Programme launched
in 2022, including working with Business In the Community
(BITC) to trial a community needs analysis.
Implemented some key actions to reduce our greenhouse
gas emissions, predominantly focussed on improving
transport efficiencies and the installation of owned
solar panels.
Launched four sustainable product ranges across three of
our own brands, reducing waste to landfill.
30
Our s.172 statement
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.
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 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 2023.
Chris Payne,
Chief Executive
Signed on behalf of the Board
5 March 2024
31
Headlam Group PLC Annual Report & Accounts 2023Strategic Report FINANCIAL REVIEW
Adam Phillips, Chief Financial Officer
“ We worked hard to mitigate the
headwinds faced in the year; costs
were well controlled and Underlying
Operating Cash Flow was significantly
up on the previous two years ”
32
Summary income statement
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit/(loss)
Net finance costs
Profit/(loss) before tax
Tax
Profit/(loss) after tax
Underlying¹
result
2023
£m
Non-
Underlying
items
2023
£m
656.5
(448.7)
207.8
(191.7)
16.1
(5.1)
11.0
(2.2)
8.8
—
—
—
(3.9)
(3.9)
—
(3.9)
2.8
(1.1)
Underlying¹
result
2022
£m
Non-
Underlying
items
2022
£m
663.6
(444.1)
219.5
(180.3)
39.2
(2.1)
37.1
(7.4)
29.7
-
-
-
4.7
4.7
-
4.7
(0.8)
3.9
Total
2023
£m
656.5
(448.7)
207.8
(195.6)
12.2
(5.1)
7.1
0.6
7.7
Total
2022
£m
663.6
(444.1)
219.5
(175.6)
43.9
(2.1)
41.8
(8.2)
33.6
1 To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before non-underlying items. These items
are detailed in note 3 and principally comprise: amortisation of acquired intangibles and other acquisition-related costs; impairment of intangibles, property,
plant and equipment and right-of-use assets; insurance proceeds (following fire); profit on sale of property, plant and equipment; and business restructuring
and change-related costs
Revenue
Total revenue in the year was £656.5 million (2022: £663.6 million), a 1.1% decrease reflecting flat year-on-year revenue in the
UK offset by 7.7% decline in Continental Europe (France and the Netherlands). The UK and Continental Europe accounted for
87.9% and 12.1% of total revenue, respectively, in the year (2022: UK 87.1%; Continental Europe 12.9%).
The table below shows the breakdown in revenue across the different customer channels in the UK. Revenue from Larger
Customers grew by 26% in the year, reflecting growth with existing customers as well as new customer wins. Trade Counters
revenue increased by 8.5% as we continued the investment programme; 12 new sites opened, and 11 existing sites refurbished
or relocated during the year. The combination of growth in these two channels offset the decline in Regional Distribution,
where revenue declined by 7.0%, particularly reflecting the weak residential market, with the commercial sector more resilient.
Other UK revenue comprises our two ceramics specification businesses, where revenue growth was strong at 13.0%.
Larger Customers
Trade Counters
Regional Distribution
Other
UK
Continental Europe
Group
2023
£m
83.3
97.1
370.8
26.1
577.3
79.2
656.5
2022
£m
Year-on-year
%
66.3
89.5
398.9
23.1
577.8
85.8
663.6
25.6%
8.5%
(7.0)%
13.0%
(0.1)%
(7.7)%
(1.1)%
For the Group, as set out in the table below, residential sector revenue declined 2.4% in the year and accounted for 64.7%
of total revenue (2022: 65.6%), with commercial sector revenue increasing 1.5% and accounting for 35.3% of total revenue
(2022: 34.4%).
Residential
Commercial
Group
2023
£m
424.7
231.8
656.5
2022
£m
Year-on-year
%
435.3
228.3
663.6
(2.4)%
1.5%
(1.1)%
During the year, the Group made three small acquisitions: two in the UK and one in the Netherlands. These acquisitions added
£9.0 million of revenue in the year.
33
Headlam Group PLC Annual Report & Accounts 2023Strategic Report FINANCIAL REVIEW
CONTINUED
Gross margin
Gross margin of 31.7% (2022: 33.1%) represented a return to long-term historic average gross margin levels in the range of
31% to 32%, after the temporary uplift in gross margin in 2022 from the unprecedented proliferation of manufacturer-led price
increases. During 2023 there were only limited manufacturer-led price increases and the Group had already sold through,
in the previous year, the stock it was holding at the pre-increase prices. This led to a year-on-year reduction in gross margin
in the first nine months of 2023 whilst the temporary uplift unwound. Excluding this impact, the underlying gross margin was
stable and well-controlled despite aggressive competitor pricing in some elements of the market.
Operating costs
Underlying operating costs increased by 6.3% (£11.4 million) to £191.7 million (2022: £180.3 million). £4.6 million of this related
to acquisitions; excluding these, like-for-like underlying operating costs increased by 3.8% (£6.8 million). This reflected a
combination of inflationary pressures and strategic investments, partially offset by cost efficiencies. Cost inflation totalled
£10.2 million of which £5.3 million was payroll-related with pay inflation averaging 6.7% for the year. Energy costs increased by
£2.0 million, reflecting the end of the previous fixed-rate contract in the UK in September 2022 in which prices had been fixed
prior to the Ukraine war and, hence, were much lower than spot rates. Other cost inflation included business rates following
the review in April 2023; the previous review having been in 2017.
The Group also made strategic investments, including the roll-out of trade counters along with investments in capability and
resource to deliver on the other strategic growth areas.
All of the above cost increases were partially offset by cost savings. These included flexing down the operational headcount
to account for the lower year-on-year volumes; cost savings from transport consolidation; the implementation of dynamic
planning in the transport network (which was phased in during H2); and lower bonus accruals. In the second half, the Group
also benefitted from renegotiated electricity pricing (albeit still at elevated levels compared to 2022) and a reduction in
electricity consumption as a result of the solar panel investments.
Furthermore, operating costs benefited from a £2.3 million reduction (2022: £2.5 million reduction) in the loss allowance
for trade receivables due to an improved receivables profile and an update of the expected loss rates, based on
latest experience.
Profit
Underlying Operating Profit of £16.1 million (2022: £39.2 million) was a reduction of £23.1 million and reflected the decline
in volumes, normalisation in gross margin, cost inflation, and strategic investments, as explained above. Consequently,
underlying operating profit margin was 2.5% in 2023 (2022: 5.9%). The table below breaks down the year-on-year movement:
2022
Volume
Unwind of prior year impact of manufacturer-led price increases
Strategic investments
Cost inflation
Continental Europe
Mitigating actions
2023
Underlying
Operating
Profit
£m
39.2
(11.1)
(5.1)
(3.9)
(10.2)
(3.1)
10.3
16.1
Volume decline, in the UK, contributed to a £11.1 million reduction in profit; volumes were 5.0% lower year-on-year in the UK
business (residential and commercial combined) and even lower in Continental Europe. This was net of volume growth from
Larger Customers and Trade Counters.
As explained above, the lack of manufacturer-led price increases resulted in a return in gross margin back to pre-2021 levels;
this equated to an adverse £5.1 million profit impact.
Strategic investments also contributed to a £3.9 million reduction in profit. These investments comprised the initial operating
losses on newly invested trade counters; a new dedicated management team for the Trade Counter business; and
incremental investments in people and capability to deliver on other elements of the strategy (including digital, brand and
customer enhancements).
34
Cost inflation was a £10.2 million headwind as explained above. The operating profit generated by our French and Dutch
businesses declined by £3.1 million, of which £2.4 million related to the Netherlands where the flooring market has been
particularly weak, with suppliers reporting volume reductions of over 20%.
Mitigating actions provided £10.3 million of offsetting benefit. These actions included cost savings, efficiency programmes and
targeted price increases on certain ranges.
Interest costs of £5.1 million (2022: £2.1 million) were £3.0 million higher year-on-year reflecting higher average borrowings,
principally due to the deployment of capital in the previous year by way of a special dividend and share buybacks, combined
with the base interest rate increases.
Reflecting the movement in Underlying Operating Profit, and the increase in interest costs, Underlying Profit Before Tax
reduced to £11.0 million (2022: £37.1 million).
The statutory profit before tax for the year was £7.1 million (2022: £41.8 million), after a net non-underlying expense before tax
of £3.9 million (2022: net non-underlying income of £4.7 million before tax).
Non-underlying items
Total non-underlying items before tax reflected a net expense of £3.9 million in the year as set out below. The cash impact of
non-underlying items in 2023 was a net cash inflow of £6.5 million.
Amortisation of acquired intangibles & other
acquisition-related costs
Insurance proceeds (following fire)
Property disposal
Business restructuring and change-related costs (including
impairment)
Non-underlying income / (expense) before tax
(0.5)
(1.8)
(2.3)
8.6
1.8
–
(0.7)
8.6
1.1
(3.4)
6.5
(7.9)
(10.4)
(11.3)
(3.9)
–
6.2
–
–
2023
Cash
£m
2023
Non-
cash
£m
2023
Total
£m
2022
Cash
£m
2022
Non-
cash
£m
(1.5)
–
–
–
2022
Total
£m
(1.5)
6.2
–
–
6.2
(1.5)
4.7
Amortisation of acquired intangibles and other acquisition-related expenses of £2.3 million (2022: £1.5 million) comprised
£1.4 million (2022: £1.5 million) of amortisation of acquired intangibles and £0.9 million (2022: £nil) of other acquisition-related
expenses, comprising professional fees and the amortisation of the fair value adjustment to acquired inventories.
£8.6 million income, all of which was received in cash in the year, was recognised in respect of the final settlement of the buildings
and contents insurance claim on the Kidderminster building, which was destroyed by fire in 2021. In the previous year £6.2 million
income was recognised in respect of claims on contents and inventory insurance, also in relation to the Kidderminster building.
Following the settlement of the insurance claim, the Group then disposed of the land on which the Kidderminster building had
been sited, generating a £1.1 million profit.
Business restructuring and change-related costs totalled £11.3 million and comprised: £5.6 million in respect of the write-off of
previously capitalised software development costs and termination payments owing to the software developer, following the
decision to replace the existing ERP; £2.3 million of restructuring costs in relation to network optimisation (which are expected
to be non-recurring), principally representing stock and fixed asset impairments at the Stockport site; £2.2 million of headcount
reduction costs; and £1.2 million of change-related costs, including the cost of terminating vehicle leases as a result of lower
vehicle requirements arising from the dynamic route planning project and consultancy fees.
In addition to the non-underlying insurance item, £0.4 million (2022: £0.5 million) has been recognised as underlying other
operating income, relating to compensation for business interruption, which offsets lost revenue and related costs recognised
through underlying profit.
Tax
The Group’s consolidated underlying effective tax rate for the year was 20.0% (2022: 20.1%). This is lower than the standard
rate of corporation tax in the UK, primarily due to the recognition of previously unrecognised tax losses. The Group’s underlying
effective tax rate in 2024 is expected to be around 26%, broadly in line with the standard rate of corporation tax in the UK.
The Group’s statutory effective tax rate for the year was 8.5% (credit) (2022: 19.6% (charge)).
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’ (2022: ‘low’).
35
Headlam Group PLC Annual Report & Accounts 2023Strategic Report FINANCIAL REVIEW
CONTINUED
Earnings per share (‘EPS’)
Basic earnings per share on an underlying basis decreased from 35.5 pence per share in the prior year to 11.0 pence per
share, reflecting the factors set out above. The share buyback programme, which completed in March 2023, reduced the
weighted average number of shares for 2023 compared to the prior year, as detailed in note 9. Statutory basic earnings per
share was 9.6 pence (2022: 40.1 pence); the decrease of 76.1% also reflected the factors set out above, combined with a net
non-underlying expense after tax of £1.1 million in 2023 compared to a net non-underlying income after tax of £3.9 million
in 2022.
Cash flow and net debt
Underlying operating profit
Depreciation and other non-cash items
EBITDA
Change in inventories
Change in receivables
Change in payables
Other
Underlying Operating Cash Flow
Interest and Tax
Lease payments
Capital expenditure
Property disposal and insurance settlement
Other non-underlying items
Acquisitions
Dividends
Payments to acquire own shares (share buyback programme)
Other
Net cash flow before movement in borrowings
Movement in borrowings
Net cash flows
2023
£m
16.1
20.6
36.7
10.0
2.7
(24.0)
0.6
26.0
(9.1)
(13.0)
(18.2)
10.4
(3.9)
(6.1)
(12.2)
(5.2)
-
(31.3)
49.7
18.4
2022
£m
39.2
18.7
57.9
(8.3)
(3.5)
(34.2)
0.9
12.8
(6.4)
(14.0)
(13.8)
6.2
-
-
(27.3)
(9.8)
0.2
(52.1)
(7.3)
(59.4)
Underlying Operating Cash Flow in the Period was £26.0 million compared to £12.8 million in 2022. This is despite the profit
headwinds from lower volumes, cost inflation and strategic investments, and reflects good underlying cash generation
plus a stabilisation in the working capital requirements after the impact of unprecedented levels of inflation on inventory
costs in the previous two years.
Inventories and receivables were well controlled and reduced by £10.0 million and £2.7 million, respectively. Payables declined
by £24.0 million, partially reflecting the reduction in stock and partially reflecting timing of supplier payments; the latter is
expected to reverse in 2024, with a consequential cash flow benefit. Overall, working capital movements generated a
£11.3 million outflow, driven by the timing difference on payables; excluding this timing difference, working capital would
have been broadly flat.
Capital expenditure was £18.2 million (2022: £13.8 million) in what was a busy year for replenishment capital expenditure,
combined with growth investment. The investments included £6.3 million in cutting tables, sortation units and other warehouse
and transport equipment; £5.7 million in trade counters; and £2.5 million in solar panels. Capital expenditure for 2024 is
expected to be around £12 million. Investment of around £3 million is also expected in the Group’s new IT system; however,
as the new systems are likely to be cloud-based, software-as-a-service, the accounting treatment is such that the
development costs will need to be expensed. We therefore expect to expense around £3 million of development costs,
which will be recorded as a non-underlying item.
36
The settlement of the Kidderminster insurance claim and
the subsequent sale of the land generated cash proceeds
of £10.4 million; in the previous year the insurance claim
proceeds totalled £6.2 million. There was a £3.9 million cash
outflow in respect of other non-underlying items, comprising
acquisition-related expenses and restructuring and business
change costs.
£6.1 million, net of cash acquired, was invested in the
acquisitions of Melrose Interiors (UK, January 2023), Het
Stoffen Gilde (Netherlands, July 2023) and PD Patterns
(UK, September 2023). There were no acquisitions in the
previous year.
£17.4 million of shareholder returns were made in the year,
comprising £5.2 million of payments to acquire own shares
under the share buyback programme (2022: £9.8 million)
and £12.2 million of ordinary dividend payments (2022:
£27.3 million, comprising £12.4 million ordinary and £14.9
million special dividends). The share buyback programme
completed on 2 March 2023, with a total of 4,689,343
ordinary shares purchased and all held in treasury.
Net Debt excluding lease liabilities was £29.6 million at
the end of the year, an increase of £31.4 million from
31 December 2022. This equates to Leverage of 1.3x, being
the ratio of Net Debt excluding leases to EBITDA (pre-IFRS16
basis). The Group targets a long-term average Leverage
range of 0.5x to 1.0x. We expect Net Debt to reduce during
2024, with ongoing operating cash generation boosted by
the timing difference on payables and the disposal of one
or two surplus freehold properties.
Net Debt including lease liabilities was £73.0 million at
31 December 2023 (2022: £35.9 million).
At the end of the year, the Group had total banking facilities
available of £100.6 million (31 December 2022: £100.3 million),
of which £81.5 million (31 December 2022: £81.5 million) were
committed. These facilities expire in October 2027. The
Group had £71.0 million of cash and undrawn facilities at
31 December 2023 (31 December 2022: £102.1 million). The
Group’s banking facilities are subject to two covenants:
interest cover (defined as the ratio of EBITDA to net interest
expense) and leverage (defined as Net Debt as a ratio of
EBITDA). Both covenants are on a pre IFRS 16 basis and are
tested at 30 June and 31 December each year. The interest
cover ratio was amended from an EBIT to an EBITDA basis
going forward in February 2024.
Dividends
As detailed in the Chief Executive Review, the Board
has proposed a final ordinary dividend of 6.0 pence per
share (2022: final ordinary dividend 11.2 pence per share).
If approved by shareholders at the 2024 AGM to be held
on 23 May 2024, it will be payable on 7 June 2024 to
shareholders on the register as at 10 May 2024 and is
expected to be a cash outflow of £4.8 million.
Headlam Group PLC Annual Report & Accounts 2023
37
Strategic Report FINANCIAL REVIEW
CONTINUED
Capital allocation priorities
The Board regularly reviews and follows a clear capital allocation framework, which is set out below. During the year, and as
previously published in September 2023, this was modified slightly as follows:
•
the introduction of a long-term average target Leverage range of 0.5-1.0x Net Debt to EBITDA (on a pre-IFRS16 basis,
i.e. excluding capitalised leases); and
• equal prioritisation given to share buybacks, M&A, and special dividends, with the choice at any given time dependent
on both market conditions and available opportunities.
The target Leverage range is considered prudent by the Board and has been set with reference to the balance sheet underpin
provided by the Group’s substantial freehold property portfolio (with an independent market valuation of £148.8 million at
January 2023) plus its inventory position (£131.5 million at 31 December 2023), and the strong cash generation characteristics
of the business, whilst also recognising the increased cost of debt compared to recent years. The target range is a long-term
average and, as such, the Board is comfortable with the Group’s Leverage being below or above the target range over the
short-term (for example, as a consequence of an acquisition or disposal), with the intention of reverting back to within the
range in a reasonable timescale.
Priority
Rationale
1
Maintain a strong
balance sheet
Ensures the financial stability and long-term sustainability of the Group. Long-term
average Leverage target range of 0.5 to 1.0x.
2 Investment in the business
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 Group. 2023 investments included trade counters, network (sites and
equipment) and solar panels.
3 Ordinary dividend income
for shareholders
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 long-term average cover ratio of around 2x earnings for the
total annual pay-out (higher weighting to final dividend). The Board proposes a
temporary relaxation of the cover ratio, during the period of market weakness, on
the basis of the Group’s strong balance sheet and cash generative characteristics,
combined with the positive medium-term prospects.
4 Acquisitions and/or return
of surplus capital
After all of the above priorities have been fulfilled, the Board would consider M&A
or a return of surplus capital to shareholders. The two options have equal priority,
with the selection being determined by whichever the Board assesses would provide
the best long-term value at the relevant time, taking into account factors such as
the prevailing share price.
Potential investment in acquisition opportunities would be aimed at growing
the Group’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 Group’s customer
base, and meaningful entry into the rugs and sampling market.
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.
Pensions
The accounting valuation for the legacy defined benefit pension scheme showed a surplus of £4.4 million as at 31 December
2023 (31 December 2022: £2.1 million surplus). However, as the Company does not have an unconditional right to a surplus
refund, the pension scheme is recorded as a deficit of £2.3 million as at 31 December 2023 (31 December 2022: £3.2 million
deficit) reflecting the level of deficit recovery plan payments that the Company committed to following the last actuarial
valuation as at 31 March 2020.
38
Principal risks and uncertainties
The Group 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 2022 Annual Report and Accounts
and have been considered and updated for the 2023 Annual
Report and Accounts.
No new principal risks have been identified. The risk ratings of
a number of the principal risks have been amended slightly;
however, the scope of the principal risks remain broadly
unchanged since last reported.
Adam Phillips
Chief Financial Officer
5 March 2024
Viability and going concern
The Board reviewed the Group’s resilience to principal risks and
uncertainties by considering stress testing forecasts through
a downside scenario, which involves modelling a significant
reduction in market demand, on top of the significant market
decline observed in 2023. 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 Group would be able to operate
within its current facilities and meet its financial covenants.
Mitigating actions, which are within the Board and
management’s control, are included in the downside
modelling and 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.
As above, as at 31 December 2023 the Group had a Net Debt
position excluding lease liabilities of £29.6 million and had
total banking facilities available of £100.6 million, including
£81.5 million of committed facilities. The Group had cash
and undrawn facilities of £71.0 million at 31 December 2023.
Having reviewed the financial projections and the downside
modelling, and having considered the available mitigating
actions, the Board has 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. Furthermore, the Board believes there are
reasonable grounds for stating that the Group has adequate
resources to continue in operational existence for a period no
shorter than 12 months from the date of this Financial Review,
and it is appropriate to adopt the going concern basis in
preparing the Group’s Financial Statements.
Q Why did you review and refresh your capital allocation framework and policy in 2023?
A The review and refresh was done with the intent of providing clarity over the Board’s view on Leverage and more
effectively utilising, whilst also maintaining, our strong balance sheet. We have set out an average target Leverage
range of 0.5-1.0x Net Debt to EBITDA. This is a long-term average target and the Board is comfortable with the
Group’s Leverage being slightly above or below that over a short-term period. Looking ahead, the Group’s strong
cash generation characteristics provide opportunities for surplus capital. Where there is surplus capital available,
we would seek to deploy it using our capital allocation priorities. After satisfying the Group’s capital expenditure
requirements and the payment of the ordinary dividend, we would appraise further growth investment opportunities
(for example, acquisitions) and returns to shareholders (for example launching another share buyback programme)
equally based on whatever the Board considered created the best shareholder value.
39
Headlam Group PLC Annual Report & Accounts 2023Strategic Report SUSTAINABILITY REPORT
Chris Payne, Chief Executive
“ I am proud of the emphasis placed
upon driving our sustainability
agenda at Headlam in 2023 ”
I am proud of the emphasis placed upon continuing to drive our sustainability
agenda at Headlam during 2023. From our work on safety culture to carbon
reduction initiatives, engagement with our supply chain, sustainable products,
investments in the skills and capabilities of our colleagues, and our work in our
local communities, we continue to drive positive change.
This year, we have invested in Health and Safety industry capability, appointing
a Health and Safety Director who reports directly to me. We have also further
strengthened our ESG inhouse expertise having employed specialists in diversity
and inclusion, ethical sourcing, human rights, and waste management. This, as well
as the work completed by our teams across the business, has meant that we have
achieved many of our targets for 2023 and set additional ones for 2024.
Our work with DSS+, an independent consultancy, on testing and developing
our safety culture at Headlam, has seen significant improvements in near miss
reporting and has raised safety awareness and focus in our business.
We look forward to submitting our Scope 1, 2 and 3 targets to SBTi for validation in
2024 and adding Scope 3 actions and deliverables to our existing Net Zero Scope 1
and 2 strategy. We have implemented some key actions to reduce our Scope 1 and
2 emissions this year, predominantly focussed on improving transport efficiencies
and the installation of solar panels. We look forward to seeing a full-year benefit
from these initiatives in 2024.
Our strategies for learning and development, inclusion, wellbeing and our
community engagement provide us with focused actions and clear targets.
We have made further improvements to our overall reward offering for our
colleagues, which has seen better support for colleagues nearing retirement
and more of our colleagues becoming shareholders in Headlam. Our new
engagement survey has allowed us to measure the impact we are having with
these initiatives and our ability to inspire and motivate colleagues.
Governance continues to be enhanced with investments in systems and
technology making the oversight of compliance activity more robust. We are
pleased to have been awarded ISO 14001 certification in six of our key sites as well
as achieving two additional successful SMETA audit outcomes against the SEDEX
ethical audit standard and FORS Bronze certification across our UK transport
network. Refreshed policies and guidance underpin these standards and many of
these are publicly disclosed, providing full transparency and clarity.
Our ESG Committee is focused on delivering clear, measurable, specific, industry-
relevant and scalable actions, which are proportionate to our size, areas of
operation, and which are beneficial to Headlam and its stakeholders.
40
ESG STRATEGY
In 2023 we commissioned an independent review of our ESG practices, particularly to focus on our progress against our peer
group. Using this output, and engaging with advisors, industry bodies and stakeholders, we have set our targets for 2024.
Environmental
•
•
Set strategy and targets for Scope 3, send Scope 1, 2 and 3 to
SBTi for validation and meet or exceed 2024 Scope 1 & 2 emissions
reduction pathway target vs 2019 baseline
Identify process for operational waste monitoring and
reporting in UK distribution sites
Social
• Roll out leadership/management development - every eligible
manager to attend See it, Say it Safety training and at least one
other module
•
3% improvement in engagement score YOY (baseline October 2023)
• Community needs analysis conducted and partnerships developed
in one site as pilot
Governance
• At least 80% of major factories producing own brand products to
have a confirmed ethical audit by the end of 2024
• Ability to track and monitor origin of timber in own brand products
by the end of 2024
• Deliver an improvement on existing customer feedback scores
related to quality and service
Q What aspect of Sustainability and the ESG strategy is most important to you?
A A well-developed ESG Strategy means that, critically, not only are you doing the right thing, but it also gives a business
a clear competitive advantage through being a business that people want to join, and that customers and suppliers
want to do business with. We make sure that we work with a range of third parties for advice, and monitor our ESG
rating agency scores, to validate that we are taking a holistic, concerted and successful approach to all the areas that
ESG encompasses, which is broad. We engage with all our stakeholders on ESG, including employee and customer
surveys, and held our second supplier conference in September 2023, which featured sustainability as a key part of
the agenda.
41
Headlam Group PLC Annual Report & Accounts 2023Strategic Report ESG STRATEGY
CONTINUED
Our ESG Team
John Grant, Head of ESG
Passionate about doing business responsibly with over 30 years of experience,
working to improve the supply chain for both people and the planet.
With a diverse skillset developed across the distribution and retail sectors, having
worked at the highest levels in quality, ethical trading and sustainability for Philips,
Travis Perkins plc and Wickes.
Focusing on developing and delivering the Headlam ESG Strategy and reducing
our impact on the environment, ensuring suppliers continue to meet our values,
delivering safe, compliant and sustainable products.
Danielle Cairns, Responsible sourcing
Extensive experience as Human Rights Manager with Asda focusing on Modern
Slavery prevention and working across industry to combat risks associated with
forced and bonded labour, child exploitation, unsafe working conditions, violence,
harassment and discriminatory behaviour.
Danielle continuously develops our supplier due diligence programme and ensures
our products are produced ethically and responsibly.
Chloe Barnicoat, Environment & Sustainability
Associate member of the Institute of Environmental Management and Assessment
with previous experience in the waste management industry, regulatory
environmental compliance, ISO 14001 system management, carbon and
sustainability reporting.
Chloe reduces our impact on the environment through waste reduction, ensures
we operate best practice, and helps us to develop actions to achieve our ambition
to have a circular supply chain.
42
Neil Whitehead, Quality & Product Compliance
An accomplished Quality manager with a rich history across a number
of technically challenging industries, including food, cosmetics and home
improvement. Experienced in quality management, product development,
safety and performance testing in order to ensure customers’ expectations
are delivered against.
Neil supports our own brand development ensuring we remain compliant;
quality standards are maintained; suppliers deliver against our standards;
and customers are satisfied.
Rebekah Smallwood, Inclusion and Wellbeing
With many years of experience in the Diversity, Inclusion, Wellbeing and community
field from her roles at The Midcounties Cooperative as Head of Diversity and
Inclusion, Rebekah leads the development and delivery of the Diversity, Inclusion
and Wellbeing strategy.
Rebekah has worked closely with Business in the Community for a number
of years to develop strategic objectives and as part of their West Midlands
Leadership board. She has now joined their East Midlands Leadership board
representing Headlam.
43
Headlam Group PLC Annual Report & Accounts 2023Strategic Report We have made progress against our long-term carbon
reduction target, as well as our broader environmental
actions in 2023. Certification in ISO 14001 in six of our key
sites (collectively responsible for 73% of UK purchases), FORS
accreditation across our UK transport network and satisfying
two of our multiple retail customers that we are meeting
the SEDEX ethical audit standard in Coleshill (incorporating
our Head Office) and Tamworth in 2023, all provide us with
confidence that we are making sustainable improvements.
Reducing our Carbon Emissions
In 2023, we continued to deliver against our carbon reduction target timeline.
The Company will follow a 'true' Net Zero strategy whereby it will focus on actual
decarbonisation in achieving these targets and only consider offsetting actions
for the residual 10%. This is in line with our previously published commitment to
achieve an interim, location based, target aligned with the Science Based Targets
Initiative (‘SBTi’) of a 46% reduction by 2030 against a baseline year of 2019 for
Scope 1 and 2 emissions. This is being achieved through transport efficiencies, solar
panel installation, ongoing progress with the non-commercial fleet and educating
colleagues on good energy behaviours. We have progressed in line with our Net
Zero Emissions Timeline, have exceeded our 2023 target and remain on track for
our 2030 interim target.
Transport Efficiencies
The optimised route planning for our UK customer delivery fleet, known as
Dynamic Planning, was rolled out in 2023. As a combination of this new way
of working, and the transport network consolidation that was delivered in the
preceding years, mileage is estimated to have reduced by circa 20% per annum
equating to an estimated saving of c.irca1300 tonnes of carbon emissions each
year. A further investment of over £1m has been made to equip our HGV fleet
with industry-leading vehicle telematics and cameras. This enables our Transport
Managers to track vehicle speed, idling, driving events and fuel consumption and
provide ongoing feedback to our drivers to improve driving behaviours. This will
positively impact safety on the road, the performance and longevity of our HGV
fleet and the impact of our fleet on the environment.
We continue to explore options for a commercially viable sustainable commercial
fleet and, in 2024, we will continue to trial low emission and/or electric HGVs.
We have progressed our transition to hybrid or fully electric vehicles; these now
comprise over 85% of our non-commercial fleet. Having recently changed
company car provider we have developed a joint strategy to encourage more
drivers into EV and the remainder of our fleet drivers into PHEV as a minimum as
current leases expire.
We have also been awarded The Fleet Operator Recognition Scheme (FORS)
Bronze accreditation for our full UK transport fleet as well as maintaining FORS
Silver in our Rochester site. The FORS is a voluntary accreditation scheme for fleet
operators, which aims to raise the level of quality within fleet operations, and to
demonstrate which operators are achieving exemplary levels of best practice in
safety, efficiency, and environmental protection.
ENVIRONMENT
Key achievements
in 2023:
• Completion of dynamic
route planning and roll
out of telematics in the
commercial fleet
Solar panel roll out
4 sustainable product ranges
launched across 3 own
product brands
•
•
• Over 85% of the non-
commercial fleet now hybrid
or electric
Targets and KPIs for 2024:
Set strategy and targets for
•
Scope 3 emissions reduction
•
Submit Scope 1, 2 and 3
targets to SBTi for validation
• Achieve Scope 1 and 2
emissions reduction pathway
target vs 2019 baseline
•
Improve waste monitoring
and reporting processes
across UK sites
• Launch EV salary
sacrifice scheme
44
Solar panel installation
In 2023 we commissioned the
installation of owned solar panels
at a number of our sites resulting in
11 of our 13 distribution sites now
having solar panels installed at a
cost of £2.5 million.
We have one further large site
installation taking place in the first
half of 2024, which will conclude the
programme. By the end of 2023, we
had seen a reduction in electricity
consumption of over 25%.
Sustainable Products,
Waste and Water
This year, as well as continuing to
survey our customers about their
sustainability requirements, we
also conducted qualitative and
quantitative consumer analysis
to understand their needs and
requirements. Some interesting
demographic data, for example,
highlighted that Gen Z have an
expectation that our customers
will sell sustainable products from
businesses with responsible practices.
This requires a collaborative effort
across the floorcovering industry as
flooring products are made up of
several-layered materials, with plastic
used in most of the manufacturing
processes. By working with industry
bodies, such as Carpets Recycling UK,
we are working alongside suppliers
and waste contractors to create
sustainable products, which make it
easy for consumers to access take
back schemes.
UK and Continental Europe
Scope 1 and 2 emissions
Net Zero Emissions Timeline
Key Achievements and Targets
2023
Solar panels installed across 11 of our 13 largest sites
Achieved ISO 14001 environmental certification at key sites
Over 85% of UK non-commercial fleet electric/low emission
Good Energy and Recycling Behaviours workshops held at
11 of our largest sites
Continued trailing of electric/low emission commercial vehicles
Transport integration completed
2024
Use telematics to improve driver behaviours resulting in
emissions reductions
Review waste management across UK distribution sites in order
to implement best practice, reduce waste and set targets
Scope 3 strategy and targets to be developed
Scope 1, 2 and 3 targets to be submitted to SBTi for validation
Continued trial of low emission commercial fleet vehicles
Phase 2 of Good Energy and Recycling Workshops to take
place and impact measured
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
91%
9%
2035
Net Zero emissions target (Scope 1 and 2)
≤ 2050
Net Zero emissions target (Scope 1, 2 and 3)
Scope 1: 91% (14.0ktCO2e)
Scope 2: 9% (1.6ktCO2e)
l
s
e
c
h
e
v
i
l
i
a
c
r
e
m
m
o
c
n
o
b
r
a
c
w
o
l
l
/
c
i
r
t
c
e
e
f
o
n
o
i
t
c
u
d
o
r
t
n
i
d
n
a
g
n
i
l
l
a
i
r
t
g
n
o
g
n
O
i
45
Headlam Group PLC Annual Report & Accounts 2023Strategic Report
ENVIRONMENT
CONTINUED
Sustainable product development
This year we have launched four sustainable product ranges across three of our own brands. It is early days for these ranges
and we look forward to seeing how they are performing over the coming year:
Kingsmead - Thinking Beyond
Tomkinson - Breathing Space
Launched April 2023
Launched June 2023
Econyl Yarn
• Regeneration Solution Dyed Nylon Yarn - this is nylon
ResilonX Yarn
• Recycled plastic bottles - rPET
taken back from fishing nets, carpet tiles and nylon
fabrics that can be regenerated to a new yarn
• Regeneration - meaning the material can be reused
time and time again. The carpet can be sheared after
use to be regenerated into another product
• 90% reduction in emissions compared to virgin material
•
70,000 barrels of crude oil saved per 10,000 tons
of Econyl
• Provides a continued second life of the material
• Avoids going direct to landfill
•
•
Taking virgin polyester plastic bottles and turning them
into yarn
This sits between regeneration and recycled. There is
potential to regenerate the yarn as per Econyl, just no
one is at that stage yet. Recycled means we are turning
the product back into the same form. Therefore, this
range is creating a secondary use for a material rather
than sending it to landfill
• Plastic bottle collection is verified by Global Recycled
Standard, to follow the supply chain and ensure there
is no child labour in the collection of the material
Fells - Georgetown
Elite and Georgetown
Supreme
A plain product with a
recycled fleece backing
along with recycled yarn
made from plastic bottles
Runswick Bay
The first Recycled Wilton,
again using plastic bottles
(approximately 120 large
plastic bottles per metre
square. This product won
the best man-made carpet
category at the Harrogate
Flooring show 2023
46
Take back schemes
We continue to take part in the Recofloor vinyl flooring take-back scheme, which
has resulted in over 50 tonnes of waste returned in 2023. We have also partnered
with suppliers in two of our major sites to create a laminate flooring take-back
scheme. In 2024, we will build upon the discussions we have been having with
several stakeholders along the supply chain for a complete flooring take-back
scheme in one of our regions, which will be trialled in the first half of 2024.
Waste
In 2023, we diverted 81% of our operational waste from landfill of which we have
recycled 21% from our UK Distribution Centres. We continue to work with our waste
management provider to review our current arrangements and will work with them
to implement best practice and set targets in 2024. We are also working within
the Group to repurpose and reuse offcuts and make them into rugs through our
Melrose Interiors business.
The Group continues to review the use of its customer packaging and, where
possible, eliminate its use. However, packaging is, typically, key to protecting
product during transit. Where packaging cannot be removed, we look to use the
most sustainable materials available whilst maintaining the products' integrity.
We are also working with our suppliers to reduce transit packaging and promoting
the use of sustainable and recycled materials. We continue to encourage all our
businesses to recover and reuse poles and pallets wherever possible.
All packaging that cannot be reused is recycled through our waste management
partners.
Water
The Company is not a large consumer of water, which is primarily used for
cleaning its commercial vehicles, and continues to engage in limiting usage
whenever possible. Water consumption in 2023 was circa 17,500 cubic metres
(2022: circa 18,722 cubic metres).
Scope 3 Emissions
In 2023, we have focused on engaging more closely with suppliers on Scope 3
emissions, obtaining enhanced baseline data on which to set Scope 3 targets
aligned with the SBTi criteria. We have highlighted the importance of our Net Zero
plans through ongoing conversations, our Supplier Sustainability Charter and
at our Supplier Conference.
In 2024, we will set our targets and carbon reduction roadmap for Scope 3.
We will also submit our Scope 1, 2 and 3 targets to SBTi for validation with a
view to publishing our mid and long-term targets and reaching Net Zero
(Scope 1, 2 and 3) by 2050 at the latest.
Scope 3 Emissions
Purchased goods and services
80.6% (695,278 ktCO2e)
Capital goods
0.5% (4,493 ktCO2e)
Fuel-related Emissions
0.4% (3,762 ktCO2e)
Upstream Transportation and
Distribution 0.4% (3,118 ktCO2e)
Waste Generated in Operations
0.1% (683 ktCO2e)
Business Travel
0.1% (445 ktCO2e)
Employee Commuting
0.3% (2,415 ktCO2e)
End-of-life treatment of sold
product 15.9% (137,184 ktCO2e)
Total Scope 1, 2 and 3
Emissions: 863, 003 tCO2e
Scope 1
1.6% (13,983 ktCO2e)
Scope 2 (location-based)
0.2% (1,642 ktCO2e)
Scope 3
98.2% (847,378 ktCO2e)
47
Headlam Group PLC Annual Report & Accounts 2023Strategic Report
SOCIAL
Key achievements
in 2023:
•
Significant improvement in
Near Miss reporting
•
•
•
•
•
Roll out of Headlam Way
strategy and values
Created Inclusion and
Wellbeing strategy
and values
Developed induction,
leadership and sales training
Improved Employee
Forum and conducted
engagement survey
Created consistent
expected standards of
performance across UK sites
Targets and KPIs for 2024:
•
Further embedding
safety culture resulting
in a reduction in RIDDOR
and Lost Time Accidents
against 2023
•
•
•
Improving colleague
engagement score by at
least 3ppts
Roll out leadership/
management development,
with every eligible
manager to attend See
it, Say it Safety training,
and at least one other
leadership module
Community needs
analysis conducted and
partnerships developed in
one site as a pilot
48
Q How do you attract, retain and support your colleagues?
A One of our Key Strategic Pillars is ‘Making Headlam a great place to work
for everyone’ and this is underpinned by a number of items, including the
‘Headlam Way’, which comprises key shared values that we immerse and
embed across the business. We have improved many areas of financial
and non-financial support and development for our people over the
last couple of years, including communication, learning and training
programmes, so people can progress, and Inclusion and Wellbeing
strategies. We actively engage and listen to our colleagues through
a variety of channels.
Clare Moore, Chief People and Sustainability Officer
Our Colleagues
Keeping each other safe and well, every day
Safety is our number one value at Headlam and, this year, we focused on
improving the safety culture across our business. Working in partnership with DSS+
we commenced the roll out of mandatory safety culture training for all of our
leaders to equip them to make safety the priority in the day-to-day operation
of our business. Our meetings now start with a ‘safety moment’; our managers
have been trained to have constructive, in the moment, conversations when they
see something that should be done better or differently. Our Health and Safety
Director now reports directly into the CEO so that he has direct visibility of the
progress of the safety plan.
Whilst we have, disappointingly, seen an increase in RIDDORs this year, we have
been encouraged by a vast improvement in near miss reporting. Over the full year,
we recorded near misses at a rate of 1.17 per person per annum, which is more than
double the rate reported by colleagues in 2022.
RIDDOR Table
Type of Incident
Handling
Struck by Moving Vehicle
Slip, Trip, Fall
Fall From Height
Other
Total
2023
2022
2
6
9
3
5
25
7
3
4
1
4
19
It was with great sadness that during the prior year we reported that there was
an accident at the 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 at the date of this Annual Report, the local authority’s
investigation is ongoing.
To provide a safer environment for colleagues, we have invested in our buildings,
manual handling equipment and CCTV this year. Additionally, Telematics and
WEBFLEET™ has provided transport safety measures with each of our drivers
given an OPTIDRIVE™ score based on a set of parameters, including; speeding,
idling, fuel consumption and driving events. This, coupled with the installation of
MANTIS™ cameras on all of our vehicles will continue to improve the safety of our
drivers and other road users.
As the Webfleet software and the Mantis cameras are
linked, when a driving event is triggered, it sends an alert
to the driver and to the Transport office who can upload
the video footage of the event. With this data to hand,
Transport Managers can now engage with drivers at point
of de-brief to work on improving their overall OPTIDRIVE
score. This will have a positive impact on their safety on the
road, the safety of other road users, the performance and
longevity of our HGV fleet, and also improve our impact on
our environment.
We continue to support colleagues to access mental health
support and have partnered with Everymind at Work who
are providing ongoing development, support and resources
to our Mental Health First Aiders and webinars for our
colleagues. This is further supported by the provision
of an Employee Assistance Programme.
In 2023, the company maintained their ISO45001 HS
Management status following the assessment of
four key locations.
Making Headlam a great place to work
for everyone
Listening to our colleagues has been a key focus for us this
year. We have refreshed our Employee Forum to ensure that
colleague representatives drive the agenda, can provide
feedback and challenge directly to senior leaders, and have
direct communication with the CEO and a Non-Executive
Director four times a year. This year, we have covered a
range of topics, including; systems, processes, pricing,
reward and pay principles headlam.com/media/myzld0jz/
headlam-reward-pay-principles-jan-24-v2.pdf, executive
remuneration, colleague engagement, and our strategy
and values cascade.
We worked with an external provider to conduct an
employee engagement survey, which has provided us
with a wealth of information and great ideas about ways in
which we can make Headlam an even better place to work.
60% of our UK Distribution colleagues completed the survey
and, encouragingly, our engagement score was only 6ppts
below our industry benchmark. Considering the degree of
change that our colleagues have experienced this year,
particularly driven by the introduction of more efficient
ways of working, we are satisfied that this result is an
honest reflection of the engagement of the workforce.
Insight from the survey suggests that our key strengths
are that colleagues understand our purpose and values
(82% agreed or strongly agreed) and colleagues know the
wellbeing support available to them and how to access it
(73% positive). Key areas for us to improve include improving
local communications, colleagues feeling their opinions
count, and personal development.
49
Headlam Group PLC Annual Report & Accounts 2023Strategic Report SOCIAL
CONTINUED
Learning and development
This year, we have defined our learning philosophy
as accessible, engaging, personalised and scalable,
with a clear focus on enabling our colleagues at
Headlam to perform at their best.
Personal and career development is a priority with
investments at all levels from the induction of new
colleagues through to our ‘Insights into Action’ development
for our Executive team.
We have invested in an online ‘Welcome to Headlam’
induction for all new colleagues this year, along with role-
specific training for new managers and our salesforce, the
focus being on accelerating both their knowledge
of our business and their performance as they settle
into their new roles.
Working with an external provider, we will launch our bespoke
'Lead the Way' training in 2024, with modules created for all
levels of leadership that support our commitment to equip
them with strong people management skills and develop the
skills necessary to lead a workforce that embraces change
and transformation.
To further support our line managers, we have introduced
Manager Toolkits using a blended approach of animated
videos and ‘what good looks like’ video examples, along
with easy-to-follow summaries and guides, all providing
advice and support to help Managers with all those
moments that matter, from hiring to retiring and
everything in between.
Following our successful driver apprenticeship programme
in Leeds and Bristol, we intend to build upon this further to
utilise the levy and focus on the attraction of new talent
and the development of existing talent across a range
of apprenticeship options from entry level through to
leadership.
Over the next year, we will look to extend our learning
opportunities with the introduction of a new learning
platform, which will improve accessibility of learning across
the Headlam Group and offer a broader range of blended
learning opportunities across our key roles.
Reward (financial and non-financial)
This year we have refreshed and published our reward and
pay principles headlam.com/media/myzld0jz/headlam-
reward-pay-principles-jan-24-v2.pdf, with input from our
Employee Forum, the Board, and the Executive. Using these
as a guide, we took the decision to tier our cost-of-living
increases again in January 2024 to ensure that our lowest-
paid colleagues get the greatest increase, we maintain the
differentials between colleagues and first line managers
wherever possible, and we can award exceptional increases
on an individual basis where it is justified based on market
data and competition. We have also reviewed our bonus
schemes across the business to ensure that the measures
are appropriate and will drive group performance, teams
who outperform are rewarded appropriately, and our
senior colleagues have a sufficient focus on overall Group
profitability as well as
local performance.
Following on from a transformational year in 2022 with
most colleagues seeing increases in holiday pay, sickness
pay, an aligned pension and financial wellbeing support,
we have continued to add to the many reward and
recognition options available at Headlam. In 2023, we
have focused on reward that provides a greater number of
colleagues with the opportunity to become shareholders or
grow their existing shareholding. We have a well-established
Save As You Earn Scheme and, this year, we have added
share-based long-service awards and a market value
management long-term incentive plan, which has increased
the proportion of colleagues who are shareholders or in a
share scheme by 10ppts to 33%.
50
Colleagues remain engaged with our existing benefits,
such as retail discounts and a vast array of wellbeing tools
and support. This year, we have also improved retirement
planning support for our colleagues by providing ‘aspire to
retire’ workshops and improving the information available on
our colleague communications hub (myHub). Our revamped
Headlam Heroes Recognition programme has been well
utilised this year with over 600 colleagues receiving at least
one instance of recognition via the myHub portal. At our
first ever leadership conference in October 2023, a selection
of colleagues who demonstrated our values were awarded
public recognition for their great work.
Diversity, inclusion and wellbeing
In 2023 we developed our first Inclusion and Wellbeing
Strategy, which includes actions to improve the diversity,
equity and inclusion of our workforce. This strategy was
developed with support from Business in the Community
(BITC), the Executive, and input from colleagues across the
business. A number of actions have already been delivered,
including a comparison of our demographic make up with
the communities we work in, a full review of our recruitment
practices and the agencies we work with, Executive training
from BITC, the appointment of an Inclusion and Wellbeing
Executive Sponsor, the publishing of colleague stories, and
inclusion training being included across our newly launched
Leadership and Management Programmes (Lead the Way).
The results from our engagement survey demonstrate
that colleagues feel able to be themselves at work
(81% positive response) and perceive that Headlam
creates an environment of which people feel included
(71% positive result). However, we have an ambition for
our workforce to better reflect the communities we serve.
In some parts of the business we have work to do to get
there, and, with a relatively low labour turnover, this will
take time.
Our gender pay gap report shows that our pay gap has
reduced year on year and full details of the action we have
taken to achieve this can be found in our published report.
https://www.headlam.com/environmental-social-and-
governance-esg/gender-pay-gap-report/
To ensure that we remain focused on inclusion and
wellbeing, we have set ourselves both long- and short-term
targets and will be ensuring that colleagues know how they
can get involved and contribute to improving diversity and
inclusion. We will also support our colleagues to set up two
active colleague inclusion groups to recommend practical
improvements to drive inclusion across Headlam in the next
five years.
Of the colleagues who have chosen to disclose their
ethnicity, 7% have declared themselves ethnically diverse.
We have set ourselves the target of 10% by 2028.
Female colleagues represent 22.4% of our global workforce.
Headlam Group PLC Annual Report & Accounts 2023
51
Strategic Report SOCIAL
CONTINUED
Case Study 1
Our Team in Stoke-on-Trent have
been fundraising for several years
for the following charities:
Macmillan - Macmillan Cancer Support is one
of the largest British charities and provides
specialist health care, information and financial
support to people affected by cancer.
The Albion Foundation – A not-for-profit
organisation that uses the power of football
to deliver excellence in Wellbeing, Behaviour
Change and Active Lifestyles.
Golden Wishes - Golden Wishes is a West
Midlands-based charity. Their main priority
is to support disadvantaged people within
the local community.
Over the years, the team has raised in excess
of £190,000, which has been done through
auctions, raffles, Golf tournaments, parachute
jumps, walking the Great Wall of China and
even the three peaks of Morocco!
As a recognition for the team's fundraising
efforts, they were awarded with Headlam’s ‘Act
sustainably, use less, waste less and give back’
values award at the annual conference.
Our Communities
Local communities
In 2022, we launched our Headlam Communities
programme, which gives colleagues the opportunity to both
volunteer and donate to projects and charities in their local
community.
In addition to this programme, and in order to take a more
strategic approach to improving the sustainability of our
local communities, we have worked with Business In the
Community (BITC) to trial a community needs analysis
for our Cheshires site in Nottingham. BITC’s approach
to community needs analysis involves utilising open-
source data to identify key characteristics of the relevant
communities and assess and identify a range of prevalent
social issues, challenges and unmet needs across key focus
areas. Carrying out this analysis allowed us to identify which
groups in the local community most need support. This
provided us with insight into Bulwell, which is local to
our site.
Following this review, we have built relationships with a local
school, Bulwell Academy, and a local volunteering group,
Bulwell Forest Gardens.
Our colleagues from our Cheshires' site have delivered a
session with a cohort of Year 10 Business Students from
Bulwell Academy in Nottingham. The session helped build
the business knowledge of the students as part of their
curriculum. The session was well received by the students
who were engaged throughout. We will continue to run
workshops and employability support throughout 2024.
Based in Bulwell, the vision for the Bulwell Forest Gardens
community project is to develop a garden to include food
growing, general wildlife areas, and community space to
create a stronger sense of community responsibility and
ownership. The local community can take the produce
52
grown in the gardens as well as volunteer to develop and
tend the garden. Members of our Cheshires' and Head
Office teams visited the site in November to support with
clearing out storage facilities and preparing the site for the
winter.
Measuring our impact will be critical to ensuring that our
efforts are adding value in Bulwell and we will work with our
partners in 2024 to align our targets with their ambitions.
Following overwhelmingly positive feedback from the
Cheshires' team, we are now conducting a community
needs analysis at our Mercado site in Leeds to test the
model in a new location with a view to a continued roll out
across several of our distribution centres.
Case Study 2
Our team in Leeds have been
supporting a charity called Acts 435
with the supply of flooring. Acts 435 is
a giving website that allows people
to give directly to others, and 100%
of what is donated via Acts 435 goes
directly to those in need.
When so many people need so much help,
giving to charities and good causes can
sometimes feel overwhelming and hard. Acts
435 puts people who want to help in touch with
people who are in need, through a network of
churches and local charities.
Below is some feedback from clients that were
asked the question ‘How did you feel when you
first saw your new carpets?’
‘Really happy and full of joy. I couldn’t afford
carpets for my new flat and the vinyl floors and
carpets that were fitted have made it look so
homely and really nice. It’s now the best place
I’ve ever lived so thank you!’
‘A massive relief, I’ve had flooring but it’s not
been suitable and it’s been like this for the past
10 months; it’s a massive relief coming home to
a safe environment’.
‘I would like to thank you all for making a
massive difference in mine and my family’s life;
if it wasn’t for this project, me and my children
would have been without flooring for maybe
years due to cost of living and not being able to
afford it. We really do appreciate everything’.
Connecting our communities with
the flooring industry
As leaders in flooring distribution, we want
to assure the long term sustainability of
the flooring industry. Headlam, through its
customers, is reliant on access to qualified
flooring fitters to achieve this. So we are
actively working with our suppliers and the
Contracts Flooring Association to help increase
the number of flooring fitters available to our
customers, by helping to address the growing
shortage of floor fitting skills in the UK.
With our multi-site, national reach, growing
relationships with local schools, and our
broad supplier base, we are perfectly placed
to encourage more people to train as fitters
and help them to find employment with our
customers. We have commenced work to
facilitate this training with the support of our
suppliers. We will then work with our customers
to find employment for trainees, which will
benefit our customers, and the UK industry as
a whole.
53
Headlam Group PLC Annual Report & Accounts 2023Strategic Report GOVERNANCE
ESG Committee
We have an established ESG Committee at Headlam to
assist the Board of Directors of the Company in providing
oversight with respect to the ongoing development and
delivery of the Company ESG strategy. The Committee
is chaired by the Chief Executive and has one of the
Non-Executive Directors in attendance along with the
Chief People and Sustainability Officer, the Chief Customer
Officer and a number of senior leaders, including Head
of ESG (Operations). A copy of the ESG Committee Terms
of Reference can be found on the corporate website,
headlam.com/environmental-social-and-governance-esg/
executive-esg-committee/.
In 2023, the Committee met on four occasions and
discussed every aspect of the ESG strategy including
Health & Safety, transport integration, solar panel
installation, non-commercial fleet transition to PHEV,
Scope 3 engagement with suppliers, progress of own brand
sustainable product launches, waste management, take
back schemes, Good Energy Behaviour workshops, colleague
engagement, training, diversity and inclusion, community
engagement, reward and wellbeing support, consumer
insight, IT security, supplier audits, the Sustainability Charter,
SMETA audits, ISO 14001 progress,
ESG policy changes, improved reporting, risk modelling,
industry ESG developments and the external assessment
of progress via a third party.
Sourcing
We have further strengthened the supplier review and
onboarding process by taking a risk-based approach based
on supplier assessment. Existing suppliers have all been
assessed and all new suppliers are required to go through
onboarding due diligence, which includes an agreement
to comply with our Sustainability Charter, headlam.com/
environmental-social-and-governance-esg/supplier-
sustainability-charter/.
Our investment in ESG expertise has included the
recruitment of an Ethical Sourcing specialist, who has a
depth of expertise in human rights and modern slavery. As a
result, we are confident that, in 2024, we will ethically audit
80% of the major factories producing own brand products
using the SMETA formula and, more importantly, will
develop action plans with our suppliers to drive continuous
improvement where required.
We continue to ensure our timber supply chain meets the
UK Timber requirements through our partnership with Track
Record Global. In 2024, we will use similar methodology to
track other key commodities in the supply chain, such as
recycled plastics and wool.
Executive Accountability
To ensure appropriate Executive focus on ESG, the Board
ensures that ESG targets are included in both the Annual
Bonus Scheme and the Performance Share Plan for
Executive Directors and members of the Executive Team.
Details of the Annual Bonus Scheme objectives for 2023 and
the Performance Share Plan targets for all in-flight schemes
can be found the in the Remuneration Report, page 116.
54
Stakeholder engagement
In 2023, we continued to maintain engagement on ESG
with the broader industry through Carpets Recycling UK,
our suppliers, and industry bodies. During our supplier
conference in September, we invited Carpets Recycling UK,
Inspired Energy (carbon reduction consultants), our Head
of Learning and Development and our new Head of ESG for
Operations to present to our suppliers, share the work we
are doing across our ESG strategy, and explain how they
can help us.
We also put an emphasis on engaging our colleagues
through our Employee Forums, where we discussed sharing
best practice on Health & Safety, energy efficiencies, and
discussed our proposed reward and pay principles.
We have completed Good Energy Behaviour workshops at
11 of our sites, during which colleagues are helped to become
more energy aware by learning about how and why we
measure consumption, group and local consumption, the
cost of energy usage, case studies from businesses who
have optimised their energy usage, and details of usage
trends in their operation. They are then invited to complete
a site assessment before generating practical ideas about
how to optimise energy usage in their roles and actions
the business can take to support. These workshops will
be followed up in 2024 to monitor the implementation
of agreed actions.
Policies and Process
A full review and refresh of policies, principles and processes
have taken place in 2023, including our reward and pay
principles, headlam.com/media/myzld0jz/headlam-
reward-pay-principles-jan-24-v2.pdf, the Inclusion and
Respect at Work Policy, headlam.com/media/yerfcvkl/
inclusion-and-respect-at-work-policy-oct23.pdf, our
Environmental Policy, headlam.com/media/gb0n4ma4/
environmental-policy-dec-23.pdf and our Grievance policy,
headlam.com/media/5zoku1qe/grievance-policy.pdf, all
of which are publicly available through our Headlam Group
Corporate website alongside other workplace policies.
To ensure that we always keep ESG front of mind, we
have added a section to our business case request
documentation to enable leaders to think through
the impacts their project or initiative have on our
sustainability strategy.
IT System
Further work has taken place in 2023 to enhance our
IT systems security processes and training to maintain
resilient and scalable IT systems. In line with National Cyber
Security Centre (NCSC) Guidelines, we strengthened our
password setting processes, VPN user access and email
access. We have also delivered, approximately, 150 hours
of Security Training to our colleagues on 12 separate topics.
Business Integrity and Robust Controls
In 2023, we have continued to test our processes and
practices against external standards. This has included the
aforementioned assessment against ISO14001, ISO45001,
SEDEX audit framework, and FORS certification. Our CDP
scores for climate change improved from a D to a C
(discloure awareness) in 2023. We use a network of external
advisors and consultants to test our thinking and help us to
develop clear, measurable, specific and scalable targets
for improvement, and, this year, have benchmarked our
progress to date with a third party. This, as well as our ESG
agency ratings, have suggested that we are continuing to
improve our ESG strategy and delivery, remain low risk and
are outperforming our sector benchmark.
55
Headlam Group PLC Annual Report & Accounts 2023Strategic Report TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES (‘TCFD’)
The table below, and continuing on pages 56 to 60 details the Group’s responses consistent with the TCFD recommendations
and pillars, with the exception of a Scope 3 emissions target, which will be introduced. The Group has progressed its disclosures
which, for 2023, include quantitative scenario analysis.
The Group 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 a Scope 3 emissions target.
This TCFD disclosure forms part of the Group’s overall Sustainability Report on pages 40 to 64. It should be read as part of the
full report which includes the Group’s key decarbonisation actions to reach Net Zero and reduce its contribution to climate
change, together with KPIs and targets to measure progress.
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 regularly as part of the Board programme of business, with
ESG policy and strategy considered in depth on an annual basis. An Executive ESG
Committee assists the Board with the more detailed aspects of its ESG agenda and
holds 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 Group’s
website, with the Chief Executive the Chair of the Committee.
Whilst ultimate responsibility for risk governance sits with the Board, the Audit Committee
assists in risk oversight (as described within Risk Management on page 65). The Group’s
most material ESG issues are included in the Group’s Risk Register. During 2023, 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 Group has an Executive ESG Committee, which, as part of its remit, focuses
on decarbonisation actions and reducing the Group’s contribution to climate change.
The Group 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 department (including from operations and finance). Its role
is to review identified risks, including the likelihood and potential impact of each risk,
establishing and monitoring the effectiveness of mitigating and opportunistic actions,
and considering emerging risk. The Group’s most material ESG issues per the Materiality
Assessment Map published on the Group’s website are included in the Group’s Risk
Register, which forms the basis for Committee discussions. Materiality for climate-related
risks and opportunities is assessed with reference to that used for mainstream reporting
but also considers the key risks being assessed by management to inform current and
future strategy along with internal feedback.
The Group 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 Group’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 44
of the Sustainability Report.
56
Strategy and Risk Management
Disclosure
The organisation’s processes
for identifying and assessing
climate-related risks
How processes for identifying,
assessing and managing
climate-related risks
are integrated into the
organisation’s overall risk
management
The climate-related risks and
opportunities the organisation
has identified over the short,
medium and long term
The impact of climate-related
risks and opportunities on the
organisation’s business(es),
strategy and financial
planning
The organisation’s processes
for managing climate-related
risks
The Group’s risk governance and management processes are detailed within Risk
Management on page 65 of the Annual Report and Accounts. 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). In 2023, a quantitative scenario
analysis of climate-related risks was also performed, as described on pages 58 to 59. This
process has allowed the Group to both identify climate-related risks and opportunities
and determine their relative significance to the business.
Climate-related risks are considered as part of the ESG Strategy and ‘Environmental’
Principal Risk and, therefore, integrated into the Group’s overall risk management
process. Additionally, through preparation of the Group’s annually reviewed and publicly
disclosed Environmental Policy and TCFD disclosure, the Group gives full consideration
and commentary on climate-related factors.
The Group has identified its climate-related risks and opportunities, and assessed
strategy resilience, through quantitative 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 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 that best reflect the Group’s business plan, strategy,
and various financial accounting policies. The total time horizon considered is up to 2050,
split into short term (three years, 2024–2026), medium term (2027–2035) 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 also
discussed in note 11 to the Financial Statements.
Middle of the road
Fossil-fuelled growth
Factors
RCP
SSP
Temperature rise
Likelihood
3.4
2
2ºC
High
Societal response
Proactive, Disorderly
8.5
5
4ºC
Moderate
Reactive
57
Headlam Group PLC Annual Report & Accounts 2023Strategic Report TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES (‘TCFD’)
CONTINUED
The quantitative assessment below considered the likelihood and estimated financial impact of each climate-related risk,
before the impact of mitigating actions.
Category
Risk
Key assumptions
Scenario 1 (Transition): Average global temperatures rising by 2ºC above pre-industrial levels by 2100
Risk: Increased operating
costs through Extended
Producer Responsibility
(EPR) for bulky waste
(carpets and underlay)
Policy and
Legal: Financial
impact of
potential new
legislation/
regulation
(including
product
legislation)
The EPR (bulky waste) consultation is assumed to happen over the next three
years resulting in the legislation coming into effect in 2027, which essentially
introduces an extra tax on the sale of carpets and underlay for companies
considered to be manufacturer or first point of contact in the UK for imported
items. The rates used in the scenario modelling are consistent with industry
best estimates, which are uncertain due to the timing of the consultation.
The scenario modelling assumes that none of these costs are passed on to
customers; this is considered very prudent given the pass-through to customers
of product cost inflation observed during 2022. It is also assumed that all
products would be captured by the regulations, i.e. there is no sustainability
threshold.
Market:
Transitioning
to more
sustainable
business and
operating
practices
Market:
Transitioning
to more
sustainable
business and
operating
practices
Market:
Changing
consumer
preferences
Risk: Increased costs of
operating a sustainable
fleet with low-carbon
technologies
Opportunity: Greater
efficiency leading to
lower operating costs as a
direct result of solar panel
installation
The technology for zero-emission long-haul, heavy goods vehicles (HGVs) is
less developed than for non-commercial (including company cars) and short-
haul commercial vehicles. The Group operates over 300 HGVs. It currently
appears that hydrogen may be the solution for HGVs rather than electric, but
this will continue to be monitored closely. There are also challenges installing
the required infrastructure once the best alternative is developed. There is a
high degree of uncertainty in the cost estimates for a zero emission HGV fleet.
It has been assumed, for this scenario modelling, that the cost of operating a
zero emission HGV fleet is broadly comparable to that of operating a diesel
fleet. This assumption is on the basis that there is a very large global market for
HGVs, which provides commercial incentive for companies to develop a viable,
cost-effective zero emission solution for HGVs. There could also be subsidies
provided by governments to incentivise the transition to zero emission HGVs.
Cost savings are assumed to continue in line with the business case, offset by
the annual depreciation charge. The solar panels are assumed to have a useful
economic life of 25 years in line with manufacturer guidance.
Risk: Reduced demand for
current product offering
The scenario modelling assumes a shift away from non-sustainable to more
sustainable flooring at a rate of 0.5% of mix per year, settling in the medium
term, with an associated gross profit reduction.
(0.5)
(2.6)
(2.6)
Due to leading position, the Group is well placed to develop its range of flooring
solutions to quickly adapt its offering to reflect consumer preferences and,
therefore, mitigate all or significantly all of this risk, reducing the potential
financial impact to an immaterial amount.
Scenario 2 (Physical): 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 event;
consequential impairment
of assets and increased
insurance premiums
A weather event, likely to be a flooding event, is assumed to occur in the long
term. Only a small number of the geographically dispersed sites are considered
to have a high risk of flooding and so it is assumed that one main distribution
centre is affected. The scenario modelling assumes that the event will cause
disruption for 20 days whereby no gross margin is generated, but overheads
continue, before continuity plans allow trade to return to normal levels.
The event is assumed to destroy 20% of inventory in the distribution centre.
Modelling assumes that property damage and business interruption insurance
cover in place offsets the loss above the excess level, but that this triggers a
10% increase in the future insurance premiums.
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
The scenario modelling assumes there is no loss of revenue from this risk due
to the comprehensive inventory and homogeneous products held and sold by
the Group.
58
Average potential financial impact
on annual profit before mitigating
actions £M
Short Term
Medium Term
Long Term
(2024–2026)
(2027–2035)
(2036–2050) Strategic response and resilience
Collaborate with suppliers on new sustainable product launches.
Market preferences and the Group’s product offering likely to become more
weighted towards sustainable products as they become available, which could
help limit the EPR cost to the Group, subject to a sustainability threshold in any
potential legislation.
–
(6.4)
(6.4)
making them exempt from EPR.
Design and deliver take-back schemes to maximise recycling opportunities
and increasingly avoid materials entering into the waste stream with a view to
It is likely that all, or significantly all, of any residual additional costs could be
indirectly passed on to customers, reducing the potential financial impact to an
immaterial amount.
Implementation of dynamic planning and telematics will increase
transport efficiency.
Ongoing trials of electric commercial vehicles.
–
–
–
0.7
0.7
0.7
The planned solar panel installation is almost complete and is already
generating cost savings.
The Group’s assets are not expected to be exposed to high physical
climate-related risk due to the geographies in which it operates.
Operations are disaggregated with business continuity plans in place if specific
sites are affected by isolated events.
–
–
(0.4)
–
–
–
strong availability.
Market-leading position and strategic partnerships with suppliers should enable
the Group to preserve levels of availability.
Comprehensive inventory levels, typically, maintained at any one time providing
The quantitative assessment below considered the likelihood and estimated financial impact of each climate-related risk,
before the impact of mitigating actions.
Category
Risk
Key assumptions
Scenario 1 (Transition): Average global temperatures rising by 2ºC above pre-industrial levels by 2100
Policy and
Risk: Increased operating
Legal: Financial
costs through Extended
The EPR (bulky waste) consultation is assumed to happen over the next three
years resulting in the legislation coming into effect in 2027, which essentially
impact of
Producer Responsibility
introduces an extra tax on the sale of carpets and underlay for companies
potential new
(EPR) for bulky waste
considered to be manufacturer or first point of contact in the UK for imported
(carpets and underlay)
items. The rates used in the scenario modelling are consistent with industry
best estimates, which are uncertain due to the timing of the consultation.
The scenario modelling assumes that none of these costs are passed on to
customers; this is considered very prudent given the pass-through to customers
of product cost inflation observed during 2022. It is also assumed that all
products would be captured by the regulations, i.e. there is no sustainability
threshold.
Risk: Increased costs of
operating a sustainable
fleet with low-carbon
technologies
The technology for zero-emission long-haul, heavy goods vehicles (HGVs) is
less developed than for non-commercial (including company cars) and short-
haul commercial vehicles. The Group operates over 300 HGVs. It currently
appears that hydrogen may be the solution for HGVs rather than electric, but
this will continue to be monitored closely. There are also challenges installing
the required infrastructure once the best alternative is developed. There is a
high degree of uncertainty in the cost estimates for a zero emission HGV fleet.
It has been assumed, for this scenario modelling, that the cost of operating a
zero emission HGV fleet is broadly comparable to that of operating a diesel
fleet. This assumption is on the basis that there is a very large global market for
HGVs, which provides commercial incentive for companies to develop a viable,
cost-effective zero emission solution for HGVs. There could also be subsidies
provided by governments to incentivise the transition to zero emission HGVs.
legislation/
regulation
(including
product
legislation)
Market:
Transitioning
to more
sustainable
business and
operating
practices
Market:
Transitioning
to more
sustainable
business and
operating
practices
Market:
Changing
consumer
preferences
Scenario 2 (Physical): Average global temperatures rising by 4ºC above pre-industrial levels by 2100
Acute:
Risk: Business interruption
A weather event, likely to be a flooding event, is assumed to occur in the long
Asset damage
and loss of revenue following
term. Only a small number of the geographically dispersed sites are considered
damage to distribution
network as a result of
extreme weather event;
to have a high risk of flooding and so it is assumed that one main distribution
centre is affected. The scenario modelling assumes that the event will cause
disruption for 20 days whereby no gross margin is generated, but overheads
consequential impairment
continue, before continuity plans allow trade to return to normal levels.
of assets and increased
The event is assumed to destroy 20% of inventory in the distribution centre.
insurance premiums
Modelling assumes that property damage and business interruption insurance
cover in place offsets the loss above the excess level, but that this triggers a
10% increase in the future insurance premiums.
Chronic and
Acute: Supply
Risk: Potential raw material
shortages and knock-on
The scenario modelling assumes there is no loss of revenue from this risk due
to the comprehensive inventory and homogeneous products held and sold by
chain disruption
impact on product
the Group.
availability from supply
chain disruption leading
to loss of revenue
Average potential financial impact
on annual profit before mitigating
actions £M
Short Term
(2024–2026)
Medium Term
(2027–2035)
Long Term
(2036–2050) Strategic response and resilience
Collaborate with suppliers on new sustainable product launches.
Market preferences and the Group’s product offering likely to become more
weighted towards sustainable products as they become available, which could
help limit the EPR cost to the Group, subject to a sustainability threshold in any
potential legislation.
Design and deliver take-back schemes to maximise recycling opportunities
and increasingly avoid materials entering into the waste stream with a view to
making them exempt from EPR.
It is likely that all, or significantly all, of any residual additional costs could be
indirectly passed on to customers, reducing the potential financial impact to an
immaterial amount.
Implementation of dynamic planning and telematics will increase
transport efficiency.
Ongoing trials of electric commercial vehicles.
–
(6.4)
(6.4)
–
–
–
Opportunity: Greater
efficiency leading to
Cost savings are assumed to continue in line with the business case, offset by
the annual depreciation charge. The solar panels are assumed to have a useful
lower operating costs as a
economic life of 25 years in line with manufacturer guidance.
direct result of solar panel
installation
0.7
0.7
0.7
The planned solar panel installation is almost complete and is already
generating cost savings.
Risk: Reduced demand for
current product offering
The scenario modelling assumes a shift away from non-sustainable to more
sustainable flooring at a rate of 0.5% of mix per year, settling in the medium
term, with an associated gross profit reduction.
(0.5)
(2.6)
(2.6)
Due to leading position, the Group is well placed to develop its range of flooring
solutions to quickly adapt its offering to reflect consumer preferences and,
therefore, mitigate all or significantly all of this risk, reducing the potential
financial impact to an immaterial amount.
The Group’s assets are not expected to be exposed to high physical
climate-related risk due to the geographies in which it operates.
Operations are disaggregated with business continuity plans in place if specific
sites are affected by isolated events.
–
–
(0.4)
–
–
–
Comprehensive inventory levels, typically, maintained at any one time providing
strong availability.
Market-leading position and strategic partnerships with suppliers should enable
the Group to preserve levels of availability.
59
Headlam Group PLC Annual Report & Accounts 2023Strategic Report TASK FORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES (‘TCFD’)
CONTINUED
Strategy and
Risk Management
Disclosure
Resilience of the
organisation’s
strategy, taking
into consideration
different climate-
related scenarios
The analysis suggests that EPR and reduced demand for current product offering could have the
most significant impact on the Group’s profits in the transition scenario, albeit skewed towards the
medium and long term. EPR would only have a significant impact if such costs were not passed on
to customers, which is considered unlikely. However, there is a high degree of uncertainty around
the cost of transitioning to a zero emission HGV fleet.
There could be further market opportunities for the Group to increase revenue with its peer-leading
sustainable practices helping to attract new larger customers and by capturing market share
by responding to a shift towards sustainable products more quickly than competitors. These
opportunities are not included in the quantitative scenario modelling.
In the physical scenario, the analysis suggests that asset damage from an extreme weather event
could have the most significant impact on the Group’s profits, likely to be in the longer term.
There are a number of strategic responses that the Group could and is already taking against
these risks, as noted above. When taking into account the judged severity of the potential risks,
time horizons and mitigating actions, the Group is currently considered to remain 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 Group 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 and 2 emissions (year on year)
• Achieving reduction pathway required for Scope 1 and 2 emissions to achieve interim target
• Number of sustainable own brand product launches
• ESG-related capital investment
• ESG rating agency scores
• Physical asset damaged related insurance claims/premiums
Target
•
100% of non-commercial fleet electric/low emission by 2025
•
Interim emissions target (Scope 1 and 2)
• Net Zero emissions target (Scope 1 and 2)
An intensity metric is additionally given within the Group’s SECR Disclosure on page 62.
An ESG metric has been introduced into Executive Director and Executive Team performance-
related variable remuneration from 2023.
Link to Risks
Link to KPIs
9
6 11 12
The Group’s Scope 1, 2 and 3 emissions are summarised on page 62 of the Sustainability Report,
giving comparative years where available.
The targets introduced by the Group to date are detailed above, with further targets to be
introduced in subsequent Sustainability Reports. In 2022, the Group introduced a Net Zero
emissions target (Scope 1 and 2). The Group also has an interim target of a 46% reduction against
2019 (Scope 1 and 2) by 2030. The interim target will be submitted for SBTi validation in H1 2024. The
Group anticipates introducing Scope 3 targets in 2025, subject to SBTi validation timescales, with
an aim to reach Net Zero (Scope 1, 2 and 3) by 2050 at the very latest.
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
60
STREAMLINED ENERGY AND
CARBON REPORTING (‘SECR’)
The following figures demonstrate year-on-year changes
in consumption and resulting emissions for Headlam Group
PLC for 2023 and 2022. Headlam Group PLC has chosen to
disclose its consumption and emissions data for its global
operations, in addition to mandatory UK consumption and
emissions data.
Definitions of the Scopes used in this disclosure:
•
•
•
Scope 1 consumption and emissions include direct
combustion of natural gas, and fuels utilised for
transportation, for example, company vehicle fleets.
Scope 2 consumption and emissions cover indirect
emissions related to the consumption of purchased
electricity in day-to-day business operations, and
electricity consumed in vehicles such as EVs and PHEVs.
Scope 3 consumption and emissions cover emissions
resulting from sources not directly owned by Headlam
Group PLC, which relates to grey fleet business travel
undertaken in employee-owned vehicles only.
This SECR disclosure forms part of the Company’s overall
Sustainability Report on pages 40 to 64, and should be
read as part of the full report.
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 Carbon Report)
Regulations 2018 as they apply to information supplied by
Headlam Group PLC and its energy suppliers.
UK Overview
Overall UK Carbon Intensity
25.25 tCO2e per £m turnover
YOY -5.63%
13,233.79 tCO2e
tCO2e YOY -6.74%
UK Carbon and Consumption £m = £m Revenue
Natural Gas
5,054,342 kWh
924.59 tCO2e
tCO2e YOY: +10.27%
Electricity
6,501,459
1,346.28 tCO2e
tCO2e YOY: +6.64%
Transport
51,794,796
12,309.20 tCO2e
tCO2e YOY: -7.80%
UK Carbon Intensity Metric £m = £m Revenue
1.60 tCO2e per £m
YOY: +10.29%
2.33 tCO2e per £m
YOY: +6.66%
21.32 tCO2e per £m
YOY: -7.79%
61
Headlam Group PLC Annual Report & Accounts 2023Strategic 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 3 consumption and emissions cover emissions
resulting from sources not directly owned by
Headlam Group PLC, which relates to grey fleet business
travel undertaken in employee-owned vehicles only.
Scope 1 consumption and emissions include direct
combustion of natural gas, and fuels utilised for
transportation, for example, company vehicle fleets.
Scope 2 consumption and emissions cover indirect emissions
related to the consumption of purchased electricity in
day-to-day business operations, and electricity consumed
in vehicles such as EVs and PHEVs.
UK Totals
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)1
Transportation (Scope 3)
Total
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)1
Transportation (Scope 3)
Total
2023
Consumption
kWh
2022
Consumption
kWh
6,501,459
5,054,342
6,528,411
4,593,411
50,755,600
54,729,552
886,117
153,078
679,880
255,328
63,350,597
66,786,582
2023
Consumption
tCO2e
2022
Consumption
tCO2e
1,346.28
924.59
1,262.46
838.48
12,066.80
13,160.80
207.98
34.43
131.48
58.89
14,580.07
15,452.12
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 the results of this analysis are as follows:
Intensity Metric
tCO2e/£m UK Revenue
2023 Intensity
Metric
2022 Intensity
Metric
25.25
26.76
1 Transportation methodological improvements have been backdated to 2022 and the 2022 transport figures have been restated for better
YoY comparisons.
62
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)1
Transportation (Scope 3)
Total
2023
Consumption
kWh
2023
Consumption
tCO2e
418,532
615,584
1,311,283
2,345,399
18.86
112.61
294.91
426.39
2023
Consumption
kWh
2023
Consumption
tCO2e
272,745
257,297
2,298,046
2,828,088
68.67
47.38
537.18
653.23
2023
Consumption
kWh
2023
Consumption
tCO2e
7,192,736
5,927,223
1,433.82
1,084.57
54,364,929
12,898.89
886,117
153,078
207.98
34.43
68,524,083
15,659.69
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 the results of this analysis are as follows:
Intensity Metric
tCO2e / £m Group Revenue
2022 Intensity
Metric
23.85
1 Transportation methodological improvements have been backdated to 2022 and the 2022 transport figures have been restated for better
year on year comparisons.
63
Headlam Group PLC Annual Report & Accounts 2023Strategic Report STREAMLINED ENERGY AND
CARBON REPORTING (‘SECR’)
CONTINUED
Energy efficiency actions
The main energy efficiency and decarbonisation actions
that the Company is currently pursuing are detailed on
page 44.
Reporting methodology
Scope 1, 2 and 3 consumption and CO2e emissions data
have been calculated in line with the 2019 UK Government
environmental reporting guidance. Emissions Factor
Database 2023 has been used, utilising the published kWh
gross calorific value (CV) and kgCO2e emissions factors
relevant for reporting period 01/01/2023 – 31/12/2023.
Estimations were undertaken to cover missing billing periods
for properties directly invoiced to Headlam Group PLC.
These were calculated on a kWh/day pro-rata basis at the
meter level.
•
For properties where Headlam Group PLC is indirectly
responsible for utilities (i.e. via a landlord or service
charge) or no data is available for the meter, the median
consumption for properties, with similar operations was
calculated at meter level and applied to the properties
with no available data.
These full-year estimations were applied to 8 electricity
supplies and 5 gas supplies. All estimations equated to
4.54% of reported consumption.
Market-based carbon emissions were calculated using
supplier-specific emissions factors where possible and
residual grid factors where this was not possible, such
as in the European divisions.
Scope 2 transport figures for 2022 were restated to align
with the updated methodology used in 2023. This improved
the accounting of the kWh consumption and associated
emissions of PHEVs. This changed the UK scope 2 transport
emissions figures from 3.01 tCO2e to 131.48 tCO2e.
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)
£656.5m
£577.3m
£79.2m
64
RISK MANAGEMENT
Overview
The Board again carried out a robust assessment during the
year of the emerging and principal risks facing the Group,
including those that could threaten its business model, future
performance, solvency or liquidity.
The table on pages 68 to 71 summarises the Principal Risks (in
no particular order), which the Board considers could have
a material impact on the Group’s reputation, operations or
financial performance. No new Principal Risks have been
identified.
The Risk Heat Map on page 67 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 assessment
of the level of risk is first conducted by the Executive Risk
Committee and then reviewed and approved, following any
changes, by the Board.
Risk governance
Risk is encountered as part of the ordinary course of business
as well as through the implementation of the Group’s
strategy as detailed on pages 18 to 19, which has been
established to increase the sustainability of the Group 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 Group exercises
an appropriate level of risk management to support the
achievement of its strategy. The Principal Risks faced by the
Group 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 Group’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 Group’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 Group’s Principal Risks and Uncertainties
and identifies any emerging risks, at least annually. During
the year the Executive Risk Committee introduced risk 'deep
dives' whereby it selects a Principal Risk for review at each of
its four meetings.
The Audit Committee, on behalf of the Board, also monitors
the Group’s system of risk management and internal control,
and conducts a review of its effectiveness at least once
a year.
Risk appetite
The Board has considered the maxium level of risk
the Group is willing to take in pursuit of its strategic
objectives.
The Executive Risk Committee conducted an exercise
to determine risk appetite for each principal risk
across a five-point scale : Averse, Cautious, Neutral,
Open, High. The outcome of this was then presented
to, and discussed with, and challenged by, the Audit
Committee, and subsequently ratified by the Board.
65
Headlam Group PLC Annual Report & Accounts 2023Strategic Report RISK MANAGEMENT
CONTINUED
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
Senior Leadership Team
Group functions
Business management
Assesses strategic risks
identified by management
capable of threatening
the business model, future
performance, solvency or
liquidity in the context of
the Company’s strategy
and the interests of
stakeholders and
market context.
Assesses risks and
mitigating controls using a
specified scoring system,
based on likelihood and
impact, and reports into
the Audit Committee.
Use knowledge of best
practice, business and
the market in which we
operate to assess changes
in key risks.
Applies local knowledge
to identify and assess
operational risk.
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.
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.
A Head of Internal Audit was appointed in 2022 and commenced independent assurance on the Group’s risk management
processes in 2023.
66
Our principal risks (introduction)
The Group has identified ten principal risks. There have been
no changes to these during the year. However, following
the appointment of a new Chief Financial Officer during
2023 and new Non-Executive Directors in 2022, as well as
refreshed membership of the Executive Risk Committee, a
detailed review of the risk ratings was conducted, taking into
account the events of the year, both macro and micro, and
any specific relevant circumstances for the Group, along
with the mitigating actions. This resulted in some changes,
which are explained below:
Risk 1 – market (economy and competition): the risk
rating has been increased, reflecting the scale of impact
that a weak market has had in 2023 and the uncertain
macroeconomic and geopolitical environment.
Risk 4 – IT (cyber security): the risk rating has reduced
slightly. There is no change to the inherent risk, but numerous
additional controls have been implemented during the year,
which slightly reduce the residual risk.
Risk 5 – People: the risk rating has increased following
management's updated assessment of the inherent risk;
good progress has been made in implementing,
mitigating measures.
Risk 7 – supply chain: following review, and management’s
judgement, the 'likelihood' rating was increased, whilst
leaving 'impact' unchanged. This reflects management’s
view of the inherent risk taking into account the potential
impact of geopolitical events on global supply chain; good
progress has been made with mitigating controls, which may
reduce the residual risk rating over time.
Risk 9 – environmental and decarbonisation: the risk
rating was revised downwards slightly, reflecting actions
taken to date and the plans in place for the medium-to-
long term.
Risk 10 – change and decision making: the 'impact'
element of the risk rating was revised downwards slightly
following progress made during the year on implementing
strategic initiatives.
Emerging risks
Identification and review of emerging risks are
integrated into our risk review process. Emerging risks
are risks that are rapidly evolving, or arriving at pace,
for which the impact and likelihood have not yet
been fully understood and for which the appropriate
mitigations have not yet been fully identified.
We continue to monitor the uncertain
macroeconomic and geopolitical environment,
including the impact of events in the Middle East
and the Red Sea, to assess impacts on customers,
suppliers and colleagues. Currently we monitor this
through the lens of our existing principal risks, but
with a view to separating out any elements if it were
considered to be a principal risk of its own.
Other than the above there are no other emerging
risks assessed as being of significance to disclose
currently.
Risk heat map
h
g
H
i
d
o
o
h
i
l
e
k
L
i
w
o
L
Key
1
4
3
6
7
5
10
2
8
9
Impact
High
1 Market (economy and competition)
2 Market (strategy)
3 IT (systems and infrastructure)
4 IT (cyber security)
5 People
6 Health and Safety
7
Supply chain
8 Legislation, regulation and reporting
9 Environmental and decarbonisation
10 Change and decision making
67
Headlam Group PLC Annual Report & Accounts 2023Strategic Report PRINCIPAL RISKS
Risk and description
Mitigating actions
1 Market (economy and competition)
Link to
Strategy
Risk
change
Failure to sustain
revenue and profit
performance as a result
of economic backdrop,
market demand, service
levels or competitive
dynamics
2 Market (strategy)
Failure to develop and
deliver on new revenue
growth opportunities
The Group closely monitors market activity on a daily
basis at both an individual business and Group level. This
visibility allows the Group to take prompt action in response,
including enhanced sales activity, operational efficiency,
managing inventory levels, and cash management.
The Group seeks to sustain its competitive position by
maintaining close relationships with its supplier and
customer base, and continually improving its customer
service propositions. The Group maintains customer
engagement and feedback activities to gain insight into
customer preferences to ensure its service proposition and
offering remains competitive.
The Group’s strategy (pages 18 to 19) of driving new revenue
to gain market share from a more efficient operating base
helped provide a countermeasure
against the weakness in the residential market in 2023.
Investments were made in multiple areas to support delivery
of the revenue growth strategy during 2023, including:
•
•
£5.7 million capital expenditure on new and refurbished
trade counters, taking the total number of invested sites
from 24 to 47.
The appointment in early 2023 of a Chief Customer
Officer with the remit of leading customer and digital
strategy, encompassing all aspects of customer
communications, brand development, marketing
and ecommerce, as well as leading the Larger
Customers team.
• Additional functional expert roles, including an
Ecommerce Director and Group Marketing Director.
•
Improving the existing network and equipment to
support revenue growth and efficiencies, including £5.6
million invested in cutting tables, sortation units and
associated equipment.
The Board has direct oversight of the Group’s strategy,
and its effective implementation, with the performance
of each project team monitored against clear targets
and objectives.
3 IT (systems and infrastructure)
Failure to develop and
maintain IT systems and
infrastructure that is
resilient, scalable, and
able to support the
strategy
A new Chief Information Officer was appointed in July 2023,
with significant experience of ERP implementations.
A review of the IT systems was completed during the year,
utilising external expertise on a targeted basis, with a
multi-year plan developed, including an ERP change.
Other developments in the year included investment in the
core operating system, and further systems integration to
support suppliers and customers.
68
Risk and description
Mitigating actions
4 IT (cyber security)
Failure to develop and
maintain adequate or
effective security and
cyber controls
Targeted use of specialist external advice and support,
including a vCISO (virtual Chief Information Security Officer).
Monthly employee cyber engagement programme through a
refresher email requiring all colleagues to watch a short video
and answer questions.
Link to
Strategy
Risk
change
5 People
Failure to recruit and
retain the right people
with relevant skills,
values and behaviours
Numerous control improvements during the year, which
have slightly reduced the residual risk. These improvements
include the introduction of multi-factor authentication
for email and remote access to network, enhancement of
password retention policies, and development of incident
response plans.
The Board continues to focus on making the Group a great
place to work, and ensure colleagues share in the Group’s
long-term success.
For details on the developments in 2023, see pages 48 to 53.
Amongst other initiatives, during 2023, the Group conducted
its first colleague engagement survey in the UK, providing
rich insight and feedback from colleagues.
6 Health and safety
Failure to provide a
safe place to work for
our people
Health and safety is a standing agenda item at all Board
Meetings.
The Group has a dedicated in-house health and safety
team, which was expanded in 2022 and complemented
in 2023 with the addition of a dedicated Group Health &
Safety Director.
The Group 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 Group’s ongoing certification, ISO 45001 audits
have been undertaken across all the UK’s main sites.
Key
Increased
Unchanged
Decreased
69
Headlam Group PLC Annual Report & Accounts 2023Strategic Report
PRINCIPAL RISKS
CONTINUED
Risk and description
Mitigating actions
Link to
Strategy
Risk
change
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
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 2023, we launched
four sustainable product ranges.
Following the success of the Group’s first Supplier
Conference in 2022, this was repeated in 2023, where the
Group presented its strategy and discussed the areas that
present a significant opportunity to strengthen supplier
partnerships and efficiencies.
During the year, the new role of Head of ESG was created
and recruited for in the buying team.
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 Group manages its obligations through a framework of
policies and procedures and, where appropriate, engages
the services of specialist third-party advisers, which help to
support the assurance process.
The Group 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 Group has implemented a Code of Conduct, setting out
clear standards and expectations for all employees (also see
Supplier Ethical Code of Conduct above).
All senior leaders are required to complete a twice-yearly
standards and controls attestation certificate.
70
Risk and description
Mitigating actions
9 Environmental and decarbonisation
Link to
Strategy
Risk
change
Failure to reduce
environmental impact,
including failure to
deliver GHG reductions
in line with Net Zero
commitments and
contribution to
climate change
The Group continues to develop and progress its overall ESG
Strategy. For full details on environmental-related actions,
see the Sustainability Report on pages 40 to 64, which
includes the Group’s TCFD disclosure. This disclosure details
the climate-related risks the Group has identified, and how it
is specifically assessing and addressing them.
The Group 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 Group introduced,
in November 2022, an interim target of a 46% reduction
by 2030 against a baseline year set at 2019. This included
setting milestones for 2023, which the Group has achieved,
as set out in the Sustainability Report.
The Group 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.
This was supported, in 2023, by an external assessment.
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 Group’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 well resourced
in terms of monetary investment and people, with good
governance in place through regular reviews by both the
Board and the Executive Team. There is a dedicated project
manager in place to support the Executive Team in the
delivery and prioritisation of the strategic initiatives.
71
Headlam Group PLC Annual Report & Accounts 2023Strategic Report 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.
Consistent with previous years, a period of three years,
to 31 December 2026, was chosen for the purpose of the
viability assessment. This period best aligns with:
•
•
the Group’s strategy, as outlined on pages 18 to 19,
including the timeline for the Trade Counter investment
programme and the maturity of revenue growth with
Larger Customers; and
the Group’s financing, with the revolving credit facility
expiring in 2027 and, therefore, a renewal process
commencing in 2026.
This longer-term assessment also supports the going
concern assessment over a period no shorter than 12 months
from the date of approval of the financial statements.
Sensitivity analysis
Reporting on the Group’s and Company’s viability and
assessing going concern requires the Board to consider
those principal risks that could impair the solvency and
liquidity of the Group and Company. In order to determine
those risks, the Board considered the Group-wide principal
risks as set out in the Risk Management and Principal Risks
sections on pages 65 to 71.
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
the trialling of electric and other commercial vehicles
is underway, technological advancements are required
before moving the whole fleet to an alternative. As there
is a high degree of uncertainty in the cost estimates for a
sustainable HGV fleet, it has been assumed that such costs
are broadly comparable to those of operating a diesel fleet.
The Board considers that any potential changes in consumer
preferences towards more sustainable products can be
supported by the Group reflecting these changes in its
product offering. Climate-change risks are discussed further
in the TCFD quantitative analysis on page 58, including
consideration of the impact of the risks over time horizons
longer than this assessment period.
The Board considered the impact of a new ‘black swan’
event, whereby, for example, a brand new pandemic
surfaces with little-to-no notice and for which there is no
vaccine. However it was concluded not to specifically model
this for viability purposes on the basis of probability and also
in acknowledgement that the Covid-19 pandemic proved
that the Group was able to withstand such a shock.
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 but
plausible scenarios that have the potential to threaten
the viability of the Group: an economic crisis with a sharp
72
decline in demand before a recovery; and a sustained
recessionary environment, characterised by a long period of
underperformance throughout the assessment period.
Market backdrop
2023, has been challenging for the flooring market due to
a number of macroeconomic indicators, including lower
RMI (residential maintenance and improvement) spend, a
reduction in housing transactions, and a decline in residential
consumer spending. The Group’s profitability has been
significantly impacted by the industry headwinds of volume
decline and cost inflation, partially offset by mitigating
actions, including reducing operational headcount and
other cost savings, and targeted price increases on certain
products. Volumes in the UK market in 2023 were around
20% lower than in 2019, which indicates a good recovery
opportunity over the medium term as the market improves,
albeit the short-term outlook remains uncertain.
In setting the two scenarios to be modelled, the Board
recognises that, as the Group exited 2023, it had already
experienced reduced volumes as a result of significantly
reduced consumer and business confidence due to the
economic conditions. Therefore, the scenarios have been
adjusted to take account of this and to estimate the further
additional severe-but-plausible downside that could occur.
The inflationary environment over the last two years has
created a situation where revenue has not been materially
impacted, despite the reduction in volumes. However, gross
margin in 2023 has not benefitted from the proliferation of
manufacturer-led price increases seen in the prior year, and
this has been compounded by high operating cost inflation.
The Board has considered the impact of inflation in
determining the additional severe but plausible revenue
downside that could occur over and above the current
macroeconomic headwinds.
Banking Facilities
As at 31 December 2023, the Group had a net debt position
excluding lease liabilities of £29.6 million, and had total
banking facilities available of £100.6 million, including £81.5
million of committed facilities. At 31 December 2023, the
Group had cash and undrawn facilities of £71.0 million.
The committed facilities comprise a revolving credit facility
with a syndicate of three banks. This facility matures in
October 2027, which is outside the assessment period, albeit
the renewal process would commence in 2026.
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 and a leverage ratio.
Interest Cover is the ratio of EBITDA, adjusted to exclude the
impact of IFRS 16 and share-based payments ('Covenant
EBITDA') to Finance Charges. Leverage is the ratio of
borrowings and cash and cash equivalents, excluding IFRS
16 lease liabilities to Covenant EBITDA. In February 2024
the interest cover covenant was amended to be based on
EBITDA rather than EBIT; this change applies prospectively.
Confirmation of longer-term Viability and
Going Concern
Based on the results from these scenarios, including the
mitigating actions that could be implemented, the Board
can have a reasonable expectation that the Group and
Company 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.
Scenario A - Economic Crisis
Scenario A is modelled on the basis of a U-shaped
economic crisis and then recovery. The overall
impact, including the current macroeconomic
headwinds being experienced, is similar to
that observed following COVID-19, such that
revenue levels decrease overall by 15% before
recovering. This translates into a year-on-year
revenue decrease in 2024 of 5%, after factoring
in the volume decline observed so far in the
economic cycle.
In this scenario, including the impact of mitigating
actions that could be deployed, the Group and
Company continue to operate within their current
banking facilities, as detailed below, and the
covenant tests set out therein. The mitigating
actions include a reduction in the cost base, a
suspension of the ordinary dividend, a freeze on
non-critical capital spend, and the disposal of
freehold properties.
Scenario B - Sustained Recessionary
Environment
Scenario B is modelled on the basis that there is a
sustained recessionary environment in both the UK
and Continental Europe, similar to that experienced
in 2008-2009.
The headwinds experienced in 2023 from the
macroeconomic environment, being worse than
that usually modelled for this scenario, are assumed
to continue over the assessment period, with
revenue and profit levels held flat over 2024-26.
In this scenario, and in the absence of any
mitigating actions, the Group and Company
continue to operate within their current banking
facilities, as detailed below, and the covenant tests
set out therein.
73
Headlam Group PLC Annual Report & Accounts 2023Strategic Report NON-FINANCIAL AND SUSTAINABILITY
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 40 to 55
Supplier Code of Conduct
SECR Disclosure – pages 61 to 64
People
Code of Ethics
Corporate Governance Report – pages 77 to 145
Stakeholder Engagement and Section 172
Statement – pages 28 to 31
Sustainability Report – pages 40 to 55
Corporate Governance Report – pages 77 to 145
Social matters
Equal Opportunities and
diversity policy
Stakeholder Engagement and Section 172
Statement – pages 28 to 31
Flexible working policy
Sustainability Report – pages 40 to 55
Corporate Governance Report – pages 77 to 145
Respect for Human Rights
Health and Safety Policy
Health and Safety – pages 48 to 49
Modern Slavery Statement
Modern Slavery – page 143
Other Statutory Disclosures – pages 140 to 144
Anti-Corruption and
Anti-Bribery matters
Anti-Corruption and Bribery Policy
Corporate Governance Report – pages 77 to 145
Speak Up Policy
Expenses Policy
Audit Committee Report – pages 102 to 109
Other Statutory Disclosures – pages 140 to 144
Information disclosed in support of the matters
Business model
Principal risks, impact
and mitigation
Non-financial key performance
indicators
Business Model – pages 16 to 17
Risk Management, and Principal Risks and
Uncertainties – pages 65 to 71
Key Performance Indicators – pages 24 to 27
Sustainability Report – pages 40 to 55
This Strategic Report was approved by the Board on 5 March 2024 and signed on its behalf by
Chris Payne
Chief Executive
74
Headlam Group PLC Annual Report & Accounts 2023
75
Strategic Report 76
GOVERNANCE
Chair’s Introduction
Board of Directors and Executive Team
Board Leadership and
Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
78
82
86
92
100
102
110
116
140
145
77
Headlam Group PLC Annual Report & Accounts 2023 CHAIR’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 ”
78
On behalf of the Board,
I am pleased to present
the Governance report for
the financial year ended
31 December 2023.
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 whilst
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
Following a formal and comprehensive
recruitment process, and the
recommendation of the Nomination
Committee, Adam Phillips joined
the Company as our Chief Financial
Officer in March 2023.
Adam’s appointment, along with that
of 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
process undertaken for Adam’s
appointment can be found in the
report of the Nomination Committee
on page 110.
Strategy and Culture
Diversity
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 sit alongside the Group’s strategy as it
is implemented.
Karen Hubbard continues in her role of Non-Executive
Director responsible for employee engagement. This role and
the review of our People Strategy by our Chief People and
Sustainability Officer, will ensure we continue to develop our
cultural dash board. This continues to enhance the quality of
the information the Board receives from our employees.
Following the launch of our new supplier code of conduct in
2022, we held a further supplier conference in the year, which
was attended by 30 of our key suppliers. A revised colleague
code of conduct was also 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 29 and
throughout this Governance report.
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 have also appointed a Head of
Health & Safety who reports directly to the Chief Executive
to continue to drive a strong safety culture.
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 ongoing 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 ESG strategy and work to deliver this has continued
throughout 2023 as a key work stream and embedded into
the business through the 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 40 to 64.
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.
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
to 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 is a key pillar of the People Strategy and
more information is on page 51. Further information on
Board diversity can be found in the report of the Nomination
Committee on pages 110 to 115.
Board evaluation
An externally supported evaluation was carried out towards
the end of the year, and the results were pleasing and
confirmed that the Board is working well together with
overall improvements made since the prior year. 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 100.
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,
including the appointments of Adam Phillips and Alison
Hughes.
During the year, there have been some changes to the
Executive Committee with Adam Phillips joining, and both
Catherine Miles and Adrian Harris leaving the Company
this month, and I’d like to take this opportunity to thank
both Catherine and Adrian for all their hard work and
contributions to the Company.
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
5 March 2024
79
Headlam Group PLC Annual Report & Accounts 2023Governance COMPLIANCE STATEMENT
It is the Board’s view that, throughout the financial year ended 31 December 2023, and as at
the date of this report, the Company complied with 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 161 to 214. 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:
Promoting the long-term sustainable success of the
Company and establishing the Company’s purpose, values
and strategy (ensuring that its culture is aligned).
Ensuring the necessary resources are in place to meet
objectives and measure performance against them within
a framework of effective controls.
Engaging with stakeholders to inform decisions and
ensuring that workforce policies and practices are
consistent with the Company’s values and support
long-term success.
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.
Board of Directors – pages 82 to 83
Leadership and purpose – page 86
Board activities during the year – page 97
Considering stakeholders in decision making – pages 28 to
30 and 87
Board Roles – page 93
Division of responsibilities – pages 92 to 99
Nomination Committee report – page 110
Dealing with Directors’ conflicts of interest – page 91
80
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 of 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.
Remuneration
The Board, through its Remuneration Committee,
determines Director and senior management remuneration
policies and practices and ensures they align to the
Company’s purpose, values, and promote the successful
delivery of the Company’s long-term strategy.
Each element of performance-related pay allows for the
independent exercise of judgement and discretion when
authorising remuneration outcomes.
Controls have been implemented to ensure that no Director
is involved in deciding their own remuneration.
Nomination Committee report – page 110
Appointments to the Board – page 110
Board Diversity Policy – page 112
Board composition – pages 115
Board evaluation – page 100
Audit Committee report – pages 102 to 109
Fair, Balanced and Understandable statement – page 145
Risk Management and Principal Risks – pages 65 to 71
Remuneration Overview – page 117
Directors’ Remuneration Policy – page 119
Directors’ Annual Report on Remuneration – page 128
Headlam Group PLC Annual Report & Accounts 2023
81
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
D Disclosure Committee
A Committee Chair
Ri Risk Committee
F Employee Forum
Keith Edelman
Non-Executive Chair
Keith was appointed a Non-Executive
Director in 2018, and Non-Executive
Chair in 2022. Keith is currently Non-
Executive Chair of Revolution Bars
Group plc, a Non-Executive Director
of Grupo Murano 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.
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
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
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.
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.
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.
N
E
F
D
A
N
R
82
Adam Phillips
Chief Financial Officer
On 20 March 2023, Adam Phillips joined
the Board as Chief Financial Officer.
Adam was previously Group Financial
Controller at Mobico Group plc,
(formerly National Express Group plc),
the FTSE 250 leading international
transport provider, where he was
responsible for all group finance
functions and investor relations.
Prior to this Adam was at Halfords
Karen Hubbard
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
Robin Williams
Independent Non-Executive Director
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 of Churchill China
plc and a Non-Executive Director of The
Manufacturing Technology Centre Ltd.
Jemima Bird
Independent Non-Executive Director
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, a
Group plc, the 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.
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 Workforce Engagement.
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.
Non-Executive Director and the
Chair of the Remuneration Committee
at Pinewood Technologies 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. Jemima is also a
Non-Executive Director of two
privately held companies, BatFast and
The Greater Good Brewing Company.
83
Ri
D
A
N
R
E
F
A
N
N
R
A
NN
RR
Headlam Group PLC Annual Report & Accounts 2023Governance Clare Moore
Chief People and Sustainability Officer
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 ten 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 responsible for the day-to-day
oversight of the ESG strategy, activity
and reporting and Clare is a member
of the ESG Committee, the Risk
Committee, and the Employee Forum.
Toni Wood
Chief Customer Officer
Toni joined 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 was also an Associate
Marketing Director at Procter &
Gamble during her ten years there and
a category manager at Sainsburys.
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.
EXECUTIVE TEAM
E
Ri
E
Ri
84
Alison Hughes
General Counsel & Company Secretary
Alison was appointed in December
2023 and has over 18 years’ experience
across several business sectors,
including retail and hospitality and
extensive experience in corporate and
commercial legal matters, corporate
governance and compliance matters.
Most recently she was the Director of
Group Legal & Company Secretariat
at Mitchells & Butlers plc, a FTSE
250 company within the hospitality
industry. Prior to that she worked at
Boots plc, and trained and qualified
as a solicitor with Wragge & Co LLP
(now Gowling WLG).
Alison is a qualified solicitor with
over 18 years’ post qualification
experience. She is a member
of the Disclosure Committee, ESG
Committee and the
Risk Committee.
E
Ri
D
Headlam Group PLC Annual Report & Accounts 2023
85
Governance BOARD LEADERSHIP AND COMPANY PURPOSE
Our Board is ultimately responsible for the strategy, management, performance and
long-term sustainable success of the Group.
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 business model
and strategy is detailed on pages 16 to 23.
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. Karen attended four Employee Forum
meetings during 2023. Further information on how the Board
hears the employee voice can be found on page 49 and 89.
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. In addition to
this, the following improvements have been during the
year, refreshed Employee Forum, the first ever leadership
conference (an off-site two day conference where our
leadership team attended to facilitate alignment across
our business leaders on the Company’s People strategy
and focus to deliver the Company’s strategy), the launch
of the leadership development programme and ongoing
regular manager and leadership weekly calls, as well as the
employee engagement survey (the results of which were
presented to the Board in December 2023).
The revised Speak Up Policy (which now includes an
externally managed helpline) was launched in 2022 and
continued to be in place during the year and this, together
with a well established grievance policy, provides a
mechanism for colleagues to raise matters of concern more
formally. In addition, the Headlam Code of Ethics has been
issued to all new employees and is part of the new induction
programme . 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, please see page 46.
• Reviewing and revising remuneration structures for
senior management.
• Reviewing the progress of the implementation of the
People Strategy.
• 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.
86
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 continued to develop its methods of engagement during the year and this work will be continued during 2024.
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 pages 49 and 89 for employee engagement.
Our Customers
The Board receives customer insights from the Chief Executive, Chief Customer Officer and
Chief Operating Officer, through Board reports and strategy presentations.
See page 5 for customer segments
Our Suppliers
Supplier relationships provide valuable insights through engagement with operations teams
and through the Chief Executive and Chief Operating Officer.
See page 28 for supplier engagement.
Our Shareholders
There is regular dialogue with our shareholders.
See page 30 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 40 to 55.
Headlam Group PLC Annual Report & Accounts 2023
87
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 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 Group.
For further information on dividends
see page 195.
Kidderminster Insurance Claim
The Board considered the
settlement of the insurance claim
(as opposed to rebuilding the
property)
The Board considered the interests of all
stakeholders when it decided to settle the
insurance claim (as opposed to rebuilding the
property) and are in the process of selling the
site which the Board considered was the better
option for stakeholders, (as opposed to waiting
and potentially generating more value in the
future).
Acquisition of PD Pattern Books, (‘PD Pattern’)
On 30 August 2023, the Group acquired the trade and assets of PD Patterns, one of the
UK’s largest manufacturers of pattern books, sampling and other presentation material
based in Bradford.
PD Patterns is a leader in the industry, with promotional materials being important to the successful launch and sale
of flooring product ranges.
The Board considered a wide range of stakeholders through the detailed paper from the Chief Financial Officer
including employees, suppliers and customers.
The acquisition will enable the Group to more effectively manage its lead times in relation to new launches and
associated materials, whilst also realising savings through bringing some of its requirements in-house. PD Patterns’
highly established customer base includes businesses within the Headlam Group and leading suppliers.
PD Patterns has moved into the premises of Melrose Interiors and trades under the umbrella of Melrose Interiors
with the customers of both of these companies benefitting from the two businesses being brought together and
operating under one roof. In addition, investment is being made in new machinery and people to increase product
capacity and further improve the service for our customers.
Melrose Interiors and PD Patterns will continue to support our sustainability strategic goals through its upcycling of
surplus carpet from across the industry into samples and pattern books.
For further information on our strategic aim to deliver new opportunities for future growth, see page 18.
88
Q&A WITH KAREN HUBBARD
Karen Hubbard
“ The refreshed Employee
Forum has provided
great feedback and
engagement with
our colleagues ”
Q Describe your role as designated
Non-Executive Director, workforce
engagement and how it adds value
to the Group
A My role is to act as the nominated Non-Executive
Director to represent the employee voice at Board
level. I attend quarterly employee forums and seek
feedback on all issues and concerns. I specifically
seek feedback on matters around remuneration,
values, culture and behaviours, employee
development and upskilling.
All feedback raised, irrespective of the issue is
acted upon where appropriate.
I actively spend time with the employees without
management present to give employees the
opportunity to provide feedback directly to
the Board.
As part of my role, I use the insights I gain to
provide the Board with an employee perspective
across a range of issues. The Board considers this
perspective to be very valuable specifically in
relation to employee engagement and culture.
I liaise with the Chief People and Sustainability
Officer and support the Group in how it can
better communicate and engage with employees.
In addition, as a member of the Remuneration
Committee my insight is also very helpful in the
context of Executive pay.
Q What have been your highlights
this year?
A I enjoy this active role in the Employee Forum
and have been especially impressed by the
willingness of the forum members to raise issues
and confidently challenge business processes and
provide constructive insights. These inputs have
enabled both executive management and the
Board to receive instant and relevant feedback
on key issues. This year the forums insight into
the ‘Headlam Way’ strategy and values as well
as the employee engagement survey have been
particularly insightful.
In establishing the forum, local management has
ensured that the right people attend to ensure we
achieve a wide range of input to enable the forum
to be effective in its role. The Employee Forum has
enabled the facilitating of constructive dialogue
improving the Company for all of our colleagues,
customers and all stakeholders, and I look forward
to hearing the insights from the forum this year
given the ongoing change program.
89
Headlam Group PLC Annual Report & Accounts 2023Governance BOARD LEADERSHIP AND COMPANY PURPOSE
CONTINUED
In addition to Karen’s role, 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.
As described above, Karen holds the role of dedicated
Non-Executive Director responsible for ensuring employee
views are represented in the Board room and she 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 ‘Employee Forum’).
The Employee 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, in this
case by Karen Hubbard who attended all of the Employee
Forums during the year. Please also see page 89.
The Board has received presentations from management and
undertaken site visits. For further information see page 98.
In 2023, an employee engagement survey was carried out
and the results presented to the Board. Further information
about the employee survey is included on page 49.
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 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 2023 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 meetings 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 during 2022 and these consultations
covered the proposals in relation to remuneration policy and
a proposed revised remuneration policy was submitted to
shareholders at the 2023 AGM and was approved. Further
information is contained in the Remuneration Committee
Report starting on page 116.
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 regular
share register analysis.
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 2023, 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 has 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
90
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 2023, the Company held an in person Annual General
Meeting (‘AGM’) and provided the opportunity for all
shareholders to submit questions by email in advance of the
AGM and receive a written answer in respect of frequently
asked questions.
The Company is looking forward to welcoming shareholders
to its 2024 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 Company’s 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 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 80 and 81.
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.
• Actual and potential conflicts of interest are both
included on a register which is maintained by the
General Counsel & 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 means 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.
91
Headlam Group PLC Annual Report & Accounts 2023Governance DIVISION OF RESPONSIBILITIES
Board balance
As at 31 December 2023 the Board consisted of the
Non-Executive Chair, the Chief Executive, the Chief Financial
Officer and four Non-Executive Directors (one of whom was
the Senior Independent Director).
As such, at least half the Board, excluding the Chair, were
Non-Executive Directors in accordance with the
Code during the year (both before and after Adam Phillips
joined the Board as our Chief Financial Officer). Prior to
Adam Phillips’ appointment as Chief Financial Officer in
March 2023, Chris Payne was supported by an interim
Chief Financial Officer.
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. Further information on
the changes to the Board during the year can be found in
the Nomination Committee Report on page 110.
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 2023 can be
found on page 97.
The schedule of matters reserved for the Board has
been reviewed 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 Chair, Chief
Executive and Senior Independent Director has been
reviewed and is also available on the Company’s website.
Board at a glance
Gender representation
as at 31 December 2023
5
2
Male
Female
Board
independence
as at 31 December 2023
Chair
Executive Directors
Independent Non-Executive
Directors (including the Senior
Independent Director)
1
2
4
Board Director tenure
as at 31 December 2023
6.4
Chris Payne
5.4
Keith Edelman
2.4
Stephen Bird
1.5
1.3
1.3
0.9
Karen Hubbard
Robin Williams
Jemima Bird
Adam Phillips
92
Board and Committee Structure as at 31 December 2023
Non-Executive Chair
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
The Chief Executive leads the Group and ensures the
delivery of its commercial objectives whilst 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.
Chief Financial Officer
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 oversees 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
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.
Independent Non-Executive Directors
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 scrutinise 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.
General Counsel & Company Secretary
The General Counsel & 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.
93
Headlam Group PLC Annual Report & Accounts 2023Governance DIVISION OF RESPONSIBILITIES
CONTINUED
Group Board
Nomination
Committee
To monitor the size,
diversity and composition
of the Board and its
Committees and ensure
a formal, rigorous and
transparent procedure
for the appointment of
new Directors and to plan
for succession. To take an
active role in monitoring
the Company’s diversity
strategy and approach
and monitoring its
effectiveness.
See page 110
to read more
Audit
Committee
To assist the Board in
fulfilling its obligations
relating to the Group’s
financial reporting
practices, internal control
and risk management
framework, and its
external audit and other
assurance processes.
See page 102
to read more
Remuneration
Committee
To determine and agree
the remuneration policy
for Executive Directors
and Executive Team, and
to monitor and report
on it. To review wider
workforce remuneration
and related policies
in accordance with
the Code.
See page 116
to read more
Disclosure
Committee
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 2023.
Keith Edelman (Chair)
Chris Payne
Stephen Bird
Jemima Bird
Karen Hubbard
Robin Williams
Adam Philips1
Board
10 (10)
10 (10)
10 (10)
10 (10)
10 (10)
10 (10)
8 (8)
Nomination
Committee
Audit
Committee
Remuneration
Committee
5 (5)
–
5 (5)
5 (5)
5 (5)
5 (5)
–
–
–
4 (4)
4 (4)
4 (4)
4 (4)
–
4 (4)
–
4 (4)
4 (4)
4 (4)
4 (4)
–
1 Adam Phillips was appointed on 23 March 2023 and attended all Board meetings following his appointment
The numbers in brackets in the table above confirm how many meetings each Director was eligible to attend during the year, there were no
Disclosure Committee meeting during the year.
94
ESG
Committee
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 on
the Sustainability
strategy see
page 40
Group Chief Executive
Group
Executive Team
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
Executive Committee
assesses and controls
risk and prioritises and
allocated resources
to deliver the strategy.
Group Health and Safety
is now monitored during
each Executive Team
monthly meeting.
For more information
on Group Strategy
see page 18
For more information
on Health and Safety
see page 47
Employee
Forum
The Employee 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
pages 49 and 89
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
page 93.
Board Committees and delegation
Various operational matters and decisions have been
delegated to Board or management committees.
The Company has long-established Audit, Disclosure,
Nomination and Remuneration Committees which, oversee
and debate important issues of policy and assist the Board
in attending to its responsibilities.
Terms of reference for the Audit, Nomination and
Remuneration 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.
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.
95
Headlam Group PLC Annual Report & Accounts 2023Governance DIVISION OF RESPONSIBILITIES
CONTINUED
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 2024 AGM (with Adam Phillips standing for election).
Board activity in 2023
Board meetings provide the forum for the debate,
review and challenge of strategic, operational and
governance matters.
The Board had ten 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. 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 General Counsel & Company
Secretary. Sufficient time is allocated to each item to ensure
effective discussion.
Standing agenda items include the Chief Executive,
Chief Financial Officer and Chief People and Sustainability
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 sufficient time is given to each item
under consideration.
A separate strategy day is held during the year, which in 2023
was held in September and 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 18
The Board receives an update from the General Counsel &
Company Secretary on a quarterly basis including updates
on matters of corporate governance. Matters requiring
attention between these quarterly 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.
96
Key highlights of the Board discussions during the year under review are outlined.
Strategy and
management
• Review of Group strategy
and priorities
• Review of organisation
structure to deliver the
strategy and the resources
required
• Consideration of the
operational strategy to
deliver the strategic goals
• Deep dives into strategic
areas, including IT
strategy view
•
Sustainability strategy
and projects
• Consideration of the
PD Patterns acquisition
opportunity
• Considered the impact
of Company culture on
initiatives and projects.
Financial and
performance reporting
• Review of the trading
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 2024
budget, forecasts and key
performance targets
• Considered the progress and
completion of the share buy
back programme.
• Long term viability
statement and time frame
over which it should be
considered
• Approved the UK Tax strategy
See page 18 for more
on strategy
See page 72 for long term
viability statement
Internal controls and
risk management
• Consideration of the
effectiveness of the internal
audit function.
• 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 65 for
information on
risk management
ESG and stakeholder
engagement
•
Interacted with shareholders
and the wider investment
community
• Reviewed investor relations
programme and feedback
provided by the Company’s
investors, stockbrokers
and financial PR agency
plus reports on investor
roadshows
• Received progress updates
on ESG Committee activity
and ESG strategy
• Received feedback from the
Supplier Conference
See page 40 for
Sustainability report
People
• Review of purpose and
culture
• Approval of the appointment
of Adam Phillips (Chief
Financial Officer)
•
Senior management
succession planning
• 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 service awards
• Agreed a tiered pay award
See page 49 for employee
voice and
page 51 for diversity
Governance and culture
• Participated in and reviewed
the results of an externally
facilitated Board and
Committee self-evaluation
exercise and agreed areas of
focus for 2024
• Approved 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
and 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
97
Headlam Group PLC Annual Report & Accounts 2023Governance DIVISION OF RESPONSIBILITIES
CONTINUED
Outside the boardroom
Throughout the year the Board undertook
site visits across the business.
In April they attended the Ipswich business and in June
the meeting took place at the Thatcham 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.
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.
The Chair and Non-Executive Directors schedule meetings
without the Executive Management present 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.
98
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 13
and in the Audit Committee report on page 102.
A description of the risks identified, together with details
of how they are managed or mitigated, is set out on
pages 65 to 71.
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.
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 advisers.
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 and
regulatory matters were attended by the Directors as part
of their ongoing development . As required, professional
advisers are invited to the Board meetings to provide
in-depth updates and the Board also receives updates
on environmental, employee and governance issues as
appropriate. The General Counsel & Company Secretary
provides regular updates on regulatory matters.
Presentations at the Board during 2023 have covered ESG
updates, branding, culture, cyber security, investor views
and market remuneration and policy trends. In addition,
the General Counsel & 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.
99
Headlam Group PLC Annual Report & Accounts 2023Governance COMPOSITION, SUCCESSION AND EVALUATION
Board evaluation
Progress during 2023 vs actions identified as part of the prior year’s Board evaluation (2022)
Strategy
Risk
Board Papers
Diversity
Actions
identified in
2022
To ensure that ESG
issues are regularly
considered as the
strategy evolves.
Progress
made
in 2023
The Board will ensure
that it continues to
review the approach to
sustainability and that it
is embedded across the
business.
The Executive ESG
Committee (chaired
by the Chief Executive)
continued our focus on
the relevant ESG issues,
which is attended by a
range of stakeholders
responsible for the
implementation of the
Company’ strategy.
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.
Adam Phillips now
chairs the Risk
Committee and during
the year the Board
carried out a review of
Principal Risks (including
emerging risks) and
introduced an annual
Risk Appetite review,
the results of which
will be reviewed by the
Board in its first Board
meeting in 2024.
To signpost the issues
that require Board
engagement and the
key areas for decision.
To continue to focus
on developing diversity
throughout the
organisation.
Board papers are
highlighted on Board
agendas where Board
decisions and/or
approvals are required,
or whether papers and
the issues within them
are for discussion and/
or noting to facilitate
Board engagement
and the key areas for
decision.
The Board will support
the development
of the Diversity and
Inclusion Plan.
An ‘Inclusion and
Wellbeing’ Company
strategy was developed
in 2023, which includes
actions to improve
the diversity, equity
and inclusion of our
workforce. To ensure
continued focus, long-
and short-term diversity
targets have been set.
The implementation
of this strategy and
progress against the
diversity targets will
be overseen by the
Executive Team, and
ultimately the Board.
The Board Diversity
Policy was reviewed
and enhanced as
part of its annual
review and introduced
a commitment to
maintain at least two
female Board members,
(a copy of the Board
Diversity Policy can
be found on the
Company’s website).
2023 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 2023 based on a confidential online questionnaire facilitated
by Gould Consulting. Gould Consulting has no other connection to the Company or its Directors.
Preparation for the evaluation included a scoping discussion between Gould Consulting and the Chair together with the
Company Secretary. The evaluation questionnaire was approved in advance by the Chair. The questionnaire was used to
assess the performance of the Board and its Committees during the year. The evaluation was conducted towards the end of
the year. The questionnaire responses were anonymous. The resulting report was received and analysed in draft by the Chair
prior to being submitted to the Nomination Committee for review on behalf of the Board at its meeting in December 2023.
100
The evaluation noted the positive performance of the Board in several areas at this early stage given the relatively recent
appointments of the three new Non-Executive Directors in 2022 as well as the appointment of the Chief Financial Officer in
March 2023. 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 Directors have a good understanding of management’s agenda and key issues and investor perspectives are
well understood by the Board.
The Committee meetings (an area not examined in the prior year) are well led and operating effectively.
The contributions from the Non-Executive Directors and balanced and reflect each individual’s area of expertise.
However, a few points were signposted through this evaluation and these are outlined below.
2023 outcomes and actions
ESG
Risk
Employee Forum
2023
Outcomes
and actions
To ensure that feedback from
the ESG Committee is formally
fed back to the Board following
each ESG Committee, and to
ensure that ESG Committee
feedback becomes a standing
agenda item at the relevant
Board meetings immediately
following the quarterly ESG
Committee meetings.
Risk is discussed in detail at the
Board and within Committees.
The evaluation results were good
in this area but it was agreed
that the Board would carry out
an annual review of risk appetite
as well as an annual review of
the Principal Risks.
It was agreed that a paper
would be submitted to provide
formal written feedback to the
Board following each Employee
Forum to further enhance
the oversight of points raised
by employees through the
Employee Forums.
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 Chair
The Senior Independent Director, following results of the Board evaluation and consultation with other Directors, provided
feedback to the Chair on his own performance. The output of this review noted that the Chair 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 Chair provided feedback to each Director on their own
performance and discussed training and development opportunities.
Following the results of the evaluation and the relevant performance reviews described in this section, 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.
101
Headlam Group PLC Annual Report & Accounts 2023Governance AUDIT COMMITTEE REPORT
Robin Williams, Chair of the Audit Committee
“ The Audit Committee has carefully
monitored the impact of macroeconomic
and industry headwinds on the Group and
its significant accounting matters and
key judgements ”
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 2023.
This report outlines the Audit Committee’s discussions from the year including
the Audit 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.
During the year, the Audit Committee’s core duties remained unchanged but the
macroeconomic and industry headwinds experienced throughout the year, along
with the geopolitical backdrop, presented externally-driven challenges, which the
Audit Committee has carefully monitored for their impact on the Group.
This was my first full year as Chair of the Audit Committee, having joined the
Board on 10 October 2022. During the year, Adam Phillips joined the Board
as Chief Financial Officer on 20 March 2023, at which point the Interim
Chief Financial Officer left the Group following a suitable handover period.
Membership and meetings
The Audit 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. Each follows an agenda that follows
the financial reporting cycle and particular matters for the Audit Committee’s
consideration from the structured annual programme of business. A verbal update
is provided from the Chair of the Audit Committee to the Board following each
meeting. The Audit Committee is scheduled close to, and shortly preceding, the
Board meetings to ensure effective and timely reporting.
The Audit Committee members are Stephen Bird, Jemima Bird, Karen Hubbard
and myself. All members of the Audit Committee are independent Non-Executive
Directors and the remuneration of the members of the Audit Committee is set
out in the Report on Directors’ Remuneration on page 116. See pages 82 and 83
for further information on the Audit Committee members experience, as set out
in the Directors’ biographies. This wide range of relevant expertise allows robust
challenge and the ability to analyse the issues that are discussed.
Key responsibilities:
• Monitoring the integrity
of the Group’s financial
statements and results
announcements and any
other published financial
information and significant
financial reporting issues and
judgements, as well as
other required disclosures.
• Reviewing the adequacy and
effectiveness of the Group’s
internal controls and risk
management systems.
• Approving the activities,
reviewing the findings and
assessing the effectiveness
of the Group’s internal audit
function.
• Recommending the external
auditor appointment;
assessing audit quality and
effectiveness; assessing
independence, objectivity
and approving fees; and
monitoring non-audit
services.
102
How the Committee
spent its time
The Chief Executive, Chief Financial Officer, Chair and representatives of the
external auditor attend the Audit Committee’s meetings at the invitation of
the Audit Committee Chair. The Director of Group Finance and other members
of senior management are invited to attend the meetings where appropriate.
Meetings of the Audit Committee with the external auditor without the presence
of management were held during the year. A similar such meeting was held
during the year with the Head of Internal Audit, without the presence of any other
members of management. I hold meetings with the Lead Audit Partner outside of
the formal meeting schedule and keep in regular contact with the Chief Financial
Officer and the Head of Internal Audit. The role of Secretary to the Committee is
performed by the Company Secretary.
In addition to attending the Audit Committee meetings, the Audit Committee
members met with operational and finance team members, and other members
of senior management during the year.
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 Audit Committee’s priorities for 2023 were outlined. The table below sets
out how the Audit Committee has focused on these priorities during 2023.
Financial Reporting 30%
External Audit 30%
Internal Controls and Risk 25%
Governance 15%
Key priorities
Progress made during 2023
The development by the management
team 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
Whilst the requirements were not fully clear throughout 2023 and were
ultimately scaled back significantly in the FRC’s announcement of 7 November
2023, the management team has continued to progress improvements to the
internal controls environment through the definition, and internal launch, of a
set of minimum control standards. The next step is to remediate any deviations
from the new minimum standards as well as to instigate an assurance
programme around the new controls framework.
As above. In addition, the management team has now set out a roadmap for
the implementation of a new ERP over the coming years.
The Internal Audit plan was developed and presented to the Audit Committee,
and executed during the year.
Cyber risk is one of the Group’s principal risks. Significant progress has been
made by management in improving cyber security, with numerous additional
controls implemented. Cyber security updates are provided to the full Board.
Assurance over cyber controls is included in the Internal Audit plan.
Smooth transition of Chief Financial Officer, supported by an induction
programme.
See the Nomination Committee’s report for more information on the CFO’s
induction.
103
Headlam Group PLC Annual Report & Accounts 2023Governance AUDIT COMMITTEE REPORT
CONTINUED
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.
External Audit
• Considered and approved the external audit plan,
the materiality level, the risk assessment and the
key members of the external audit team.
• 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 173.
• 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 Audit Committee confirmed the
independence of PwC. See page 107.
• Reviewed the effectiveness of the external audit
process. The Audit Committee concluded that the
audit was effective and a recommendation was
made to the Board on the reappointment of PwC
at the AGM.
Governance
• Reviewed and approved the Audit Committee’s
Terms of Reference and annual programme of
business.
• Approved the Speak Up, Fraud and Anti-Money
Laundering and the Anti-Corruption and Bribery
Policies. Further information can be found on
page 143.
• Considered the Company’s approach to the
avoidance of modern slavery and human
trafficking.
• Received updates on corporate governance
requirements and the BEIS review relevant to
its responsibilities
Financial reporting
• Reviewed the half year and annual financial
statements and reports, and the significant
financial reporting judgements and estimates.
• 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 Audit Committee
Report to be published in the Annual Report
and Accounts.
Internal controls and Risk
• Approved the internal audit charter and the
work plan for 2023 and draft plan for 2024.
• 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.
104
Significant financial reporting issues and areas of estimate and judgement
The Audit 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.
Carrying value of non-current
assets
The Group had £11.2 million of goodwill
allocated on its balance sheet at
31 December 2023, resulting from past
acquisitions, along with intangible
assets, property, plant and equipment
and right-of-use assets. The assessment
of the recoverable amount of these
assets are estimated based on future
cashflows and any impairment has the
potential to be material.
Management explained to the Audit 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 Audit 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 external auditor in relation to supplier rebates was discussed by
the Audit Committee.
Based on this, the Audit 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 Audit Committee considered the presentation of non-underlying items in
accordance with the Group accounting policy. This year the non-underlying
items included income of £8.6 million in respect of the settlement of the
insurance claim on the Kidderminster property, and £2.3 million from the
subsequent disposal of the land, offset by £1.2 million of costs associated with
the Kidderminster settlement, £2.3 million of charges in relation to amortisation
of intangibles and other acquisition-related costs, and £11.3 million of
restructuring and change-related costs, of which £5.6 million related to the
write-off of previously capitalised software development costs.
The Audit Committee received reports from management and the Auditor,
outlining the judgements applied including consideration of materiality. The
Audit 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 Audit Committee
concluded that the disclosure of non-underlying items was sufficient and
appropriate for the user of the accounts to understand the nature of the items
and reason for their treatment as non-underlying.
Management performed the annual impairment review of goodwill, along
with impairment reviews for other groups of assets at both June 2023 and
December 2023 where indicators of impairment were identified. Management
concluded that no impairment was necessary during 2023, albeit the level of
headroom in certain CGU assessments was reduced. 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’), although no changes were made
to these during the year other than the addition of Melrose as a CGU following
its acquisition. The Audit Committee considered the impairment reviews
carried out by management and discussed the basis of the key assumptions
and the sensitivities performed. The Audit Committee also considered the
external auditor’s findings and discussed this matter with the external auditors.
Based on this the Audit Committee was satisfied that the approach taken by
management was robust and that the assumptions made were reasonable.
105
Headlam Group PLC Annual Report & Accounts 2023Governance AUDIT COMMITTEE REPORT
CONTINUED
Significant issues and areas of
estimate and judgement
How they were addressed
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
Audit Committee how they arrived at the key assumptions and discussed the
sensitivity analysis they had undertaken.
The Audit Committee considered the views and procedures of the external
auditor, which entailed a benchmarking of management’s assumptions
with the external auditor’s expectations.
The Audit Committee were satisfied that the assumptions had been
appropriately selected.
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.
Internal audit
The Group established an internal Audit function and appointed a Head of Internal audit in 2022 who reports into the Audit
Committee at each meeting. During the year the Internal Audit function executed the approved annual internal audit plan.
The plan was developed by assessing the Group’s principal risks and during this first year of operation the plan continued to
be refined during the year. The internal audit programme for 2023 has concluded that there has been an improvement in the
control environment over the course of the year.
Assurance is also provided to the Audit 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 Group policies.
The Internal Audit function will continue to evolve to 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 Audit Committee at each meeting.
The Audit Committee is satisfied that the internal Audit function is independent and effective. The Head of Internal Audit
reports directly to the Chair of the Audit Committee with an administrative reporting line to the Chief Executive and has no
other responsibilities as required under the Institute of Internal Auditors Code of Practice.
The Audit Committee has a formal private session with the Head of Internal Audit twice a year and the Head of Internal Audit
meets with the Chair of the Committee at least quarterly.
106
External auditor
Non-audit services
During the year, 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 external auditor is safeguarded.
The Audit Committee has reviewed its policy for the provision
of non-audit services (‘Non-Audit Policy’) within the last 12
months. Under the Non-Audit Policy and in line with the EU
Audit Directive and Regulations, non-audit fees paid to the
external auditor should not exceed 70% of the average audit
fee for the preceding three periods.
Independence and objectivity
The Audit Committee annually reviews the appointment of
the external 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 and as she will have served as lead audit partner for
nearly five years in 2024 the Audit Committee will consider,
in conjunction with the external auditors, appropriate lead
audit partner arrangements in accordance with current
professional standards.
The Audit Committee considered the conduct of the
external 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 external auditor has processes in place to ensure that
independence is maintained and has written to the Audit
Committee confirming that, in their opinion, they remain
independent within the meaning of the relevant regulations
on this matter and their own professional standards and
that no conflict of interest exists that would affect their
professional judgement.
Taking into account the external auditor’s confirmation, its
own deliberations and feedback from management, the
Audit Committee agreed that the external auditor remained
independent from management and able to display an
independent view on the position of the business.
Effectiveness of external audit
Following the 2022 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 external auditor and the Audit
Committee. Feedback was obtained from members of the
Audit Committee, regular attendees and members of the
finance team using a specifically designed questionnaire.
The questionnaire covered several themes including the
calibre of the external 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 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 external auditor and the technical
knowledge of the audit team.
Following the review, the Audit Committee concluded that
the external auditor, PwC LLP, remained independent and
that the external audit process remained effective.
Consideration of external auditor appointment
In determining whether to recommend the external
auditor for reappointment this year, the Audit 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 Audit Committee therefore concluded that it was in the
best interest of Company shareholders to reappoint PwC
as the Company’s external auditor. The Audit 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 Audit Committee that they
were not aware of any material misstatements or immaterial
misstatements made intentionally to achieve a particular
presentation. The external auditor reported to the Audit
Committee the misstatements that had been found in
the course of the audit work and no material amounts
remained 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 69. The Audit Committee, with its membership
consisting of only Non-Executive Directors, oversees the
Group’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. Numerous improvements
to information security were implemented in the year
including the introduction of multi-factor authentication
for email and remote access to network, enhancement of
password retention policies and development of incident
response plans.
107
Headlam Group PLC Annual Report & Accounts 2023Governance AUDIT COMMITTEE REPORT
CONTINUED
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 Audit 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 Audit Committee relies on a number of different
sources of assurance: at each meeting, the Audit 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 Audit Committee also receives reports from the
external auditor on matters identified during the course of
its statutory audit work. The Audit 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 has been enhanced by the development of a set of
minimum controls standards. These have been launched
internally to the UK business within the Group. Focus is now
on ensuring that all of the minimum control standards are
designed and operating effectively, with a level of assurance
provided from Internal Audit.
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 65 to 71.
The Audit Committee was satisfied that the reporting
disclosures in respect of internal controls and risk
management are a fair representation of the
Group’s position.
Fair, balanced and understandable
At the request of the Board, the Audit Committee reviewed
the Group’s Annual Report and Accounts and considered
if when taken as a whole, it was fair, balanced and
understandable, and provides the information necessary
for shareholders to assess the Company’s position and
performance, business model and strategy, as required by
the Code Provision 25.
The key themes are considered early in the process and this
process involved a wide range of individuals including the
Chief Executive, Chief Financial Officer, Company Secretary,
Finance Team, Chief People & Sustainability Officer and
senior managers of the businesses.
The Audit Committee followed robust procedures to make
this assessment. These included reviewing the early stages of
drafting and any feedback was then incorporated into the
subsequent drafts. Each Director also had the opportunity
to review and feedback on a full copy of the report which
provides additional oversight. The Audit Committee also
had oversight of the overall process and also the results of
the evaluations of the remuneration committee report and
the governance section as well as private sessions with the
external auditor.
In addition, the Audit Committee considered and challenged
the going concern assumptions and the management’s
areas of significant judgements as part of the year end
process as did the external auditor.
The Audit Committee considered the content and if it was
balanced with both negative and positive factors being
presented and that it represented the events throughout the
year. The balance and consistency between narrative and
financial reporting was reviewed.
It was recommended to the Board that the 2023 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
The Group has a 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 & Sustainability Officer,
General Counsel & Company Secretary, Director of Group
Finance and Head of Internal Audit.
108
All employees receive a copy of the Speak Up policy as part
of the induction process and training is provided. Regular
training and communication about the Policy is sent to all
employees throughout the year.
An independent external organisation provides 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 the procedures
in place to investigate and when to inform the Board of the
result of any investigations. All incidents are reported the Chair
of the Audit Committee.
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 Audit Committee during the year and
recommended to the Board for approval. Further information
on Anti-Corruption and Bribery is available on page 143.
Committee effectiveness review
The effectiveness of the Audit 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 100. The review
found that the Audit Committee is operating effectively and
that its role and remit remain appropriate for the current
needs of the business. This year, it was also acknowledged
that the meetings of the plc Board’s sub-committees,
(including the Audit Committee) were well-led and
operating effectively.
Summary
The Audit Committee has concluded, as a result of its work
during the year, that it has acted in accordance with its
terms of reference and fulfilled its responsibilities.
The Audit Committee remains committed to maintaining an
open and constructive dialogue on relevant audit matters
with shareholders. If you should have any questions on any
aspect of this report, please do email headlamgroup@
headlam.com and I will also be available at the AGM
to answer any questions about the work of the Audit
Committee.
This Audit Committee 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
5 March 2024
Headlam Group PLC Annual Report & Accounts 2023
109
Governance NOMINATION COMMITTEE REPORT
Keith Edelman, Chair of the Nomination Committee
“ Our Nomination Committee plays a
vital role in the long-term success of
the Company through its oversight of
talent, succession and balance of skills to
ensure there is diversity of thinking and
effective leadership ”
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 2023.
Following the new appointments to the Board in 2022, the broad focus in 2023
was considering the composition of the Board following the new appointments,
finalising the appointment and preparing the induction of the Chief Financial
Officer, Adam Phillips (who joined the Board on the 20 March 2023), considering
executive and senior management succession planning, diversity and reviewing
the results of the Board effectiveness evaluation.
Board composition and succession planning
Following the appointment of Adam Phillips as Chief Financial Officer, along
with the other Board Director appointments to the Board in 2022, we now
consider that we have the right balance of skills and experience on the Board to
support the delivery of the key strategic aims of the Company. Full details of all
the Board can be found in their biographies on pages 82 and 83. However, the
Nomination Committee will continue to monitor the composition of the Board,
its Committees and the senior management on an ongoing basis to ensure they
remain appropriate and effective and have the right balance of skills, knowledge,
experience and diversity to deliver the Company’s strategy now and in the future.
Chief Financial Officer appointment
As part of the Chief Financial Officer appointment process, the Nomination
Committee, the Chief Executive and the Chief People and Sustainability Officer
worked with Independent Search Partnership to ensure a thorough process was
followed and a candidate brief was developed.
Candidates included both male and female candidates and an ethnic
minority candidate. Three candidates were then short-listed for interview
by the Chief Executive and the Interim Chief Financial Officer and the preferred
candidate was then interviewed by the Chief Executive and Chair and all
the Non-Executive Directors. The Nomination Committee recommended the
appointment of Adam Phillips as Chief Financial Officer. External references
were taken up and Adam joined on 20 March 2023. A comprehensive induction
programme was developed ahead of Adam joining.
Key responsibilities:
• Monitoring the structure,
size and composition of the
Board, its Committees and
the senior management on
an ongoing basis to ensure
they remain appropriate and
effective and have the right
balance of skills, knowledge,
experience and diversity
to deliver the Company’s
strategy 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.
• Considering the diversity
of the Board and the
talent pipeline.
See full details of responsibilities
delegated to the Nomination
Committee by the Board in
the written terms of reference
which are available on the
Company’s website.
110
Chief Financial Officer induction process
I had a series of handover meetings, starting in January 2023,
with the interim Chief Finance Officer, who I then overlapped
with for two weeks after I joined in March to allow for a
smooth transition. I also attended the Q1 leaders conference
and Q1 Risk Committee in February, before my official start
date. I met with the Company Secretary and received copies
of relevant Company documentation and key policies.
I met with Robin Williams, Audit Committee Chair in January,
a couple of months before joining. Since joining, Robin and
I have a monthly meeting outside of Board meetings where
we discuss financial performance, reporting and risk/audit
matters. I also meet with the Chair on a regular basis; initially
this was about aiding my induction and has more latterly
become an opportunity to discuss business performance.
I’ve been fortunate enough to have gained investor relations
experience prior to joining Headlam, in particular as IR
Director for a period of time, which has made it easier to
quickly pick up the external stakeholder relations.
I spent a day meeting the brokers and analysts after I had
joined and then I met (in person or on video calls) most of
our top 20 shareholders over the following months.
I have visited most sites, including all large sites. These site
visits consisted of meeting the General Manager and the
Financial Controller and having a tour of the warehouse, as
well as meeting members of the team. I have spent time in
person with the MDs of the French and Dutch businesses.
These visits helped me become familiar with the products
and processes throughout the business and we also had a
whole Board product ‘teach-in’ in May.
In September I attended our UK business’s supplier
conference in Harrogate, which provided an opportunity
to meet a number of our key suppliers.
Finally, I’ve also been a customer of our own brand
products and bought a beautiful Tomkinson carpet
for my garage conversion!
Adam Phillips, Chief Financial Officer
“ My comprehensive induction started before joining and
continued over the first couple of months, enabling me to have
a fast and smooth start. I joined the Group at an exciting time,
as it implements a strategy to broaden its customer reach, but
also at a challenging time from a macroeconomic perspective
with high cost inflation and low consumer demand. This meant
that I needed to add value as quickly as possible and the tailored
induction programme was key to that ”
111
Headlam Group PLC Annual Report & Accounts 2023Governance NOMINATION COMMITTEE REPORT
CONTINUED
The Nomination Committee annually considers the tenure
of the Board and given the new appointments in both
2022 and 2023 it considers that there is an appropriate
mix of skill and experience on the Board. When considering
succession planning for the Board, consideration is given
to skills, experience and diversity to ensure that there is the
appropriate mix to continue to lead the Company and
deliver long term success of the Company for all of our
stakeholders. The Board evaluation confirmed that the
Board had seen the value of these appointments in the
quality of the discussions and increased challenge at
Board meetings.
Both Stephen Bird’s and my appointments will
be due for consideration for renewal in 2024 and the
Nomination Committee will undertake an assessment
of the contributions made and the collective skills on the
Board at that time.
Strengthening the senior management team
The Nomination Committee continued to focus on the
Company’s talent management strategy with the 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. The organisational changes made
during the year are outlined in the strategic report on
page 13.
As a result, a comprehensive review was undertaken of the
senior management team to ensure the continuing delivery
of the strategy in the current challenging market conditions
and a number of senior appointments were made during the
year, including the addition of Toni Wood to the Executive
Team in the new role of Chief Customer Officer. Toni leads
the Larger Customers and Own Product Brands parts of the
Group, as well as heading up the customer, marketing and
digital strategies. Other senior hires included a Group Buying
Director, an Ecommerce Director and a Group Marketing
Director. The cost of these new roles was partially offset
through repurposing a number of other senior roles.
Board diversity
Board diversity and the advantages it can make to
decision making are acknowledged by the Board. Diversity
is considered for every appointment, which are made on
merit against objective criteria. Recruitment agencies are
instructed to present a diverse list of candidates for all roles.
Any appointments are made to ensure the correct
complementary skills are on the Board and the strength
of the experience around the table provides the level
of experience required to deliver the strategy for our
stakeholders. The Board Diversity Policy is considered every
year by the Board, which was last reviewed in June 2023
and can be found on the Company’s website.
The key statement of that policy is that the Company is
committed to developing a diverse workforce and equal
opportunities for all and that the Board recognises the
valuable contribution that diversity including gender,
ethnicity and personal strengths can bring to the Board.
The policy also commits to maintaining the current gender
balance of the Board and the Nomination Committee
continues to be committed to increasing gender and ethnic
diversity at Board level and will seek to achieve this when
the opportunity arises and appropriate candidates are
identified. Notwithstanding this, all Board appointments
will be made on merit and against objective criteria and
the Nomination Committee will monitor progress against
the Board Diversity policy.
In terms of Board gender diversity, prior to Adam Phillips
joining the Board on 20 March 2023 there were six Board
members, two of which were female (33%) and following
Adam’s appointment and as at 31 December 2023, there
were seven Board members, two of which were female
(28.5%).
The Board recognises that it currently has less than 40%
female Board Directors, (none of whom hold a senior Board
position (such as Chair, SID, CEO or CFO)) and that it does
not have a Director from an ethnic minority background
which means it does not comply with the diversity and
inclusion targets set out in the Listing Rules. However, the
Board reviewed its size, structure and composition during
the year and more recently on 1 March 2024, and concluded
that its remains suitable to meet the Company’s needs
and to promote the desired culture, (please also see the
results of the 2023 Board Evaluation on pages 98 and 99).
The Board believes that it currently has the right balance
of, and number of Board Directors, espeically in light of the
Board appointments made in the past couple of years.
However, the Board is committed to increasing diversity
when the opportunity arises and appropriate candidates
are 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 and the
Committee will review what steps and recruitment processes
are appropriate for achieving diversity on the Board with
due regard being given to the recommendations set out in
the Davies Report, the Hampton-Alexander Review and the
2018 Corporate Governance Code, which will be reviewed on
an annual basis.
The information required by the listing rule for companies
to report information and disclose the gender and ethnic
background representation on their boards and executive
management on a comply or explain basis is included below.
Detailed numerical information on the gender and ethnicity
representation on the Board and Executive Committee
is set out below. Data concerning gender and ethnicity
representation is collected directly from all the individual
Board and Executive Committee members as part of their
onboarding process or in the case of the Non-Executive
Directors through a Diversity and Inclusion Monitoring
Form (the ‘Form’) which was issued for completion asking
individuals to disclose their gender and ethnicity using the
112
options included on the Form, which align with the detail in the left-hand columns of the tables below and therefore includes
the option to not specify an answer.
Gender representation as at 31 December 2023
Men
Women
Not specified/prefer not to say
Number of
Board Members
Percentage of
the Board
5
2
-
71%
29%
-
Ethnicity representation as at 31 December 2023
Number of
Board Members
Percentage of
the Board
Board
Executive Committee
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
4
0
-
Number in
Executive
Management
Percentage
of Executive
Management
2
2
-
50%
50%
-
Board
Executive Committee
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
Executive
Management
Percentage
of Executive
Management
White British or other White
(including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/
Black British
Other ethnic group, including Arab
Not specified/prefer not to say
7
-
-
-
-
-
100%
-
-
-
-
-
4
-
-
-
-
-
3
1
-
-
-
-
75%
25%
-
-
-
-
113
Headlam Group PLC Annual Report & Accounts 2023Governance NOMINATION COMMITTEE REPORT
CONTINUED
Group-wide diversity
The Company has continued to implement its Inclusion and
Wellbeing Strategy, which includes actions to improve the
diversity, equity and inclusion of our workforce, please see
further details on page 51.
Colleague engagement
Karen Hubbard is appointed as the designated
Non-Executive Director for workforce engagement.
Further information on the establishment of the Employee
Forum and how the employee voice is heard in the
boardroom can be found on pages 49 and 89.
Effectiveness of the Nomination Committee
The effectiveness of the Nomination Committee was
evaluated as part of the 2023 Board and Nomination
Committee evaluation, which was undertaken by an
external third party consultant, Gould Consulting, utilising
a detailed questionnaire with metrics and scoring to
produce a detailed report which highlighted the overall
scoring had improved from the prior year’s evaluation).
The findings were discussed and it was agreed that the
Nomination Committee remained effective. This year, it was
also acknowledged that the meetings of the Nomination
Committee were well-led and operating effectively. The
work that had commenced on diversity and inclusion
and succession planning in 2023 was positive and this will
continue in 2024.
Retirement and re-election of Directors
All Board members will stand for election or re-election
(as applicable) at the 2024 AGM.
Each Director has been subject to a performance evaluation
and the Nomination 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 Nomination 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 Nomination 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
election and/or re-election (as applicable) of each Director.
A year of progress
Despite the challenges with the macroeconomic climate
throughout the year, we have continued to invest in the
business and the people to ensure the future growth of the
business can be supported and we will continue to do so
throughout 2024. The Nomination Committee always has
the long-term success of the business for all stakeholders
in mind.
Membership and attendance at 2023 meetings
The Nomination Committee is chaired by Keith Edelman.
and comprises a majority of Independent Non-Executive
Directors as required by the Code and their biographies
are set out on pages 80 and 81. Appointments to the
Nomination Committee are made by the Board. The
Nomination Committee considers the composition of
the Board
and its committees on an annual basis.
The Nomination Committee met on four occasions in order
to fulfil its responsibilities delegated to it by the Board.
Attendance is shown in the table below.
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 Chair. The Company Secretary performs the role of
Secretary to the Nomination Committee.
No Director is involved in any decisions regarding their
own continuation in office, re-appointment or re-election,
including the Chair.
Meeting attendance
Name
No. of meetings attended
Keith Edelman (Chair)
Stephen Bird
Jemima Bird
Karen Hubbard
Robin Williams
5 (5)
5 (5)
5 (5)
5 (5)
5 (5)
Appointment and re-appointment of Directors
The Nomination 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 further three years term.
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.
114
Membership and attendance at 2023 meetings
The Nomination Committee is chaired by Keith Edelman.
and comprises a majority of Independent Non-Executive
Directors as required by the Code and their biographies
are set out on pages 80 and 81. Appointments to the
Nomination Committee are made by the Board. The
Nomination Committee considers the composition of
the Board
and its committees on an annual basis.
The Nomination Committee met on four occasions in order
to fulfil its responsibilities delegated to it by the Board.
Attendance is shown in the table below.
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 Chair. The Company Secretary performs the role of
Secretary to the Nomination Committee.
No Director is involved in any decisions regarding their
own continuation in office, re-appointment or re-election,
including the Chair.
Meeting attendance
Name
No. of meetings attended
Keith Edelman (Chair)
Stephen Bird
Jemima Bird
Karen Hubbard
Robin Williams
5 (5)
5 (5)
5 (5)
5 (5)
5 (5)
Appointment and re-appointment of Directors
The Nomination 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 further three years term.
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.
Governance
• Reviewed the structure, size and composition of the
Board and its Committees
• Reviewed and updated the terms of reference of the
Committee and its annual plan
• Reviewed the time commitment required of
Non-Executive Directors and evaluated whether
enough time 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 Chair, Chief
Executive and Senior Independent Director positions
• Considered and reapproved the policy on approving
external appointments
• Reviewed and approved the Board Diversity Policy
Evaluation
• Reviewed the results of the Board effectiveness in
relation to the Board, its Committees and their
own performance
• Considered the composition, size and diversity of
the Board
Reporting
• Considered and recommended to the Board the
Nomination Committee Report for inclusion in the
Annual Report and Accounts
This report and the information on pages 77 and 145 forms
part of the Corporate Governance Report and is signed on
behalf of the Nomination Committee by:
Keith Edelman
Chair of the Nomination Committee
5 March 2024
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.
The Nomination Committee confirms that they are fully
satisfied that each Director dedicates the appropriate
amount of time to their roles on the Board and the
Nomination Committee.
Board size, structure 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.
Activities of the Nomination Committee
The Nomination Committee agrees an annual workplan
an, 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
• Led the process for the appointment of the
Chief Financial Officer
• Reviewed the skills and experience required 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
• Reviewed succession plans for Board, Executive Team
and senior management
•
Supported the recruitment of key management positions
115
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
Jemima Bird, Chair of the Remuneration Committee
“ Our focus over the last year has been
to implement the policy which is aligned
to our strategy ”
Annual statement from the Chair of the Remuneration
Committee
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for 2023.
The Report includes this Annual Statement, an abridged version of the Directors’
Remuneration Policy (‘Policy’) which was approved by shareholders at the 2023
AGM and the Annual Report on Remuneration for the financial year ended 31
December 2023. The Directors’ Remuneration Report (excluding the Policy) will be
subject to an advisory shareholder vote at the AGM on 23 May 2024.
Business performance and incentive out-turn for 2023
As stated in the Chair’s statement on page 6, 2023 proved to be a difficult year
for the industry as a whole, and for many businesses exposed to consumer
discretionary spend. Financial performance was hampered not just by the cost-
of-living crisis, but also by high operational cost inflation. Despite this backdrop,
we made good progress with the implementation of our strategy, and investing
in our strategy and for the future, (whilst also undertaking particular scrutiny
of operational performance , efficiencies and the cost base). Once volumes
improve from the unprecedented current lows, we will be able to restore and build
profitability, particularly given the ongoing execution and maturity of our strategy.
For 2023, annual bonus opportunity was capped at 125% of base salary
(pro-rated for the Chief Financial Officer). 70% of the bonus was assessed
against the Company’s underlying profit before tax performance and 30%
against key strategic and ESG-related objectives. While the threshold Underlying
PBT target was not met, the strategic targets and ESG related were met in full,
resulting in 30% of the maximum bonus payable. However, notwithstanding the
significant progress that has been achieved by the management team in respect
of delivering the Company’s strategy and continuing to invest in broadening
market presence and building capabilities to position the business as market
conditions and volumes recover, the Committee applied negative discretion to:
•
reduce the bonus from 30% to 20% of the maximum in light of the Company’s
financial performance and broader stakeholder experience; and
• defer 100% of the bonus awards into shares for two years (rather than defer
one-third of the bonus award as per the Remuneration Policy).
In respect of PSP awards granted in April 2021 and due to vest in April 2024, which
were based on EPS and relative Total Shareholder Return measured against the
constituents of the FTSE SmallCap Index (excluding investment trusts), EPS was
below threshold and Headlam’s TSR was below median based on performance to
31 December 2023. As such, none of the 2021 PSP awards will vest. Further details of
the 2021 PSP award are set out on page 131.
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.
116
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.
As detailed above, the Remuneration Committee considered
the formulaic outcomes of the annual bonus plan and
applied negative discretion to both reduce the out-turn
and defer the bonus awards into shares for two years. No
discretion was applied in respect of the 2021 PSP awards
which will lapse in full in April 2024.
Remuneration for 2024
Base salary
Chris Payne’s salary increased by 2% from £475,000 to
£484,500 from 1 January 2024 which was in line with the
workforce increase.
Adam Phillips joined the Board as Chief Financial Officer on
20 March 2023 on a base salary set at £290,000. Following
a review by the Board of both individual and Company
performance since his appointment and as detailed in
last year’s Directors’ Remuneration Report, his base salary
increased to £325,000 from 1 January 2024. This remains
below the salary paid to the previous Chief Financial Officer
(£364,000).
Pension
Pension contributions will continue to be capped at 8% of
salary for both the Chief Executive and Chief Financial Officer.
Annual bonus and PSP
Maximum bonus potential will remain at 125% of salary
for the Chief Executive and Chief Financial Officer
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 2024 Annual Report and Accounts.
It is the Committee’s intention to make PSP awards in 2024
up to 150% of salary for the Chief Executive and Chief
Financial Officer. As per last year’s award, vesting will be
subject to EPS targets for the majority of the award and
relative TSR targets and ESG targets for a minority of the
award. The combination of a post-vesting 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 in advance of the 2023 AGM on our new
Policy and was grateful for the responses and the level of
support received. No changes were made to the original
proposals and the Committee was pleased with the level of
support received at the 2023 AGM with over 90% of votes
cast in favour of the new Policy and over 99% of votes cast in
favour of the Directors’ Remuneration Report (excluding the
Policy). We hope we will again receive your support at the
forthcoming AGM.
2024 AGM Resolution
On the basis that the Directors’ Remuneration Policy was
approved by shareholders at the 2023 AGM and no changes
are proposed, the Directors’ Remuneration Report (excluding
the Policy) will be subject to an advisory shareholder vote at
the AGM on 23 May 2024.
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
5 March 2024
117
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
At a glance remuneration overview
Executive Remuneration for the year ending 31 December 2024
d
e
x
F
i
n
o
i
t
a
r
e
n
u
m
e
R
l
e
b
a
i
r
a
V
n
o
i
t
a
r
e
n
u
m
e
R
l
r
e
d
o
h
e
r
a
h
S
t
n
e
m
n
g
i
l
a
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:
•
increase profitability for shareholders
• deliver key strategic and ESG-related priorities
Performance measures support Group strategy
to deliver:
• higher returns to shareholders
•
•
increased earnings
the ESG strategy
Potential
(Maximum 125% of Salary)
(Maximum 150% Salary)
1/3rd deferred into shares under the
Deferred Bonus Plan
Performance measures support Group strategy to:
•
increase profitability for shareholders
• deliver key strategic and ESG-related priorities
Two year post vesting holding period
Dividend equivalents accrue to extent awards vest
Performance measures support Group strategy
to deliver:
• higher returns to shareholders
•
•
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 – 30% (to
• Relative Total Shareholder Return (TSR) – 20%
support business growth and ESG objectives)
(to align the interests of Directors with those of
shareholders)
• ESG-related objectives – 10%
(to support key strategic and ESG objectives)
In employment
Post employment
•
200% of salary
• Lower of shareholding at cessation of employment
and 200% of salary to be held for two years post
cessation
118
Directors’ Remuneration Policy
This part of the Directors’ Remuneration Report sets out an
abridged version of the Directors’ Remuneration Policy which
was approved by shareholders at the AGM on 25 May 2023.
The Policy took formal effect from the date of approval
and is intended to apply until the 2026 AGM unless a new
version is presented to shareholders in the interim. The
full shareholder approved Policy can be found in the 2022
Annual Report which can be viewed via the Company’s
website at www.headlam.com.
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
respect of its future implementation, we are 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 Remuneration
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.
• 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 Remuneration 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 Remuneration Committee is committed to an ongoing
dialogue with shareholders and welcomes feedback on
Executive and Non-Executive Directors’ remuneration.
The Remuneration Committee will seek to engage directly
with larger shareholders and their representative bodies
should any material changes be made to the Policy. The
Remuneration 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.
119
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Summary Policy table for Executive Directors
Component
Base salary
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
To provide a
competitive base
salary for the market
in which the Group
operates to attract
and retain Executives
of a suitable calibre.
Salaries are usually reviewed annually, with any increases typically effective
1 January.
While there is no maximum salary, increases will normally be in line with
Although there are no formal performance
the typical range of salary increases awarded (in percentage of salary
conditions, any increase in base salary is only
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.
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.
terms) to the wider workforce.
Larger salary increases may be awarded to take account of individual
circumstances, such as:
• where an Executive Director has been promoted or has had a
change in scope or responsibility;
• where the Remuneration 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
Remuneration Committee deems appropriate.
Benefits
To provide broadly
market competitive
benefits as part of the
total remuneration
package.
Executive Directors receive benefits in line with market practice, and these
include life assurance, private medical insurance, company car or car
allowance and, where relevant, relocation expenses. Executive Directors are
also provided with the opportunity to join any HMRC approved all-employee
share plan arrangements on the same basis as other employees.
Whilst the Remuneration Committee has not set an absolute maximum
Not applicable.
on the level of benefits Executive Directors may receive, the value of
benefits is set at a level that the Remuneration Committee considers
appropriate against the market and provides a sufficient level of
benefits based on individual circumstances.
Executive Directors will be eligible for any other benefits which are introduced
for the wider workforce on broadly similar terms and other benefits might
be provided from time to time based on individual circumstances and if the
Committee decides payment of such benefits is appropriate.
Any reasonable business-related expenses can be reimbursed (and any tax
thereon met if determined to be a taxable benefit).
The Group may offer participation in a defined contribution pension plan or
may permit Executive Directors to take a cash supplement in lieu of pension up
to the same value.
Awards are based on performance typically measured over one year.
125% of base salary.
Workforce aligned (currently 8% of base salary).
Not applicable.
Pay-out levels are determined by the Remuneration 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 Remuneration 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 Remuneration
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 Remuneration Committee has discretion
to amend the pay-out should any formulaic
output not reflect the Remuneration
Committee’s assessment of overall business
performance.
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.
120
Summary Policy table for Executive Directors
Component
to strategy
Operation
Purpose and link
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.
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 Remuneration 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
Remuneration Committee deems appropriate.
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
benefits as part of the
allowance and, where relevant, relocation expenses. Executive Directors are
total remuneration
also provided with the opportunity to join any HMRC approved all-employee
package.
share plan arrangements on the same basis as other employees.
Whilst the Remuneration 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 Remuneration Committee considers
appropriate against the market and provides a sufficient level of
benefits based on individual circumstances.
Not applicable.
To provide employees
The Group may offer participation in a defined contribution pension plan or
Workforce aligned (currently 8% of base salary).
Not applicable.
Retirement
benefits
with long-term
savings to allow for
retirement planning.
to the same value.
may permit Executive Directors to take a cash supplement in lieu of pension up
Annual bonus
Rewards performance
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 Remuneration Committee has discretion
to amend the pay-out should any formulaic
output not reflect the Remuneration
Committee’s assessment of overall business
performance.
121
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).
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 Remuneration 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 Remuneration 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.
determine.
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
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 Remuneration
Committee (in respect of both the cash and the deferred elements of bonuses)
to recover or withhold value in the event of certain defined circumstances.
Headlam Group PLC Annual Report & Accounts 2023Governance 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 Remuneration Committee,
with performance normally measured over at least a three-year
performance period.
The Remuneration 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 Remuneration Committee determines.
The PSP includes provisions which enable the Remuneration 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.
In employment:
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 Chair)
Annual Fee
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.
122
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.
200% of salary.
Not applicable.
Neither the Chairman nor the Non-Executive Directors participate in
Not applicable.
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.
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 Remuneration Committee,
with performance normally measured over at least a three-year
performance period.
The Remuneration 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 Remuneration Committee determines.
The PSP includes provisions which enable the Remuneration 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.
In employment:
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 Chair)
Annual Fee
To attract individuals
Fees are normally reviewed annually taking into account factors such as the
with appropriate
knowledge and
experience.
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.
Component
to strategy
Operation
Purpose and link
Maximum opportunity
Performance measures
Performance
Share Plan
(‘PSP’)
To incentivise
Awards will be in the form of nil-cost share options, conditional shares or
150% of salary.
Executive Directors,
other such form as has the same economic effect.
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.
200% of salary.
Not applicable.
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.
Not applicable.
123
Headlam Group PLC Annual Report & Accounts 2023Governance 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 Remuneration
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 Remuneration 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 Remuneration 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 Remuneration
Committee’s assessment of overall business performance
over the relevant performance period.
Malus and clawback
The following provisions apply:
• Prior to the payment of an annual bonus or vesting of a
DBP or PSP award, the Remuneration Committee may
operate ‘malus’ (or ‘withholding’) to cancel the award.
•
For up to two years following the payment of an
annual bonus award, the Remuneration 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
Remuneration Committee may operate clawback to
cancel the award during the holding period (or require
repayment of the award if it has been released prior to
the end of the holding period); reduce future vesting
under the Company’s share plans; or reduce the number
of shares already vested but unexercised.
The circumstances in which malus and clawback may be
operated are as follows:
•
•
the Company materially misstated its financial results
(excluding any changes resulting from a change in
accounting standards);
the Executive’s conduct being such that it would entitle
(or, where the Employment has terminated prior to the
date on which the Board becomes aware of such act or
omission, would have entitled) the Group to terminate
the Employment summarily;
• a material error having occurred in determining whether
any corporate or personal performance conditions
relating to the bonus or PSP award have been met (or
any other material error having occurred in calculating
the sum that was awarded as a bonus or the size of the
PSP award);
• circumstances which in the opinion of the Board would
have (or would have if made public) a sufficiently
significant impact on the reputation of the Company
or Group;
•
•
the Company becomes insolvent or otherwise suffers a
corporate failure and the Board determines that such
circumstances arose from events occurring (in whole or
substantial part) during any period in which the relevant
individual was a participant; or
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 Remuneration 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
Remuneration 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 Remuneration Committee’s judgement. Any discretion
exercised, and the rationale, will be disclosed in the Annual
Remuneration Report.
124
Differences in pay policy for
Executive Directors compared to
employees more generally
The Remuneration Policy applied to the Executive Directors
is similar to the policy for the wider senior management
team in that a significant element of remuneration is
dependent on Group performance and the key principles of
the remuneration philosophy are applied consistently across
the Group below this level, taking into account seniority and
market practice. Key features include:
• we aim to provide market competitive levels of
remuneration across the workforce in order to recruit and
retain high calibre employees at all levels;
• we have aligned pension contributions for 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.
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 Remuneration Committee seeks to ensure that
arrangements are in the best interests of the Group and not
to pay more than is appropriate.
The Remuneration 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 Remuneration
Committee will typically align the remuneration package
with the above Policy. The Remuneration 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 Remuneration Committee.
The Remuneration 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 Remuneration Committee may also alter the
performance measures, performance period, vesting
period, deferral period and holding period of the annual
bonus or PSP, if the Remuneration 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 Remuneration 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
Remuneration Committee will generally seek to structure
buyout awards or payments on a like-for-like basis to
the remuneration arrangements forfeited. Any such
payments or awards are limited to the expected value
of the forfeited awards. Where considered appropriate,
such buyout awards will be liable to forfeiture or ‘malus’
and/or ‘clawback’ on early departure.
• Any share awards referred to in this section, including
any buyout awards, will be granted as far as possible
under the Group’s existing share plans. If necessary, and
subject to the limits referred to above, awards in relation
to a recruitment may be granted outside of these plans
as permitted under the Listing Rules which allow for the
grant of awards to facilitate, in unusual circumstances,
the recruitment of an Executive Director.
• Where a position is filled internally, any ongoing
remuneration obligations or outstanding variable pay
elements shall be allowed to continue according to the
original terms.
•
Fees payable to a newly appointed Chairman or Non-
Executive Director will be in line with the fee policy in
place at the time of appointment.
125
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Service contracts and letters of appointment
Executive Directors’ service contracts are on a rolling basis
and may be terminated on up to 12 months’ notice by the
Group or by the Executive.
All Non-Executive Directors have letters of appointment
providing for fixed-term agreements with the Group which
may be terminated by the giving of three months’ notice by
either party (Chairman six months’ notice). The agreements
last for an initial period of three years and may then be
extended for two additional periods of three years, subject
to re-election by shareholders at the relevant AGM.
Copies of Executive Directors’ service contracts and Non-
Executive Directors’ letters of appointment are available for
inspection at the Company’s registered office during normal
hours of business.
Payments for loss of office
The principles on which the determination of payments for loss of office will be approached are set out below:
Component
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.
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 Remuneration Committee, compensation for benefits and pension
contributions (if applicable) for the unexpired period of notice.
Annual bonus
This will be at the discretion of the Remuneration 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 Remuneration
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 Remuneration 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 Remuneration
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 Remuneration Committee determines,
if a participant leaves for any reason (other than summary dismissal).
PSP
The extent to which any unvested award will vest will be determined in accordance with the rules of
the PSP.
Unvested awards will normally lapse on cessation of employment. However, if a participant leaves due
to death, ill health, injury, disability, the sale of his employer or any other reason at the discretion of the
Remuneration Committee, the Remuneration 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 Remuneration
Committee taking into account the extent to which the performance condition is satisfied and, unless the
Remuneration 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 Remuneration 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 Remuneration 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 Remuneration Committee determines,
if a participant leaves for any reason (other than summary dismissal).
126
Component
Policy
Change of
control
The extent to which unvested awards under the DBP and PSP will vest will be determined in accordance
with the rules of the relevant plan.
Awards under the DBP will vest in full in the event of a takeover, merger or other relevant corporate event.
Unvested awards under the PSP will vest early on a takeover, merger or other relevant corporate
event. The Committee will determine the level of vesting taking into account the extent to which the
performance condition is satisfied and, unless the Committee determines otherwise, the period of time
elapsed from the date of grant to the date of the relevant corporate event relative to the performance
period.
Awards under the PSP which have vested but not been released (i.e. awards which are subject to a holding
period) will be released, to the extent vested.
Mitigation
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.
Other
payments
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 Remuneration Committee reserves the right to make additional exit payments where such payments
are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of
such an obligation) or by way of settlement or compromise of any claim arising in connection with the
termination of a Director’s office or employment.
• where 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 Remuneration
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.
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 Remuneration 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 Remuneration 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;
127
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Annual report on remuneration
Certain information provided in this part of the Directors’ Remuneration Report is subject to audit. This is annotated as
audited. Any information not annotated as audited is unaudited.
Single total figure of remuneration for each Director
The tables below report the total remuneration receivable in respect of qualifying services by each of the Executive Directors
for the years 2023 and 2022.
Executive Directors’ remuneration as a single figure – 2023 (audited)
Annual
performance
bonus⁴
£000
Base salary/
fees
£000
Pension
related
benefits3
£000
Non-salary
benefits2
£000
Total fixed
£000
Executive
Director
Share-based
incentive
schemes5
£000
Chris Payne
Adam Phillips1
475
229
12
1
38
10
525
240
119
54
–
–
Total
variable
£000
119
54
Total
£000
644
294
1 Adam Phillips was appointed Chief Financial Officer on 20 March 2023.
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 2021 PSP awards granted on 9 April 2021 will lapse in full in April 2024 as a result of below threshold performance against EPS (80%) and relative
TSR (20%) targets.
Executive Directors’ remuneration as a single figure – 2022 (audited)
Share-based
incentive
schemes4
£000
Annual
performance
bonus
£000
Base salary/
fees
£000
Non-salary
benefits
£000
Pension
related
benefits
£000
Executive
Director
Chris Payne1
416
19
35
204
–
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 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 the final performance assessment in September 2023, Headlam’s TSR was below median resulting in nil vesting.
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 – 2023 (audited)
Base salary/
fees
£000
Non-salary
benefits¹
£000
150
60
57
57
57
381
4
0.9
4.1
0.5
1
10.5
Total
£000
154
60.9
61.1
57.5
58
391.5
Total
fixed
£000
154
60.9
61.1
57.5
58
391.5
Keith Edelman
Steven Bird
Karen Hubbard
Robin Williams
Jemima Bird
Total
1 Relates to taxable expenses
128
Non-Executive Directors’ remuneration as a single figure – 2022 (audited)
Non-salary
benefits
£000
Base salary/
fees
£000
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
1
2.7
3
2.2
0.6
0.1
0.3
9.9
Total
£000
59
60
120.7
65
54.2
17
13
13
Total
fixed
£000
59
60
120.7
65
54.2
17
13
13
401.9
401.9
1 Appointed 01.06.18. Left 19.05.22
4 Appointed 14.05.21. Left 10.10.22
6 Appointed 01.09.22
2 Appointed 01.02.18. Left 10.10.22
5 Appointed 13.09.21
7 Appointed 10.10.22
3 Appointed 01.10.18. Chair from 19.05.22
Annual performance bonus in respect of financial year 2023 (audited)
For 2023, the Chief Executive and Chief Financial Officer had a maximum annual bonus opportunity equal to 125% of base
salary (with the Chief Financial Officer’s bonus pro-rated to reflect that he joined in year), 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 Weighting Threshold
Target Maximum
Actual
Bonus
earned
(% max)
Bonus
Receivable –
C Payne (£)
Bonus
Receivable –
A Phillips1 (£)
Underlying PBT
Strategic/ESG
objectives
1 Pro-rated
70%
£29.7m
£33m
£39.6m
£11m
0%
0
0
See table
below
30%
100%
30%
30%2
178,125
178,1252
81,563
81,5632
2 Before the application of negative discretion (see overleaf)
129
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Strategic and ESG-related objectives (audited)
The following non-financial strategic objectives were designed to focus on the achievement of certain key elements of
Company strategy.
Objective
Target
Maximum
Key Accounts (Growth)
Develop partnership
approach with key
account customers and
a meaningful pipeline of
new accounts
Two strategic
partnerships developed
by either a joint business
plan (evidenced by an
agreed plan) and/or a
material sales initiative
worth at least an
annualized 10% increase
for that account
Routes to market
(Growth)
Developing Headlam’s
Digital Asset Base
Create Headlam Brand
website and launch
in December 2023
achieving at least 1000
visitors per month by
March 2024
Four strategic
partnerships developed
strategic partnerships
developed by either
a joint business plan
(evidenced by an
agreed plan) and/
or a material sales
initiative worth at
least an annualized
10% increase for that
account
Scope B2B trading
website and define
plan to deliver in 2024
Trade Counters
(Growth)
Continue the Trade
Counter roll-out of
new sites/relocations
and refits
Twelve sites by year end
(new/refurb/relocation)
delivering at least the
aggregate revenue in
the business case
(pro-rated for opening
date)
Twelve sites by year end
(new/refurb/relocation)
delivering at least 10%
over the aggregate
revenue in the business
case (pro-rated for
opening date)
Environmental, Social
& Governance
Significantly increase
Near Miss Reporting in
UK Distribution from 0.2
per employee per year
at end of 2022
Near miss reporting at
0.45 per employee per
year (75% of industry
benchmark) based
on Q4 Near Misses
multiplied by 4 to come
up with an annualized
run rate as of Q4
Near miss reporting
reflects industry
benchmark for sector
(0.6 per employee per
year) based on Q4
Near Misses multiplied
by 4 to come up with
annnualised run rate as
of Q4
Committee
Assessment/
Result
Acheived at
maximum.
Five strategic
partnerships
were developed
during 2023.
Acheived at
maximum.
The Headlam
website was
launched in
December and
has already
received over
1,800 visitors
and the B2B
website remains
on track.
Achieved at
maximum.
Twelve trade
counters were
delivered during
2023 delivering
in excess of the
10% revenue
target.
Acheived at
maximum. With
a rate of 1.17 per
employee per
year.
Potential
Bonus
(% of bonus
opportunity)
Bonus
Achieved
(% of bonus
max)
10%
100%
5%
100%
5%
100%
10%
100%
Total
30%
100%
Based on the above performance assessment, while the threshold Underlying PBT target was not met, the strategic targets
have been met in full, resulting in 30% of the maximum bonus payable.
However, notwithstanding the significant progress that has been achieved by the management team in respect of delivering
the Company’s strategy and continuing to invest in broadening market presence and building capabilities to position the
business well as market conditions and volumes recover, the Remuneration Committee agreed to reduce the bonus from
30% to 20% of the maximum in light of the Company’s financial performance and broader stakeholder experience. This
application of negative discretion reduces the 2023 bonus award from £178,125 to £118,750 for the CEO and from £81,563 to
£54,375 for the CFO. In addition, rather than defer one-third of the bonus award into shares for a two-year period in line with
the Remuneration Policy, the Remuneration Committee decided to defer 100% of the bonus awards into shares for two years.
Awards will be structured as nil cost options and will normally vest two years from the date of grant (other than in the case of
summary dismissal in which case awards lapse). No performance conditions will operate.
130
2021 PSP due to vest in 2024 (audited)
Awards granted under the PSP in April 2021 are based on underlying Earnings Per Share (‘EPS’) performance condition (80%
of the award) and a relative Total Shareholder Return (‘TSR’) performance condition (20% of the award). The performance
targets are shown in the table below:
Performance Target
Below Threshold
Threshold
Maximum
Actual Performance
Expected vesting
Director
Chris Payne
Underlying Basic EPS
for 2023
(80% of award)
TSR v FTSE SmallCap
(excluding ITs)
(20% of award)
% vesting
–
25
100
Less than 32.1p
Below median
32.1p
34.7p
11p
0%
Median
Upper quartile
Below median
0%
Shares granted
64,137
Shares vesting
(estimate)
Value of shares
vesting (estimate)
0
£0
Share awards granted during the financial period (audited)
PSP awards
PSP awards were granted to the Executive Directors on 29 June 2023 as follows (audited)
Number of
nil-cost options
over which award
granted
Value of
Award
£000
% of
salary
% of award
vesting at
threshold
Date of
grant
Chris Payne
277,669
£713
150%
25% 29 June 2023
Adam Phillips
127,143
£326
112.5%*
25% 29 June 2023
*Pro-rated from the normal 150% of salary PSP to reflect his March 2023 joining date.
Performance
period
3 years ending
31.12.2025
3 years ending
31.12.2025
The share price used to determine the number of shares under the PSP was 256.60 pence, being the average mid-market
closing share price for the five business days prior to the date of award.
The Awards are subject to an underlying Basic Earnings Per Share (‘EPS’) performance condition (70% of the award), a relative
Total Shareholder Return (‘TSR’) performance condition (20% of the award) and an ESG performance condition (10% of
award). The performance targets are shown in the table below:
Performance Target
Below Threshold
Threshold
Maximum
Underlying Basic
EPS for 2025
(70% of award)
TSR v FTSE SmallCap
(excluding 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%
% vesting
–
25
100
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 (audited)
In addition, following payment of the annual bonus in respect of the financial year ended 31 December 2022, the Company
granted nil-cost options to Chris Payne over 22,563 shares under the Deferred Bonus Plan (“DBP”) on 13 April 2023. 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 301.1
pence per ordinary share.
131
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Pension-related benefits (audited)
Chris Payne received pension contributions from the Company equivalent to 8% of his base salary (£8,478 as pension, £29,499
as a salary supplement, totally £37,977) 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. Adam Philips received pension
contributions from the Company equivalent to 5% of his base salary.
Payment for loss of office and to past Directors (audited)
No payments were made for loss of office and there have been no payments to past directors to be reported for the year
under review.
Executive Directors’ share awards outstanding (audited)
Chris Payne
/
s
e
r
a
h
s
f
o
r
e
b
m
u
Scheme N
t
a
s
a
s
n
o
i
t
p
o
r
e
b
m
e
c
e
D
1
3
2
2
0
2
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
t
n
a
r
g
– 227,669
–
22,563
111,548
64,137
39,822
103,669
24,076
–
–
–
–
–
PSP
DBP
PSP
PSP
DBP
PSP
DBP
SAYE
SAYE
r
e
b
m
e
c
e
D
1
3
t
a
s
n
o
i
t
p
o
/
s
e
r
a
h
s
f
o
r
e
b
m
u
N
3
2
0
2
t
n
a
r
g
f
o
e
t
a
D
277,669 29 June 2023
22,563 13 April 2023
111,548
8 April 2022
64,137
9 April 2021
39,822
8 April 2022
– 11 Sept 2020
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
s
p
a
l
–
–
–
–
–
103,669
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
s
i
c
r
e
x
e
–
–
–
–
–
–
– 24,076
- 11 Sept 2020
–
10,214
7,929
–
–
–
–
–
10,214
6 Oct 2023
7,929
5 Oct 2020
t
n
a
r
g
t
a
e
c
i
r
p
e
r
a
h
S
)
e
c
n
e
p
(
257
301
381
454
381
281
281
220
271
e
s
i
c
r
e
x
E
)
e
c
n
e
p
(
e
c
i
r
p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
181.6
227
)
e
c
n
e
p
(
e
t
a
d
e
s
i
c
r
e
x
e
n
o
e
c
i
r
p
t
e
k
r
a
M
e
t
a
d
g
n
i
t
s
e
V
e
t
a
d
y
r
i
p
x
E
– June 20261
June 2033
–
–
April 2025
April 2033
April 20251
April 2032
– April 20241
April 2031
–
–
–
–
–
April 2024
April 2032
Sept 20231
Sept 2030
Sept 2022
Sept 2030
Nov 2026
May 2027
Nov 2023
April 2024
1 This includes all owned shares plus, on a net of tax basis: (i) vested scheme interests; and (ii) deferred bonus awards which vest based on
continued service only, as permitted under the Company’s share ownership policy.
Adam Phillips
/
s
e
r
a
h
s
f
o
r
e
b
m
u
Scheme N
t
a
s
a
s
n
o
i
t
p
o
r
e
b
m
e
c
e
D
1
3
PSP
SAYE
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
t
n
a
r
g
127,143
5,107
2
2
0
2
–
–
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
s
p
a
l
–
–
s
n
o
i
t
p
o
/
s
e
r
a
h
S
d
e
s
i
c
r
e
x
e
–
–
r
e
b
m
e
c
e
D
1
3
t
a
s
n
o
i
t
p
o
/
s
e
r
a
h
s
f
o
r
e
b
m
u
N
3
2
0
2
t
n
a
r
g
t
a
e
c
i
r
p
e
r
a
h
S
)
e
c
n
e
p
(
t
n
a
r
g
f
o
e
t
a
D
127,143 29 June 2023
5,107
6 Oct 2023
257
220
e
s
i
c
r
e
x
E
)
e
c
n
e
p
(
e
c
i
r
p
Nil
181.6
)
e
c
n
e
p
(
e
t
a
d
e
s
i
c
r
e
x
e
n
o
e
c
i
r
p
t
e
k
r
a
M
e
t
a
d
g
n
i
t
s
e
V
e
t
a
d
y
r
i
p
x
E
– June 20261
June 2033
Nov 2026
May 2027
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.
132
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 2023 were as
set out below. There have been no changes to those interests between 31 December 2023 and the date of signing of these
financial statements and reports.
Owned
Shares at
31
December
2023
53,855
Nil
37,415
Nil
5,000
13,288
7,090
Chris Payne
Adam Philips
Keith Edelman
Jemima Bird
Stephen Bird
Karen Hubbard
Robin Williams
Vested
but not
exercised
0
0
PSP
453,354
127, 143
N/A
N/A
N/A
N/A
N/A
Deferred
Bonus
62,385
0
N/A
N/A
N/A
N/A
N/A
Shares under
Shareholding
Guidelines1
Guidelines
achieved
(%)
86,919
0
N/A
N/A
N/A
N/A
N/A
20
0
N/A
N/A
N/A
N/A
N/A
SAYE
18,173
5,107
N/A
N/A
N/A
N/A
N/A
1 This includes all owned shares plus, on a net of tax basis: (i) vested scheme interests; and (ii) deferred bonus awards which vest based on
continued service only, as permitted under the Company’s share ownership policy.
133
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
TSR graph
The graph below shows the value at 31 December 2023 of £100 invested in the Company on 1 January 2014 compared to
the value of £100 invested in the FTSE SmallCap Index, making the assumption that dividends are reinvested to purchase
additional equity. The SmallCap has been chosen given that the Company is a constituent of this index and has been over the
period presented.
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
0T
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
31 Dec 18
31 Dec 19
31 Dec 20
31 Dec 21
31 Dec 22
31 Dec 23
Headlam Group plc
FTSE SmallCap Index
Chief Executive remuneration table
The table below sets out the remuneration of the Chief Executive for the latest ten financial year periods.
Period
2023
2022
2021
2021
2020
2019
2018
2017
2016
2015
2014
2013
Chris Payne
Chris Payne
Chris Payne
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Steve Wilson
Tony Brewer
Tony Brewer
Tony Brewer
Tony Brewer
Chief Executive
single figure of total
remuneration
(£000)
Annual bonus
(% of maximum
opportunity)
Long-term
incentive
vesting rates
against maximum
opportunity (%)
644
674
2051
8642
514
798
588
1,069
1,0673
7374
1,175
1,134
927
20
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 Septem
ber 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.
134
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, 2022 and 2023. Going forward,
this disclosure will build up over time to cover a rolling five-year period.
s
e
e
f
d
n
a
y
r
a
a
S
l
)
e
g
n
a
h
c
%
(
14
N/A
Director
Executive Director
Chris Payne
Adam Phillips8
Non-Executive Director
Keith Edelman5
Stephen Bird3
Jemima Bird6
Karen Hubbard7
Robin Williams7
Former Directors
Philip Lawrence7
Amanda Aldridge7
Simon King3
Steve Wilson4
Alison Littley4
All employees1
27
15
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
7
2023
s
t
i
f
e
n
e
b
e
b
a
x
a
t
l
l
l
A
)
e
g
n
a
h
c
%
(
-37
N/A
-72
-73
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2
s
e
s
u
n
o
B
l
a
u
n
n
A
)
e
g
n
a
h
c
%
(
-42
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-3
-100
s
e
e
f
d
n
a
y
r
a
a
S
l
)
e
g
n
a
h
c
%
(
25
N/A
95
282
N/A
N/A
N/A
(60)
12
120
N/A
N/A
3
2022
s
t
i
f
e
n
e
b
e
b
a
x
a
t
l
l
l
A
)
e
g
n
a
h
c
%
(
27
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2021
s
t
i
f
e
n
e
b
e
b
a
x
a
t
l
l
l
A
)
e
g
n
a
h
c
%
(
2
s
e
s
u
n
o
B
l
a
u
n
n
A
)
e
g
n
a
h
c
%
(
s
e
e
f
d
n
a
y
r
a
a
S
l
)
e
g
n
a
h
c
%
(
(55)
–
(10)
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
(23)
(75)
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(24)
N/A
5
2
s
e
s
u
n
o
B
l
a
u
n
n
A
)
e
g
n
a
h
c
%
(
100
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100
N/A
100
2020
s
t
i
f
e
n
e
b
e
b
a
x
a
t
l
l
l
A
)
e
g
n
a
h
c
%
(
–
s
e
e
f
d
n
a
y
r
a
a
S
l
)
e
g
n
a
h
c
%
(
2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2
N/A
–
N/A
N/A
N/A
N/A
–
–
N/A
2
8
2
2
s
e
s
u
n
o
B
l
a
u
n
n
A
)
e
g
n
a
h
c
%
(
(100)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(100)
N/A
(6)
(74)
(14)
(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 in respect of the financial year as per the single figure table.
3 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.
4 Alison Littley and Steve Wilson left the Board on 31 March 2021 and 6 October 2021 respectively and their pro-rated salary is reflected in the
percentage change shown.
5 Keith Edelman was promoted from Senior Independent Director to Non-Executive Chairman on 19 May 2022.
6 Jemima Bird and Robin Williams joined the Board on 11 October 2022 and Karen Hubbard joined the Board on 1 September 2022.
7 Philip Lawrence stepped down from the Board on 19 May 2022 and Amanda Aldridge stepped down from the Board on 11 October 2022.
8 Adam Phillips joined the Board on 20 March 2023.
Relative importance of spend on pay
The table below shows the overall expenditure on dividends and on pay as a whole across the Company along with the
percentage change between each.
Dividends1
Pay
1
Includes dividends paid during the financial year.
2023
£000
12,169
99,270
2022
£000
27,292
94,766
% change
-55.4%
4.54%
135
Headlam Group PLC Annual Report & Accounts 2023Governance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
CEO pay ratio
The data shows how the Chief Executive’s single figure remuneration for 2023 (as taken from the single figure remuneration
table) compares to equivalent single figure remuneration for the year ended 31 December 2023 for full-time equivalent UK
employees as at 31 December 2023, on a Group basis, ranked at the 25th, 50th and 75th percentile.
Period
2023
2022
20211
2020
2019
Method
Option A
Option A
Option A
Option A
Option A
25th percentile
ratio
Median
(50th percentile)
ratio
75th percentile
ratio
27.3:1
29.2:1
51.1:1
25.8:1
39.3:1
22.7:1
24.0:1
38.9:1
20.7:1
31.8:1
16.6:1
16.9:1
26.5:1
14.4:1
22.7:1
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
2023
Percentile
25th percentile
Median
75th percentile
Salary
(£)
23,598
28,323
37,983
Total pay
and benefits
(£)
23,598
28,323
38,801
The CEO pay ratios for 2023 are lower than those for 2022. This is primarily due to the CEO single figure reducing year on year
which reflects the lower annual bonus award for 2023 (20% of maximum) compared to 2022 (38% 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 and not inconsistent with the Company’s pay, reward and progression policies.
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.
Adam Phillips was appointed on 20 March 2023 and the date of his current service contract is 14 November 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
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
Keith Edelman
Jemima Bird
Stephen Bird
Karen Hubbard
Robin Williams
136
Statement of implementation of remuneration policy in 2024
Details of how the Company will operate the Remuneration Policy in 2024 are provided below.
Base salaries for 2023
Chris Payne’s salary increased by 2% from £475,000 to £484,500 from 1 January 2024 which was in line with the workforce
increase.
Adam Phillips joined the Board as Chief Financial Officer on 20 March 2023 on a base salary set at £290,000. Following a
review by the Board of both individual and Company performance since his appointment and as detailed in last year’s
Directors’ Remuneration Report, his base salary increased to £325,000 from 1 January 2024. This remains below the salary
paid to the previous Chief Financial Officer (£364,000). The performance assessment considered Adam’s support in respect
of crafting and delivering the strategy and strategic initiatives, his progress in building relationships with key stakeholders
and evolving and improving the Company’s Management Information Systems, financial reporting, forecasting and risk
management (which included his appointment as Chair of the Risk Committee).
Pension
Pension contributions will continue to be capped at 8% of salary for both the Chief Executive and Chief Financial Officer.
Annual bonus
The maximum annual bonus opportunity for 2024 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, which are considered to be commercially sensitive, will be provided in the 2024 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 2024 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 and ESG. PSP awards in respect of 2024 will be granted in
the form of nil cost options over ordinary shares in the Company at the level up to 150% of salary for the Chief Executive and
Chief Financial Officer.
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 2026
(70% of award)
TSR v
FTSE SmallCap
(ex ITs)
(20% of award)
tCO2e%
reduction
(10% of award)
Less than 16p
Below median
Less than 25%
Less than 16p
Median
Less than 25%
25p
Upper quartile
29%
In addition to the above performance targets, the Committee will consider whether there has been any windfall gains at the
point of vesting.
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 2024
The following fees are to be applied for the financial year ended 31 December 2024.
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
Fees
effective
1 Jan 2024
£000
Fees
effective
1 Jan 2023
£000
150.0
50.0
10.0
7.5
7.5
7.5
150.0
50.0
10.0
7.5
7.5
7.5
137
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Remuneration Committee activity
The Board approved the terms of reference, delegating certain responsibilities to the Remuneration Committee, most recently
on 20 September 2023. 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 Bird
Stephen Bird
Karen Hubbard
Robin Williams
Meetings
attended
Eligible to
attend
4
4
4
4
4
4
4
4
4
4
Members additionally correspond on urgent matters between formal Remuneration Committee meetings. Other Directors
may attend Remuneration Committee meetings by invitation, including the Chief Executive and CFO where appropriate. The
Remuneration Committee also receives assistance from the Chief People and Sustainability Officer, the Company Secretary
and from independent external advisers, FIT Remuneration Consultants LLP. The Company Secretary acts as Secretary to the
Remuneration Committee.
No one attending a Remuneration Committee meeting may participate in discussions relating to their own terms and
conditions of service or remuneration.
Main role and key responsibilities
The Remuneration Committee’s main responsibilities include:
• designing the framework and policy for Executive Directors’ remuneration and determining remuneration packages for the
Executive Directors, Chairman and Senior Management, including the Company Secretary, to promote the achievement
of the Group’s strategy and long-term sustainable success. When setting executive remuneration, take into account the
link between Executive Director and senior manager remuneration and that provided to the wider workforce;
• establishing remuneration schemes that promote long-term shareholding by Executive Directors and that support
alignment with Shareholders’ interests, both in post and post cessation;
• approving the design and operation of the Company’s short-term and long-term incentive arrangements. This includes
agreeing the targets that are applied to awards made to Executive Directors and the Senior Management Team;
• oversight of the administration of share plans as required;
•
review workforce remuneration and related policies; and
• determine the policy for and scope of pension arrangements for Executive Directors and Senior Management.
Remuneration Committee activities
The key matters discussed at the meetings of the Remuneration Committee in 2023 were as follows:
Remuneration
•
reviewed wider workforce remuneration arrangements, 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 2020 PSP;
• approved the Annual Bonus payments for 2023;
• approved the PSP Award and targets; and
• considered remuneration for Executive Directors, Senior Management and the Chairman; using updated benchmarking
data where appropriate.
138
Governance
• consulted major shareholders in respect of a new Directors’ Remuneration Policy which was 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 November 2023 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
• approved the Remuneration Report (including CEO pay ratio and Gender pay gap disclosure);
Effectiveness
•
reviewed the Committee’s effectiveness; and
•
reviewed the performance of its independent advisor FIT Remuneration and determined that they should remain in office.
Remuneration Committee 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.
Advisers
FIT Remuneration Consultants LLP (FIT) has served as independent adviser to the Remuneration Committee throughout the
year under review. FIT was appointed by the Committee in 2019 following a competitive tender process. FIT also provided
additional related advice to the Company in relation to drafting this report, share plan rule drafting and Non-Executive
Director fee benchmarking. FIT’s fees in respect of advice provided during the year ended 31 December 2023 were £48,876
(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.
Statement of shareholders’ votes
The following table sets out the results of the binding vote on the Directors’ Remuneration Policy at the 2023 AGM and the vote
on the 2022 Directors’ Remuneration Report at the 2023 AGM.
2023 Remuneration Policy
2022 Annual Report on Remuneration
% of
votes cast
For
% of
votes cast
Against
90.72
99.22
9.28
0.78
Number of
shares
Withheld
1,903,961
2,110,076
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
5 March 2024
139
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REPORT
The Directors present their report, together with the audited
financial statements for the Group, for the year ended 31
December 2023. 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 Chair’s Statement
on page 6 to the Statement of Directors’ Responsibilities
on page 145, 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 207.
Further details of the Group’s activities and future plans are
set out in the Strategic Report on pages 13 to 75.
Headlam Group plc is a company incorporated and
domiciled in the UK, company number 00460129. The
address of the registered office is Gorsey Lane, Coleshill,
Birmingham B46 1JU.
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 13 to 75. The Strategic Report includes certain
disclosures required to be contained in the Directors’ Report
as follows: the viability statement (page 72), approach to
diversity (pages 51 and 112), workforce engagement (pages
49 and 89), an indication of likely future developments
(page 8, Chief Executive’s Review), and the approach to risk
management (pages 65 to 71).
Directors
The following were Directors of the Company during the
period ended 31 December 2023 and at the date of this
report unless otherwise stated:
• Keith Edelman
• Chris Payne
• Adam Phillips – appointed 20 March 2023
•
•
Stephen Bird
Jemima Bird
• Karen Hubbard
• Robin Williams
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 pages 80 and 81 and is
incorporated into this report by reference.
Acquisitions
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.
The Group made two further small acquisitions in H2 2023;
one in the Netherlands, which was integrated into existing
businesses and provided an increased product range, and
the other in the UK (PD Patterns), which enabled in-house
sampling production. The latter has been integrated into the
nearby Melrose Interiors site. Collectively, the purchase price
for the two acquisitions was £2.3 million.
Financial results and ordinary dividends
The results for the year and financial position at 31 December
2023 are shown in the Consolidated Income Statement on
page 154 and Statements of Financial Position on page 156.
An interim dividend of 4.0 p per ordinary share (2022: 6.2p)
was paid on 28 November 2023 to shareholders on the
register at the close of business on 28 October 2023. The
Directors propose a final dividend of 6.0p per ordinary
share (2022: 11.2p) in respect of the financial year ended 31
December 2023. The payment of the final dividend will be
subject to shareholder approval at the AGM. If approved the
total dividend for FY23 will be 10.0 p per ordinary share.
The final dividend (if approved by shareholders) will be paid
on 7 June 2024 to shareholders on the register of members
at the close of business on 10 May 2024, the associated ex-
dividend date being 10 May 2024.
Share capital
As at 31 December 2023, 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 2023. During the year, the
Company purchased 1,566,622 shares into treasury pursuant
to the authority granted by shareholders at the Company’s
Annual General Meeting on 19 May 2022.
The balance of shares in treasury stock following completion
of the Share buy Back programme on 3 March 2023 was
4,997,717 Ordinary Shares (6.2 % of the Company’s total
issued share capital).
Details of share capital are set out in note 23 to the financial
statements.
140
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 which was completed on 3 March
2023. Full details of the purchases made in 2022 are disclosed
in the Annual Report for that year.
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 36 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 82 and 83.
Changes to the Board during the period are set out on page 110. Details of the Directors’ service agreements are set out below:
Director
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 Director
Chris Payne
Adam Phillips
Non-Executive Director
13 September 2017
20 March 2023
n/a
8 March 2022
20 March 2023
23 May 2024
23 May 2024
Keith Edelman (Chair)
1 October 2018
15 August 2018
1 October 2021
Stephen Bird
Jemima Bird
Karen Hubbard
Robin Williams
13 September 2021
10 August 2021
13 September 2021
11 October 2022
10 October 2022
10 October 2022
1 September 2022
1 September 2022
1 September 2022
10 October 2022
10 October 2022
10 October 2022
23 May 2024
23 May 2024
23 May 2024
23 May 2024
23 May 2024
141
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REPORT
CONTINUED
Remaining service agreement term for Non-Executive
Directors as at 31 December 2023 (in whole months)
• Keith Edelman – 9 months
•
•
Stephen Bird – 8 months
Jemima Bird – 21 months
• Karen Hubbard – 20 months
• Robin Williams – 21 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 set
out in the AGM Notice of Meeting, all of the Board Directors
are standing for re-election (with the exception of Adam
Phillips who is standing for election) at the 2024 AGM.
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. Please see page 91 for information on the Board’s
conflict of interest process.
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.
142
Rights under employees’ share schemes
As at 31 December 2023, Kleinwort Hambros, as trustee of the
Headlam Group Employee Trust Company Limited (‘Trust’)
held 589,077 shares, approximately 0.007% 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 116.
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 2023, 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
FiL Limited
Orbis Allan Gray Limited
Ruffer LLP
Number of
shares1
% of total
voting rights2
8,086,705
4,153,822
4,042,500
10.01%
5.14%
5%
As at 4 March 2024, two further notifications had been
received as outlined below.
Ordinary shares of 5p each
Number of
shares1
% of total
voting rights2
Orbis Allan Gray Limited
4,023,153
LA FINANCIERE DE L’ECHIQUIER
2,483,562
FIL Limited
Aberforth LLP
8,044,135
9,328,426
4.98%
3.07%
9.96%
11.5%
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 31
December 2023.
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
Employee engagement
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 (pages 49 and 89),
our employee survey, or more informal methods such as the
dedicated internal communications email address or MyHub
portal. Further information can be found on page 47.
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 28 and 86.
Sharesave & long service awards
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) and at 31 December 2023, approximately 25%
UK employees participate in one or more of the active
Sharesave Schemes; and
- its long service award scheme which awards colleagues
after certain milestones of service with a monetary gift and,
for longer serving employees, an award of ordinary shares in
the Company to be granted bi-annually under the scheme
using service milestones and as at 31 December 2023, a total
of 130,700 ordinary shares of 5 pence each were awarded to
eligible employees at nil cost under the scheme.
Stakeholder engagement
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 and 88.
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
145 and a statement by the Auditor on their responsibilities is
given on page 148.
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 (2022: £nil).
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 is
detailed on the Company’s website, www.headlam.com.
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. The Company issues a supplier Code
of Conduct which our suppliers are expected to engage
and adhere to. 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 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 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.
Further details on diversity are included in the Nomination
Committee Report on page 110.
143
Headlam Group PLC Annual Report & Accounts 2023Governance DIRECTORS’ REPORT
CONTINUED
Charitable donations
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 £114,134 (2022: £50,866).
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 196 to 203.
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 2024 AGM.
AGM
This year’s AGM will be held at the Company’s head office
in Coleshill on Thursday, 23 May 2024 at 10.00am. The notice
convening this meeting is in a separate document to this
Annual Report and Accounts along with the explanatory
notes regarding the resolutions that will be proposed at the
meeting. A copy of the Notice of Meeting is available on the
Company’s website: www.headlam.com
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 61.
Information on energy consumption can be found on
page 62.
Information on energy efficiency can be found on
page 64.
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 56 to 60.
Further details of the actions which the Group is
taking to reduce emissions can also be found in the
Sustainability Report starting on page 40.
• An indication of likely future developments in the Group’s
business can be found throughout the Strategic Report,
starting on page 13.
•
•
The long-term viability statement can be found on
page 72.
Information on the appropriateness of adopting the
going concern basis of the accounts can be found on
page 73.
• Our approach to risk management can be found on
pages 65 to 71.
•
Information for shareholders can be found on the
Company’s website.
• A list of the Company’s overseas subsidiaries is on
page 207.
This report was approved by the Board and signed on its
behalf by:
Alison Hughes
General Counsel & Company Secretary
5 March 2024
Company registration number: 00460129
144
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Listing Rule (LR) 9.8.4R information Section
(1)
(2)
(3)
(4)
(5) (6)
(7) (8)
(9)
(10)
Capitalised interest
Not applicable
Publication of unaudited
financial information
Smaller related party
transactions
Not applicable
Not applicable
Details of long-term incentive
schemes established specifically
to recruit or retain a Director
Pages 116 to 139
Waiver of emoluments by a
Director
Not applicable
Allotments of equity securities
for cash
Not applicable
Participation in a placing of
equity securities
Not applicable
Contracts of significance
Not applicable
(11) (14)
Controlling shareholder
disclosure
Not applicable
(12) (13)
Dividend waiver
Page 195
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 judgments 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
5 March 2024
145
Headlam Group PLC Annual Report & Accounts 2023Governance 146
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
Alternative Performance Measures
Financial Record
Additional Information
148
155
156
157
158
159
160
161
208
212
214
Headlam Group PLC Annual Report & Accounts 2023
147
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 2023 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 (the “Annual Report”),
which comprise: the Group and Company Statements of
Financial Position as at 31 December 2023; the Consolidated
Income Statement and Consolidated Statement of
Comprehensive Income, the Group and Company Cash Flow
Statements, and the Group and Company Statements of
Changes in Equity for the year then ended; and the notes
to the financial statements, which include a description of
the significant accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in
the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the group in accordance with
the ethical requirements that are relevant to our audit of
the financial statements in the UK, which includes the FRC’s
Ethical Standard, as applicable to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard
were not provided.
We have provided no non-audit services to the company
or its controlled undertakings in the period under audit.
Our audit approach
Overview
Audit scope
•
The Group financial statements are a consolidation
of a number of reporting components, comprising the
group’s operating businesses, centralised functions and
non-trading entities.
• We performed full scope audits on the financial
information of four UK reporting components: HFD
Limited, MCD Group Limited, Domus Group of Companies
and Headlam Group plc (the company) due to their size
and risk characteristics. These UK reporting components
comprise 86% consolidated revenue and 91% absolute
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 Melrose revenue transactions
to invoices, proof of delivery and cash receipts.
• 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
Key audit matters
•
•
•
Supplier arrangements (group)
Impairment of goodwill and intangible assets (group)
Impairment of tangible assets (group)
• Recoverability of investments in subsidiary undertakings
(parent)
Materiality
• Overall group materiality: £1,398,000 (2022: £1,800,000)
based on 5% of a three year average of underlying profit
before tax (2022 basis: 2022 underlying profit before tax).
• Overall company materiality: £1,328,000 (2022:
£1,700,000) based on 1% of total assets, capped at
allocated component materiality of £1,328,000
(2022: £1,700,000).
• Performance materiality: £1,050,000 (2022: £1,350,000)
(group) and £996,000 (2022: £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.
Impairment of intangible assets, impairment of tangible
assets and recoverability of investments in subsidiary
undertakings were disclosed as one key audit matter in
the prior year. This year these have been disclosed as three
separate key audit matters. Otherwise, the key audit matters
below are consistent with last year.
148
Key audit matter
How our audit addressed the key audit matter
Supplier arrangements (group)
Refer to the Audit Committee Report and
the use of estimates and judgements
in note 1(b) to the financial statements.
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.
Impairment of goodwill and intangible
assets (group)
Refer to the Audit Committee Report, the
use of estimates and judgements in note
1(b) and Intangible assets note 11 to the
financial statements. 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.
The directors 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 other
intangible assets.
For certain underperforming CGUs,
impairment triggers were identified.
Where a full impairment assessment was
required to support the carrying value of
assets, management have assessed the
higher of value in use and fair value less
costs of disposal in order to determine
whether an impairment is required. For
sites with goodwill and intangible assets,
value in use has given the higher value and
therefore provided the basis for assessing
the CGU for impairment.
Value in use models include a number
of judgemental assumptions including
revenue growth, gross margin, discount
rate and the potential impact
associated with climate change.
Although no impairment was identified
by management, one CGU was
materially sensitive to individual and
combined reasonably possible change in
assumptions.
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.
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 during our testing of
supplier arrangements.
We evaluated management’s judgement that distribution centres are the
appropriate level at which to define a CGU in comparison to the requirements
of IAS 36, being that a CGU is the smallest group of assets generating
largely independent cash inflows. We concluded that this continues to be
appropriate on the basis that management 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 CGUs.
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 forecasts.
We challenged management on CGU specific growth assumed in year one of
the models and reviewed evidence to support these.
We reviewed corroborative and contradictory evidence available for growth
rates from 2024 onwards by performing independent research for market and
wider economy forecasts.
We reviewed gross margins and confirmed they were consistent with
historical margins achieved by individual or similar CGUs and wider business
performance.
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 range.
We reviewed management’s sensitivity analysis on key assumptions, including
revenue growth, gross margin, discount rate and climate related scenarios.
We performed independent sensitivities which included replacing future
revenue growth with external industry forecasts.
We reviewed management’s previous forecasts against actual results,
assessing management’s ability to forecast accurately. We also considered
2024 actual results to date against management’s forecasts.
We reviewed the associated disclosures within the financial statements.
As a result of these procedures, we consider the directors’ assessment of
the carrying value of goodwill and intangible assets to be supportable and
appropriately disclosed.
149
Headlam Group PLC Annual Report & Accounts 2023Financial Statements INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
CONTINUED
Key audit matter
How our audit addressed the key audit matter
We evaluated management’s assessment of potential impairment triggers
across all CGUs.
Where impairment triggers were identified, we obtained management’s
impairment models and tested their integrity and accuracy. Where the model
used a value in use method of valuation, we performed procedures consistent
with those outlined for the impairment of goodwill and intangible assets
described above.
For models that used fair value less costs of disposal, we agreed the fair
value of land and buildings to latest available external valuation reports and
considered external data available regarding movements in property values
since this date. For other plant and equipment we agreed the fair value to
external sources used by management, as well as performing independent
research and considering other corroborative and contradictory sources.
We reviewed management’s sensitivity analysis on key assumptions used
in fair value less costs of disposal models, including fluctuation of land
and building valuation. We concluded that the sensitivities applied were
reasonable and accurately calculated.
We reviewed the associated disclosures within the financial statements.
As a result of these procedures, we consider the directors’ assessment
of the carrying value of tangible assets to be supportable and
appropriately disclosed.
We have considered the performance of each of the subsidiaries and
although performance has been behind budget across the group, all
subsidiaries continue to be in cash generative positions for 2023 with the
exception of one entity, which has a nil carrying value at 31 December 2023.
We have compared the total carrying value of investments to the market
capitalisation of the group as at 31 December 2023.
As a result of these procedures, we agree with the directors’ conclusion
that there is no impairment indicator regarding investments in subsidiary
undertakings.
Impairment of tangible
assets (group)
Refer to the Audit Committee Report and
the use of estimates and judgements
in note 1(b) to the financial statements.
Annually, the Directors consider whether
any events or circumstances have
occurred that could indicate that the
carrying value of tangible assets should
be impaired.
For certain underperforming CGUs,
impairment triggers were identified.
Where a full impairment assessment was
required to support the carrying value of
assets, management have assessed the
higher of value in use and fair value less
costs of disposal in order to determine
whether an impairment is required.
Value in use models include a number
of judgemental assumptions including
revenue growth, gross margin, discount
rate and the potential impact
associated with climate change.
Although no impairment was identified
by management, one CGU was
materially sensitive to individual and
combined reasonably possible change in
assumptions.
Fair value less costs of disposal models
include judgemental assumptions
regarding the fair value of property, plant
and equipment. Although no impairment
was identified by management, one CGU
was materially sensitive to individual and
combined reasonably possible change
in assumptions.
Recoverability of investments in subsidiary
undertakings (parent)
Refer to note 12 to the company financial
statements. As at 31 December 2023
the company’s balance sheet includes
investments of £101.7m (2022: £101.4m).
Annually, the Directors consider whether
any events or circumstances have
occurred that could indicate that
the carrying amount of fixed asset
investments may not be recoverable.
Management have not identified any
events or circumstances indicating that
the carrying value of investments in
subsidiaries may be impaired.
150
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 Melrose revenue transactions
to supporting evidence.
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 2030 (Scope 1 & 2) and 2050
(Scope 1 & 2), and potential exposure to changing consumer
preferences 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 notes 1 and 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:
Financial statements - group
£1,398,000 (2022: £1,800,000).
Overall
materiality
How we
determined it
5% of a three year average of underlying profit before tax
(2022 basis: 2022 underlying profit before tax)
Rationale for
benchmark
applied
Based on the benchmarks used in the annual report, underlying
profit before tax is the primary measure used by the shareholders
in assessing the performance of the group, and is a generally
accepted auditing benchmark. A 3 year average benchmark has
been used in the current year as it is considered to appropriately
represent the size of the underlying business despite the impact of
the current economic environment on profitability.
Financial statements - company
£1,328,000 (2022: £1,700,000).
1% of total assets, capped at
allocated component materiality
of £1,328,000 (2022: £1,700,000)
Total assets is the primary
measure used by the
shareholders in assessing the
performance of the Company,
and is a generally accepted
auditing benchmark.
151
Headlam Group PLC Annual Report & Accounts 2023Financial Statements INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
CONTINUED
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 £475,000 and £1,328,000.
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% (2022: 75%) of overall materiality, amounting
to £1,050,000 (2022: £1,350,000) for the group financial
statements and £996,000 (2022: £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 £70,000 (group audit) (2022: £90,000) and £66,000
(company audit) (2022: £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 whether there were any significant doubts over
the ability of the group to meet its debt covenants under
both base case and downside scenarios.
• Confirming the amendment to covenants as agreed on
23 February 2024.
• Assessing the adequacy of disclosures in the going
concern statement 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.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to
perform procedures to conclude whether there is a material
misstatement of the financial statements or a material
misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic report and Directors’ Report,
we also considered whether the disclosures required by the
UK Companies Act 2006 have been included.
Based on 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 Directors’ Report
In our opinion, based on the work undertaken in the course
of the audit, the information given in the Strategic report
and Directors’ Report for the year ended 31 December 2023
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 Directors’ Report.
152
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.
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.
153
Headlam Group PLC Annual Report & Accounts 2023Financial Statements INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HEADLAM GROUP PLC
CONTINUED
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 Listing Rules, 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 tax regulations. 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.
• Challenging assumptions and judgements made by
management in their significant accounting estimates
and judgements.
•
Testing of journals posted to revenue, rebates and
cash that have unusual account combinations.
There are inherent limitations in the audit procedures
described above. We are less likely to become aware of
instances of non-compliance with laws and regulations that
are not closely related to events and transactions reflected
in the financial statements. Also, the risk of not detecting
a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion.
Our audit testing might include testing complete
populations of certain transactions and balances, possibly
using data auditing techniques. However, it typically involves
selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to
target particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to
enable us to draw a conclusion about the population from
which the sample is selected.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared
for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in giving
these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown
or into whose hands it may come save where expressly
agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• we have not obtained all the information and
explanations we require for our audit; or
• adequate accounting records have not been kept by
the company, or returns adequate for our audit have not
been received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified
by law are not made; or
•
the company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the Audit Committee,
we were appointed by the members on 20 May 2016 to
audit the financial statements for the year ended
31 December 2016 and subsequent financial periods.
The period of total uninterrupted engagement is
8 years, covering the years ended 31 December 2016
to 31 December 2023.
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
5 March 2024
154
CONSOLIDATED
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
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 per share
Basic
Diluted
Ordinary dividend per share
Interim dividend for the
financial year
Final dividend declared
Note
2
2
6
6
3
7
9
9
23
23
Non-
underlying
(Note 3)
2023
£M
Underlying
2023
£M
656.5
(448.7)
207.8
(131.3)
(60.8)
0.4
16.1
0.3
(5.4)
(5.1)
11.0
(2.2)
—
—
—
—
(12.5)
8.6
(3.9)
—
—
—
(3.9)
2.8
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)
—
—
—
—
(1.5)
6.2
4.7
—
—
—
4.7
(0.8)
Total
2023
£M
656.5
(448.7)
207.8
(131.3)
(73.3)
9.0
12.2
0.3
(5.4)
(5.1)
7.1
0.6
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)
8.8
(1.1)
7.7
29.7
3.9
33.6
11.0p
10.9p
35.5p
35.2p
9.6p
9.6p
4.0p
6.0p
40.1p
39.8p
6.2p
11.2p
155
Headlam Group PLC Annual Report & Accounts 2023Financial Statements CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Profit for the year attributable to the equity shareholders
Other comprehensive (expense)/income
Items that will never be reclassified to profit or loss
Remeasurement of defined benefit plans
Related tax
Items that are or may be reclassified to profit or loss
Exchange differences arising on translation of overseas operations
Other comprehensive (expense)/income for the year
Total comprehensive income attributable to the equity shareholders for the year
Note
21
2023
£M
7.7
(0.3)
0.1
(0.2)
(0.2)
(0.2)
(0.4)
7.3
2022
£M
33.6
0.1
—
0.1
0.4
0.4
0.5
34.1
156
STATEMENTS OF
FINANCIAL POSITION
AT 31 DECEMBER 2023
Assets
Non-current assets
Property, plant and equipment
Investment properties
Right of use assets
Intangible assets
Deferred tax assets
Investments in subsidiary undertakings
Current assets
Inventories
Trade and other receivables
Non-current trade and other receivables
Income tax receivable
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Bank overdrafts
Other interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Employee benefits
Income tax payable
Non-current liabilities
Lease liabilities
Provisions
Deferred tax liabilities
Employee benefits
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium
Other reserves
Retained earnings
Total equity
Group
2023
£M
Note
10
10
18
11
13
12
14
15
15
8
16
17
17
18
19
21
8
18
20
13
21
23
23
127.6
—
41.6
19.4
0.9
—
189.5
131.5
117.1
—
3.1
21.1
272.8
462.3
(0.7)
(50.0)
(11.9)
(129.1)
(1.1)
—
(192.8)
(31.5)
(2.6)
(13.2)
(1.8)
(49.1)
(241.9)
220.4
4.3
53.5
(15.5)
178.1
220.4
2022
£M
119.9
—
36.7
17.8
—
—
174.4
139.8
119.1
—
—
2.1
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
Company
2023
£M
3.2
87.7
0.8
0.1
—
101.7
193.5
—
13.6
11.8
1.5
63.2
90.1
283.6
—
(50.0)
(0.1)
(41.4)
(1.1)
—
(92.6)
(0.8)
—
(7.7)
(1.2)
(9.7)
(102.3)
181.3
4.3
53.5
3.2
120.3
181.3
2022
£M
2.6
89.6
0.7
3.0
—
101.1
197.0
—
16.7
12.6
—
20.7
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
The notes on pages 161 to 207 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 £3.1 million (profit in 2022: £2.1 million).
The financial statements on pages 155 to 213 were approved by the Board of Directors on 5 March 2024 and were signed on its
behalf by
Chris Payne
Director
Company Number: 00460129
157
Headlam Group PLC Annual Report & Accounts 2023Financial Statements STATEMENT OF
CHANGES IN EQUITY – GROUP
FOR THE YEAR ENDED 31 DECEMBER 2023
Share
capital
£M
Share
premium
£M
Note
Capital
redemption
reserve
£M
Special
reserve
£M
Translation
reserve
£M
Treasury
reserve
£M
Retained
earnings
£M
Total
equity
£M
Balance at 1 January 2022
4.3
53.5
0.1
1.5
1.7
(4.9)
175.9
232.1
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
Balance at 1 January 2023
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 2023
—
—
—
—
—
—
—
—
—
4.3
4.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
53.5
53.5
—
—
—
—
—
—
—
—
4.3
—
53.5
—
—
—
—
—
—
—
—
—
0.1
0.1
—
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
1.5
1.5
—
—
—
—
—
—
—
—
1.5
—
0.4
0.4
—
—
—
—
—
—
2.1
2.1
—
(0.2)
(0.2)
—
—
—
—
—
1.9
—
—
—
—
0.4
—
(15.0)
—
(14.6)
(19.5)
(19.5)
—
—
—
—
0.5
—
—
33.6
33.6
0.1
33.7
0.5
34.1
0.9
(0.2)
(0.2)
—
(27.3)
0.9
0.2
(0.2)
(15.0)
(27.3)
(26.8)
(41.4)
182.8
182.8
224.8
224.8
7.7
7.7
(0.2)
(0.4)
7.5
7.3
0.6
(0.5)
(0.1)
(12.2)
0.6
—
(0.1)
(12.2)
0.5
(19.0)
(12.2)
178.1
(11.7)
220.4
158
Note
Share
capital
£M
Share
premium
£M
4.3
53.5
Special
reserve
£M
Treasury
reserve
£M
Retained
earnings
£M
22.1
(4.9)
154.0
Total
equity
£M
229.1
STATEMENT OF
CHANGES IN EQUITY – COMPANY
FOR THE YEAR ENDED 31 DECEMBER 2023
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
Balance at 1 January 2023
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
Dividends to equity holders
23
Total contributions by
and distributions to equity
shareholders
Balance at 31 December 2023
Capital
redemption
reserve
£M
0.1
—
—
—
—
—
—
—
—
—
0.1
0.1
—
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
—
4.3
4.3
—
—
—
—
—
—
—
4.3
—
—
—
—
—
—
—
—
—
53.5
53.5
—
—
—
—
—
—
—
53.5
—
—
—
—
—
—
—
—
—
22.1
22.1
—
—
—
—
—
—
—
—
—
—
0.4
—
(15.0)
—
(14.6)
(19.5)
(19.5)
—
—
—
—
0.5
—
2.1
0.1
2.2
2.1
0.1
2.2
0.9
0.9
(0.2)
(0.1)
—
(27.3)
(26.7)
129.5
129.5
0.2
(0.1)
(15.0)
(27.3)
(41.3)
190.0
190.0
3.1
3.1
(0.2)
(0.2)
2.9
2.9
0.6
0.6
(0.5)
(12.2)
—
22.1
0.5
(19.0)
(12.1)
120.3
—
(12.2)
(11.6)
181.3
159
Headlam Group PLC Annual Report & Accounts 2023Financial Statements CASH FLOW
STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
Cash flows from operating activities
Profit before tax for the year
Adjustments for:
Depreciation and impairment of property, plant and
equipment, amortisation and impairment of intangible
assets and other acquisition-related costs
Depreciation and impairment of right-of-use assets
Finance income
Finance expense
Insurance proceeds for property, plant and equipment
(following fire)
Profit on sale of property, plant and equipment
Share-based payments
Operating cash flows before changes in working capital
and other payables
Change in inventories
Change in trade and other receivables
Change in trade and other payables
Cash generated from/(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
Acquisition of subsidiary, net of cash acquired
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 increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at 31 December
Group
2023
£M
Company
2022
£M
2023
£M
2022
£M
Note
7.1
41.8
4.5
3.2
3
3
6
6
3
3
22
3
27
23
23
16
14.0
13.9
(0.3)
5.4
(8.6)
(1.1)
0.6
31.0
10.0
2.7
(22.1)
21.6
(4.7)
0.3
(4.7)
12.5
2.3
(6.1)
(17.4)
8.6
(0.8)
(13.4)
—
(5.2)
110.0
(60.3)
(13.0)
(12.2)
19.3
18.4
2.1
(0.1)
20.4
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
6.7
0.1
(7.3)
11.5
(7.1)
(1.1)
—
7.3
—
(4.6)
2.9
5.6
(2.6)
5.7
(4.4)
4.3
2.3
—
(3.0)
7.1
(0.7)
5.7
—
(5.2)
110.0
(60.0)
(0.1)
(12.2)
32.5
42.5
20.7
—
63.2
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
* During the period 1,566,622 (2022: 3,122,721) shares were acquired for £5.2 million (2022: £9.8 million) under the Group’s Share Buyback Programme.
160
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 5 March 2024.
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 06 and Chief Executive’s Review on pages 08 to 11.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial
Review on pages 32 to 39. 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. The Group 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.
The Group also has short term uncommitted facilities of £15.0 million and €4.8 million which are renewable on an annual basis.
As at 31 December 2023, the Group had net debt of £29.6 million and had total banking facilities available of £100.6 million, of
which £49.9 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 72 to 73 under Viability and Going Concern, the Directors have reviewed the Group’s and Company’s
resilience to the principal risks and uncertainties by considering forecasts through adverse scenarios, which involve a reduction
in market demand, including (A) an economic crisis with a sharp decline in demand before a recovery and (B) a sustained
recessionary environment, characterised by a long period of underperformance throughout the assessment period. The
testing indicated that the Group and Company would be able to operate within their banking facilities and meet their
financial covenants in both scenarios.
The Directors have a reasonable expectation that the Group and Company have 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.
In preparing the Financial Statements the Directors have considered the potential impact of climate change, particularly
in the context of the Taskforce for Climate-related Financial Disclosures (‘TCFD’) included in the Strategic Report. It is the
Directors’ opinion that the potential impact of climate change, after mitigating actions, is unlikely to be material. See TCFD
on pages 56 to 60, the Viability Statement on pages 72 to 73 and note 11 Intangible Assets.
161
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 Presentation of the Financial Statements and Accounting Policies continued
(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 2023, 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.
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. Estimations are required of the value in
use of the CGUs to which the assets are allocated. Estimating the value in use requires the Group to make an estimate of the
expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value
of those cash flows. Estimations are also required of the fair value less costs of disposal of the assets in the CGUs, including
the market value of the property. No impairment has been recognised as a result of impairment testing in the current year,
with the exception of the full impairment of specific IT assets held within property, plant and equipment ‘under construction’
and intangible assets ‘software development’ categories and specific property, plant and equipment and right of use assets
following strategic decisions to close certain sites. Further details of the impairment review can be found in note 11.
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:
Impairment
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.
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:
•
Insurance proceeds (following fire) and profit on sale of property, plant and equipment as these are non-recurring items;
• Amortisation of acquired intangibles and other acquisition-related items as they relate to the acquisition of businesses;
•
Impairment of intangibles, property, plant and equipment and right of use assets as, in totality, they are significant,
non-recurring items relating to the decision to replace the ERP system and the decision to close certain sites; and
• Business restructuring and change-related costs which is a significant item in 2023 comprising £3.4 million cash costs
and £2.0 million non-cash costs and relate to the period from January to December 2023. No further costs are currently
expected. See note 3 for further details.
162
(c) Impact of newly adopted accounting standards
A number of amendments to IFRSs became effective for the financial year beginning on 1 January 2023. The Group has
applied the amendments to IAS 1, Practice Statement 2, IAS 8 and IAS 12 (deferred tax related to assets and liabilities arising
from a single transaction and international tax reform pillar 2 model rules). The impact of this amendment is to disclose
deferred tax assets and liabilities gross for leases. See note 13.
(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.
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.
163
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 Presentation of the Financial Statements and Accounting Policies continued
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items
of property, plant and equipment.
Depreciation is charged to the income statement on a straight-line basis in order to depreciate assets to their residual value
over their useful economic lives. Assets begin to be depreciated from the date they become available for use. The annual rates
applicable are:
Land and buildings
Freehold and long leasehold properties
Plant and equipment
Motor and commercial vehicles
Office and computer equipment
Warehouse and production equipment
Solar panels
Land is not depreciated.
The residual balances are reviewed annually.
–
–
–
–
–
2%
10% – 25%
10% – 33%
10% – 20%
4%
Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and equipment and are recognised in the income statement.
Assets under construction are reported within property, plant and equipment. These assets are stated at cost and are
not depreciated until they are complete and utilised by the Group. The cost of self-constructed assets includes the cost
of materials, direct labour and any other costs directly attributable to bringing the asset to a working condition for its
intended use.
Investment properties
Investment properties are stated at cost less accumulated depreciation and impairment losses.
Depreciation is charged to the income statement on a straight-line basis in order to depreciate assets to their residual value
over their useful economic lives. The annual rate applicable is:
Freehold and long leasehold properties
–
2%
The residual balances are reviewed annually.
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.
164
Amortisation
Amortisation is charged to the income statement and is split over the estimated useful lives of each separately identifiable
intangible asset unless such lives are indefinite. Amortisation occurs on brand names, order book, non-compete agreements,
customer relationships, supply agreements and software development and is charged to administrative expenses in the
income statement. The estimated useful lives are assessed to be:
Brand names
Order book
Non-compete agreements
Customer relationships
Supply agreements
Software development
–
–
–
–
–
–
10 – 15 years
1 – 36 months
1 – 3 years
5 – 10 years
1 – 5 years
5 – 10 years
Financial assets
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.
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.
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.
165
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 Presentation of the Financial Statements and Accounting Policies continued
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. Each distribution centre (including satellite trade counters) is 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 costs of
disposal 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.
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.
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.
166
Defined benefit plans
The Group’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit
that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine
its present value, and the fair value of any plan assets is deducted. The liability discount rate is the yield at the Statement of
Financial Position date using AA rated corporate bonds that have maturity dates approximating to the terms of the Group’s
obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is
recognised as an expense in the income statement immediately.
To the extent that any benefits vest immediately, the expense is recognised directly in the income statement.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the
fair value of plan assets. The cost is included in finance expenses in the income statement.
All actuarial gains and losses that arise in calculating the Group’s obligation in respect of a scheme are recognised
immediately in reserves and reported in the statement of comprehensive income.
Where the calculation results in a benefit to the Group, the asset recognised is limited to the present value of any future
refunds from the plan or reductions in future contributions to the plan. The Company does not have an unconditional right to
a refund, or reduction in future contribution, under IFRIC 14. Consequently, the surplus balance sheet position at 31 December
2023 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. 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 116 to 139.
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.
The Company and Group also operate an Employee Long Service Award scheme whereby shares are issued to employees
meeting certain milestones of service for no cash consideration and vest immediately on the grant date. The market value of
the shares issued at grant date is recognised as an employee expense with a corresponding increase in equity.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, net of any tax effects,
is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a
deduction from total equity. 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.
167
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 Presentation of the Financial Statements and Accounting Policies continued
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.
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.
168
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.
Net financing costs
Net financing costs include interest receivable on funds invested, interest payable, interest on lease liabilities and net interest
expense on the net defined benefit liability.
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.
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.
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities
and where the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
The Group has adopted the amendments to IAS 12 for the first time in the current year. The IASB amended the scope of IAS 12
to clarify that the Standard applies to income taxes arising from tax law enacted or substantively enacted to implement the
Pillar Two model rules published by the OECD, including tax law that implements qualified domestic minimum top-up taxes
described in those rules.
169
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
1 Presentation of the Financial Statements and Accounting Policies continued
The amendments introduce a temporary exception to the accounting requirements for deferred taxes in IAS 12, so that
an entity would neither recognise nor disclose information about deferred tax assets and liabilities related to Pillar Two
income taxes.
The Group has applied the temporary exception issued by the IASB in May 2023 from the accounting requirements for deferred
taxes in IAS 12. Accordingly, the Group neither recognises nor discloses information about deferred tax assets and liabilities
related to Pillar Two income taxes.
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 principal items classed as non-underlying are described in the basis of preparation
in this note.
See page 208 for details on alternative performance measures.
2 Segment reporting
As at 31 December 2023, 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.
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.
Revenue
External revenues
Reportable segment underlying
operating profit
Reportable segment assets
Reportable segment liabilities
UK
2023
£M
Continental Europe
Total
2022
£M
2023
£M
2022
£M
2023
£M
2022
£M
577.3
577.8
79.2
85.8
656.5
663.6
22.0
359.4
(209.8)
36.8
371.0
(173.8)
0.2
35.6
(18.9)
3.4
40.7
(22.8)
22.2
395.0
(228.7)
40.2
411.7
(196.6)
During the year there were no inter-segment revenues for the reportable segments (2022: £nil).
In the UK the Group’s freehold properties are held within Headlam Group plc and a rent is charged to the operating segments.
In the current year this rent has been allocated to the operating segments to better reflect their performance.
170
Reconciliations of reportable segment profit, assets and liabilities and other material items:
Profit for the year
Total underlying operating profit for reportable segments
Non-underlying items
Unallocated expense
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit for the year
Assets
Total assets for reportable segments
Unallocated assets:
Intangible assets
Income tax receivable
Deferred tax assets
Cash and cash equivalents
Total assets
Liabilities
Total liabilities for reportable segments
Unallocated liabilities:
Income tax payable
Deferred tax liabilities
Total liabilities
2023
£M
22.2
(3.9)
(6.1)
12.2
0.3
(5.4)
7.1
0.6
7.7
2023
£M
2022
£M
40.2
4.7
(1.0)
43.9
0.7
(2.8)
41.8
(8.2)
33.6
2022
£M
395.0
411.7
0.1
3.1
0.9
63.2
462.3
3.0
—
—
20.7
435.4
(228.7)
(196.6)
—
(13.2)
(241.9)
(1.9)
(12.1)
(210.6)
Continental
Europe
£M
UK
£M
Reportable
segment
total
£M
Unallocated
£M
Consolidated
total
£M
Other material items 2023
Capital expenditure
Depreciation
Depreciation of right of use assets
Impairment of property, plant and equipment
Impairment of intangible assets
Impairment of right of use assets
Non-underlying items (excluding impairment)
Other material items 2022
Capital expenditure
Depreciation
Depreciation of right of use assets
Non-underlying items
17.1
6.7
12.0
1.9
—
0.4
(2.3)
12.1
5.9
10.7
(4.8)
0.3
0.4
1.5
—
—
—
0.1
0.5
0.3
1.8
0.1
17.4
7.1
13.5
1.9
—
0.4
(2.2)
12.6
6.2
12.5
(4.7)
—
—
—
—
3.6
—
0.2
—
—
—
—
17.4
7.1
13.5
1.9
3.6
0.4
(2.0)
12.6
6.2
12.5
(4.7)
171
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
2 Segment reporting continued
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
2023
£M
377.2
200.1
577.3
2022
£M
382.8
195.0
577.8
2023
£M
47.5
31.7
79.2
2022
£M
52.5
33.3
85.8
2023
£M
424.7
231.8
656.5
2022
£M
435.3
228.3
663.6
3 Profit before tax
The following material items are included in profit before tax:
Underlying items:
Depreciation on property, plant and equipment
Depreciation of right of use assets
Reduction in impairment loss allowance (note 24)
Non-underlying items:
Amortisation of intangibles and other acquisition-related costs
Impairment of property, plant and equipment, intangible asset and right of use assets
Insurance proceeds (following fire)
Profit on sale of property, plant and equipment
Business restructuring and change-related costs
Taxation on non-underlying items
2023
£M
2022
£M
7.1
13.5
(1.5)
19.1
2.3
5.9
(8.6)
(1.1)
5.4
3.9
(2.8)
1.1
6.2
12.5
(1.7)
17.0
1.5
—
(6.2)
—
—
(4.7)
0.8
(3.9)
Included within impairment is £3.6 million impairment of intangible assets, £1.9 million impairment of property, plant and
equipment and £0.4 million impairment of right of use assets. The impairment charges relate to the write off of software
development costs following the decision to replace the existing ERP system and the write down of assets following the
decision to close certain sites.
Insurance proceeds relates to an insurance claim for losses arising from the Kidderminster fire in December 2021. Profit on
sale of property, plant and equipment includes £1.2 million loss on disposal of items under construction relating to previously
capitalised costs associated with the rebuild of the Kidderminster site, including site clearance fees and professional adviser
fees incurred before the decision was made to dispose of the site and also a £2.3 million profit on sale relating to the ultimate
disposal of the Kidderminster land.
Business restructuring and change-related costs relate to network optimisation, including headcount reduction costs as
a result of the restructuring, together with the cost of closing certain sites and the implementation of dynamic transport
planning which led to further headcount reductions and vehicle termination costs. The costs comprise £3.4 million cash costs
and £2.0 million non-cash costs and relate to the period from January 2023 to December 2023. No further cash or non-cash
costs are currently expected in 2024.
See page 208 for details on alternative performance measures.
172
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
2023
£M
0.2
0.4
0.6
2022
£M
0.2
0.3
0.5
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
2023
2022
2023
2022
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)
2,311
27
2,338
2,106
232
2,338
2,152
27
2,179
1,964
215
2,179
—
27
27
—
27
27
Group
Company
2023
£M
83.8
0.6
10.4
4.4
99.2
2022
£M
79.6
0.9
10.4
3.8
94.7
2023
£M
2.7
—
0.2
0.2
3.1
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
2023
£M
1.3
—
1.3
—
27
27
—
27
27
2022
£M
2.9
0.2
0.4
0.1
3.6
2022
£M
1.1
0.3
1.4
Short-term employee benefits comprise salary and benefits earned during the year and bonuses awarded for the year.
Further details on Directors’ remuneration, share options and long-term incentive schemes are disclosed in the Remuneration
Report on pages 116 to 139.
173
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 (credit)/expense:
Current year
Adjustments for prior years
Deferred tax (credit)/expense:
Origination and reversal of temporary differences
Effect of change in UK tax rates
Adjustments for prior years
Total tax
Tax relating to items (credited)/charged to equity
Deferred tax on:
Share options
Deferred tax on other comprehensive expense:
Defined benefit plans
Total tax reported directly in reserves
2023
£M
2022
£M
0.3
—
0.3
(3.0)
(2.1)
(0.1)
(0.2)
(5.4)
2023
£M
—
(0.3)
(0.3)
(0.5)
—
0.2
(0.3)
(0.6)
2023
£M
0.1
(0.1)
—
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
2022
£M
0.2
—
0.2
Factors that may affect future current and total tax charges
The UK headline corporation tax rate for the year was 23.5% (2022: 19.0%). In the Spring Budget of 2021, the UK Government
announced that from 1 April 2023 the rate of UK corporation tax would increase from 19.0% to 25.0%. This new law was
substantively enacted on 24 May 2021. UK deferred tax assets and liabilities have been calculated at a rate of 25.0%
(2022: 25.0%).
The Group is within the scope of the OECD Pillar Two model rules. The Pillar Two legislation was enacted on 11 July 2023.
The Group does not expect the Pillar Two legislation to have any material impact.
174
Reconciliation of tax (credit)/charge
Profit before tax
Tax using the UK corporation tax rate of 23.5% (2022: 19.0%)
Effect of change in UK tax rate
Local tax incentives
(Non-taxable income)/non-deductible expenses
Impact of losses not recognised
Recognition of deferred tax on losses
Adjustments in respect of prior years
Total tax in income statement
Add back tax on non-underlying items
Total tax charge excluding non-underlying items
Profit before tax before non-underlying items
Adjusted effective tax rate excluding non-underlying items
Total effective tax rate (credit)/charge
2023
£M
2022
£M
7.1
1.7
—
—
(1.3)
—
(0.9)
(0.1)
(0.6)
2.8
2.2
11.0
41.8
7.9
0.3
(0.3)
0.5
(0.1)
—
(0.1)
8.2
(0.8)
7.4
37.1
20.0%
20.1%
(8.5)%
19.6%
8 Income tax receivable/payable
The Group’s current tax asset of £3.1 million (2022: liability of £1.9 million) represents the amount of income tax receivable
(2022: payable) in respect of current and prior year periods. The Company’s current tax asset of £1.5 million (2022: liability
£2.5 million) represents the amount of income tax receivable (2022: payable) in respect of current and prior year periods.
9 Earnings per share
Earnings for basic and diluted earnings per share
Earnings for underlying basic and underlying diluted earnings per share
2023
£M
7.7
8.8
2023
2022
£M
33.6
29.7
2022
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share
80,270,756
83,626,126
Effect of diluted potential ordinary shares:
Weighted average number of ordinary shares at 31 December
Dilutive effect of share options
80,270,756
83,626,126
107,110
615,584
Weighted average number of ordinary shares for the purposes of diluted earnings per share
80,377,866
84,241,710
Earnings per share
Basic
Diluted
Underlying basic
Underlying diluted
9.6p
9.6p
11.0p
10.9p
40.1p
39.8p
35.5p
35.2p
At 31 December 2023, the Company held 5,449,419 shares (2022: 4,046,617) 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.
175
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
10 Property, plant and equipment
Group property, plant and equipment
Cost
Balance at 1 January 2022
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Balance at 1 January 2023
Acquisitions
Additions
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 31 December 2023
Accumulated depreciation and impairment
Balance at 1 January 2022
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Balance at 1 January 2023
Depreciation charge for the year
Impairment charge
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2023
Net book value
At 1 January 2022
At 31 December 2022 and 1 January 2023
At 31 December 2023
Land and
buildings
£M
Plant and
equipment
£M
Under
construction
£M
127.2
4.8
(0.4)
0.3
131.9
131.9
0.1
4.7
(0.4)
0.9
(0.1)
137.1
30.4
2.6
(0.4)
0.2
32.8
32.8
3.4
0.7
(0.4)
(0.1)
36.4
96.8
99.1
100.7
43.7
3.5
(7.1)
0.3
40.4
40.4
0.5
10.8
(3.1)
2.2
(0.2)
50.6
28.2
3.6
(7.1)
0.2
24.9
24.9
3.7
0.1
(3.1)
(0.1)
25.5
15.5
15.5
25.1
1.0
4.3
—
—
5.3
5.3
—
1.9
(2.3)
(3.1)
—
1.8
—
—
—
—
—
—
—
1.1
(1.1)
—
—
1.0
5.3
1.8
Total
£M
171.9
12.6
(7.5)
0.6
177.6
177.6
0.6
17.4
(5.8)
—
(0.3)
189.5
58.6
6.2
(7.5)
0.4
57.7
57.7
7.1
1.9
(4.6)
(0.2)
61.9
113.3
119.9
127.6
£1.1 million of the impairment charge in the year relates to specific IT assets held in ‘under construction’ that have been written
off. £0.8 million of the impairment charge in the year relates to the impairment of specific assets following the decision to
close certain sites. These impairment charges are reported in non-underlying administrative expenses in the Consolidated
Income Statement.
176
Company investment properties and plant and equipment
Cost
Balance at 1 January 2022
Additions
Balance at 31 December 2022
Balance at 1 January 2023
Additions
Disposals
Balance at 31 December 2023
Accumulated depreciation
Balance at 1 January 2022
Depreciation charge for the year
Balance at 31 December 2022
Balance at 1 January 2023
Depreciation charge for the year
Impairment
Disposals
Balance at 31 December 2023
Net book value
At 1 January 2022
At 31 December 2022 and 1 January 2023
Investment
properties
£M
Plant and
equipment
£M
Plant and
equipment
under
construction
£M
Plant and
equipment
total
£M
116.8
—
116.8
116.8
—
—
116.8
25.4
1.8
27.2
27.2
1.9
—
—
29.1
91.4
89.6
—
0.8
0.8
0.8
2.2
—
3.0
—
—
—
—
0.1
—
—
0.1
—
0.8
1.0
0.8
1.8
1.8
0.8
(2.3)
0.3
—
—
—
—
—
1.1
(1.1)
—
1.0
1.8
1.0
1.6
2.6
2.6
3.0
(2.3)
3.3
—
—
—
—
0.1
1.1
(1.1)
0.1
1.0
2.6
At 31 December 2023
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 Group’s main sites in France and the Netherlands, for the
first time, which amounted to £10.3 million.
87.7
0.3
2.9
3.2
£1.1 million of the impairment charge in the year relates to specific IT assets held in ‘under construction’ that have been
written off.
177
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
11 Intangible assets
Group
Cost
Balance at
1 January 2022
Additions
Balance at
31 December 2022
Balance at
1 January 2023
Additions
Disposal
Balance at
31 December 2023
Impairment and
amortisation
Balance at
1 January 2022
Amortisation charge
for the year
Balance at
31 December 2022
Balance at
1 January 2023
Amortisation charge
for the year
Impairment charge
Disposals
Balance at
31 December 2023
Net book value
At 31 December 2022
and 1 January 2023
At 31 December 2023
Goodwill
£M
Order
book
£M
Customer
relationships
£M
Brand
names
£M
Non-
compete
£M
Supply
agreements
£M
Software
development
£M
Total
£M
37.9
—
37.9
37.9
3.6
—
41.5
30.3
—
30.3
30.3
—
—
—
6.5
—
6.5
6.5
—
—
6.5
6.5
—
6.5
6.5
—
—
—
30.3
6.5
7.6
11.2
—
—
7.4
—
7.4
7.4
0.5
—
7.9
3.6
0.8
4.4
4.4
0.7
—
—
5.1
3.0
2.8
7.6
—
7.6
7.6
1.7
—
9.3
2.8
0.7
3.5
3.5
0.7
—
—
4.2
4.1
5.1
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
2.1
1.2
3.3
3.3
0.8
(3.6)
61.8
1.2
63.0
63.0
6.6
(3.6)
0.5
66.0
0.3
—
0.3
0.3
—
3.6
43.7
1.5
45.2
45.2
1.4
3.6
(3.6)
(3.6)
0.3
46.6
3.0
0.2
17.8
19.4
Software development is internally generated and includes an amount of £0.2 million (2022: £3.0 million) not currently being
amortised as they are still in the course of development. The impairment charge of £3.6 million during the year relates to
software development costs following the decision to replace the existing ERP system. The impairment charge is reported in
non-underlying administrative expenses in the Consolidated Income Statement.
The remaining useful economic lives of intangible assets is as follows: customer relationships is 4 years; brand names is 9 years;
and supply agreement is 1 year.
Amortisation charged during the year of £1.4 million (2022: £1.5 million) is presented within administration expenses in the
Consolidated Income Statement.
Cumulative impairment losses recognised in relation to goodwill is £30.3 million (2022: £30.3 million).
178
Company
Cost
Balance at 1 January 2022
Additions
Balance at 31 December 2022
Balance at 1 January 2023
Additions
Disposals
Balance at 31 December 2023
Impairment and amortisation
Balance at 1 January 2022, 31 December 2022 and 1 January 2023
Impairment charge
Disposals
Balance at 31 December 2023
Net book value
Net book value at 31 December 2022 and 1 January 2023
Net book value at 31 December 2023
Software
development
£M
1.9
1.1
3.0
3.0
0.7
(3.6)
0.1
—
3.6
(3.6)
—
3.0
0.1
Software development is internally generated and includes an amount of £0.1 million (2022: £3.0 million) not currently being
amortised as they are still in the course of development. The impairment charge of £3.6 million during the year relates to
software development costs following the decision to replace the existing ERP system.
Impairment tests for cash-generating units (‘CGU’) containing goodwill
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 CGUs.
The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
Tamworth
Melrose
Other
Other
Reported
segment
UK
UK
UK
Continental Europe
2023
£M
6.2
3.2
1.4
0.4
11.2
2022
£M
6.2
—
1.4
—
7.6
Impairment of intangibles, property, plant and equipment and right of use assets
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 CGU.
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 costs of disposal and value in use. Where the
recoverable amount is less than the carrying value, an impairment results. For Tamworth and Melrose CGUs, the recoverable
amount has been determined based on value in use.
No impairment has been recognised as a result of impairment testing in the current year, with the exception of the impairment
of specific assets within property, plant and equipment and right of use assets following the strategic decision to close
certain sites, specific IT assets held within property, plant and equipment ‘under construction’ and intangible assets ‘software
development’ categories. This is included within non-underlying items.
179
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
11 Intangible assets continued
Key assumptions – value in use
Cash flows were projected based on actual operating results, the approved 2024 business plan and management’s
assessment of planned performance in the period to 2028. For the purpose of impairment testing, where there was goodwill
allocated to CGUs, the cash flows were assumed to grow into perpetuity at a rate of 2.0% beyond 2028. For CGUs with no
associated goodwill, revenue and central costs were assumed to grow at a rate of 2.0% for each year up to 2073, being a
50 year period in line with the deemed useful life of the property associated with the CGUs. The property value makes up the
majority of the value of the CGUs being assessed.
The main assumptions within the operating cash flows used for 2024 include the achievement of future sales volumes and
prices for all key product lines, control of purchase prices, achievement of budgeted operating costs and no significant
adverse foreign exchange rate movements. These assumptions have been reviewed in light of the current economic
environment. The assumptions for sales growth are 2% to 30% and the assumptions for gross margin are 23% to 50%.
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 13.3% (2022: 11.9%). 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 12.0% (2022: 12.2%) and in France, the pre-tax weighted average cost of capital is 12.7%
(2022: 12.9%).
Climate-related risks have been considered in relation to the impairment testing, assuming that a transition scenario is most
likely, including Extended Producer Responsibility (EPR) for bulky waste and reduced demand for current product offering. As
noted in the TCFD disclosure, the timing of any consultation on EPR is uncertain and, if implemented, the Group could mitigate
this risk by passing on significantly all of the cost to customers. Similarly, any risk from a reduced demand for the Group’s
current product offering could be mitigated by the Group quickly adapting its offering to reflect consumer preferences. As
such, neither risk is included in the base models but sensitivity analysis has been performed.
There is a high degree of uncertainty in the cost estimates for a zero emission HGV fleet. It has been assumed, for this
impairment modelling, that the cost of operating a zero emission HGV fleet is broadly comparable to that of operating a
diesel fleet. This assumption is consistent with the TCFD disclosure and is on the basis that there is a very large global market
for HGVs, which provides commercial incentive for companies to develop a viable, cost-effective zero emission solution
for HGVs.
Key assumptions – fair value less costs of disposal
The most significant component of the fair value less costs of disposal figures for the CGUs relate to the freehold and long
leasehold properties. The fair values have been calculated with reference to the independent valuation of the properties that
was performed on 18 January 2023. The valuation is considered to be level 3 in the fair value hierarchy due to unobservable
inputs used in the valuation. After considering movements in the macro-economic environment relating to commercial
properties it has been assumed that there has been no significant movement in the valuation between January and
December 2023.
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:
Key assumptions - value in use:
•
sales growth decrease of 2% in first five years;
• gross margin decrease of 1% in first five years;
• pre-tax discount rate, used to convert the cash flow forecasts to present values, increase of 1%;
• a shift away from non-sustainable to more sustainable flooring at a rate of 0.5% of mix per year, settling in the medium
term, with an associated gross profit reduction; and
•
introduction of EPR costing 0.6% of revenue from 2027 with none of the cost passed onto customers;
Key assumptions - fair value less costs of disposal:
• decreases in fair values of the property of 5%
One CGU is materially sensitive to the sales growth and gross margin sensitivities and would require an impairment of
£4.4 million (£3.2 million to goodwill, £0.6m to right of use assets, £0.4 million to intangibles and £0.2 million to property,
plant and equipment) and £1.2 million to goodwill respectively should these sensitivities occur independently as above. The
same CGU is materially sensitive to a combination of all sensitivities above and would require an impairment of £6.4 million
(£3.2 million to goodwill, £1.5 million to right of use assets, £1.2 million to intangibles and £0.5 million to property, plant and
equipment) should all five value in use sensitivities occur simultaneously as above.
180
12 Investments in subsidiary undertakings
Company
Summary information on investments in subsidiary undertakings is as follows:
Cost
Balance at 1 January 2022
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2022
Balance at 1 January 2023
Share options granted to employees of subsidiary undertakings
Balance at 31 December 2023
Impairment
Balance at 1 January 2022 and 31 December 2022
Balance at 1 January 2023 and 31 December 2023
Carrying value
At 1 January 2022
At 31 December 2022
At 31 December 2023
£M
117.0
0.7
117.7
117.7
0.6
118.3
(16.6)
(16.6)
100.4
101.1
101.7
A full list of the Group’s subsidiaries is listed on page 207.
The investments in subsidiaries are assessed annually to determine if there is any indication of impairment. As at December
2023 there has been no indication of impairment in the Company’s investments in subsidiary undertakings.
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
Tax losses
Other items
Tax assets/(liabilities)
Set-off of tax
Assets
2023
£M
—
—
7.5
1.0
1.1
0.3
9.9
(9.0)
0.9
2022
£M
—
—
8.5
1.5
—
0.2
10.2
(10.2)
—
Liabilities
Net
2023
£M
(11.9)
(2.4)
(7.9)
—
—
—
(22.2)
9.0
(13.2)
2022
£M
(11.3)
(2.1)
(8.9)
—
—
—
(22.3)
10.2
(12.1)
2023
£M
(11.9)
(2.4)
(0.4)
1.0
1.1
0.3
(12.3)
—
(12.3)
2022
£M
(11.3)
(2.1)
(0.4)
1.5
—
0.2
(12.1)
—
(12.1)
181
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
13 Deferred tax assets and liabilities continued
Movement in deferred tax assets during the year
Tax losses
1 January
2023
£M
Acquisition
of subsidiary
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2023
£M
—
—
—
—
0.9
0.9
—
—
0.9
0.9
Movement in deferred tax liabilities during the year
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Tax losses
Other items
1 January
2023
£M
Acquisition
of subsidiary
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2023
£M
(11.3)
(2.1)
(0.4)
1.5
—
0.2
(0.1)
(0.5)
—
—
—
0.1
(12.1)
(0.5)
(0.5)
0.2
—
(0.5)
0.2
—
(0.6)
—
—
—
—
—
—
—
(11.9)
(2.4)
(0.4)
1.0
0.2
0.3
(13.2)
Movement in deferred tax liabilities during the prior year
1 January
2022
£M
Acquisition
of subsidiary
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2022
£M
Property, plant and equipment
Intangible assets
Leases
Employee benefits
Other items
(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)
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
Assets
Liabilities
Net
2023
£M
—
0.8
0.8
(0.8)
—
2022
£M
—
1.2
1.2
(1.2)
—
2023
£M
(8.5)
—
(8.5)
0.8
(7.7)
2022
£M
(9.2)
—
(9.2)
1.2
(8.0)
2023
£M
(8.5)
0.8
(7.7)
—
(7.7)
(11.3)
(2.1)
(0.4)
1.5
0.2
(12.1)
2022
£M
(9.2)
1.2
(8.0)
—
(8.0)
182
Movement in deferred tax during the year
Property, plant and equipment
Employee benefits
Movement in deferred tax during the prior year
Property, plant and equipment
Employee benefits
1 January
2023
£M
Recognised
in income
£M
Recognised
in equity
£M
31 December
2023
£M
(9.2)
1.2
(8.0)
0.7
(0.5)
0.2
—
0.1
0.1
(8.5)
0.8
(7.7)
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)
Unrecognised deferred tax assets and liabilities – Group and Company
At 31 December 2023, the Group and Company has unused capital losses of £4.0 million (2022: £8.8 million) available for
offset against future chargeable gains. In addition, the Group has an unrecognised deferred tax asset in respect of tax losses
in France of £0.3 million (2022: £1.2 million). The Directors have considered the probability that the deferred tax asset will be
recoverable within the foreseeable future and concluded that no additional deferred tax asset should be recognised at
31 December 2023.
14 Inventories
Goods for resale
Balance as at 31 December
Group
Company
2023
£M
131.5
2022
£M
139.8
2023
£M
—
2022
£M
—
During the period, inventories of £448.7 million (2022: £444.1 million) were recognised as an expense and included in cost of
sales in the Consolidated Income Statement. Included within this expense is a £8.0 million charge (2022: £8.5 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)
Group
Company
2023
£M
79.7
10.1
27.3
—
—
117.1
2022
£M
83.2
9.7
26.1
—
0.1
119.1
2023
£M
—
1.0
1.4
11.2
—
13.6
2022
£M
—
0.7
0.1
15.9
—
16.7
183
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
15 Trade and other receivables continued
Non Current
Amounts due from subsidiary undertakings
Group
Company
2023
£M
—
—
2022
£M
—
—
2023
£M
11.8
11.8
2022
£M
12.6
12.6
Amounts due from subsidiary undertakings are unsecured, interest bearing and are repayable on demand.
£1.5 million (2022: £1.7 million reduction) was recognised as a reduction in the impairment loss allowance in the Consolidated
Income Statement in respect of trade receivables.
The receivables written off during the year as uncollectible are attributable to the reportable segments as follows:
UK
Continental Europe
Group
Company
2023
£M
0.6
0.2
0.8
2022
£M
0.6
0.2
0.8
2023
£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
2023
£M
21.1
21.1
2022
£M
2.1
2.1
2023
£M
63.2
63.2
2022
£M
—
—
—
2022
£M
20.7
20.7
Cash and cash equivalents of £21.1 million (2022: £2.1 million) is shown net of overdrawn bank accounts of £186.0 million
(2022: £90.5 million) that have a right of set-off under the UK overdraft facilities. Gross cash without the set-off agreement is
£207.1 million (2022: £92.6 million).
Reconciliation to cash flow statement
Cash and cash equivalents per Statement of Financial Position
Bank overdraft
Cash and cash equivalents per Cash Flow Statement
Group
Company
2023
£M
21.1
(0.7)
20.4
2022
£M
2.1
—
2.1
2023
£M
63.2
—
63.2
2022
£M
20.7
—
20.7
184
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.
At 31 December 2023, 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 which will expire in October 2027. The
Group had short term uncommitted facilities of £15.0 million in the UK and €4.8 million facility in Continental Europe. These
are renewable on an annual basis. The total banking facilities available to the Group at 31 December 2023 were £100.6 million
(2022: £100.3 million).
Facilities
31 December
2023
£M
31 December
2022
£M
Sterling RCF
Sterling uncommitted facilities UK
Euro uncommitted facilities Continental Europe
81.5
15.0
4.1
100.6
For more information about the Group’s and Company’s exposure to interest rate and foreign currency risk, see note 24.
Current liabilities
Bank overdraft
Interest-bearing loan
Group
Company
2023
£M
0.7
50.0
50.7
2022
£M
—
0.3
0.3
2023
£M
—
50.0
50.0
81.5
15.0
3.8
100.3
2022
£M
—
—
—
The Group has undrawn borrowing facilities at 31 December 2023, which amounted to £49.9 million (2022: £100.0 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 2023 and there were no breaches.
The undrawn borrowing facilities are as follows:
UK
Netherlands
France
Interest
rate
%
5.9
7.2
5.0
Interest
rate
%
4.9
4.7
3.1
2023
£M
46.5
1.4
2.0
49.9
2022
£M
96.5
1.7
1.8
100.0
The undrawn borrowing facilities consisted of £31.5 million committed and £18.4 million uncommitted facilities (2022: £81.5
million committed and £18.5 million uncommitted).
All the borrowing facilities above bear interest at floating rates.
185
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
17 Other interest-bearing loans and borrowings continued
Changes in net debt
Cash at bank and in hand
Bank overdraft
Debt due within one year
Lease liabilities
Liabilities from financing activities
At
1 January
2023
£M
Acquisitions
£M
Non-cash
items
£M
2.1
—
(0.3)
(37.7)
(38.0)
0.5
—
—
(2.7)
(2.7)
—
—
—
(18.2)
(18.2)
Cash
flows
£M
18.6
(0.7)
(49.7)
15.1
(35.3)
Foreign
exchange
movements
£M
At
31 December
2023
£M
(0.1)
21.1
—
—
0.1
0.1
(0.7)
(50.0)
(43.4)
(94.1)
Net funds/(debt)
1.8
0.5
—
(31.8)
(0.1)
(29.6)
Net debt including lease liabilities
(35.9)
(2.2)
(18.2)
(16.7)
—
(73.0)
Cash at bank and in hand
Debt due within one year
Debt due after one year
Lease liabilities
Liabilities from financing activities
Net funds
Net funds/(debt) including lease liabilities
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.
186
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 2022
Additions
Contract modifications
Depreciation
Effect of movements in foreign exchange
Net book value at 31 December 2022
Net book value at 1 January 2023
Acquisitions
Additions
Contract modifications
Depreciation
Impairment
Effect of movements in foreign exchange
Net book value at 31 December 2023
Group
Company
Properties
£M
Non-
property
£M
9.4
3.2
2.9
(3.7)
0.1
11.9
11.9
2.6
6.8
2.0
(4.1)
(0.4)
(0.1)
18.7
25.6
7.9
—
(8.8)
0.1
24.8
24.8
0.1
7.6
(0.2)
(9.4)
—
—
22.9
Total
£M
35.0
11.1
2.9
(12.5)
0.2
36.7
36.7
2.7
14.4
1.8
(13.5)
(0.4)
(0.1)
41.6
Properties
£M
0.7
—
—
—
—
0.7
0.7
—
0.2
—
(0.1)
—
—
0.8
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
2023
£M
11.9
31.5
43.4
2022
£M
11.4
26.3
37.7
2023
£M
0.1
0.8
0.9
The lease liabilities are split on the balance sheet between current and non-current.
Amounts recognised in the Consolidated Income Statement
Interest on lease liabilities
Expenses relating to leases of low-value assets
Group
2023
£M
2.1
0.1
2022
£M
0.1
0.7
0.8
2022
£M
1.4
0.1
The total cash outflow for leases during the year ended 31 December 2023 was £15.2 million (2022: £14.1 million) for the Group
and £0.1 million (2022: £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.
187
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
19 Trade and other payables
Current
Trade payables
Taxation and social security
Non-trade payables and accrued expenses
Amounts due to subsidiary undertakings
Group
Company
2023
£M
93.3
14.7
21.1
—
129.1
2022
£M
110.7
15.2
27.3
—
153.2
2023
£M
0.6
3.2
1.8
35.8
41.4
Amounts due to subsidiary undertakings are unsecured, interest free 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
Acquired through business combination (note 27)
Utilisation of provisions
Charged/(credited) to the income statement:
Additional provisions
Release of provisions
Balance at 31 December
Property
2023
£M
1.7
0.8
—
0.1
—
2.6
2022
£M
0.5
2.1
8.9
31.0
42.5
2022
£M
2.7
—
(0.1)
—
(0.9)
1.7
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.
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.
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.
188
There have been no curtailments or settlements made to the plan over 2023. 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 current investment strategy is to hold 92.5% Liability Hedging Assets and 7.5% Cashflow Matching Credit Assets.
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.
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.
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 losses/(gains) – financial
Net remeasurement gains – demographic
Net remeasurement (gains)/losses – experience
Benefits paid
At 31 December
Group
Company
2023
£M
(69.2)
73.6
4.4
(6.7)
(2.3)
(0.6)
(2.9)
(1.1)
(1.8)
(2.9)
2022
£M
(72.0)
74.1
2.1
(5.3)
(3.2)
(0.5)
(3.7)
(1.0)
(2.7)
(3.7)
2023
£M
(69.2)
73.6
4.4
(6.7)
(2.3)
—
(2.3)
(1.1)
(1.2)
(2.3)
Group
Company
2023
£M
72.0
3.4
0.7
(1.4)
(2.4)
(3.1)
69.2
2022
£M
107.0
2.0
(35.8)
(0.5)
5.4
(6.1)
72.0
2023
£M
72.0
3.4
0.7
(1.4)
(2.4)
(3.1)
69.2
2022
£M
(72.0)
74.1
2.1
(5.3)
(3.2)
—
(3.2)
(1.0)
(2.2)
(3.2)
2022
£M
107.0
2.0
(35.8)
(0.5)
5.4
(6.1)
72.0
189
Headlam Group PLC Annual Report & Accounts 2023Financial 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
Benefits paid
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
2023
£M
74.1
3.5
(2.2)
1.3
(3.1)
73.6
2022
£M
119.1
2.2
(42.2)
1.1
(6.1)
74.1
2023
£M
74.1
3.5
(2.2)
1.3
(3.1)
73.6
Group
Company
2023
£M
3.4
61.7
6.2
0.9
0.7
0.7
73.6
2022
£M
17.1
44.4
13.5
0.9
(11.1)
9.3
74.1
2023
£M
3.4
61.7
6.2
0.9
0.7
0.7
73.6
2022
£M
119.1
2.2
(42.2)
1.1
(6.1)
74.1
2022
£M
17.1
44.4
13.5
0.9
(11.1)
9.3
74.1
* 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
2023
£M
5.3
0.2
1.2
6.7
2022
£M
16.4
0.3
(11.4)
5.3
2023
£M
5.3
0.2
1.2
6.7
2022
£M
16.4
0.3
(11.4)
5.3
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
2023
£M
0.1
0.1
2022
£M
0.1
0.1
190
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
Group
2023
£M
2.2
0.7
(1.4)
(2.4)
1.2
0.3
2022
£M
42.2
(35.8)
(0.5)
5.4
(11.4)
(0.1)
2022
%
4.8
3.5
3.5
3.5
UK
2023
%
4.5
3.2
3.2
3.2
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
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
_2022 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,
2020/2021 weighting parameters
of 0% and a 2022 weighting
parameter of 25%.
98%(M)/107%(F) of the S3PA
tables with future improvements
from 2013 in—line with the CMI
_2022 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,
2020/2021 weighting parameters
of 0% and a 2022 weighting
parameter of 25%.
98%(M)/107%(F) of the S3PA
tables with future improvements
from 2013 in—line with the CMI
_2022 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 2020/2021 weighting
parameter of 0%.
98%(M)/107%(F) of the S3PA
tables with future improvements
from 2013 in—line with the CMI
_2022 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%.
191
Headlam Group PLC Annual Report & Accounts 2023Financial 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
Group
2023
Years
23.8
22.2
25.7
24.0
2022
Years
24.3
22.7
26.1
24.4
Company
The principal actuarial assumptions for the Company are the same as those disclosed for the UK above.
Sensitivity analysis
The table below shows the impact on the defined benefit obligation of changing each of the most significant assumptions in
isolation.
Effect in £M
Discount rate
Rate of inflation (RPI)*
Assumed life expectancy
One-year movement
* With corresponding changes to the salary and pension increase assumptions.
Impact on scheme
liabilities
2023
Impact on scheme
liabilities
2022
Change in assumption
Increase
Decrease
Increase
Decrease
1.0% movement
0.25% movement
(7.7)
1.7
2.3
9.4
(1.6)
(2.4)
(8.1)
1.7
2.3
10.0
(1.6)
(2.4)
The figures in the table as at 31 December 2023 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 2022 have been
calculated by applying the same percentage increase or decrease as at 31 December 2023.
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 2023 is £0.6 million (2022: £0.5 million). This is reported as other long-term employee
benefits within the employee benefits disclosure.
Total Group pension costs
Included within the total staff costs as disclosed in note 4 are costs relating to the Group’s defined contribution plans. The
pension cost for the year represents contributions payable by the Group to the plans and amounted to £4.4 million (2022:
£3.8 million). Contributions amounting to £0.5 million (2022: £0.5 million) in respect of the December 2023 payroll were paid in
January 2024.
22 Share-based payments
Group and Company
Executive Directors and executive management currently participate in executive share option schemes. The Group operates
the Headlam Group Performance Share Plan 2017, Deferred Bonus 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 116 to 139.
The Group operates the Headlam Management Incentive Plan which was approved by shareholders at the 2023 annual
general meeting. The plan enables the grant of market value options to senior managers below the Executive Team. The
options are intended to focus and incentivise senior managers for multi-year strategy delivery. Options granted will vest three
years after the date of grant and remain exercisable up until the tenth anniversary of their grant date.
Additionally, the Group operates a savings-related share option scheme (‘Sharesave scheme’) which is open to employees
subject to eligibility criteria determined by the Directors prior to each option grant. The most recent grant was on 6 October
2023 when employees with over one month’s service were invited to participate.
192
During the year the Group has introduced an Employee Long Service Award Scheme to recognise the long service of
employees across the Group. Employees are awarded ordinary shares for no cash consideration after certain milestones of
service. There were two share grants during the year, 120,200 shares were granted on 13 April 2023 with a fair value of 298.0p
and 10,500 shares were granted on 12 September 2023 with a fair value of 230.0p. The fair value of the services received in
return for the shares issued is measured at the closing share price on the grant date.
The terms and conditions of the grants are as follows, whereby all options are settled by physical delivery of shares:
Number of instruments
Grant date/employees entitled
Headlam Group Performance Share
Plan 2017 granted to key management
5 July 2017*
2023
767
2022 Vesting conditions
Contractual life
of options
767 Awards will vest between 25%
06/07/20 – 06/07/27
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
Five-year Sharesave scheme granted
to other employees 3 May 2017
Five-year Sharesave scheme granted
to other employees 1 May 2018
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
Deferred Bonus Plan granted to
Executive Directors 13 April 2023*
Headlam Group Performance Share
Plan 2017 granted to key management
29 June 2023*
22,563
627,142
—
7,751 Continuous service
01/07/22 – 01/01/23
16,344
16,344 Continuous service
01/07/23 – 01/01/24
—
—
151,077 Continuous service
01/07/22 – 01/01/23
389,418 Awards will vest between 25%
12/09/23 – 11/09/30
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
716,212
931,297 Continuous service
01/11/23 – 30/04/24
165,434
200,474 Awards will vest between 25%
10/04/24 – 09/04/31
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
73,530
131,625 Continuous service
01/11/24 – 30/04/25
167,114
198,476 Awards will vest between 25%
09/04/25 – 08/04/32
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
294,392
533,326 Continuous service
01/11/25 – 30/04/26
36,976
36,976 Awards will vest between 25%
08/10/25 – 07/10/32
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
— Continuous service
14/04/25 – 13/04/33
— Awards will vest between 25%
and 100% for performance
between ‘threshold’ performance
and ‘maximum’ performance
30/06/26 – 29/06/33
Management Long Term Incentive Plan
granted to senior management
29 June 2023
Three-year Sharesave scheme granted
to other employees 6 October 2023
633,961
— Continuous service
30/06/26 – 29/06/33
1,169,301
— Continuous service
01/11/26 — 01/05/27
Total share options
3,923,736
2,597,531
* Further details are provided on pages 116 to 139 of the Remuneration Report.
193
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
22 Share-based payments continued
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Lapsed during the year
Forfeited during the year
Cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted
average
exercise price
(pence)
2023
172.9
227.0
145.6
255.9
45.5
272.8
163.0
229.6
Weighted
average
exercise price
(pence)
2022
161.1
122.7
158.4
2.0
221.1
303.6
172.9
364.1
Number
of options
2023
2,597,531
(6,673)
2,649,701
(20,199)
(727,225)
(569,399)
3,923,736
733,323
Number
of options
2022
2,526,045
(57,054)
778,924
(379,461)
(107,009)
(163,914)
2,597,531
159,595
The weighted average share price at the date of exercise for options exercised during the year was 250.0p (2022: 379.0p).
The options outstanding at the year-end have an exercise price in the range of 0.0p to 400.0p and a weighted average
remaining contractual life of 5.1 years (2022: 3.9 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 2023 are shown below:
2023
Number of options granted
Grant date
Fair value at measurement
date:
No performance conditions
Performance conditions
EPS 70%, ESG 10% & TSR 20%
Share price at 31 December
Exercise price
Expected volatility
Option life
Dividend yield
Risk-free rate of interest
Performance
Share Plan
2017
Sharesave
scheme
Management
Incentive Plan
2023
Deferred
Bonus Plan
2017
775,782
1,191,358
659,998
22,563
29 June 2023 6 October 2023 29 June 2023
13 April 2023
—
186.80
216.00
—
38%
52.01
–
216.00
181.60
35%
47.30
–
216.0
256.6
39%
259.02
–
216.0
—
32%
three years
three years
three years
two years
7.0%
5.14%
6.2%
4.52%
7.0%
4.98%
7.0%
3.81%
194
The total expenses recognised for the year arising from share-based payments are as follows:
Options issued
Shares issued
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
2023
£M
0.2
0.4
0.6
2022
£M
0.9
—
0.9
2023
£M
—
—
—
2022
£M
0.2
—
0.2
2023
£M
0.2
0.4
0.6
2022
£M
0.7
—
0.7
Ordinary shares
2023
2022
107,840,000
107,840,000
85,639,209
85,639,209
2023
£M
4.3
4.3
2022
£M
4.3
4.3
At 31 December 2023, the Company held 5,449,419 shares (2022: 4,046,617) 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 6.4% (2022: 4.7%) of the issued share capital as at 31 December 2023 with a nominal value of
£0.3 million (2022: £0.2 million).
During the year 1,566,622 (2022: 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 had a total
commitment of up to £15.0 million. The share buyback programme closed in the year. The shares were acquired at an average
price of 335p (2022: 314p) per share, with prices ranging from 304p to 349p (2022: 236p to 394p).
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
Final dividend for 2021 of 8.6p paid 27 May 2022
Special dividend of 17.7p paid 27 May 2022
Interim dividend for 2022 of 6.2p paid 28 November 2022
Final dividend for 2022 of 11.2p paid 2 June 2023
Interim dividend for 2023 of 4.0p paid 28 November 2023
2023
£M
—
—
—
9.0
3.2
12.2
2022
£M
7.2
14.9
5.2
—
—
27.3
The Board of Directors have declared a final dividend of 6.0p per share which if approved by shareholders at the forthcoming
AGM, will be payable on 7 June 2024.
The total value of dividends proposed or declared but not recognised at 31 December 2023 is £4.8 million (2022: £9.0 million).
195
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
23 Capital and reserve continued
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 2023, this reserve was £1.5 million and there were no changes to this special reserve during the current or
previous year.
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.
196
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
2023
£M
107.0
21.1
—
128.1
2022
£M
109.3
2.1
0.1
111.5
2023
£M
24.4
63.2
—
87.6
2022
£M
28.6
20.7
—
49.3
The fair values of the above financial assets at both 31 December 2023 and 2022, are deemed to approximate to carrying
value due to the short-term maturity of the instruments.
All other receivables and derivative financial assets are not past due (2022: not past due).
The Company had trade receivables of £nil (2022: £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 2023 or 31
December 2022 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 2023 is determined as follows;
Ageing based on invoice date
31 December 2023
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
Ageing based on invoice date
31 December 2022
Expected loss rate
Gross carrying amount – trade receivables (millions)
Loss allowance (millions)
30–60 days 60–90 days
Over
90 days
0.9%
39.9%
0.2%
25.9
—
7.6
0.1
Current
< 30 days
0.2%
43.8
0.1
Current
< 30 days
30–60 days
60–90 days
0.2%
50.4
0.1
0.5%
24.3
0.1
24.0%
8.9
2.2
4.3
1.7
Over
90 days
47.1%
3.8
1.8
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
2023
£M
71.2
8.5
79.7
2022
£M
71.4
11.8
83.2
2023
£M
—
—
—
During the year the Group’s impairment reversal as a percentage of revenue amounted to 0.2% (2022: 0.3%).
Total
81.6
1.9
Total
87.4
4.2
2022
£M
—
—
—
197
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
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
Closing loss allowance at 31 December
Group trade
receivables
Company trade
receivables
2023
£M
4.2
(1.5)
(0.8)
1.9
2022
£M
6.7
(1.7)
(0.8)
4.2
2023
£M
—
—
—
—
2022
£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 £11.3 million (2022: £3.0 million). The increase in the
loss allowance in the year is driven by the increase in the effective interest rate implicit in the amounts due from subsidiary
undertakings alongside a reduction in forecasted cash flows of the borrowing subsidiary.
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. Details of the total facilities that the Group has access to are
given in note 17.
The following are the contractual maturities of financial liabilities:
31 December 2023
Group
Non-derivative financial liabilities
Overdraft
Unsecured bank loans
Trade and other payables
Lease liabilities
31 December 2022
Group
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Lease liabilities
Carrying
amount
£M
Contractual
cash flows
£M
0.7
50.0
114.4
43.4
208.5
(0.7)
(50.0)
(114.4)
(50.9)
(216.0)
Carrying
amount
£M
Contractual
cash flows
£M
0.3
138.0
37.7
176.0
(0.3)
(138.0)
(42.2)
(180.5)
1 year
or less
£M
(0.7)
(50.0)
(114.4)
(13.7)
(178.8)
1 year
or less
£M
(0.3)
(138.0)
(12.4)
(150.7)
1–2
years
£M
—
—
—
(11.4)
(11.4)
1–2
years
£M
—
—
(9.8)
(9.8)
2–5
years
£M
5 years
or more
£M
—
—
—
(17.3)
(17.3)
—
—
—
(8.5)
(8.5)
2–5
years
£M
5 years
or more
£M
—
—
(15.9)
(15.9)
—
—
(4.1)
(4.1)
198
31 December 2023
Company
Non-derivative financial liabilities
Unsecured bank loans
Trade and other payables
Lease liabilities
31 December 2022
Company
Non-derivative financial liabilities
Trade and other payables
Lease liabilities
Carrying
amount
£M
Contractual
cash flows
£M
50.0
38.2
0.9
89.1
(50.0)
(38.2)
(2.0)
(90.2)
Carrying
amount
£M
Contractual
cash flows
£M
40.4
0.8
41.2
(40.4)
(1.9)
(42.3)
1 year
or less
£M
(50.0)
(38.2)
(0.1)
(88.3)
1 year
or less
£M
(40.4)
(0.1)
(40.5)
1–2
years
£M
2–5
years
£M
5 years
or more
£M
—
—
(0.1)
(0.1)
—
—
(0.1)
(0.1)
1–2 years
£M
2–5 years
£M
—
(0.1)
(0.1)
—
(0.1)
(0.1)
—
—
(1.7)
(1.7)
5 years
or more
£M
—
(1.6)
(1.6)
The value of the Group’s and Company’s financial liabilities as detailed above at 31 December 2023 and 2022 were not
materially different to the carrying value. Fair values were calculated using market rates, where available. Where market values
are not available, fair values have been estimated by discounting expected future cash flows using prevailing interest rate
curves. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the Statement of Financial
Position date.
The table below sets out the Group’s accounting classification of each class of financial assets and liabilities at 31 December
2023 and 2022.
31 December 2023
Cash and cash equivalents
Bank overdraft
Borrowings due within one year
Trade payables
Non-trade payables
Lease liabilities
Trade receivables
Other receivables
Provisions
Fair value
through
profit or loss
(FVPL)
£M
Amortised
cost
£M
Total
carrying
value
£M
—
—
—
—
—
—
—
—
—
—
21.1
(0.7)
(50.0)
(93.3)
(21.1)
(43.4)
79.7
27.3
(2.6)
(83.0)
21.1
(0.7)
(50.0)
(93.3)
(21.1)
(43.4)
79.7
27.3
(2.6)
(83.0)
199
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
31 December 2022
Cash and cash equivalents
Borrowings due within one year
Trade payables
Non-trade payables
Lease liabilities
Trade receivables
Other receivables
Provisions
Derivative assets
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)
—
(66.3)
2.1
(0.3)
(110.7)
(27.3)
(37.7)
83.2
26.1
(1.7)
0.1
(66.2)
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.
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments
Financial assets
Financial liabilities
Group carrying
amount
Company carrying
amount
2023
£M
21.1
(50.7)
(29.6)
2022
£M
2.1
(0.3)
1.8
2023
£M
63.2
(50.0)
13.2
2022
£M
20.7
—
20.7
200
Sensitivity analysis
A change of 100 basis points in the interest rates at the reporting date would have increased/(decreased) equity and profit
or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant. The analysis is performed on the same basis for 2022.
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 2023
Variable rate
instruments
31 December 2022
Variable rate
instruments
(0.3)
0.3
—
—
—
—
—
—
0.6
(0.6)
0.2
(0.2)
—
—
—
—
Foreign currency risk
The Group and Company are exposed to movements in currency exchange rates arising from transaction currency cash flows
and the translation of the results and net assets of overseas subsidiaries. The currencies giving rise to this risk are primarily the
euro, 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 2023 amounted to £nil (2022: asset of £0.1 million).
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
Total current derivative financial instrument assets
Group
Company
2023
£M
—
—
2022
£M
0.1
0.1
2023
£M
—
—
2022
£M
—
—
Derivatives are only used for economic hedging purposes and not as speculative investments.
The movements in respect of derivative financial instruments were as follows:
Opening balance 1 January
Charge to profit or loss
Closing balance 31 December
Foreign
currency
forwards
2023
£M
Foreign
currency
forwards
2022
£M
0.1
(0.1)
—
(0.1)
0.2
0.1
201
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
24 Financial instruments continued
The exposure to foreign currency risk was as follows:
2023
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2022
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Euro
amount
£M
0.1
0.6
(1.0)
(0.3)
Euro
amount
£M
0.1
0.3
(1.6)
(1.2)
Group
Other
amount
£M
0.2
0.4
(0.3)
0.3
Group
Other
amount
£M
—
0.2
(0.5)
(0.3)
Euro
amount
£M
Company
Other
amount
£M
—
0.1
—
0.1
—
—
—
—
Euro
amount
£M
Company
Other
amount
£M
—
—
—
—
—
—
—
—
Total
£M
0.3
1.0
(1.3)
—
Total
£M
0.1
0.5
(2.1)
(1.5)
Total
£M
—
0.1
—
0.1
Total
£M
—
—
—
—
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 2022.
Euro
Other
Group
Company
2023
£M
—
—
2022
£M
(0.1)
—
2023
£M
—
—
2022
£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.
202
Capital management
The Group views its finance capital resources as primarily comprising share capital, bank loans and operating cash flow.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to
sustain future development of the business. The Board closely monitors its Shareholder base, dividend yield and earnings per
share. In the medium-term the Group aims to maintain a dividend cover of 2.0 times.
The Board encourages employees of the Group to hold the Company’s ordinary shares. The Group operates a number of
employee share option schemes.
Certain 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 2023, 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 €4.8 million facility in Continental Europe. These are renewable on an annual basis. The
total banking facilities available to the Group at 31 December 2023 were £100.6 million (2022: £100.3 million).
The uncommitted facility, coupled with cash generated from operations, is used to fund the Group’s ongoing working capital
requirements. The committed facility is in place to support the Group’s strategic investment plans.
No changes were made to the objectives, policies or processes during the years ended 31 December 2023 and 31
December 2022.
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 4:1 in 2024 and 5:1 thereafter
and a Leverage ratio not exceeding 2.5:1. Interest Cover is the ratio of the EBITDA, adjusted to exclude the impact of IFRS 16
and share-based payments (‘Covenant EBITDA’) to Finance Charges. Leverage is the ratio of borrowings and cash and cash
equivalents, excluding IFRS 16 lease liabilities, to Covenant EBITDA. The interest cover ratio was amended from an EBIT to an
EBITDA basis going forward in February 2024.
The Group met both these covenants during the year and there is headroom in both of these covenants at 31 December 2023
and is forecast to meet these covenants in the going concern period as detailed on pages 72 to 73 under Viability and Going
Concern.
25 Capital commitments
Group
As at 31 December 2023, the Group entered into commitments to purchase property, plant and equipment for £0.9 million and
intangibles of £nil (2022: £1.1 million and £1.1 million respectively).
Company
At 31 December 2023, the Company had commitments to purchase property, plant and equipment for £0.5 million (2022: £nil)
and intangibles of £nil (2022: £1.1 million).
203
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
26 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 82 and 83.
As at 31 December 2023, Directors of the Company and their immediate relatives controlled 0.1% of the total voting rights of
the Company (2022: 0.1%).
Non-Executive Directors receive a fee for their services to the Board.
Other than as disclosed in the Remuneration Report, there were no other transactions with key management personnel in
either the current or preceding year. The cost charged to administrative expenses relating to share plans of key personnel
amounted to £nil (2022: £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
Balance at
31 December
2023
£M
Balance at
31 December
2022
£M
23.0
(35.8)
28.5
(31.0)
Transactions with Group companies typically comprise management, rent and interest charges during the period.
Related party transactions reported in the income statement
Rental income
Recharge of operating expenses
Interest income/(expense)
For year
ended
31 December
2023
£M
For year
ended
31 December
2022
£M
11.0
2.4
7.1
11.0
3.2
(0.1)
204
27 Acquisitions
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 operating results and assets and liabilities of the acquired group have been consolidated from 4 January 2023.
Details of the consideration transferred are:
Purchase consideration
Cash paid
Contingent consideration
Total purchase consideration
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
Provisions
Deferred tax liabilities
Net identifiable assets acquired
Goodwill
Net assets acquired
£M
4.1
0.6
4.7
£M
0.5
2.7
1.7
1.8
1.5
0.4
(2.7)
(2.0)
(0.8)
(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. The goodwill will not be deductible for tax purposes.
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%.
As at 31 December 2023 the contingent consideration has been remeasured to £0.4 million as the actual EBITDA for the year
ended 31 December 2023 was lower than forecast at the acquisition date. A gain of £0.2 million has been recognised in other
income in the Consolidated Income Statement.
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.
The acquired business contributed revenues of £7.9 million and net loss of £0.2 million to the Group for the period from 4
January 2023 to 31 December 2023.
Acquisition related costs of £0.3 million are included in non-underlying administrative expenses in the Consolidated Income
Statement and in operating cash flows in the statement of cash flows.
205
Headlam Group PLC Annual Report & Accounts 2023Financial Statements NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
27 Acquisitions continued
On 1 July 2023 the Group acquired 100% of the issued share capital of Het Stoffen Gilde B.V., a company registered in the
Netherlands and involved in the supply of fabrics and curtains. The total purchase consideration was £0.8 million and the fair
value of the assets and liabilities acquired are not material individually or in aggregate.
The operating results and assets and liabilities of the acquired group have been consolidated from 1 July 2023.
On 13 September 2023 the Group completed the acquisition of the trade and assets of PD Pattern Books Limited for a cash
consideration of £1.7 million. The business is involved in the manufacture of floorcovering pattern books.
The operating results and assets and liabilities of the acquired group have been consolidated from 13 September 2023.
Details of the consideration transferred are:
Purchase consideration
Cash paid
Total purchase consideration
The fair values of the assets and liabilities of PD Pattern Limited as at the date of acquisition are as follows:
Fair Value
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Trade and other payables
Deferred tax liabilities
Net identifiable assets acquired
Goodwill
Net assets acquired
£M
1.7
1.7
£M
0.1
0.4
0.1
0.1
(0.1)
(0.1)
0.5
1.2
1.7
The goodwill is attributable to the ability to produce pattern books in house. The goodwill will not be deductible for tax
purposes.
The acquired business contributed revenues of £0.5 million and net profit of £0.1 million to the Group for the period from 1
September 2023 to 31 December 2023. If the acquisition had occurred on 1 January 2023, consolidated pro-forma revenue and
profit for the year ended 31 December 2023 would have been £1.4 million and £0.1 million respectively.
206
28 Group subsidiaries
Company
HFD Limited
MCD Group Limited
CECO (Flooring) Limited
Domus Tiles Limited
Headlam BV
Dersimo BV
LMS SA
Melrose Interiors Limited
Modern Style Rugs Limited
Het Stoffen Gilde B.V.
Birch Close Trading Limited
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
Headlam Group Employee Trust Company Limited
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)
Holding
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Type
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Place of incorporation
UK*
UK*
UK*****
UK*
Netherlands**
Netherlands****
France***
UK*
UK*
Netherlands********
Holding Company
Holding Company
UK*
UK*
Holding Company
UK*****
Holding Company
Netherlands**
Holding Company
France***
Holding Company
UK*
Holding Company
UK*******
Holding Company
UK*******
Holding Company
UK*******
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
UK*
UK*
UK*
UK*
Ireland******
UK*******
UK*******
UK*
UK*******
UK*******
A subsidiary of the Company, Gorsey Twenty Four Limited, was dissolved on 3 June 2023.
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.
******* Registered address for these UK subsidiaries: 8th Floor Temple Point 1, Temple Row, Birmingham, B2 5LG.
******** Registered address for these Dutch subsidiaries: Steenhoven 2A, 3911 TR Rhene, The Netherlands.
207
Headlam Group PLC Annual Report & Accounts 2023Financial Statements ALTERNATIVE PERFORMANCE MEASURES (‘APMS’)
Glossary of Alternative
Performance Measures
Closest equivalent
statutory measure
Definition and purpose
Underlying
administrative
expenses
Administrative
expenses
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
Underlying
operating profit
Operating profit
Underlying operating
profit margin
None
Underlying profit
before tax
Profit before tax
Underlying profit
after tax
Profit after tax
Underlying basic
earnings per share
Basic earnings
per share
Underlying diluted
earnings per share
Diluted earnings
per share
EBIT
EBITDA
Underlying operating
cash flow
None
None
None
See Adjusted Results Reconciliation on pages 210 to 211
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 210 to 211
Calculated as underlying operating profit divided by revenue. This measure
is used to assess how effective the Group is at converting revenue into
underlying operating profit
Calculated as profit before tax before 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 210 to 211
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 210 to 211
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 210 to 211
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 210 to 211
Calculated as underlying operating profit adjusted to exclude the impact
of IFRS 16 and share-based payments
Calculated as underlying operating profit excluding the impact of
depreciation and amortisation
Calculated as shown in the table in the Financial Review on page 36. This
metric is used to assess underlying cash generation
208
Glossary of Alternative
Performance Measures
Closest equivalent
statutory measure
Definition and purpose
Net debt/funds
including lease
liabilities
None
Net debt/funds
None
Average net
debt/funds
Like for like
revenue growth
Underlying selling,
general and
administrative costs
Return on capital
employed
None
None
None
None
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
Calculated by aggregating the net debt/funds position 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
Cash conversion
None
Calculated as underlying operating cash flow divided by underlying
operating profit and expressed as a percentage
This cash conversion measure demonstrates the success of the Group
in converting operating profit to cash, which underpins the quality of
earnings and reflects the effectiveness of working capital management
209
Headlam Group PLC Annual Report & Accounts 2023Financial Statements ADJUSTED RESULTS RECONCILIATION
31 DECEMBER 2023
Amortisation
of acquired
intangibles
and other
acquisition-
related costs
£M
Impairment
of property,
plant and
equipment,
intangible
assets and
right of use
assets
£M
Loss on
disposal
of items
under
con-
struction
£M
Profit on
sale of
property,
plant and
equip-
ment
£M
Business re-
structuring
and
change-
related
costs
£M
Adjusted
Results
(under-
lying)
£M
Insurance
proceeds
(following
a fire)
£M
–
–
–
–
2.3
–
2.3
–
–
–
2.3
(0.5)
1.8
2.2p
2.2p
–
–
–
–
5.9
–
5.9
–
–
–
5.9
(1.5)
–
–
–
–
–
(8.6)
(8.6)
–
–
–
(8.6)
0.3
4.4
(8.3)
–
–
–
–
1.2
–
1.2
–
–
–
1.2
–
1.2
–
–
–
–
(2.3)
–
(2.3)
–
–
–
(2.3)
0.1
–
–
–
–
5.4
–
5.4
–
–
–
5.4
(1.2)
656.5
(448.7)
207.8
(131.3)
(60.8)
0.4
16.1
0.3
(5.4)
(5.1)
11.0
(2.2)
(2.2)
4.2
8.8
5.5p
5.5p
(10.3)p
(10.4)p
1.5p
1.5p
(2.7)p
(2.7)p
5.2p
5.2p
11.0p
10.9p
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
£M
656.5
(448.7)
207.8
(131.3)
(73.3)
9.0
12.2
0.3
(5.4)
(5.1)
7.1
0.6
7.7
9.6p
9.6p
210
ADJUSTED RESULTS RECONCILIATION
31 DECEMBER 2022
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 for profit
Basic
Diluted
Amortisation
of acquired
intangibles
and other
acquisition-
related costs
£M
Insurance
proceeds
(following a
fire)
£M
Adjusted Results
(underlying)
£M
–
–
–
–
1.5
–
1.5
–
–
–
1.5
(0.3)
1.2
1.4p
1.4p
–
–
–
–
–
(6.2)
(6.2)
–
–
–
(6.2)
1.1
(5.1)
(6.0)p
(6.0)p
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
35.5p
35.2p
Total
Results
£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
211
Headlam Group PLC Annual Report & Accounts 2023Financial 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 share1
Declared dividend per share
2023
£M
656.5
207.8
(191.7)
16.1
(5.1)
11.0
(2.2)
8.8
–
7.1
9.6p
11.0p
–
15.2p
–
–
6.0p
–
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
2.1
719.2
229.4
(187.2)
42.2
(2.7)
39.5
(6.9)
32.6
–
35.2
40.1p
23.5p
(24.2)p
34.0p
35.5p
31.5p
14.3p
38.8p
–
14.8p
17.7p
–
11.2p
–
5.3p
5.8p
–
17.7p
8.6p
–
–
7.55p
–
–
—
2.00p
–
25.0p
–
–
7.55p
–
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.
212
FINANCIAL RECORD
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
Income tax receivable
Cash and cash equivalents
Non-current assets classified as held for sale
Total assets
Current liabilities
Bank overdraft
Other interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Employee benefits
Income tax payable
Non-current liabilities
Other interest-bearing loans and borrowings
Lease liabilities
Provisions
Deferred tax liabilities
Employee benefits
Total liabilities
Net assets
2023
£M
127.6
41.6
19.4
0.9
189.5
131.5
117.1
3.1
21.1
272.8
–
272.8
462.3
(0.7)
(50.0)
(11.9)
(129.1)
(1.1)
–
(192.8)
–
(31.5)
(2.6)
(13.2)
(1.8)
(49.1)
(241.9)
220.4
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
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
2020
£M
2019
£M
122.9
42.1
21.1
–
186.1
118.5
101.6
–
60.8
280.9
0.4
281.3
467.4
–
(2.0)
(12.5)
(178.4)
–
(0.2)
(193.1)
(7.2)
(30.8)
(2.1)
(8.7)
(5.5)
(54.3)
(247.4)
220.0
114.5
43.9
48.5
0.7
207.6
132.5
123.7
–
33.4
289.6
–
289.6
497.2
–
(0.2)
(13.9)
(181.9)
–
(5.0)
(201.0)
(6.2)
(30.7)
(2.3)
(7.6)
(4.3)
(51.1)
(252.1)
245.1
The results for 2020 – 2019 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.
213
Headlam Group PLC Annual Report & Accounts 2023Financial 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
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
Registrar
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
214
The production of this report supports the work of the
Woodland Trust, the UK’s leading woodland conservation
The production of this report supports the work of the Woodland Trust,
charity. Each tree planted will grow into a vital carbon store,
the UK’s leading woodland conservation charity. Each tree planted will
helping to reduce environmental impact as well as creating
grow into a vital carbon store, helping to reduce environmental impact
natural havens for wildlife and people.
as well as creating natural havens for wildlife and people.
215
Headlam Group PLC Annual Report & Accounts 2023 HEADLAM GROUP PLC
Gorsey Lane
Coleshill
Birmingham
B46 1JU
UK
T: 01675 433 000
F: 01675 433 030
E: headlamgroup@headlam.com
S N: B46 1JU
www.headlam.com
Company number: 00460129
H
e
a
d
l
a
m
G
r
o
u
p
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
&
A
c
c
o
u
n
t
s
2
0
2
3