Grafton Group plc Annual Report 2021
Building
a better
future
ANNUAL REPORT AND ACCOUNTS 2021
Grafton Group plc
Annual Report and Accounts 2021
1
Overview
In this
year’s
report
Overview
At a Glance 2
2021 Highlights 4
Our Top Brands 6
Investment Case 8
Year in Review 10
Our Purpose and Values 12
Our People and Culture 14
Engaging with Stakeholders 16
Strategic Report
Chairman’s Statement 20
Business Model 24
Our Strategy 26
Chief Executive Officer’s Review 32
Key Performance Indicators 36
Operating Review 40
– Distribution 40
– Retailing 52
– Manufacturing 54
Financial Review 56
Risk Management 60
Sustainability 70
Corporate Governance
Board of Directors and Secretary 86
Directors’ Report on Corporate Governance 90
Audit and Risk Committee Report 98
Nomination Committee Report 102
Report of the Remuneration Committee
on Directors’ Remuneration 105
– Chairman’s Annual Statement 105
– Remuneration Policy Report 109
– Annual Report on Remuneration 117
Report of the Directors 128
Financial Statements
Directors’ Responsibility Statement 134
Independent Auditors’ Report 136
Group Income Statement 142
Group Statement of
Comprehensive Income 143
Group Balance Sheet 144
Group Cash Flow Statement 145
Group Statement of Changes in Equity 146
Notes to the Group Financial Statements 148
Company Balance Sheet 200
Company Statement of Changes in Equity 201
Notes to the Company
Financial Statements 202
Supplementary Information
Supplementary Financial Information 212
Grafton Group plc Financial History 221
Corporate Information 223
Financial Calendar 223
Location of Annual General Meeting 223
Glossary of Terms 224
Record Results
Growing our business in new territories
We acquired IKH in Finland, providing the Group with
a new growth platform in the Nordics.
More information on pages 50-51
Sustainability
agenda
More information on pages 70-85
Investment
in digital
More information on page 9
2
Grafton Group plc
Annual Report and Accounts 2021
We are... a leading international
business operating in the
distribution, retailing and
manufacturing sectors
RETAILING
Number of branches
35
DISTRIBUTION
Number of branches
302
MANUFACTURING
Number of factories
12
AT A GLANCE
3
Grafton Group plc
Annual Report and Accounts 2021
Overview
…and continuing to build
on our financial growth.
UK 43.4%
(2020: 40.9%)
Ireland 39.5%
(2020: 42.6%)
Netherlands 13.8%
(2020: 16.5%)
Finland 3.3%
UK 45.6%
(2020: 37.5%)
Ireland 40.7%
(2020: 46.8%)
Netherlands 10.3%
(2020: 15.7%)
Finland 3.4%
Revenue
£2.11bn
(2020: £1.68bn)
Adjusted operating profit
£288.0m
*
(2020: £170.6m)
UK Market positions
134 £915.0m £124.9m 13.7% 4th 1st
Number of
branches & factories
Revenue
(2020: £687.3m)
Adjusted operating
profit**
(2020: £68.0m)
Adjusted operating profit
margin
(2020: 9.9%)
Building
materials
distribution
Mortar
manufacturing
Staircase
manufacturing
IRELAND Market positions
87 £833.6m £119.3m 14.3% 1st 1st
Number of
branches & factories
Revenue
(2020: £715.4m)
Adjusted operating
profit**
(2020: £85.0m)
Adjusted operating profit
margin
(2020: 11.9%)
Building
materials
distribution
DIY, home and
garden retailing
NETHERLANDS Market position
117 £290.5m £30.5m 10.5% 1st
Number of
branches
Revenue
(2020: £276.6m)
Adjusted operating
profit**
(2020: £28.6m)
Adjusted operating profit
margin
(2020: 10.3%)
Ironmongery, tools and fixings
distribution market
FINLAND Market position
11 £70.8m £10.0m 14.1% 2nd
Number of
branches & partner
stores
Revenue Adjusted operating
profit**
Adjusted operating profit
margin
Distribution of tools and personal
protective equipment (“PPE”)
* After central activity costs of £13.5 million (2020: £10.9 million), including property profit of £16.7 million (2020: loss of £0.1 million). Other “Alternative Performance Measures”
(APMs’) are detailed on pages 212 to 216.
** Before property profit of £16.7 million (2020: loss of £0.1 million) and central activity costs of £13.5 million (2020: £10.9 million).
4
Grafton Group plc
Annual Report and Accounts 2021
£1.68bn
£2.11bn
2021
2020*
£377.7m
£303.2m
2021
2020
11.9%
19.4%
2021
2020*
14.5p
30.5p
2021
2020
50.3p
93.0p
2021
2020*
£181.9m
£588.0m
2021
2020
0 50 100 150 200
178%
82%
2021
2020*
£170.6m
£288.0m
2021
2020*
10.2%
12.9%
2021
2020*
2021 HIGHLIGHTS
Excellent results
notwithstanding
supply chain
pressures and
inflation challenges
Financial highlights – continuing operations
Revenue
£2.11bn
+25.6%
Cash generation from operations
£303.2m
-19.7%
Adjusted return on capital employed
(i)
19.4%
+750bps
Adjusted operating profit
(i)
£288.0m
+68.8%
Dividend
30.5p
+110.3%
Adjusted earnings per share – basic
(i)
93.0p
+84.9%
Adjusted operating profit margin
(i) (i i)
12.9%
+270bps
Net cash (pre-IFRS 16)
£588.0m
+£406.1m
Free cash conversion
(i)
82%
-53.8%
* The results for 2020 have been restated as the traditional merchanting business in Great Britain is classified as a discontinued operation. Details are set out inNote27.
(i) The term “Adjusted” means before exceptional items, amortisation of intangible assets arising on acquisitions and acquisition related items in both years. Other “Alternative
Performance Measures” (APMs’) are detailed on pages 212 to 216.
(ii) Before property profit.
5
Grafton Group plc
Annual Report and Accounts 2021
Overview
£157.8m
£269.2m
2021
2020*
9.4%
12.8%
2021
2020*
-£355.0m
£139.0m
2021
2020
45.9p
86.4p
2021
2020*
£133.6m
£249.8m
2021
2020*
Statutory highlights
Operational highlights
Statutory operating profit
£269.2m
+70.6%
Acquisition of IKH in Finland
In July 2021 the Group completed the acquisition of
Isojoen Konehalli Oy and Jokapaikka Oy (“IKH”), one of
the largest workwear, personal protective equipment
(“PPE”), tools, spare parts and accessories wholesalers
and distributors in Finland.
More information on page 10
StairBox performs ahead of expectations
StairBox had an excellent first full year under Grafton
ownership. The business, which was acquired in late
2020, produced an operating profit margin of 34.2 per
cent, the highest level ever reported by a Grafton
business. The full year performance endorsed our
pre-acquisition assessment of this high quality
business and management team.
More information on page 55
Chadwicks Group opens its
first ECO Centre
In May 2021, Chadwicks Group announced the launch
of the first Chadwicks ECO Centre at its Galway branch.
The launch was part of a nationwide roll-out of three
dedicated sustainable centres at Chadwicks branches
across Ireland in 2021.
More information on page 47
Divestment of Traditional Merchanting
Business in Great Britain
On 31 December 2021 we completed the divestment of
our traditional merchanting business in Great Britain for
an enterprise value of £520 million.
More information on page 43
Statutory earnings per share – basic
86.4p
+88.3%
Net cash
£139.0m
+£494.0m
Profit before tax
£249.8m
+87.0%
Statutory operating profit margin
12.8%
+340bps
* The results for 2020 have been restated as the traditional merchanting business in Great Britain is classified as a discontinued operation. Details are set out inNote27.
6
Grafton Group plc
Annual Report and Accounts 2021
£1.37bn
£1.73bn
2021
2020
Number of distribution branches: 302
DISTRIBUTION
Our top
brands
OUR TOP BRANDS
The distribution segment distributes building materials from 302
branches in the UK, Ireland, the Netherlands and Finland.
Distribution revenue
£1.73bn
+26.0%
Chadwicks Group
chadwicks.ie
Chadwicks Group operates from 51
branches in the Republic of Ireland
where it is the number one distributor
of building materials.
Polvo
polvo.nl
Polvo is the third largest distributor of
ironmongery, tools, fixings and related
products in the Netherlands. Polvo
trades from 51 branches located in
the Southern, Western and Eastern
regions which complement Isero
branch coverage.
IKH
ikh.fi
IKH is one of the largest workwear
and personal protective equipment
(“PPE”), tools, spare parts and
accessories technical wholesalers
and distributors in Finland where it
trades from 11 branches and has a
number two market position in its
core tools and PPE segment.
Leyland SDM
leylandsdm.co.uk
Leyland SDM is one of the most
recognisable and trusted decorating
and DIY brands in Central London
where it distributes paint, tools,
ironmongery and accessories
from 32 branches.
MacBlair
macblair.com
MacBlair is the leading distributor of
building materials in Northern Ireland
where it trades from 18 branches.
The business supplies the trade, DIY
and self-build markets with building
materials, timber, doors and floors,
plumbing and heating, bathrooms
and landscaping products.
ISERO
isero.nl
Isero is the leading specialist distributor
of tools, ironmongery and fixings in the
Netherlands. Isero trades from 66
branches and offers a comprehensive
range of quality products to trade
professionals supported by an
exceptional level of customer service.
Selco
selcobw.com
Trading from 72 branches, including
32 in London. Selco is a trade and
business only distributor of building
materials that operates a retail style
self-select format. Its unique products
and service model is primarily focused
on customers engaged in small
residential RMI projects.
7
Grafton Group plc
Annual Report and Accounts 2021
Overview
£61.3m
£99.6m
2021
2020
£246.6m
£282.8m
2021
2020
Number of retail branches: 35 Number of factories: 12
Retail revenue
£282.8m
+14.7% (up 19.4% in constant currency)
Manufacturing revenue
£99.6m
+62.4%
The Group is the largest DIY retailer in Ireland
trading from 35 branches and online.
The manufacturing segment is comprised of dry mortar
and wooden staircase manufacturing businesses.
RETAILING MANUFACTURING
£2.11bn
Revenue by sector
£288.0m
Adjusted operating profit
by sector
Distribution 74.8%
(2020: 69.5%)
Retailing 17.1%
(2020: 23.2%)
Manufacturing 8.1%
(2020: 7.3%)
Distribution 81.9%
(2020: 81.7%)
Retailing 13.4%
(2020: 14.7%)
Manufacturing 4.7%
(2020: 3.6%)
Woodie’s
woodies.ie
Woodie’s is Ireland’s market leading DIY,
Home and Garden retailer with 35 stores
nationwide and online offering an extensive
range of DIY products, paints, lighting,
homestyle, housewares, bathroom products
and kitchens. Woodie’s is also a leading retailer
of seasonal categories including gardening and
Christmas ranges.
StairBox
stairbox.com
StairBox is an industry
leading UK manufacturer
and distributor of bespoke
wooden staircases
operating from a state-of-
the-art production facility
in Stoke-on-Trent.
CPI Mortars
cpieuromix.com
CPI Mortars is the market
leader in dry mortar
manufacturing in the UK,
operating from ten
strategically located
factories that provide
almost national coverage.
8
Grafton Group plc
Annual Report and Accounts 2021
What makes
Grafton different
WHY INVEST IN GRAFTON
A portfolio of winners
Our growing portfolio of winning businesses.
Excellence in service
Our businesses continue to focus on delivering
operational excellence and innovative solutions
to support our customer focused approach.
We are a geographically diverse business operating
in differentiated markets. We are leaders or strong
followers in our local markets in the distribution,
retailing and manufacturing sectors.
Our people
Our people are our greatest asset and we are committed
to supporting their development so that they can reach
their full potential. Read more about our strong,
capable, highly motivated and experienced
workforce on pages 14 to 15.
Federated structure
We operate a decentralised organisational structure
with autonomous local management supported by
tight controls at Group level.
Sustainable & responsible
Our sustainability programme informs our strategic
decision making as well as the operational decisions
we make every day, and is closely aligned with our
overall purpose of Building Progress Together.
Read more about our Sustainability Strategy
on pages 70 to 85.
Strong financial base
We are financially robust with a strong balance sheet,
strong cash performance and an investment grade
credit rating:
• £139 million net cash (2020: £355.0 million net debt)
• 93.0p Group adjusted EPS (2020: 50.3p)
• 82 per cent free cash conversion (2020: 178 per cent)
• £201 million returned to shareholders
over the past five years in dividends
Acquisition expertise
Our ambition is to grow whilst maintaining
a disciplined approach to capital allocation.
Read more about our acquisition framework
on page 51.
Track record
We grow our business through acquisitions
and organically by expanding within existing and
new geographies; broadening our proposition to
customers; and increasing the role of digital.
Our strategy is executed by high calibre
management teams with relevant skills, experience and
a track record of acquiring and integrating businesses.
INVESTMENT CASE
9
Grafton Group plc
Annual Report and Accounts 2021
Overview
£2.70bn
£2.60bn
£2.67bn
£1.68bn
£2.11bn
21
20
19
18
17
£163.7m
£187.6m
£204.8m
£170.6m
£288.0m
21
20
19
18
17
54.9p
63.7p
62.8p
50.3p
93.0p
21
20
19
18
17
KEY STATS
†
CASE STUDY: EXCELLENCE IN SERVICE
Digital transformation –
Woodie’s
Woodie’s increased investment in its digital
offering with a new e-store fulfilment hub
in Drogheda providing increased capacity,
expanded ranges and full track and trace
functionality on all orders.
The customer experience was improved with
real time stock visibility on the website and an
increased range available for home delivery
through a new logistics partner.
Products available online through fulfillment centre
12,000
For more information on our strategy see pages 26 to 31
Group revenue*
£2.11bn
+25.6%
Group adjusted operating profit*
£288.0m
+68.8%
Group adjusted EPS*
93.0p
+84.9%
* The results for 2020 have been restated as the
traditional merchanting business in Great Britain is
classified as a discontinued operation. Details are set
out in Note 27.
† 2017-2018 are presented on a pre-IFRS 16 basis.
10
Grafton Group plc
Annual Report and Accounts 2021
YEAR IN REVIEW
Story of
our year
Record profits, a step change to
higher returning businesses, a new
growth platform in the Nordics,
increased focus on digital and
sustainability and divestment of
traditional merchanting business
in Great Britain.
GAVIN SLARK, CEO
FEBRUARY
Acquisition of Proline
The Group completed the
acquisition of Proline Architectural
Hardware (“Proline”) on 11
February 2021. The acquisition
brought specialist expertise in
the architectural ironmongery
distribution market to Chadwicks.
JUNE
New revenue and
profitability records
for Woodie’s
Woodie’s market leading DIY,
Home and Garden business in
Ireland managed an unprecedented
level of demand and volume of
products flowing through its stores
in the first half. Whilst Covid
restrictions affected much of Irish
retail, Woodie’s was deemed an
essential retailer and permitted to
trade during the lockdown. As a
result, new records were decisively
established for revenue and
profitability for the year.
JULY
Acquisition of IKH
in Finland
The Group completed the
acquisition of Isojoen Konehalli Oy
and Jokapaikka Oy (“IKH”) on 1July
2021 at a cost of €199.3 million on a
cash and debt free basis. IKH is one
of the largest workwear, personal
protective equipment (“PPE”), tools,
spare parts and accessories
wholesalers and distributors in
Finland. The acquisition of IKH
strengthens our operations in
mainland Europe in line with our
development strategy and provided
Grafton with a new growth platform
in the Nordic region. IKH also
expanded our product ranges and
customer reach into attractive core
and adjacent markets.
Expansion of offering
A range of Proline
products are available in
11Chadwicks branches
For more, see pages 46 to 47
Woodie’s 2021 revenue
£282.8m
For more, see pages 52 to 53
Acquisition cost
€199.3m
on a cash and debt free basis
For more, see pages 50 to 51
11
Grafton Group plc
Annual Report and Accounts 2021
Overview
NOVEMBER
2021 Sustainability
Report published
We published our first
Sustainability Report on the Group
website in November, detailing
progress to date against our
sustainability commitments.
We announced targets and KPIs
across the five focus areas of our
Sustainability Strategy: Customer
and Product, People, Planet,
Communities and Ethics. Our
strategy is aligned with the UN
Sustainable Development Goals
(‘SDGs’) which will guide our
performance and help us to
work in a way that’s responsible
and sustainable.
DECEMBER
Divestment of traditional
merchanting business
in Great Britain
In July 2021, we announced the
divestment of our traditional
merchanting business in Great
Britain for an enterprise value
of £520 million and this transaction
completed on 31December 2021.
The divestment was agreed
following a comprehensive
strategic review which concluded
that exiting this segment of the
building materials distribution
market in Great Britain would
enable the Group to optimise
shareholder value. Completion of
this transaction also enables the
Group to focus on its international
development strategy which will
be a key priority over the
coming years.
NOVEMBER
Capital markets event
On 10 November 2021 the Group
held a Capital Markets Event to
update investors on the progress
of the Group and its businesses,
capital allocation model and
sustainability strategy. At the event
we outlined our plans to continue
to Build Progress Together, whilst
delivering sustainable growth and
returns to our investors, driven by
our core values.
Enterprise value
£520m
For more see page 45
Strategic alignment
8 UN SDGs
For more, see pages 70 to 85
Increased medium-term
financialtargets
10% operating margin;
13% return on
capital employed
For more, see page 51 and pages 70 to 81
12
Grafton Group plc
Annual Report and Accounts 2021
OUR PURPOSE AND VALUES
Building
progress
together
to enable a sustainable future that
respects people and the planet for
allour stakeholders.
Our people are key to our success and
as a Group we are focused on making
sure that Grafton is a place where our
people have the chance to contribute,
to take ownership of what they do, to
develop their skills and abilities, and
build a career to be proud of.
We are equally focused on delivering
brilliant service for our customers.
Without them we have no business
and we work hard to make sure they
can get what they need when they
need it. Our customers know that
they can trust us to deliver reliable
products, support and advice, to
enable them to make progress in
their own business.
Building progress together is also
about how we engage with the world
around us – our local communities
and the wider environment. Our
sustainability strategy is aligned
with our purpose to enable us to
build progress together for all of
our stakeholders.
OUR PURPOSE IS UNDERPINNED
BY FOUR KEY PILLARS:
Construction and
related activities
Everything that we do as a Group has a
connection to construction products or
construction related activities.
Growing and adding value
Continuing to grow our Group businesses
and delivering value to our shareholders is
fundamental to the way we do business.
Making a positive impact
Our Group sustainability strategy sets out our
ambitious plans to make a positive impact on
people and the planet.
In partnership with
our stakeholders
Engaging with our shareholders; colleagues;
customers; suppliers and communities for
the benefit of all.
13
Grafton Group plc
Annual Report and Accounts 2021
Overview
OUR CORE VALUES
Value our people
Our people are our greatest asset.
We treat people with respect.
Integrity, diversity and inclusion
are integral to how we operate.
The safety of our people is a
fundamental priority and our aim is
to send everyone home safe and well
at the end of the day. We want to
make sure that people feel proud to
work for Grafton because they are
supported, recognised and valued
for who they are individually and for
what they do.
Sustainable, trustworthy
and responsible
We believe there is a positive
connection between sustainability
and financial performance. Our
sustainability strategy aims to address
the bigger questions about what’s
right for our business, for society
and for the environment.
Our businesses conduct surveys and
review feedback from customers in
order to drive improvements in the
quality of our service proposition, our
product offering and to ensure that
customer expectations are met.
We aim to build strong lasting
relationships with our trade and
retail customers, to understand their
needs and views and to listen to
how we can improve our product
offering and service.
Customers may also report concerns
of any wrongdoing by the Group via
SpeakUp, the contact details for which
are available on the Group’s website.
Ambitious
As a business, as individuals and as
teams, we’re ambitious for success.
By striving to always do things better
tomorrow than we did today we can
provide the best service to our
customers and provide a supportive,
engaging environment for people
who want a brilliant place to work.
We want to be leaders in what we do.
We want to be number one.
Entrepreneurial
and empowering
Our decentralised structure means
that management teams and
colleagues are entrusted with the
authority and autonomy to run their
businesses in the way that they
believe is best. It’s about giving them
the opportunities to flourish to be
entrepreneurial within their own
businesses. We trust our people to
take ownership, and to play their part
in improving performance, seizing
opportunities and adding value.
Be brilliant for
our customers
Doing a brilliant job for our customers
is what we are all about.
We focus on building strong and
long term relationships with our
customers, listening to their needs,
taking their feedback, getting them
what they want, when they want it.
We want to exceed our customers’
expectations and send them home
happy, time after time.
14
Grafton Group plc
Annual Report and Accounts 2021
OUR PEOPLE AND CULTURE
COLLEAGUE FEEDBACK
AND ENGAGEMENT
We have established a number of structures
to provide for effective engagement with
our colleagues.
Colleague Forums, made up of colleagues
from each of our businesses, provide the
opportunity for our people to engage with
Non-Executive Directors and for their views
to be heard at management and Board level.
Colleague surveys are conducted across our
businesses and we have launched internal
communication platforms such as Workvivo
and Yoobic/Boost across a number of
businesses to facilitate effective sharing of
information and updates. The anonymous
and independently run SpeakUp reporting line
allows colleagues to report any concerns on
a confidential basis.
SUSTAINABLE LIVING
AND WORKING
During the year, we launched a Sustainable
Living campaign for colleagues with activities
focused on energy efficiency at home and in
the workplace, biodiversity and reducing/
reusing/recycling. These messages were
reinforced through colleague communications,
competitions and sharing ideas on how we
as a business and as individuals can live
more sustainably.
TRAINING AND DEVELOPMENT
Training and development is a critical element
of investment in our colleagues. Colleagues
are provided with opportunities to maximise
their experience, and skills both for their own
career development and for the success of
the Group.
• Woodie’s was named Best Large Business
for Learning & Development at the 2021
National Training Awards in recognition of
its continued focus on learning and
development. It ran a number of
programmes including Leadership
Development, Retail Apprenticeships,
Diversity & Inclusion training, Mental Health
First Aid, Wellness and Safety training.
• Chadwicks ran Inclusive Leadership Training
for all people managers in partnership with
the Irish Centre for Diversity and they also
launched a new Leadership Development
programme ‘Elevate’.
• Selco continued their ‘Rising Stars’
Management Training Programme, aimed
at creating opportunities for colleagues to
develop management career paths that
align with Selco’s strategic goals.
• CPI Mortars provides opportunities with its
Driver Training Academy (Warehouse to
Wheels programme), together with
commercial apprenticeships and leadership
training for plant managers.
• The Isero business in the Netherlands runs
an in-house academy to train apprentice
customer service representatives.
• Leyland ran its second Fast Track Managers
training programme.
• The IKH business in Finland launched an
18-month management development
programme during the year and also offers
the opportunity for warehouse colleagues to
complete a degree in service logistics.
BENEFITS AND REWARD
We are committed to high standards of
employment practice across our businesses
and we aim to reward colleagues fairly
by reference to skills, performance, peers
and market conditions. We provide incentives
to colleagues through remuneration
policies that promote commitment and
reward achievement.
UK Colleagues have access to “Reward
Gateway”, an online communications and
benefits platform. Colleagues in Ireland have
access to Wrkit, a platform that provides
Valuing our
people
The Grafton workforce
of today, and of the
future, wants to be
inspired by a strong
sense of purpose in an
inclusive environment
and it is this that keeps
our people engaged.
We treat our colleagues
with respect and dignity.
Diversity and inclusion are
integral to how we operate.
The safety of our people is
a key priority and our aim
is to send everyone home
safe and well at the end
of the day.
We want to make sure
that people feel proud to
work for Grafton because
they are supported,
recognised and valued
for what they do.
We want to make sure that
all of our colleagues have
the opportunity to reach
their full potential.
15
Grafton Group plc
Annual Report and Accounts 2021
Overview
Grafton Group plc
Annual Report and Accounts 2021
15
Overview
colleague discounts across a number of retail
outlets. Colleagues in Ireland and the UK also
receive a Colleague Discount Card which
provides generous discounts when they
shop in Group businesses.
The Group operates a Save As You Earn
Scheme that enables eligible UK colleagues
to share in the success of the overall Group.
The Irish distribution business also operates
a Revenue-approved profit-sharing scheme
that is open to all eligible colleagues. During
the year the Group launched a pensions
awareness campaign to highlight and
inform colleagues of their pension rights
and entitlements.
COLLEAGUE RECOGNITION
Colleague recognition programmes are in
place across a number of our businesses.
During the year Chadwicks continued to
celebrate colleague loyalty milestones, and a
number of other Group businesses introduced
programmes to reward colleagues for reaching
service milestones.
Leyland held its third annual colleague awards
to recognise exceptional service. Woodie’s
held its fourth annual “Woscars” ceremony to
honour colleagues and teams from across the
35 stores and the support office.
GREAT PLACE TO WORK
Woodie’s retained its position as the top retailer
in Ireland in the Great Place To Work Survey.
It also retained its status as a Best Workplace
for Women and for the first time was listed as
one of Europe’s Best Large Workplaces. 99 per
cent of Woodie’s colleagues participated in
the annual Great Place To Work Survey and
the business received an overall survey
engagement score of 87 per cent which
was in line with the prior year.
Read more about our People on
pages 75 to 79.
Female HGV drivers lead the way for more
inclusion in the industry
Emilia Leszczynska (pictured below) qualified as a professional
HGV driver with TG Lynes – an ambition she has always had, while
Kein Voong, aHarlow-based assistant plant supervisor, is the first
female colleague from CPI Mortars to graduate from the Driver
Training Academy and is now a qualified HGV Driver.
Kein and Emilia are both proud advocates for gender diversity in
amale dominated industry.
For more information on diversity and inclusion at Grafton see pages 78 to 79
CASE STUDY
Female workforce percentage
30%
16
Grafton Group plc
Annual Report and Accounts 2021
Engaging with
stakeholders
The support and engagement of our
stakeholders is critical to our business.
We know that building positive relationships
with our stakeholders is a vital part of our
ability to deliver long-term sustainable
success. The Group and the management
teams in each of its businesses consider
the likely consequences on all stakeholders
of their decisions and actions.
The Group governance framework delegates
authority to local management teams
supported by a tight control environment at
Group level, allowing individual businesses to
take appropriate account of the needs of their
own stakeholders in their decision-making.
Our federated structure means that each
business unit engages extensively with its own
unique stakeholder group as well as with other
businesses across the Group.
Details of the Group’s key stakeholders and
examples of how we engage with each of
them are set out below.
DECISION MAKING IN PRACTICE
In order to provide an insight into the approach taken
by the Group to stakeholder engagement, a summary
of stakeholder views and concerns is set out below.
Stakeholder Stakeholder views/concerns How we addressed these concerns in 2021
Colleagues Our colleagues want to be listened to, kept informed, and to know
that they will be provided with a safe, inclusive and respectful
workplace. They want to be inspired and engaged by a strong
sense of purpose and a company that lives by its values.
Each of our businesses have worked hard to ensure that
colleagues were kept engaged and informed, through
feedback surveys, regular updates and themed
communication campaigns.
Customers Our customers rely on us to provide a wide range of essential
products and services at a competitive price and on time.
They want to know that we will continue to provide the products
they want, when they want them, and to meet their expectations
in a safe and efficient way.
As part of our commitment to providing customers with
a seamless omnichannel experience, we continued to
invest in digital transformation across our businesses
to ensure our customers needs are met.
Shareholders Our shareholders want us to operate a business that is sustainable
in the long term and that maximises returns in a responsible way.
They want us to take appropriate and well considered decisions in
the long term interests of the Group.
Our Capital Markets Event in November 2021 focused
on how the Group plans to deliver sustainable growth
and returns to our investors.
Suppliers Our suppliers rely on us to provide an efficient route to market for
their products and to engage with them on market demand and
customer feedback.
Our businesses have continued to maintain effective
dialogue with suppliers and increased engagement on
responsible sourcing and supply chain integrity.
Communities and
the environment
Our communities and the wider public want us to continue
supporting local and national causes and to operate our business
in a way that respects the environment.
Our sustainability strategy is focused on how we can
make a positive contribution to local communities and
protect the environment and natural resources.
17
Grafton Group plc
Annual Report and Accounts 2021
Overview
HOW WE ENGAGE WITH STAKEHOLDERS
Colleagues
We have established structures to
provide for effective engagement
withthe wider workforce including
colleague feedback surveys and
Colleague Forums which provide
an opportunity for colleague
representatives across the Group to
meet with Non-Executive Directors
and enable their views to
beconsidered at Board level.
We engage with and listen to our
people through briefings and town
hall meetings, internal social media
platforms, internal communications
and newsletters.
Colleagues also have the opportunity
to report any concerns through our
anonymous and independently run
SpeakUp reporting line.
Communities and
the environment
Our sustainability strategy is intended
to ensure that we make a positive
contribution to our local communities
through charity fundraising and
community involvement.
Key areas of focus include how
we can support local and national
causes and issues, opportunities
to support and develop local
people and help to look after
the environment.
Customers
Our businesses conduct surveys and
review feedback from customers in
order to drive improvements in the
quality of our service proposition, our
product offering and to ensure that
customer expectations are met.
Weaim to build strong lasting
relationships with our trade and retail
customers, to understand their needs
and views and to listen to how we can
improve our product offering and
service. Customers may also report
concerns of any wrongdoing by the
Group via SpeakUp, the contact
detailsfor which are available on
theGroup’s website.
Shareholders
Through our Annual General Meeting
(“AGM”), ongoing investor relations
activity and shareholder consultation
process, we maintain an open
dialogue with our shareholders
andensure that their views are
considered and factored into key
decisions taken by the Board.
Shareholder feedback and details
of significant movements in our
shareholder register are regularly
reported to and considered by
the Board.
During 2021 we held a Capital
Markets Event to update investors
onthe progress of the Group and its
businesses, capital allocation model
and sustainability strategy.
Suppliers
Our businesses maintain ongoing
dialogue with their suppliers to build
strong, long term relationships.
Engagement with suppliers is primarily
through a combination of interactions
and formal reviews. Key areas of
focusinclude innovation, product
development, health and safety and
compliance with our ethical standards.
18
Grafton Group plc
Annual Report and Accounts 2021
18
Strategic report
Chairman’s Statement 20
Business Model 24
Our Strategy 26
Chief Executive Officer’s Review 32
Key Performance Indicators 36
Sectoral and Strategic Review 40
– Distribution 40
– Retailing 52
– Manufacturing 54
Financial Review 56
Risk Management 60
Sustainability 70
DELIVERING RETURNS
Through a combination of organic
growth and the acquisition of high
growth potential businesses trading
in segments of our markets that have
good structural growth drivers, we
will continue to allocate capital to
opportunities that will allow us to
deliver sustainable value and
good returns.
For more see pages 26 to 27 and 51
Building
a better
future
19
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Branches and factories by geography
349
Acquisitions by geography in 2021
5
GREATER GEOGRAPHIC DIVERSIFICATION
UK: 134
Netherlands: 117
Ireland: 87
Finland: 11
Netherlands: 2
UK: 1
Ireland: 1
Finland: 1
20
Grafton Group plc
Annual Report and Accounts 2021
CHAIRMAN’S STATEMENT
We also delivered a record financial
performance for the year and continued to
make significant progress developing our well
established businesses in the UK, Ireland and
the Netherlands.
The results for the year highlight the success
of the strategy that we have pursued in recent
years. We now have a portfolio of high quality,
high returning businesses with good market
positions. The end-use market that our
businesses primarily serve is the more
resilient residential repair, maintenance and
improvement (“RMI”) sector and we saw
the benefits of this strategy during 2021
against the backdrop of generally positive
market conditions.
We also gained from the investments made
in recent years in our distribution branches,
DIY, Home & Garden stores and manufacturing
plants. Upgrading in the physical environment
of our branches has provided an improved
customer experience and helped to protect
and enhance the reputation of our brands.
We also continued to invest in digital and to
increase traffic on our websites and customer
activity online.
These results would not have been possible
without the leadership of our management
teams, who deserve to be recognised for
everything they have achieved, and the
exceptional commitment and hard work of
colleagues in our branches, stores, distribution
centres and offices. I sincerely thank them for
the way that they responded throughout the
pandemic and for working collaboratively to
safely support each other, our customers
and business partners.
Building on
our strategic
success
Dear Shareholder,
This has been a transformational
year for Grafton as we completed
the divestment of the traditional
merchanting business in Great Britain
at the year end and acquired IKH in
Finland at the start of the second half.
21
Strategic Report
Grafton Group plc
Annual Report and Accounts 2021
RESULTS REVIEW
The Group delivered an excellent financial
performance for the year. Revenue in the
Group’s continuing operations, that excludes
the traditional merchanting business in Great
Britain that was divested on 31 December
2021, was up by 25.6 per cent to £2.11 billion
(2020: £1.68 billion) and adjusted operating
profit was up by 68.8 per cent to £288.0 million
(2020: £170.6 million). Adjusted earnings per
share in continuing operations increased by
84.9 per cent to 93.0p (2020: 50.3p).
The Group’s adjusted operating profit margin
before property profit in continuing operations
was a record 12.9 per cent (2020: 10.2 per
cent) and now benefits from a structurally
higher margin in the UK distribution business
following the divestment of the traditional
merchanting business in Great Britain.
CASH FLOW AND BALANCE SHEET
The Group ended the year in a very strong
financial position with net cash, before lease
liabilities, of £588.0 million having started the
year with net cash of £181.9 million. Cashflow
from operations for the year of £303.2 million
(2020: £377.7 million) was down on the prior
year due to an investment of £64.1 million in
working capital to support organic growth.
The Group’s very strong balance sheet
included shareholders’ equity of £1.72 billion
that reflected growth of £252.6 million on the
prior year end. The return on capital employed
was 19.4 per cent (2020: 11.9 per cent).
DIVIDEND
The Board of Grafton is very conscious of the
importance of dividends to shareholders and is
committed to a progressive dividend policy. At
the Capital Markets Day in November 2021, we
announced that the Company would look to
maintain dividend cover of between two and
three times going forward with the dividend
cover for 2021 expected to be at the upper
end of that range. Consistent with this, the
proposed final dividend for 2021 of 22.0 pence
per share gives a total dividend for the year of
30.5 pence per share, representing cover of 3.0
times based on adjusted earnings per share.
The Group had a cash outflow on dividends of
£84.9 million during the year comprising:
• the second interim dividend for 2019 of
12.5p per (£29.9 million) that was
suspended in March 2020 as a
precautionary measure to preserve liquidity
in light of Covid-19;
• the final dividend for the year ended
31 December 2020 of 14.5p per ordinary
share (£34.7 million); and
• an interim dividend for 2021 of 8.5p per
share (£20.3 million).
The final dividend for 2021 and future
dividends will be paid by Grafton Group plc
following the simplification of the Grafton Unit
which was approved by shareholders at the
EGM on 21 January 2021.
STRATEGY
Our strategy is to continue to invest and build
on our strong market positions and to leverage
our strong brands and benefit from the
operational gearing that we have in these
markets. We want to allocate capital to build
a higher margin, higher return and less capital
intensive business.
The decision to divest the traditional
merchanting business in Great Britain followed
a comprehensive strategic review which
concluded that exiting this segment of the
building materials distribution market in
Great Britain would enable the Group to
optimise shareholder value.
The creation of a more balanced portfolio
of businesses internationally continues to be
a high strategic priority for the Board. The
proceeds from the divestment, together with
strong cashflow from operations, provides the
Group with substantial resources for investment
in new geographies. We are focused on buying
good businesses with good management
teams operating in differentiated segments of
the building materials distribution market that
offer the potential for high growth, superior
returns and resilience through the cycle.
The acquisition of IKH in Finland has increased
the scale of Grafton and provided greater
geographic diversification. It has also
strengthened our operations in mainland
Europe in line with our development strategy
and provided a new growth platform in the
Nordic region. The IKH business has also
expanded our product range and customer
base into attractive core and adjacent markets.
The development of our Netherlands business
since 2016, the acquisition of Leyland SDM in
2018 and StairBox in 2020 demonstrate our
disciplined approach to the allocations of
capital and our track record of creating
shareholder value from buying good
businesses at fair prices.
“These results would not have been possible
without the leadership of our management
teams, who deserve to be recognised for
everything they have achieved, and the
exceptional commitment and hard work
of colleagues in our branches, stores,
distribution centres and offices.”
22
Grafton Group plc
Annual Report and Accounts 2021
CHAIRMAN’S STATEMENT continued
Our very successful Selco Builders Warehouse
business now accounts for almost three
quarters of our UK distribution activities. The
remainder of our UK distribution business
comprises the successful MacBlair operations
in Northern Ireland and the TG Lynes and
Leyland SDM specialist distributors that mainly
operate in the London market. We see good
opportunities to grow our Selco network from
72 branches at the year end and are targeting
increasing the estate to 100 branches by 2026.
The acquisition of the StairBox staircase
manufacturing business in Stoke-on-Trent in
late 2020 was in line with our strategy of
acquiring high quality well managed specialist
businesses with strong market positions and
we were very encouraged by the returns
achieved in 2021.
Development of our best-in-class, market
leading distribution and DIY, Home and Garden
businesses in Ireland is mainly driven by organic
growth complemented from time to time by
bolt-on acquisitions. We acquired a specialist
distributor of high-quality architectural
ironmongery products for doors in February
2021 and, following approval by the Competition
and Consumer Protection Commission in
Ireland, we completed the acquisition of the
Sitetech specialist construction accessories
business at the end of February 2022.
The Netherlands business continued to grow
organically and by acquisition and we will
continue to pursue our successful growth
strategy in this market.
BOARD COMPOSITION
Grafton has a strong Board of Directors that
drives strategy, performance and growth of the
business. The membership of the Board is
broadly based and reflects a diverse range of
backgrounds, education, cultures, expertise,
perspectives and business experience
including executive and non-executive director
experience of the distribution sector.
Gavin Slark completed 10 years in the role of
Group CEO on 1 July 2021 and I take the
opportunity to thank him for his excellent
leadership of the Group over this period.
Ms. Avis Darzins was appointed as Non-
Executive Director of the Company with effect
from 1 February 2022. Ms. Darzins has a
strong business background and varied
experience including eight years as a Partner
at Accenture in London where she worked
closely with many well-known national and
international brands operating in the retail
and consumer products sectors to deliver
successful outcomes and drive performance
and growth. We are delighted to welcome
Avis to the Board. Her extensive business
knowledge and experience, gained over
several decades, complements that of
other Directors and will be of great benefit
to our Group over the coming years.
The Board has a long-standing commitment
to prioritise diversity and supports the
recommendations of both the FTSE Women
Leaders (Hampton Alexander) Review on
gender diversity and the Parker Review on
ethnic diversity. The Board is committed to at
least the minimum target of one-third for
female representation as set out in the FTSE
Women Leaders (Hampton Alexander) Review
and to having at least one Director reflecting
ethnic diversity as defined in accordance with
the Parker Review. I am pleased to confirm
that both of these objectives are currently met.
Three of our eight Board directors are female
(38 per cent) following the appointment of
Ms. Avis Darzins to the Board. Ms. Darzins is
from an ethnically diverse background as
defined by the Parker Review.
The Board is also very supportive of
management’s actions to increase the
proportion of senior leadership roles across
our Group that are held by women and by
people from minority backgrounds that are
reflective of the expertise and perspectives
of the societies where we operate and their
important constituencies. The Group
continues to prioritise diversity in the widest
sense when making appointments at all levels
in its business and, by setting the tone from
the top, promotes a culture where there are
no barriers to everyone achieving their
potential and succeeding at the highest
levels in Grafton.
23
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
BOARD EVALUATION
An evaluation of the Board, its Committees and
individual Directors was conducted during the
year by an external evaluator, and I am pleased
to report that the results demonstrate that the
Board and its Committees continue to operate
very effectively and to a high standard of
governance. The report noted that the Board
has embraced its commitment to continually
improve and made good progress on many of
the themes identified in prior internal reviews.
The Board is keen to ensure that observations
from the latest independent review help to
shape its priorities for the current year.
CULTURE, COLLEAGUES
AND PURPOSE
Our corporate culture defines who we are and
how we do business. Grafton’s culture is based
on the principle of entrepreneurial local
management teams operating to high ethical
and professional standards within a strong
centralised Group management, reporting
and governance framework.
In line with provisions of the 2018 Corporate
Governance Code on workforce engagement,
Colleague Forums are in place at national level
in the UK, Ireland and the Netherlands with the
first meeting of the new Finnish forum to be
held during 2022. Meetings of the forums held
during the year provided Non-Executive
Directors who attended with the views of
colleagues on a range of issues that were
subsequently discussed by the Board.
Our commitment to our culture and values
helps to differentiate us from our competitors.
Our colleagues, under the leadership of Gavin
Slark, Group CEO, play a key role in the
development of a strong and healthy
culture in Grafton.
SUSTAINABILITY STRATEGY
Grafton is committed to building a sustainable
business for all of its stakeholders. The Board
and the management teams in the Group’s
businesses recognise that sustainability is a
core element of our strategy and is critical to
the long term success of our portfolio of
businesses. Our sustainability agenda is based
on reflecting the interests of stakeholders in
our business decisions and focusing on those
areas in our distribution, manufacturing and
retailing businesses that are likely to have the
most success and where we can deliver
tangible results and outcomes that make
a real difference to our stakeholders.
Ahead of the Capital Markets Day in November,
we published a Sustainability Report which is
available on our website and which sets out
our recent sustainability achievements, our
plans for the future and the targets that we
have set in order to achieve each element of
our strategy. The Business Segment Reports,
that form part of the Strategic Review that
follows, show clearly that the Group made very
good progress during the year on the
development and implementation of its
sustainability strategy. The objective of this
strategy is to build a sustainable future for
everyone and is aligned with the UN
Sustainable Development Goals and our
strategy identifies five key areas of focus
and activity for the Group and its businesses
which are Customers and Products; People;
Planet; Communities; and Ethics.
While we have made good progress during
the year through a range of initiatives linked to
these goals, many of which are described later
in this Annual Report, this is an ongoing project
and we will update on progress each year.
ANNUAL GENERAL MEETING
In line with the Group’s policy, all Directors
will retire and seek election/re-election at the
2021 AGM. As referred to in the Nomination
Committee Report, each Director continues
to perform effectively and has demonstrated
a strong commitment to the role and I
strongly recommend that each of the
Directors is elected/re-elected at the
Annual General Meeting.
OUTLOOK
We are well placed to implement our
development strategy in the year ahead
supported by the very strong financial
position of the Group.
Michael Roney
Chairman
8 March 2022
24
Grafton Group plc
Annual Report and Accounts 2021
BUSINESS MODEL
Creating value
Our desire to progress
remains as powerful
today as it always
has been.
Building
progress
together
INPUTS
The continued success
of the Group is based on:
Our core values underpin
everything we do
Ambition
Our ambition to grow whilst
maintaining a disciplined approach
to capital allocation.
Innovation
Investing in solutions to continually
improve our customer service.
Sustainability
Building a sustainable future
for everyone.
Engagement
Building strong and trusting
relationships with all of
our stakeholders.
Financial Strength
A strong financial base to fund
ongoing development and
acquisition activity.
Operating segments
Distribution
Retailing
Manufacturing
More information on our business
segments and their performance
on pages 40 to 55
HOW WE DO IT
Sustainable,
trustworthy and
responsible
Be brilliant for
our customers
25
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
We add value by building on
our strengths and leading
market positions
Our shareholders
Maximising shareholder
returns in a responsible
and sustainable way.
30.5p
dividend per share
Our customers
Being brilliant for our customers
by continuing to meet their needs,
innovatively, safely and efficiently.
349
branches and factories across our
operations
Our people
Being a welcoming, inclusive place
to work and retaining a loyal and
motivated workforce.
8,700
colleagues in 349 branches,
factories and support offices
Our suppliers
Working with our suppliers
to drive sustainability
and innovation.
80%
of suppliers (by revenue) engaged
on completing ESG questionnaire
Our communities
Engaging with our local
communities and supporting
local and national causes.
£900,000
raised for charities
Key strengths
Leading market positions and brands in each
of the countries in which the Group operates.
Sound financial metrics based on excellent
cash generation, a strong balance sheet and
the financial resources to fund ongoing
development activity.
A geographically diversified network of
349branches and factories with opportunities
for further growth through acquisition and
organic development.
A portfolio of highly cash generative and
profitable businesses.
A customer service orientated culture and
the scale and breadth of operations to create
a competitive advantage in local markets.
Strong, capable, highly motivated and
experienced management teams.
Skills and experience in acquiring and
integrating businesses.
VALUE CREATED
Value our people
Entrepreneurial
and empowering
Ambitious
26
Grafton Group plc
Annual Report and Accounts 2021
STRATEGY
Our strategy
STRATEGIC PILLARS WHAT IT MEANS PROGRESS IN 2021 KPIs TARGET FOR 2022 LINKS TO RISK
Excellence
in service
• Being the first choice supplier to our customers.
• Refining and developing the range of products and
services offered.
• Developing an innovative and efficient multi-specialist
and multi-channel business.
• Increasing our e-commerce capabilities.
• New Selco delivery hub opened during the year to centralise
customer deliveries in the Birmingham area;
• Rebrand of the five store GDC Paints business acquired in
2020 into the Leyland SDM store network, providing
customers with an enhanced and consistent experience;
• Three dedicated ECO Centres opened at Chadwicks Group
branches showcasing sustainable products for energy
efficient new build and retrofit projects;
• Woodie’s digital platform upgraded to improve the online
customer experience and streamline customer online
communications into a single platform.
Selco branch openings
3
2
3
2021
2020
Group businesses will continue to pursue
opportunities to enhance our customers’ experience.
The Group targets further Selco stores openings by
the end of 2022.
• Competition;
• Colleagues;
• IT systems and infrastructure;
• Cyber security & data protection;
• Supply chain;
• Internal controls & fraud;
• Sustainability & climate change;
• Pandemic risk – Covid-19 Virus
Strong
financial base
• Maximising long term returns for shareholders
supported by three financial pillars:
– Revenue growth in new and existing markets;
– Operating profit margin growth; and
– Optimising capital turn and return on
capital employed
• Generating strong cash flow from operations
and maintaining a strong balance sheet are key
financial metrics.
• Group revenue from continuing operations increased
by 25.6 per cent to £2.11 billion and by 28.5 per cent in
constant currency;
• Operating profit in continuing operations increased by
68.8 per cent to £288.0 million;
• The adjusted operating profit margin increased by 340 basis
points to 13.6 per cent and increased by 270 basis points
to 12.9 per cent excluding property profit;
• Return on Capital Employed increased by 750 basis points
to 19.4 per cent;
• Net Cash (before IFRS 16 leases) increased to £588.0 million;
• The dividend for the year increased by 110.3 per cent in line
with the Group’s progressive dividend policy.
Revenue
£2.11bn
£1.68bn
£2.11bn
2021
2020
The Group will continue to prioritise like-for-like
revenue growth in its markets, to exercise tight control
over costs and to invest in areas of its business that
provide good long term growth prospects.
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new businesses;
• Supply chain;
• Internal controls & fraud;
• Sustainability;
• Pandemic risk – Covid-19 virus
Organic
growth
and
acquisitions
• Deploying mature acquisition and integration skills to
complete transactions and realise synergies.
• Increasing market coverage where the Group is
currently under-represented. Moving into new
territories where opportunities exist to:
– Achieve good returns on capital invested;
– Achieve leading market positions in national and
regional markets; and
– Add value to familiar business models operating in
unconsolidated markets.
• New Selco branches opened in Liverpool, Canning Town
and Rochester;
• In January, the acquisition of Van den Anker Ijzerhandel
Katwijk B.V. strengthened the market position of Polvo in the
Netherlands Mid-Western region;
• The acquisition in April of Govers B.V provided geographic
coverage for Isero in the Netherlands North West region;
• Proline Architectural Hardware (“Proline”) which was acquired
in February brings specialist expertise to the architectural
ironmongery distribution segment in Ireland;
• The acquisition of IKH in July strengthens the Group’s
operations in the mainland European market.
Capital expenditure on development initiatives
£19.0m
£15.1m
£19.0m
2021
2020
Growth by acquisition in new and existing geographic
markets continues to be a high strategic priority.
Grafton will continue to pursue its organic growth
strategy in its established businesses.
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new businesses
A supportive
organisational
structure and
management
• Group Management and the Board develops and
implements the overall strategy of the Group.
• Utilising the Group Corporate Office in Dublin to
support the Group’s international operations.
• A decentralised structure that confers significant
autonomy on local management within a tight Group
control environment.
• High calibre management teams with an appropriate mix
of operational and management expertise.
• Driving colleague engagement across the Group
through clear, open and honest communication.
• Management and colleague development programmes in
place across the Group’s businesses;
• Woodie’s was named Best Large Business at the 2021
National Training Awards in recognition of their continued
focus on learning and development;
• Colleague surveys are carried out across our businesses;
• Internal communication platforms such as Workvivo and
Yoobic enable effective sharing of information and updates;
• Colleague Forums held via Teams provided opportunities for
colleague views to be heard at Board level.
Female workforce percentage
30%
25%
30%
2021
2020
The Group will continue to focus on the development
of colleagues and management teams and to equip
colleagues with key leadership skills.
• Colleagues;
• IT systems and infrastructure;
• Cyber security & data protection;
• Health & safety;
• Acquisition and integration of new businesses;
• Internal controls & fraud;
• Sustainability & climate change;
• Pandemic risk – Covid-19 virus
Ethics
and integrity
• Conducting business to a high standard of
integrity for the benefit of all stakeholders and
in a responsible way.
• This includes a commitment to achieving the
highest practical standards of health and safety
for colleagues, customers and visitors to
Group locations.
• Recognising the importance of trust to stakeholders
and the sustainability of our business.
• SpeakUp reporting line allows colleagues to report any
concerns on a confidential basis;
• Group lost days (severity rate) reduced by 25 per cent
since 2020;
• Policy awareness videos developed and circulated to
colleagues via the learning management system and other
engagement platforms;
• Implementation of a third party supplier classification and risk
assessment system;
• A programme of fraud risks assessments continued
to identify any additional anti-fraud controls which may
be required.
Business conduct and ethics training
completion rates
86%
86%
86%
2021
2020
We will maintain high ethical standards for the benefit
of all stakeholders and continue to focus on health and
safety as a key priority.
• Colleagues;
• Health & safety;
• Sustainability;
• Internal controls & fraud;
• Pandemic risk – Covid-19 virus
27
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Our overall strategy is to be a leading international
distributor of building materials and related activities.
This strategy is supported by our five pillars.
STRATEGIC PILLARS WHAT IT MEANS PROGRESS IN 2021 KPIs TARGET FOR 2022 LINKS TO RISK
Excellence
in service
• Being the first choice supplier to our customers.
• Refining and developing the range of products and
services offered.
• Developing an innovative and efficient multi-specialist
and multi-channel business.
• Increasing our e-commerce capabilities.
• New Selco delivery hub opened during the year to centralise
customer deliveries in the Birmingham area;
• Rebrand of the five store GDC Paints business acquired in
2020 into the Leyland SDM store network, providing
customers with an enhanced and consistent experience;
• Three dedicated ECO Centres opened at Chadwicks Group
branches showcasing sustainable products for energy
efficient new build and retrofit projects;
• Woodie’s digital platform upgraded to improve the online
customer experience and streamline customer online
communications into a single platform.
Selco branch openings
3
2
3
2021
2020
Group businesses will continue to pursue
opportunities to enhance our customers’ experience.
The Group targets further Selco stores openings by
the end of 2022.
• Competition;
• Colleagues;
• IT systems and infrastructure;
• Cyber security & data protection;
• Supply chain;
• Internal controls & fraud;
• Sustainability & climate change;
• Pandemic risk – Covid-19 Virus
Strong
financial base
• Maximising long term returns for shareholders
supported by three financial pillars:
– Revenue growth in new and existing markets;
– Operating profit margin growth; and
– Optimising capital turn and return on
capital employed
• Generating strong cash flow from operations
and maintaining a strong balance sheet are key
financial metrics.
• Group revenue from continuing operations increased
by 25.6 per cent to £2.11 billion and by 28.5 per cent in
constant currency;
• Operating profit in continuing operations increased by
68.8 per cent to £288.0 million;
• The adjusted operating profit margin increased by 340 basis
points to 13.6 per cent and increased by 270 basis points
to 12.9 per cent excluding property profit;
• Return on Capital Employed increased by 750 basis points
to 19.4 per cent;
• Net Cash (before IFRS 16 leases) increased to £588.0 million;
• The dividend for the year increased by 110.3 per cent in line
with the Group’s progressive dividend policy.
Revenue
£2.11bn
£1.68bn
£2.11bn
2021
2020
The Group will continue to prioritise like-for-like
revenue growth in its markets, to exercise tight control
over costs and to invest in areas of its business that
provide good long term growth prospects.
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new businesses;
• Supply chain;
• Internal controls & fraud;
• Sustainability;
• Pandemic risk – Covid-19 virus
Organic
growth
and
acquisitions
• Deploying mature acquisition and integration skills to
complete transactions and realise synergies.
• Increasing market coverage where the Group is
currently under-represented. Moving into new
territories where opportunities exist to:
– Achieve good returns on capital invested;
– Achieve leading market positions in national and
regional markets; and
– Add value to familiar business models operating in
unconsolidated markets.
• New Selco branches opened in Liverpool, Canning Town
and Rochester;
• In January, the acquisition of Van den Anker Ijzerhandel
Katwijk B.V. strengthened the market position of Polvo in the
Netherlands Mid-Western region;
• The acquisition in April of Govers B.V provided geographic
coverage for Isero in the Netherlands North West region;
• Proline Architectural Hardware (“Proline”) which was acquired
in February brings specialist expertise to the architectural
ironmongery distribution segment in Ireland;
• The acquisition of IKH in July strengthens the Group’s
operations in the mainland European market.
Capital expenditure on development initiatives
£19.0m
£15.1m
£19.0m
2021
2020
Growth by acquisition in new and existing geographic
markets continues to be a high strategic priority.
Grafton will continue to pursue its organic growth
strategy in its established businesses.
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new businesses
A supportive
organisational
structure and
management
• Group Management and the Board develops and
implements the overall strategy of the Group.
• Utilising the Group Corporate Office in Dublin to
support the Group’s international operations.
• A decentralised structure that confers significant
autonomy on local management within a tight Group
control environment.
• High calibre management teams with an appropriate mix
of operational and management expertise.
• Driving colleague engagement across the Group
through clear, open and honest communication.
• Management and colleague development programmes in
place across the Group’s businesses;
• Woodie’s was named Best Large Business at the 2021
National Training Awards in recognition of their continued
focus on learning and development;
• Colleague surveys are carried out across our businesses;
• Internal communication platforms such as Workvivo and
Yoobic enable effective sharing of information and updates;
• Colleague Forums held via Teams provided opportunities for
colleague views to be heard at Board level.
Female workforce percentage
30%
25%
30%
2021
2020
The Group will continue to focus on the development
of colleagues and management teams and to equip
colleagues with key leadership skills.
• Colleagues;
• IT systems and infrastructure;
• Cyber security & data protection;
• Health & safety;
• Acquisition and integration of new businesses;
• Internal controls & fraud;
• Sustainability & climate change;
• Pandemic risk – Covid-19 virus
Ethics
and integrity
• Conducting business to a high standard of
integrity for the benefit of all stakeholders and
in a responsible way.
• This includes a commitment to achieving the
highest practical standards of health and safety
for colleagues, customers and visitors to
Group locations.
• Recognising the importance of trust to stakeholders
and the sustainability of our business.
• SpeakUp reporting line allows colleagues to report any
concerns on a confidential basis;
• Group lost days (severity rate) reduced by 25 per cent
since 2020;
• Policy awareness videos developed and circulated to
colleagues via the learning management system and other
engagement platforms;
• Implementation of a third party supplier classification and risk
assessment system;
• A programme of fraud risks assessments continued
to identify any additional anti-fraud controls which may
be required.
Business conduct and ethics training
completion rates
86%
86%
86%
2021
2020
We will maintain high ethical standards for the benefit
of all stakeholders and continue to focus on health and
safety as a key priority.
• Colleagues;
• Health & safety;
• Sustainability;
• Internal controls & fraud;
• Pandemic risk – Covid-19 virus
28
Grafton Group plc
Annual Report and Accounts 2021
STRATEGY IN ACTION
Excellence
in service
Selco online
trading capability
Selco’s continued investment in its online
trading ecosystem has led to a seamless
omnichannel experience for customers, with
approximately 80 per cent of online orders
fulfilled through deliveries from branches and
delivery hubs with the balance collected by
customers in-store. Following the success of
the delivery hub in Edmonton, a second hub
was opened that centralises deliveries for the
seven branches in the Birmingham area.
Number of Selco branches
72
For more see pages 41 to 43
29
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Capital allocation strategy
At our capital markets event in November we
provided an overview of our capital allocation
strategy based on maintaining our investment
grade credit rating, strong portfolio management
and a disciplined approach to capital allocation.
Strong
financial
base
30
Grafton Group plc
Annual Report and Accounts 2021
STRATEGY IN ACTION continued
Organic
growth and
acquisitions
Acquisition of IKH
in Finland
Grafton completed the acquisition of IKH in
Finland on 1 July 2021. IKH is one of the
largest workwear, personal protective
equipment (“PPE”), tools, spare parts and
accessories wholesalers and distributors.
Ithas a track record of over twenty years of
uninterrupted revenue growth and has a
number two market position in its core tools
and PPE segment. The acquisition strengthens
Grafton’s operations in mainland Europe in line
with our development strategy and provides
a new growth platform in the Nordic region.
IKHalso expands our product ranges and
customer reach into attractive core and
adjacent markets.
Launch of
Sustainability Report
Our first Sustainability Report was launched
aspart of the Capital Markets Event held in
November. The report sets out the current
status of our sustainability strategy, our key
targets and plans for the future. You can view
ithere: https://graftonsustainability.com/
Finland sector revenue
£70.8m
For more see pages 50 and 51
Ethics
and
integrity
31
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
A supportive
organisational
structure and
management
Isero in-house academy
During the year, 13 students graduated from
the Isero In House Training Academy. The
Academy is focused on providing in-house
training for customer service representatives
and training covers sales, technical and
product knowledge.
32
Grafton Group plc
Annual Report and Accounts 2021
GROUP RESULTS
Grafton achieved record results in 2021, a
year that also marked the completion of a key
phase of our strategic development with the
divestment of the traditional merchanting
business in Great Britain. This development
has seen the Group transformed into a
portfolio of high quality and high returning
businesses with good market positions.
We continued to invest both organically and
through acquisitions in our existing businesses
and in July we acquired IKH in Finland which
provides a new growth platform in the Nordics.
These excellent results, which were achieved
in broadly favourable markets, show the
benefits of the multi-year investments in
the more resilient segments of our markets.
The residential repair, maintenance and
improvement (“RMI”) market is our primary
end-use market and we saw the real
benefits during the year of our sectoral
focus on this market.
We continued to progress initiatives to
extend the competitive advantages that
our businesses have and to grow our market
positions. We invested in digital as part of our
commitment to providing customers with a
seamless omnichannel experience. We are
blending our physical branches and stores,
which remain at the heart of our business,
with the digital environment and we are
increasingly interacting with our customers
through social media.
Supply chain disruption resulted in shortages
of core building materials, longer lead times,
managed allocation for selected products and
a sharp increase in product price inflation
across a range of categories in the distribution
businesses in the UK and Ireland.
Group adjusted operating profit (before
property profit) increased by 58.9 per cent to
£271.2 million (2020: £170.7 million and 2019:
£173.2 million) in the continuing business,
which excludes the traditional merchanting
business in Great Britain that was divested at
the year end. The Group adjusted operating
Building
a stronger
business
2021 saw record profits, a step change
to higher returning businesses following
the divestment of our traditional
merchanting business in Great Britain,
exposure to a new growth platform in
the Nordics and increased focus on
digital and sustainability opportunities.
CHIEF EXECUTIVE OFFICER’S REVIEW
Grafton Group plc
Annual Report and Accounts 2021
33
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Grafton Group plc
Annual Report and Accounts 2021
profit margin in the continuing businesses was
a record 12.9 per cent, an increase of 270 basis
points on the outturn for 2020.
Our market leading businesses in the UK,
Ireland and the Netherlands performed
strongly, and we had a second half contribution
from the IKH business in Finland. The Woodie’s
DIY, Home and Garden retail business in
Ireland benefitted from an exceptional level of
demand in the first half which eased following
the reopening of non-essential retail.
Selco Builders Warehouse, which now makes
up three quarters of our UK distribution
business, achieved a significant step up in
revenue and profitability. The operating profit
margin in the continuing UK distribution
business before property profit was 12.5 per
cent (2020: 8.8 per cent and 2019: 11.7 per
cent). Divestment of the lower margin UK
distribution businesses and the allocation of
capital to new Selco branches over recent
years has resulted in a planned structural
increase in the operating profit margin.
The 2019 operating profit margin before
property profit in the UK distribution
business, including the divested traditional
merchanting business, was 6.1 per cent
which demonstrates the scale of the
operating margin transformation in 2021.
We have reported property profit of £16.7
million for the financial year. Proceeds of
£13.6 million were received on the successful
completion of the sale of freehold properties in
Belgium that were retained following the sale
of the distribution business in 2019.
Cashflow generated from operations for the
year increased to £303.2 million and the Group
ended the year with net cash of £588.0 million
before IFRS 16 lease liabilities, an increase of
£406.1 million.
The Board of Grafton is committed to a
progressive dividend policy and, at the Capital
Markets Day in November 2021, we announced
that we would look to maintain dividend cover
of between two and three times in future with
the dividend cover for 2021 at the upper end of
that range. Consistent with this, we have today
announced a proposed final dividend of 22.0
pence per share to give a total dividend for the
2021 financial year of 30.5 pence per share,
representing cover of 3.0 times based on
adjusted earnings per share.
IMPLEMENTING OUR
GROUP STRATEGY AND
INCREASING RETURNS
As already noted, we completed the
divestment of the traditional merchanting
business in Great Britain on 31 December 2021
for an enterprise value of £520 million following
a strategic review. Freehold properties that
have a market value of approximately £25
million (fair value of £15.75 million) were
retained. This transaction completed our
programme of planned disposals and we
again thank all our former colleagues in this
business for their longstanding and valued
contribution to Grafton and wish them every
success in the future.
We now have the opportunity to recycle the
proceeds received on the divestment into
more differentiated, higher growth potential
businesses that generate superior returns
over the long term. The divestment enables
us to refocus resources on our international
development strategy which will be our main
priority over the coming years.
Acquisitions have always been an important
part of the Grafton growth strategy. We have a
long history of identifying, acquiring and
integrating businesses and an acquisition team
that is skilled and experienced in all aspects of
transactions. We entered the Netherlands
Operating margin
10%
Return on capital employed
13%
Increased medium-term financial targets
”Our people have been a key differentiator
in delivering safe and superior customer
outcomes throughout the pandemic and
in mitigating supply chain challenges at
a time of resilient demand in the broader
repair, maintenance and improvement
and DIY segments in our markets“.
34
Grafton Group plc
Annual Report and Accounts 2021
CHIEF EXECUTIVE OFFICER’S REVIEW continued
market at the end of 2015 and since then
have developed a best-in-class business of
scale in an attractive segment of the
distribution market. This involved an initial
platform acquisition that gave us an entry point
into a new geography and customer segment.
We followed up with bolt-on acquisitions in a
consolidating market and a transformative deal
in 2019 when we acquired Polvo. We have also
grown the business organically and have
continued to expand geographically as we
seek to create a national branch footprint.
We completed the acquisition of Isojoen
Konehalli Oy and Jokapaikka Oy (“IKH”) in
Finland on 1 July 2021. IKH is one of the
largest wholesalers and distributors of
workwear, personal protective equipment
(“PPE”), tools, spare parts and accessories
in Finland. We were very pleased to welcome
our new colleagues in Finland to the Grafton
family and we look forward to working with
them on the next phase of IKH’s growth
and development.
The acquisition of IKH, which has a number
two market position in the tools and PPE
product categories in Finland, provides Grafton
with exposure to a new geographic market
and creates a new platform for growth in the
Nordic region. IKH has also expanded our
product ranges and customer segments in
core and related markets.
Completion of the IKH transaction was
consistent with our disciplined approach to
acquisitions. We have allocated capital on the
basis of strategic fit and meeting our hurdle
rates of return for operating profit margin and
ROCE. We recognise the importance of
retaining our focused approach and strong
disciplines around capital allocation,
particularly as we look to deploy our balance
sheet strength over the next few years.
At the Capital Markets Day in November, we
increased the Group’s long term operating
profit margin target from 7 per cent to 10 per
cent and we raised our underlying ROCE target
by one per cent to 13 per cent after adjusting
for the treatment of leases under IFRS 16.
Through a combination of organic growth and
the acquisition of high growth potential
businesses trading in segments of our markets
that have good structural growth drivers, we
will continue to allocate capital to opportunities
that will allow us to deliver sustainable value
and good returns.
IMPLEMENTING OUR
SUSTAINABILITY STRATEGY
At Grafton we believe there is a positive
connection between sustainability and
financial performance and we are facing up
to the bigger questions about what’s right
for our business, for society and for the
environment. We have developed a strategy
that challenges us to take the lead on the
material issues that are closest to our
business, and which make the biggest
contribution to the UN Sustainable
Development Goals that are most relevant
to us. Our businesses are focusing on the
issues most relevant to them, and we are
aligning resources to these key areas to
deliver maximum impact.
We have set specific targets and KPIs across
the five focus areas of our sustainability
strategy to guide our performance and help
us work in a way that’s responsible and
sustainable. Our sustainability programme
informs our strategic decision making about
where to innovate and where to invest, as
well as the operational decisions we all
make every day.
We have made good progress to date, and you
will see this in a very real way in the reviews of
the individual businesses that follow. We will
continue working towards our sustainability
strategy commitments whilst also aiming
higher to ensure we make a valuable
contribution to society and help build a
sustainable future for everyone.
”Trading in the year to date has been
encouraging and the outlook for 2022
is positive, supported by strong housing
and RMI markets, the inherent strength
of our businesses, our strong balance
sheet and future investment opportunities“.
35
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
OUTLOOK
The recent wave of the Covid-19 pandemic has
been less severe than previous waves and the
restrictions now in place in the four countries
where we operate have either been reduced
significantly or are reducing.
Consumer price inflation is expected to ease
but to remain above the low levels of recent
decades and while global supply chain
disruption caused by the pandemic has eased
considerably it is likely to continue to impact
the availability of certain products. The overall
rate of building materials price inflation
appears to be moderating but there is a
carryover effect from price increases in the
second half of last year and the pricing of
certain key products, such as timber and
steel, may prove volatile in the current year.
The UK economy staged a strong recovery last
year and is forecast to continue, albeit at a
moderating pace. Activity in the new housing
market is underpinned by demand exceeding
supply in a low interest rate environment with
good levels of mortgage availability. The
demand fundamentals in the housing RMI
market are supported by an aging housing
stock, an increase in housing transactions
in 2021, a build-up of savings during the
pandemic and by employment growth and a
desire by households for more indoor and
outdoor living space. The willingness of
households to undertake major projects due to
the squeeze on real incomes caused by high
rates of inflation and the cost and availability
of labour in a tight market are possible
headwinds for the RMI market.
In Ireland, the reopening of the economy
through 2021 led to a sharp increase in
employment and household spending and the
outlook remains positive for 2022. Chadwicks
should continue to make gains as activity in
the residential RMI market is expected to
remain strong and the level of housing
commencements in 2021 points to a further
increase in house completions, albeit skills
shortages could curtail growth. We expect
some dilution of gross margin as the mix of
business normalises. The exceptional revenue
growth trends in Woodie’s business eased
as anticipated in the second half of last year
following the reopening of non-essential retail
and leisure activities and it is anticipated
that this trend will continue through the first
half as revenue normalises at well above the
pre-pandemic level.
The Netherlands’ economy has been resilient
throughout the pandemic and while above
trend growth is forecast, driven by consumer
spending, the historically low rate of
unemployment and a high number of job
vacancies may weigh on activity. Underlying
demand conditions in the RMI and new
housing markets are very positive, but housing
transactions are likely to remain under
pressure due to the shortage of properties
for sale. We expect to make further progress
growing our Isero/Polvo ironmongery, tools
and fixings distribution business.
The Finnish economy continues to recover
and growth is forecast to be supported by
increased household spending, employment
and incomes. House building is expected to be
brisk in the Helsinki region and in the larger
urban centres. We expect the IKH business
to perform in line with plan.
Average daily like-for-like Group revenue
increased by 18.9 per cent in the period from
1 January to 13 February 2022 measured
against a weaker performance in the same
period last year which was impacted by the
pandemic. This comprised increases of 13.2
per cent in UK Distribution, 47.2 per cent in Irish
Distribution measured against trading during
the lockdown of the construction sector, 6.7
per cent in Netherlands Distribution and by
36.4 per cent in Manufacturing. Average daily
like-for-like revenue declined, as anticipated,
by 4.4 per cent in Retailing which compares
to growth of circa 40.0 per cent in the same
period last year.
The business is performing in line with
management expectations at this early stage
of the financial year and we look to the future
with confidence given the strength of our
businesses, strong balance sheet and future
investment opportunities.
COLLEAGUES
In closing, I would like to again express my
sincere thanks to colleagues across our
Group for living the values of Grafton in their
exceptional response throughout the Covid-19
pandemic and for safely supporting each other,
our customers and business partners. It was
their efforts and commitment that have made
these results possible.
Gavin Slark
Chief Executive Officer
8 March 2022
36
Grafton Group plc
Annual Report and Accounts 2021
KEY PERFORMANCE INDICATORS
Financial KPIs
The key performance indicators (‘KPIs’) below are
used to track performance and increase value
for shareholders.
Revenue
Group revenue for the year is a measure
of overallgrowth.
Strategic links
£2.11bn
£2.70bn
£2.60bn
£2.70bn
£1.68bn
£2.11bn
21
20*
19
18
17
Our progress in 2021
Revenue from continuing operations increased by
25.6 per cent to £2.11bn, an increase of 28.5 per
cent in constant currency.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Adjusted operating profit**
Profit before intangible asset amortisation on
acquisitions, exceptional items, acquisition related
items, net finance expense and income tax expense.
Strategic links
£288.0m
£163.7m
£187.6m
£204.8m
£170.6m
£288.0m
21
20*
19
18
17
Our progress in 2021
Adjusted operating profit from continuing
operations, including property profit, increased
by68.8 per cent to £288.0m.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Adjusted operating
profit margin before
property profit**
Adjusted operating profit before profit on disposal
of Group properties as a percentage of revenue
provides a good measure of performance.
Strategic links
12.9%
5.9%
7.0%
7.4%
10.2%
12.9%
21
20*
19
18
17
Our progress in 2021
The term “adjusted” means before amortisation
ofintangible assets arising on acquisitions,
exceptional items and acquisition related items.
The adjusted pre-property operating margin
increased by 270bps to a record 12.9 per cent as a
result of the strong contribution from our market
leading businesses.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Free cash flow
Cash generated from operations less interest,
taxandreplacement capital expenditure net of
disposal proceeds. Free cash flow provides a
goodmeasure ofthe cash generating capacity
of the Group’s businesses.
Strategic links
£237.0m
£163.5m
£157.4m
£224.6m
£304.1m
£237.0m
21
20
19
18
17
Our progress in 2021
Free cash flow decreased by £67.1 million to
£237.0 million.
Risks
• Macro-economic conditions
• Competition
Adjusted operating
profit margin**
Adjusted operating profit as a percentage of revenue.
Strategic links
13.6%
6.0%
7.2%
7.7%
10.2%
13.6%
21
20*
19
18
17
Our progress in 2021
The adjusted operating profit margin is up 340 bps
to 13.6 per cent from continuing operations.
Risks
• Macro-economic conditions
• Competition
• Pandemic Risk – Covid-19 virus
Net cash/(debt) –
beforeIFRS 16 leases
Total cash and cash equivalents less interest-
bearingloans and borrowings and derivative
financialinstruments but before lease liabilities.
Strategic links
£588.0m
-£62.9m
-£53.1m
£7.8m
£181.9m
£588.0m
21
20
19
18
17
Our progress in 2021
Very strong cash position with net cash, before
lease liabilities, of £588.0 million having started the
year with net cash of £181.9 million, an increase of
£406.1 million. The Group’s net cash position
benefitted from the proceeds received on the sale
of the traditional merchanting Business in Great
Britain for an enterprise value of £520.0 million.
Risks
• Macro-economic conditions
• Competition
• Acquisition & integration
Return on capital
employed** (ROCE)
A measure of the Group’s profitability and the
efficiency of its capital employed. Adjusted operating
profit is divided by average capital employed (where
capital employed is the sum of total equity and net
debt at each period end) times 100.
Strategic links
19.4%
13.6%
14.7%
10.8%
11.9%
19.4%
21
20*
19
18
17
Our progress in 2021
ROCE increased by 750 basis points.
Risks
• Macro-economic conditions
• Competition
Adjusted earnings
per share**
A measure of underlying profitability of the Group.
Adjusted profit after tax is divided by the weighted
average number of Grafton Shares in issue,
excludingtreasury shares.
Strategic links
93.0p
54.9p
63.7p
62.8p
50.3p
93.0p
21
20*
19
18
17
Our progress in 2021
Adjusted earnings per share from continuing
operations was up 84.9 per cent on prior year.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
* The results for 2020 have been restated as the traditional merchanting business in Great Britain is classified as a discontinued operation. Details are set out in Note 27.
** 2017-2018 are presented on a pre-IFRS16 basis.
37
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Strategic links
Excellence
in service
Strong
financial base
Organic growth
and acquisitions
Ethics
and integrity
A supportive organisational
structure and management
Revenue
Group revenue for the year is a measure
of overallgrowth.
Strategic links
£2.11bn
£2.70bn
£2.60bn
£2.70bn
£1.68bn
£2.11bn
21
20*
19
18
17
Our progress in 2021
Revenue from continuing operations increased by
25.6 per cent to £2.11bn, an increase of 28.5 per
cent in constant currency.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Adjusted operating profit**
Profit before intangible asset amortisation on
acquisitions, exceptional items, acquisition related
items, net finance expense and income tax expense.
Strategic links
£288.0m
£163.7m
£187.6m
£204.8m
£170.6m
£288.0m
21
20*
19
18
17
Our progress in 2021
Adjusted operating profit from continuing
operations, including property profit, increased
by68.8 per cent to £288.0m.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Adjusted operating
profit margin before
property profit**
Adjusted operating profit before profit on disposal
of Group properties as a percentage of revenue
provides a good measure of performance.
Strategic links
12.9%
5.9%
7.0%
7.4%
10.2%
12.9%
21
20*
19
18
17
Our progress in 2021
The term “adjusted” means before amortisation
ofintangible assets arising on acquisitions,
exceptional items and acquisition related items.
The adjusted pre-property operating margin
increased by 270bps to a record 12.9 per cent as a
result of the strong contribution from our market
leading businesses.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Free cash flow
Cash generated from operations less interest,
taxandreplacement capital expenditure net of
disposal proceeds. Free cash flow provides a
goodmeasure ofthe cash generating capacity
of the Group’s businesses.
Strategic links
£237.0m
£163.5m
£157.4m
£224.6m
£304.1m
£237.0m
21
20
19
18
17
Our progress in 2021
Free cash flow decreased by £67.1 million to
£237.0 million.
Risks
• Macro-economic conditions
• Competition
Adjusted operating
profit margin**
Adjusted operating profit as a percentage of revenue.
Strategic links
13.6%
6.0%
7.2%
7.7%
10.2%
13.6%
21
20*
19
18
17
Our progress in 2021
The adjusted operating profit margin is up 340 bps
to 13.6 per cent from continuing operations.
Risks
• Macro-economic conditions
• Competition
• Pandemic Risk – Covid-19 virus
Net cash/(debt) –
beforeIFRS 16 leases
Total cash and cash equivalents less interest-
bearingloans and borrowings and derivative
financialinstruments but before lease liabilities.
Strategic links
£588.0m
-£62.9m
-£53.1m
£7.8m
£181.9m
£588.0m
21
20
19
18
17
Our progress in 2021
Very strong cash position with net cash, before
lease liabilities, of £588.0 million having started the
year with net cash of £181.9 million, an increase of
£406.1 million. The Group’s net cash position
benefitted from the proceeds received on the sale
of the traditional merchanting Business in Great
Britain for an enterprise value of £520.0 million.
Risks
• Macro-economic conditions
• Competition
• Acquisition & integration
Return on capital
employed** (ROCE)
A measure of the Group’s profitability and the
efficiency of its capital employed. Adjusted operating
profit is divided by average capital employed (where
capital employed is the sum of total equity and net
debt at each period end) times 100.
Strategic links
19.4%
13.6%
14.7%
10.8%
11.9%
19.4%
21
20*
19
18
17
Our progress in 2021
ROCE increased by 750 basis points.
Risks
• Macro-economic conditions
• Competition
Adjusted earnings
per share**
A measure of underlying profitability of the Group.
Adjusted profit after tax is divided by the weighted
average number of Grafton Shares in issue,
excludingtreasury shares.
Strategic links
93.0p
54.9p
63.7p
62.8p
50.3p
93.0p
21
20*
19
18
17
Our progress in 2021
Adjusted earnings per share from continuing
operations was up 84.9 per cent on prior year.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk – Covid-19 virus
Risk management
More information on pages 60 to 69
Alternative performance measures
More information on pages 212 to 216
38
Grafton Group plc
Annual Report and Accounts 2021
KEY PERFORMANCE INDICATORS continued
Non-financial KPIs
The non-financial key performance indicators (‘KPIs’)
below are used to measure our commitment to
responsible business practices.
Health and safety
Keeping our people safe.
Lost time injury frequency rate
0.98
1.09
1.04
1.01
0.96
0.98
21
20*
19
18
17
Our aim
Our commitment for health and safety is to send our
colleagues, customers and everyone we work with
home safe and well at the end of each day.
We believe that there is nothing we do that is so urgent
we cannot do it safely.
Strategic links
Our progress in 2021
In 2021 our commitment to the health and
safety of our colleagues and customers was
demonstrated by our continued implementation
of the highest health and safety standards in
line with measures and guidance adopted by
governments in the countries where we operate.
During the year the Group’s lost time injury
frequency rate, a measure of the number of
lost time injuries per 100,000 hours worked,
increased by 2.1 per cent from 0.96 in 2020
to 0.98 in 2021.
Diversity and inclusion
Being a welcoming, inclusive place to work.
Our aim
Our aim is to ensure that all of our people, regardless
of gender, ethnicity, age, disability, religion, socio-
economic background or sexual orientation, can reach
their full potential and be valued for being themselves.
Strategic links
Our progress in 2021
An Inclusion Network has been established to
provide opportunities for colleagues around
the Group to participate in our Diversity and
Inclusion agenda.
We are rolling out “ReciteMe” accessibility
software on the Group website and the websites
of a number of Group businesses.
As part of our sustainability strategy, we targeted
a completion rate of 70 per cent for updating of
voluntary diversity information in our UK and
Ireland businesses in 2021 and we are pleased to
have achieved this with a response rate of 75 per
cent. Collecting diversity information helps us as
a Group to understand how we can improve and
better meet the needs of our colleagues.
Environmental
Reducing our carbon footprint.
CO
2
e emissions per £’m of revenue
24.5 tonnes
31.2 tonnes
32.4 tonnes
31.4 tonnes
25.5 tonnes
24.5 tonnes
21
20*
19
18
17
Our aim
Our aim is to run our businesses in an environmentally
responsible manner.
We aim to protect natural resources, minimise waste
and reduce our carbon footprint.
Strategic links
Our progress in 2021
Total carbon emissions for continuing operations
in 2021 are similar to 2019 levels but the intensity
ratio measure has improved further due in part to
the impact of recent price inflation and as a
result of our ongoing improvements in fuel and
energy efficiency.
Group investment in energy efficiency measures
including over £4 million in LED lighting projects
and our continual shift to more fuel efficient, low
and zero carbon transport – has played a big
part in this reduction.
Group CO
2
e emissions per £’m of revenue
reduced by four per cent from 25.5 tonnes in
2020 to 24.5 tonnes in 2021.
The Group increased the percentage of waste
diverted away from landfill from 89 per cent in
2020 to 96 per cent in 2021.
Customer and product
Providing our customers with sustainable and
high quality products.
Our aim
Our aim is to collaborate with our suppliers to increase
our eco product offering, reduce packaging by volume
and seek out reusable packaging solutions.
We will work with our suppliers with a focus on
ensuring that the principles of our sustainability
code are met.
Strategic links
Our progress in 2021
During 2021 we implemented a third-party
compliance and risk management solution with
a view to developing a consistent, risk-based
approach to managing supplier compliance across
all of our business units.
As part of the implementation of this solution, we
commenced a process of further engagement by
way of an updated questionnaire to all suppliers
with annual purchases of over £100,000.
The aim of this process is to enhance the Group’s
supply chain transparency, improve supply chain
governance and help rate our supply chain’s
sustainability credentials.
* The results for 2020 have been restated as the traditional merchanting business in Great Britain is classified as a discontinued operation. Details are set out in Note 27.
Strategic links
Excellence
in service
Strong
financial base
Organic growth
and acquisitions
Ethics
and integrity
A supportive organisational
structure and management
39
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Health and safety
Keeping our people safe.
Lost time injury frequency rate
0.98
1.09
1.04
1.01
0.96
0.98
21
20*
19
18
17
Our aim
Our commitment for health and safety is to send our
colleagues, customers and everyone we work with
home safe and well at the end of each day.
We believe that there is nothing we do that is so urgent
we cannot do it safely.
Strategic links
Our progress in 2021
In 2021 our commitment to the health and
safety of our colleagues and customers was
demonstrated by our continued implementation
of the highest health and safety standards in
line with measures and guidance adopted by
governments in the countries where we operate.
During the year the Group’s lost time injury
frequency rate, a measure of the number of
lost time injuries per 100,000 hours worked,
increased by 2.1 per cent from 0.96 in 2020
to 0.98 in 2021.
Diversity and inclusion
Being a welcoming, inclusive place to work.
Our aim
Our aim is to ensure that all of our people, regardless
of gender, ethnicity, age, disability, religion, socio-
economic background or sexual orientation, can reach
their full potential and be valued for being themselves.
Strategic links
Our progress in 2021
An Inclusion Network has been established to
provide opportunities for colleagues around
the Group to participate in our Diversity and
Inclusion agenda.
We are rolling out “ReciteMe” accessibility
software on the Group website and the websites
of a number of Group businesses.
As part of our sustainability strategy, we targeted
a completion rate of 70 per cent for updating of
voluntary diversity information in our UK and
Ireland businesses in 2021 and we are pleased to
have achieved this with a response rate of 75 per
cent. Collecting diversity information helps us as
a Group to understand how we can improve and
better meet the needs of our colleagues.
Environmental
Reducing our carbon footprint.
CO
2
e emissions per £’m of revenue
24.5 tonnes
31.2 tonnes
32.4 tonnes
31.4 tonnes
25.5 tonnes
24.5 tonnes
21
20*
19
18
17
Our aim
Our aim is to run our businesses in an environmentally
responsible manner.
We aim to protect natural resources, minimise waste
and reduce our carbon footprint.
Strategic links
Our progress in 2021
Total carbon emissions for continuing operations
in 2021 are similar to 2019 levels but the intensity
ratio measure has improved further due in part to
the impact of recent price inflation and as a
result of our ongoing improvements in fuel and
energy efficiency.
Group investment in energy efficiency measures
including over £4 million in LED lighting projects
and our continual shift to more fuel efficient, low
and zero carbon transport – has played a big
part in this reduction.
Group CO
2
e emissions per £’m of revenue
reduced by four per cent from 25.5 tonnes in
2020 to 24.5 tonnes in 2021.
The Group increased the percentage of waste
diverted away from landfill from 89 per cent in
2020 to 96 per cent in 2021.
Customer and product
Providing our customers with sustainable and
high quality products.
Our aim
Our aim is to collaborate with our suppliers to increase
our eco product offering, reduce packaging by volume
and seek out reusable packaging solutions.
We will work with our suppliers with a focus on
ensuring that the principles of our sustainability
code are met.
Strategic links
Our progress in 2021
During 2021 we implemented a third-party
compliance and risk management solution with
a view to developing a consistent, risk-based
approach to managing supplier compliance across
all of our business units.
As part of the implementation of this solution, we
commenced a process of further engagement by
way of an updated questionnaire to all suppliers
with annual purchases of over £100,000.
The aim of this process is to enhance the Group’s
supply chain transparency, improve supply chain
governance and help rate our supply chain’s
sustainability credentials.
40
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW
Distribution
segment
The distribution businesses in the UK, Ireland,
the Netherlands and Finland contributed 81.9
per cent of Group revenue (2020: 81.7 per cent).
UK Distribution generated 39.0 per cent (2020: 37.6
per cent) of Group revenue, Irish Distribution 25.8 per
cent (2020: 27.6 per cent), Netherlands Distribution
13.8 per cent (2020: 16.5 per cent) and Finland
Distribution 3.3 per cent (2020: N/A).
2021
£’m
2020
£’m
2019
£’m Change*
Revenue 1,727.6 1,371.3 1,358.7 26.0%
Adjusted operating profit before property profit 209.8 126.3 143.2 66.2%
Adjusted operating profit margin before property profit 12.1% 9.2% 10.5% +290bps
Adjusted operating profit 221.8 126.2 147.3 75.8%
Adjusted operating profit margin 12.8% 9.2% 10.8% +360bps
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers
All numbers in the table above are restated to exclude the traditional merchanting business in Great Britain that was divested on
31 December 2021.
81.9%
Proportion of group revenue
77.0%
Proportion of group adjusted
operating profit
41
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The results of the UK distribution business
and comparative results for 2020 do not
include the traditional merchanting business
in Great Britain that was divested on
31 December 2021 which is classified as
discontinued operations.
Revenue growth of 30.3 per cent reflects a
continuation of the strong demand trends that
developed in the second half of last year and a
weaker performance in the second quarter of
2020 – when pandemic lockdown measures
resulted in the closure of all branches (except
for Leyland SDM) on 24 March and the phased
reopening in May and June.
Like-for-like revenue was up by 28.8 per cent on
2020 and by 16.8 per cent on 2019. There was
one less trading day in 2021 compared to 2020.
The GDC Paints business acquired in July
2020 contributed revenue of £3.6 million in the
first half of 2021 and new Selco and Leyland
SDM branches contributed revenue of £9.0
million. The P. McDermott distribution
business acquired in Northern Ireland in
December contributed revenue of £0.4 million.
Gross margin was up by 110 basis points
in the level reported for 2019, when trading
conditions were more comparable than 2020.
This improvement was attributable to changes
in product mix, improved procurement
arrangements and inventory gains related
to the increase in prices.
Operating profit before property profit
increased to £102.5 million (2020: £55.8
million) at an operating profit margin of
12.5 per cent, a level that signals a strong
performance by the continuing distribution
business in the UK and a structural shift
following divestment of the traditional
merchanting business in Great Britain.
SELCO BUILDERS WAREHOUSE
Selco Builders Warehouse delivered an
excellent performance achieving a significant
step-up in revenue and profitability to record
levels while continuing to invest in the branch
network and digital to support future growth.
This strong performance reflected the benefits
of expanding the branch network and digital
investment in recent years.
Selco is a great business built on very solid
foundations. Its experienced management
team, with the support of colleagues, delivered
strong results despite many challenges while
at all times prioritising the health and safety of
customers and each other. The success of
Selco in over achieving as a business is
dependent on the quality of engagement
with its 3,000 colleagues. In the recent Best
Companies engagement survey, Selco
received a very good to work for 1-star
accreditation, an important milestone on
its colleague engagement journey.
Average daily like-for-like revenue increased by
32.0 per cent on 2020 which was impacted by
the closure of all branches in late March 2020
due to the pandemic and the subsequent
reopening on a phased basis in May and June.
Average daily like-for-like revenue growth of
18.7 per cent on 2019 is a better gauge of the
good progress made in 2021. Revenue trends
were relatively even over the course of the year
compared to 2019.
UK DISTRIBUTION
KEY BRANDS
Following the divestment of the traditional
merchanting business in Great Britain, the Group’s
distribution business in the UK now comprises Selco,
Leyland SDM, MacBlair and TG Lynes.
2021
£’m
2020
£’m
2019
£’m Change*
Revenue 821.9 630.9 682.1 30.3%
Adjusted operating profit before property profit 102.5 55.8 80.0 83.7%
Adjusted operating profit margin before property profit 12.5% 8.8% 11.7% +370bps
Adjusted operating profit 113.0 55.9 80.0 102.2%
Adjusted operating profit margin 13.7% 8.9% 11.7% +480bps
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers
39.2%
Proportion of group adjusted
operating profit
42
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
The year started strongly building on the
progress made in the second half of 2020
and gained good momentum in the first half.
Trading conditions continued to normalise in
the second half, measured against a strong
performance in the same period last year,
as the very high levels of demand for
materials eased.
The improved performance was broadly based
across the branch network with branches
outside of the Greater London area, that
accounted for almost one-third of revenue,
making the strongest revenue gains.
Supply chain disruption caused longer lead
times resulting in some in-market shortages of
core building materials. The procurement team
worked closely with supply chain partners to
mitigate the worst impacts of these shortages
on customers. High demand and supply
shortages contributed to significant price
inflation which we estimate at 13 per cent for
the year with a significant weighting towards
the second half.
Trading conditions at Selco, “It’s where the
trade go”, were positive, driven by strong
demand for building materials to undertake a
wide range of housing RMI projects. Double
digit house price inflation, low interest rates
and a renewed focus on better quality indoor
and outdoor living space prompted by the
pandemic led to increased spending on the
home. Households were generally well
resourced having built up a pool of savings
during the restrictions and some spending
was diverted to the home from leisure and
non-essential retail. A shortage of skills in a
tight labour market and product shortages
moderated growth in RMI activity.
CASE STUDY: BE BRILLIANT
FOR OUR CUSTOMERS
Expansion of the Leyland
SDM store network
The five store GDC Paints
business acquired in July 2020
performed ahead of plan and was
integrated into the Leyland SDM
network while new Leyland SDM
stores were opened in Clapham
Junction, Dulwich and Bayswater
increasing the overall estate to 32.
43
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The overall performance of the branches
that opened last year in Orpington and Salford,
the relocated branch in Bristol and the
Chessington branch that was extended,
materially outperformed plan.
Selco’s well invested and well stocked
branches are located in generally densely
populated catchment areas that provide the
business with resilience and a structural
advantage. We know our customers well and
the format of our branches and the product
ranges stocked are tailored to meet their
needs. Our trade customers are very loyal and
shop frequently, often daily, across all
categories and over the branch network. While
they generally prefer to physically purchase
materials in our branches, they are also very
active digital users. Selco’s digital journey
evolved in 2019 with the launch of a Click &
Deliver service for all products to complement
its established Click & Collect service. A
significant investment was made upgrading
the online platform in early 2020 which
delivered additional features and made it easier
to trade online. On reopening in May 2020 at
the end of the initial phase of the pandemic,
trading online accelerated and initially
accounted for almost one fifth of revenue
before settling at five to six per cent.
Selco continued to work with best-in-class
partners to develop a tailored and flexible
ecosystem to make online trading easier and
to provide a scalable solution for the longer
term as online volumes increase. The ongoing
investment in improving the capability of our
platforms is helping to provide a seamless
omnichannel experience for customers. Digital
sales accounted for 5.1 per cent of revenue
and approximately 80 per cent of online orders
were fulfilled through deliveries from branches
and delivery hubs.
The estate increased to 72 with the opening
of new branches in Liverpool in April, Canning
Town in November and Rochester in
December. Trading in these locations has
got off to an encouraging start and we are
progressing a good pipeline of opportunities
that are at varying stages of development. We
have identified significant opportunities to
grow the business over the coming years and
our target is to increase the branch estate to
100 by 2026. We also completed major
upgrades to the Catford, Ruislip and Barking
branches as part of a rolling programme of
investment in the branch estate and mini
upgrades were completed on five branches.
Following the success of the delivery hub in
Edmonton, that centralised customer deliveries
for six branches in North London, a second
hub was opened that centralises deliveries for
the seven branches in the Birmingham area.
The Selco Sustainability Pledge, a blueprint for
what can be achieved over the next decade,
was launched during the year. The business
has already taken decisive action this year, as
part of its responsibility to the environment,
with the launch of ‘Selco Forest’, an initiative
designed to accelerate the process of
offsetting its carbon footprint. The trees
planted this year will offset 8,000 tonnes of
carbon during their life cycle which is
equivalent to the amount of carbon used on
customer deliveries over two years. A similar
initiative is planned for this year. Selco is also
testing and trialling greener delivery vehicles
utilising compressed natural gas technology.
Selco raised over £100,000 for Global Make
Some Noise, its charity partner who helps
disadvantaged people across the UK,
bringing the total raised for the charity
to over £200,000 since the start of 2020.
LEYLAND SDM
Leyland SDM, London’s largest specialist
decorators’ merchant, continued trading as an
essential business throughout 2020 and same
store revenue was marginally down in 2021
due to the pandemic impacting footfall in
central London.
2021 average daily revenue in the like-for-like
stores was down by 7.0 per cent on the
pre-pandemic level in 2019 and broadly
operated at this level throughout the year.
Like-for-like operating profit was in line
with 2019.
While the re-opening of non-essential retail on
12 April 2021 helped to increase footfall and
the level of transactions conducted with retail
customers, demand from trade customers
was weak because the limited number of
workers and international tourists in central
London has significantly reduced investment
particularly in offices, restaurants and the
leisure sector. The stores located in the
commuter belt continued to make gains
from increased spending by households
and trade customers on painting and
decorating products.
The five store GDC Paints business acquired in
July 2020 performed ahead of plan and was
integrated into the Leyland SDM store network.
New stores were opened in Clapham Junction,
Dulwich and Bayswater increasing the estate
to 32.
44
Grafton Group plc
Annual Report and Accounts 2021
MACBLAIR
The MacBlair distribution business in Northern
Ireland performed at record levels of activity in
what was its most successful year ever.
Revenue exceeded £100 million for the first
time. Average daily like-for-like revenue was
ahead of 2019 by 23.7 per cent comprising
growth of 26.7 per cent in the first half and
20.8 per cent in the second half reflecting both
significant building materials price inflation
and volume growth. The management team
delivered an exceptional performance,
responding to the increased activity levels and
managing margins closely with the result that
the business recorded a double-digit operating
profit margin for the year. There was also
favourable change in the mix of end-use
markets supplied with a switch in the
proportion of spending from the house
building to housing RMI.
There was exceptional demand in the
residential RMI market, the key driver of
revenue growth. The completion by
households of outdoor projects created strong
demand for landscaping and timber products.
There was a series of exceptional increases in
timber prices during the year that were far in
excess of historic norms due to record demand
for timber products internationally and logistics
issues in the timber supply chain.
House building in Northern Ireland was
subdued in the early months of the year but
returned to growth led initially by self build
customers and smaller house builders.
Housing completions increased marginally
in the nine months to the end of September
compared to the same period in 2019 while
starts showed double digit growth. Trading
with customers operating in the commercial,
industrial and infrastructure sectors was
also positive.
P. McDermott & Sons (Omagh) Ltd., a single
branch distribution business located in Omagh,
County Tyrone was acquired in December.
In February 2022, MacBlair acquired
Woodfloor Warehouse Ltd, a leading in-store
and online timber flooring distributor with
branches in Bangor, Belfast and Warrington.
TG LYNES
Trading in TG Lynes, a leading distributor of
commercial pipes and fittings in London and
the South East, experienced a relatively slow
start to the year before recovering as the year
progressed with the momentum continuing
through the second half and powering the
business to record full year revenue and a
level of profitability that matched the previous
high reported for 2019. The strong trading
performance delivered a high double digit
operating profit margin for the year.
House and apartment building, the largest
individual end-use market segment supplied
by TG Lynes through its subcontractor
customer base, staged a strong recovery with
the opening of new sites in the City and outside
the M25. Activity in the commercial sector
remained subdued but there was a good
recovery in public sector work such as
schools and hospitals.
TG Lynes has implemented a number of
successful sustainability initiatives that were
aimed at reducing carbon emissions including
the installation of solar panels on its property
in Enfield that reduced demand for energy
from the national grid, the replacement of
traditional light fittings with LED lighting and
the installation of electric vehicle charging
points for use by colleagues.
OPERATING REVIEW continued
45
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The Group entered an agreement on 30 June
2021 to divest the traditional merchanting
business in Great Britain for an enterprise value
of £520 million and the transaction completed
on 31 December 2021. This business
comprised the Buildbase, Civils & Lintels,
PDM Buildbase, The Timber Group, Frontline,
Bathroom Distribution Group and NDI brands.
The Group retained freehold properties with
development potential that have a market
value of circa £25 million. Grafton retained
responsibility for funding the UK defined
benefit pension scheme which was closed
to future accrual at the end of 2020 when
alternative arrangements were put in place.
The Share Purchase Agreement was signed on
30 June 2021 and from that date Grafton
ceased to have rights to variable returns from
its shareholdings in the entities being divested
and instead received an agreed daily amount
up to the date of completion. International
Financial Reporting Standards required that
the business being divested be treated as
discontinued operations and as a deemed
disposal at 30 June 2021.
The enterprise value agreed with the purchaser
was based on the balance sheet as at 30 April
2021 and all cashflow generated after that date
was for the benefit of the purchaser. Grafton
received a daily ticker rate for the period from
1 May 2021 to 31 December 2021 that
compensated the Group for the loss of profits
over this period. The total daily ticker amount
received in cash on completion of the
transaction was £30.2 million.
A profit after tax of £134.4 million has
been recognised in the income statement
and more details are set out in Note 27.
DISCONTINUED OPERATIONS
Traditional merchanting business in Great Britain
2021
£’m
*
2020
£’m
2019
£’m Change
**
Revenue 522.9 829.8 1,028.7 (37.0%)
Adjusted operating profit before property profit 29.0 21.4 25.2 35.8%
Adjusted operating profit margin before property profit 5.6% 2.6% 2.4% +300bps
Adjusted operating profit 29.4 24.1 28.0 22.2%
* Represents revenue and operating profit for H1 2021 only. 2020 and 2019 are the full year results.
** Change represents the movement between 2021 v 2020 and is based on unrounded numbers.
46
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
There was a sharp contraction in construction
activity in Ireland in the period from early
January to mid-April as pandemic related
restrictions weighed heavily on activity.
Chadwicks’ branches remained open to
support those elements of construction that
were permitted to trade but activity levels were
well down. Average daily like-for-like revenue
declines were contained to just two per cent
in the four months to mid-April on the same
period in 2019, reflecting the acceleration in
building materials price inflation of circa
sevenper cent.
There was a very rapid rebound in activity
following the lifting of restrictions on house
building from mid-April and the resumption of
all construction activity from early May 2021.
The sector expanded at an exceptionally
strong pace as activity restarted across all
segments of the market. The immediate
strength of the resumption in house building
was particularly evident, helped by the lifting
of restrictions and release of pent-up demand.
The Chadwicks’ branches traded at the highest
levels of activity since 2008 driven by an
The business worked with its partners to
overcome supply chain challenges, and to
mitigate the impacts of longer lead times
and record growth in prices.
Housing transaction volumes are estimated
to have grown by almost a quarter on 2020,
returning to 2019 levels. The lack of housing
supply, a very low level of homes available for
sale and increased employment in well paid
sectors of the economy contributed to strong
demand for housing and double-digit growth in
prices. Covid-19 restrictions on house building
were removed in April and the monthly profile
of completions since then points to the
construction of new homes gradually returning
to normal levels of activity with completions for
the year estimated at 21,000 units. The pace of
housing starts gathered speed increasing to
over 30,000 units, the highest level since 2008.
increase in confidence among households
leading to increased spending on home
maintenance and improvement projects and
the reopening of house building sites. Average
daily like-for-like revenue in the period from
mid-April to the end of June increased by circa
30 per cent compared to the same period in
2019 as the business responded to the
exceptional levels of customer demand. Overall
growth in average daily like-for-like revenue of
11.7 per cent in the first half, compared to the
first half of 2019, reflected two very distinct
phases of trading in the period.
While the pace of growth eased back in the
second half from the exceptional level
recorded in the months following reopening of
the sector, Chadwicks made sizable revenue
gains and continued to show strong growth as
it benefitted from its leading market position
and the reopening of the economy. The pace
ofcommercial construction activity also
picked-up markedly over the second half of
the year. Growth in average daily like-for-like
revenue was 20.1 per cent higher in the second
half, compared to the second half of 2019.
The Irish distribution segment trades from 51 branches,
principally under the Chadwicks brand.
2021
£’m
2020
£’m
2019
£’m Change*
Constant
Currency
Change*
Revenue 544.3 463.9 464.8 17. 3% 21.8%
Adjusted operating profit before property profit 66.8 41.8 4 3.1 59.6% 67.1%
Adjusted operating profit margin before property profit 12.3% 9.0% 9.3% +330bps –
Adjusted operating profit 68.2 41.8 47.1 63.0% 68.7%
Adjusted operating profit margin 12.5% 9.0% 10.1% +350bps –
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers
IRISH DISTRIBUTION
KEY BRAND
23.7%
Proportion of group
adjusted operating profit
47
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The increase of 300bps in the operating
profitmargin, before property profit, since
2019reflected:
• excellent self-help measures adopted
bymanagement,
• strong operating leverage from
revenue growth,
• an increase in the gross margin from the
very high proportion of residential RMI
transactions in the first four months of
the year during the partial lockdown of
the sector, and
• inflation related inventory gains realised on
core commodity products including steel
products which made a significantly higher
profit contribution than in recent years.
Proline Architectural Hardware (“Proline”),
acquired in February 2021, brings specialist
expertise to Chadwicks in the distribution of
architectural ironmongery products and a
range of Proline products were introduced in
11 branches. The Daly Brothers branch in
Dundalk, County Louth acquired in July 2020,
was integrated into the Chadwicks’ branch
network and ERP system. Both businesses
performed ahead of plan. The acquisition of
Sitetech Building Products Ltd, the market
leader in the distribution of specialist
construction accessories in Ireland with
revenue of £15.0 million in 2020, which
completed at the end of February following
approval of the transaction by the Competition
and Consumer Protection Commission
in Ireland.
Good progress was made on renewing the
branch estate with the upgrading of five
branches taking the number completed
to 24under a multi-year programme of
modernisation and redevelopment. A third
Fixings Centre was opened in the Galway
branch to provide house builders, engineers
and trades people with a wide range of
fixings and tools.
Chadwicks launched a new transactional
website for trade customers with rollout
successfully completed to date in half of the
branch network. Customers now have Click &
Collect and Click & Deliver optionality and they
can also upload requests for quotations and
open credit accounts.
Chadwicks opened its first dedicated ECO
Centre in its Galway branch to showcase
sustainable products for energy efficient new
build and retrofit projects. This development is
part of a wider programme by Chadwicks to
take a leading role supporting customers and
communities in Ireland through the distribution
of building materials that improve the
sustainability of buildings.
Chadwicks is moving towards more
sustainable transport through trialling electric
vehicles and replacement of its fleet of forklifts
with low emission vehicles. In conjunction with
Bord Gáis and the SEAI, Chadwicks promoted
a new carbon credit scheme to increase the
installation of energy efficient products in the
home. These include insulation, solar PV
systems and heating controls.
48
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
The Netherlands distribution segment trades from
117 branches under the Isero, Polvo and Gunters en
Meuser brands.
2021
£’m
2020
£’m
2019
£’m Change*
Constant
Currency
Change*
Revenue 290.5 276.6 211.8 5.1% 8.6%
Adjusted operating profit 30.5 28.4 20.2 7.4% 10.8%
Adjusted operating profit margin 10.5% 10.3% 9.5% +20bps –
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers
NETHERLANDS DISTRIBUTION
KEY BRANDS
10.6%
Proportion of group
adjusted operating profit
49
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The Isero and Polvo ironmongery, tools and
fixings specialist business in the Netherlands
was classified as an essential distributor and
permitted to remain open throughout the
pandemic except for the closure of a small
number of retail orientated branches for a
period. These results show a continuation
of the positive year on year revenue and
operating profit growth trends experienced
since Grafton entered the Dutch market in late
2015. They also demonstrate the success of
our acquisition and organic growth strategy
that has established the Isero and Polvo
business as the clear market leader in an
attractive segment of the building materials
distribution market in the Netherlands.
Revenue growth was modest in January
and February before showing signs of
improvement in March that gathered pace in
the second quarter as the economy reopened
and confidence returned. Overall average daily
like-for-like revenue growth was 5.6 per cent
for the first half. The increase in activity was
assisted by an easing of Covid-19 measures
generally including the removal of restrictions
on trading with retail customers.
The positive volume and revenue growth
trends that developed in the first half
continued through the second half and
average daily like-for-like revenue increased
by 5.6 per cent. The return to a steady growth
path was sustained by increased spending
across all customer segments notably
renovation projects, house building and
commercial construction.
The Netherlands economy started to recover
strongly in the second quarter with the phasing
out of Covid-19 restrictions and returned to a
more normal growth rate later in the year as
the catch-up effects lessened. The number
of home owners putting their homes on the
market fell and housing transactions were
down because of the shortage of properties
available for sale. The scarcity of supply and
historically low interest rates pushed house
prices up by 15 per cent. Increased spending
on home improvement projects was driven
by very strong labour market conditions and
households spending some of the savings
accumulated during the pandemic. The
construction sector was impacted by
supply chain disruption caused by
shortages of labour and raw materials.
The Polvo business acquired in July 2019
had an excellent year growing revenue and
profitability strongly. The business gained
from favourable trading conditions in its
markets including increased demand in the
new housing market, a resumption of RMI
work by housing corporations on social houses
and increased activity on commercial projects.
The increase in operating profit in the
Netherlands reflected the drop-through from
growth in average daily like-for-like revenue
of 5.6 per cent and an increase in the gross
margin from purchasing initiatives that more
than offset the adverse mix effect of increased
revenue from volume projects.
In January 2021, the acquisition of Van den
Anker Ijzerhandel Katwijk B.V., a single branch
distributor of ironmongery, tools and fasteners,
strengthened the market position of Polvo in
the Mid-Western region. The acquisition in
April of Govers B.V, a four branch ironmongery,
tools and workwear business, expanded
branch coverage into the North West
Netherlands region. The Govers branches were
integrated into the Isero branch network and
ERP system in December. In January 2022,
Isero acquired Regts B.V. (“Regts”), a distributor
of ironmongery, tools and fixings with revenue
of £23.0 million in 2021. Regts trades from five
branches in Friesland, a province in the North
East of the Netherlands, where it has a strong
regional market position. Regts and Govers are
two high quality, complementary businesses
that provided an attractive route to expand
market coverage into the North East region
of the Netherlands. The Regts acquisition
increased the branch estate to 122.
Organic developments in the period included
the opening of a branch in Lelystad, a growth
city in the centre of the Netherlands, and the
successful relocation of two branches in
Rotterdam to higher profile locations that
have improved access and increased the
level of customer collection transactions.
Isero continued to invest in the future by
upgrading five branches and now has 43
branches trading from its new format. We
are investing in the branch estate by expanding
showroom self-select areas to improve the
customer experience and extending product
ranges to ensure that they best reflect their
changing needs.
As part of the shift to renewable energy, solar
panels are generating part of the electricity
required at the Head Offices and distribution
centres of Isero at Waddinxveen and Polvo
at Moerdijk. The Isero panels generate over
30per cent of its current annual energy
consumption at the head office and
distribution centre. The remainder of its
electricity, together with that for all branch
locations is sourced from 100 per cent
certificated renewable sources. The Polvo
panels generate almost 50 per cent of its
requirement at the HQ and distribution centre.
Isero and Polvo also encourage energy
efficient or electric cars, and they currently
have over 30 electric cars and 7 electric
vans in their fleet and an electric scooter
for local deliveries.
50
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
The Finland distribution segment
trades through a network of
independent partner stores
and 11 owned branches.
2021
£’m
Revenue 70.8
Operating profit 10.0
Operating profit margin 14.1%
FINLAND DISTRIBUTION
KEY BRANDS
3.4%
Proportion of group adjusted
operating profit
51
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
On 1 July 2021, Grafton acquired Isojoen
Konehalli Oy and Jokapaikka Oy (“IKH”),
one of Finland’s largest workwear and
personal protective equipment (“PPE”),
tools, spare parts and accessories
wholesalers and distributors.
IKH is a high-quality business with a strong
market position and an experienced
management team. This acquisition created a
new growth platform for Grafton in the Nordic
Region. It extended the Group’s geographic
reach into Finland and increased its revenue
stream from the distribution of tools and
personal protective equipment (“PPE”).
Type of investment Operating margin ROCE
Organic investment >8% >13%
Platform acquisitions >8% >10%
Bolt-on acquisitions >8% >12%
Good
market
Long term growth potential
‘Ease of doing business’
characteristics
Structured and
disciplined markets
Good
business
Platform for growth/value
adding bolt on
Differentiated proposition/
strong market position
Enduring or buildable
competitive advantage
Achieves required
financial returns
Sustainability synergies
Not turnarounds
Good
management team
Experienced
Accomplished — track record
of success
Ambitious
Cultural fit
Acquisition framework
Our investment criteria
IKH has developed organically since it was
founded in 1956 and has a track record of
uninterrupted revenue growth over the past
two decades. It has 400 employees and is
headquartered in Kauhajoki, Western Finland
where its distribution and logistics centre is
located. Over 50,000 Stock Keeping Units
(‘SKUs’) are held in stock comprising quality
private label and leading technical brands. IKH
offers one of the widest and deepest category
ranges in Finland.
Products are distributed nationally in Finland
through a committed network of independently
operated IKH partner stores that are the
strategic cornerstone of the business. IKH also
has third party distributors and it operates
eleven owned stores located in major cities
including a new store that we opened in the
city of Hameenlinna in October 2021. IKH
also continued to grow its market position
in Sweden and Estonia through a network
of local partner stores.
IKH operates in attractive segments of the
technical trades’ distribution market in Finland.
Its end-customers are primarily SMEs that
operate in the property construction,
renovation, industrial, agricultural and repair
shops sectors. The geographic coverage
provided by partners and own stores,
broad product ranges and excellent stock
availability should continue to secure its
competitive advantage.
IKH revenue, operating profit and cashflows
were in line with pre-acquisition expectations
under the Group’s ownership of the business
for the second half of the year.
52
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
Retailing
segment
Woodie’s is Ireland’s market leading
DIY, Home and Garden retailer with
35 stores nationwide and online.
Woodie’s is also a leading retailer
of seasonal categories including
gardening and Christmas ranges.
KEY BRAND
2021
£’m
2020
£’m
2019
£’m Change*
Constant
Currency
Change*
Revenue 282.8 246.6 205.5 14.7% 19.4%
Operating profit 50.9 42.0 22.6 21.0% 27.2%
Operating profit margin 18.0% 17.0% 11.0% +100bps –
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers.
13.4%
Proportion of group revenue
17.7%
Proportion of group adjusted
operating profit
53
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
The Woodie’s DIY, Home and Garden business
in Ireland was categorised as an essential
retailer and remained open during the early
months of the year when the country was in
lockdown. The business made exceptional
gains in the four months to mid-April
increasing revenue by 69.7 per cent on the
same period in 2019. Demand was very strong
across all categories including core products
and fast moving lines. There was an early start
to seasonal trading in outdoor products and
the business worked closely with supply chain
partners to maximise inventory levels and
overcome the impact of supply chain
disruption for certain products at a time
of highdemand globally.
The rate of revenue growth eased very
marginally compared to 2019 over the
remainder of the first half following the full
reopening of non-essential retail and other
elements of the economy in May. The
branches traded at record levels of activity in
the first half making market share gains and
improving the perception of Woodie’s as one
ofIreland’s most distinctive retail brands.
Demand remained strong through the second
half although the rate of growth moderated as
expected from the post lockdown highs of
2020. While market conditions continued to
normalise, Woodie’s maintained a step change
in performance with exceptional revenue
growth of 21.7 per cent compared to the
second half of 2019.
Revenue growth compared to 2019 was
broadly based across all DIY, home and
gardencategories and was partly driven
by pandemic tailwinds.
Woodie’s puts its 1,700 colleagues at the heart
of the business and was ranked A Great Place
to Work in Ireland for the sixth consecutive year
and was also ranked in the Top 75 of Europe’s
Best Workplaces benchmarked against the
largest international and domestic employers in
Ireland and Europe. Creating a high performing
workplace and an environment where
colleagues feel valued and can develop
professionally and personally has contributed
greatly to the improved business and financial
performance of Woodie’s in recent years.
Woodie’s has a 98 per cent level of brand
recognition and awareness in Ireland coupled
with a strong foothold in the community. A
digital first approach is used to communicate
with customers and enable them to engage
with the brand. Social media and a market
leading influencer strategy help acquire, grow
and retain customers, drive brand engagement
and increase website clicks in a seamless
omnichannel environment. Significant
progress was made building a new data
platform of households and targeting
customers with relevant and inspiring project
and product content. Woodie’s was one of
the first retailers in Europe to launch Google’s
Beta feature that provides the option of
contactless pick-up at stores, and it also
introduced live chat on its website.
A new website, a new fulfilment centre and
anew home delivery partner saw digital
investment increase sixfold since 2019.
Thenew fulfilment centre is located in the
Woodie’s branch in Drogheda and currently
accommodates 12,000 products, with scalable
ranges, that are available for home delivery
through a new partner using the latest
electronic labelling, track and trace and proof
of delivery technology. Online transactions,
the vast majority of which were Click & Collect,
represented 4.3 per cent of revenue in the
year. Woodie’s now has the strategy and
infrastructure in place and is well positioned
todrive increased online revenue in the
coming years.
Woodie’s branches merchandised and sold
record levels of inventory in response to
exceptional demand conditions while
providingcustomers with a great service
and agreat shopping experience in a safe
environment. Service levels were maintained
with the appointment of 150 additional
colleagues during the period. Sourcing with
integrity and developing good long term
relationships with a diversified supplier
network in Ireland and internationally
was fundamental to Woodie’s fulfilling
unprecedented levels of customer demand.
The number of shopping transactions
increased by 14.3 per cent in the two years
since 2019 and the average basket value
increased by 25.9 per cent as customers
increased the range of products purchased
during a single store visit and seasonal
products accounted for a higher proportion
ofrevenue.
Gross margin was maintained in line with the
prior year and was marginally ahead of the
outturn in 2019 while the operating profit
margin was a record 18.0 per cent.
Woodie’s branches now have a “new look and
feel” following the completion of a multi-year
investment programme, including two branch
upgrades during the year and the complete
refurbishment of the Sallynoggin branch in
South Dublin, that has helped to reposition
Woodie’s unique DIY, Home and Garden
retail proposition in the Irish market.
Woodie’s Heroes campaign raised over
€400,000 in vital funds for four charities in
Ireland in a year when many charities had to
cancel traditional fund-raising events for the
second successive year due to the pandemic.
Positive engagement with the communities
where we operate is an important part of
building a sustainable business and this
year’s fund raising brings to €2.5 million
the amount raised for children’s charities
over the past seven years.
The Group’s retailing strategy
is based on maintaining
Woodie’s clear market
leadership position and
strong brand recognition,
focusing on core strengths
in the DIY, Home and Garden
categories, and utilising
spare capacity in the branch
network to increase revenue,
operating margin and return
on capital employed.
54
Grafton Group plc
Annual Report and Accounts 2021
OPERATING REVIEW continued
Manufacturing
segment
CPI Euromix is the market leading mortar
manufacturing business in the UK, operating from ten
plants in Great Britain. StairBox is an industry leading
UK manufacturer and distributor of bespoke wooden
staircases operating from a facility in Stoke-on-Trent.
KEY BRANDS
2021
£’m
2020
£’m
2019
£’m Change*
Constant
Currency
Change*
Revenue 99.6 61.3 79.4 62.4% 62.9%
Operating profit 24.0 13.3 18.6 80.8% 79.0%
Operating profit margin 24.1% 21.7% 23.5% +240bps –
* Change represents the movement between 2021 v 2020 and is based on unrounded numbers.
4.7%
Proportion of group revenue
8.3%
Proportion of group adjusted
operating profit
55
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
CPI EuroMix silo system technology is used to
produce a range of high quality ready-to-use
dry mix mortars for residential construction
projects. Its market leadership position is
backed by a network of ten manufacturing
facilities that provide almost national coverage
in Great Britain to support its customer base
of national, regional and local house builders
and plastering contractors.
Market conditions were softer in January
and February due to the disruption to house
building caused by the pandemic before
starting to recover in March. The recovery
continued in the second quarter although
volumes remained below the same period in
2019. The improving trend in mortar volumes
in the first half continued through the second
half and full year volumes were up 18.0 per
cent on 2020. Volumes for the year were below
the 2019 level partly due to a shortage
of cement, tight mortar delivery capacity
and disruption to the build programmes of
customers caused by the pandemic and
supply chain shortages.
Underlying demand for new houses remained
strong and exceeded supply despite changes
to the Help to Buy Scheme and stamp duty.
The market was also supported by good
mortgage availability and historically low
interest rates that make home ownership
moreaffordable.
CPI EuroMix invested in additional capacity
had a record number of mortar silos on
customers sites at the year-end building
on itscompetitive advantage and reputation
forservice.
The operating profit margin was 20.0 per cent
for the year.
Grafton recognises that the CPI EuroMix
business is a significant contributor to the
Group’s carbon emissions, in particular from
the mortar drying production process. The
business is working with all stakeholders
to reduce emissions. This includes working
with one of its plant suppliers to develop
more efficient drying solutions, with cement
suppliers to develop more energy efficient
raw materials and with fleet manufacturers to
review future options for diesel alternatives.
CPI EuroMix also partnered with Cambridge
University on research to identify carbon
reduction opportunities in its
manufacturingprocess.
The manufacturing segment also incorporates
StairBox, the market leading staircase
manufacturer in Great Britain acquired in
November 2020. StairBox had a very
successful first full year under Grafton
ownership and outperformed pre-acquisition
expectations. Revenue for the year was £26.3
million and operating profit was £9.0 million,
an operating margin of 34.2 per cent. StairBox
provides national coverage to trade customers
operating in the residential RMI market from its
manufacturing facility in Stoke-on-Trent.
Stairbox deploys cutting edge technology to
design and manufacture an extensive range
of customised staircases while maintaining
traditional handcrafted quality standards.
TheStairBuilder online stairs designer
software, the first of its kind in the UK, was
updated in June to provide a new version of
this interactive software with additional
features and improved functionality making
it easier for customers to design, price and
buy a staircase online. The new features
include a 3D model that updates with each
click as customers create their own unique
staircase designs virtually.
StairBox also launched Balustrade Designer,
the latest addition to its online software that
simplifies the process for renewing an
existingstaircase and allows customers to
receive an instant quote and purchase the
components required to complete projects
in just a few clicks.
Our manufacturing strategy
is based on maintaining
leadership positions in
the mortar and staircase
manufacturing markets
in Great Britain.
56
Grafton Group plc
Annual Report and Accounts 2021
REVENUE
Group revenue from continuing operations,
which excludes the traditional merchanting
business in Great Britain that is classified as
discontinued, increased by 25.6 per cent to
£2.11 billion from £1.68 billion in 2020 and was
up by 28.4 per cent from £1.64 billion in 2019.
Revenue in the continuing like-for-like business
increased by 20.1 per cent (£337.8 million) on
the prior year and by 16.5 per cent (£270.4
million) on 2019. Acquisitions contributed
revenue of £120.9 million and new branches
£9.0 million. A currency translation loss
reduced revenue by £37.0 million.
£1.68bn
£2.11bn
2021
2020*
ADJUSTED OPERATING PROFIT
Adjusted operating profit from continuing
operations of £288.0 million (2020: £170.6
million) was up by 68.8 per cent, the highest
level of profitability ever reported by Grafton.
Adjusted operating profit before property profit
of £271.2 million (2020: £170.7 million) grew by
58.9 per cent and the adjusted operating profit
margin before property profit increased by 270
basis points to 12.9 per cent.
£170.6m
£288.0m
2021
2020*
PROPERTY
The Group recognised property profits of
£16.7 million in the financial year.
The disposal of properties in Belgium that
were retained following divestment of the
distribution business in 2019, together with
a small number of properties in Ireland, the
UK and the Netherlands, generated proceeds
of £22.2 million (2020: £7.2 million) and
a profit on disposal of £6.8 million
(2020: loss of £0.1 million).
Building on a
resilient financial
performance
FINANCIAL REVIEW
* The results for 2020 have been restated as the traditional merchanting business in
Great Britain is classified as a discontinued operation. Details are set out in Note 27
Adjusted operating profit from continuing
operations of £288.0 million (2020: £170.6
million) was up by 68.8 per cent, the
highest level of profitability ever reported
by Grafton.
Grafton Group plc
Annual Report and Accounts 2021
57
Grafton Group plc
Annual Report and Accounts 2021
Strategic Report
Grafton Group plc
Annual Report and Accounts 2021
In addition, a fair value gain of £9.9 million
was recognised on four properties which were
transferred to investment properties during the
period. These properties were retained by the
Group following the agreement to divest the
traditional merchanting business in Great
Britain. These four properties have a fair
value of £15.75 million and a market value
of circa £25 million that reflected their
planning potential.
NET FINANCE INCOME
AND EXPENSE
The net finance expense decreased by £4.9
million to £19.4 million (2020: £24.2 million).
This charge includes £14.6 million (2020:
£15.6 million) of an interest charge on lease
liabilities recognised under IFRS 16.
Interest payable on bank borrowings and US
Private Placement Senior Unsecured Notes,
net of bank interest received on deposits,
decreased by £1.5 million to £6.1 million
(2020: £7.5 million). The decline was mainly
due to the repayment of cash drawndown
during the first half of 2020 as a precautionary
measure to increase liquidity in response to the
Covid-19 crisis. The rate of interest receivable
on bank deposits declined in 2021 because of
lower sterling and euro market interest rates.
The net finance expense included a foreign
exchange translation gain of £1.7 million which
compares to a loss of £0.8 million in the same
period last year.
TAXATION
The income tax expense of £43.0 million
(2020: £24.1 million) is equivalent to an
effective tax rate of 17.2 per cent on profit from
continuing operations (2020: 18.1 per cent).
This is a blended rate of corporation tax on
profits in the four countries where the Group
operates. The charge for the year includes a
once-off increase in deferred tax arising from
the UK tax rate increasing to 25 per cent from
19 per cent which is effective from 1 April
2023. This change was enacted in UK
legislation in May 2021 and adds 1.3 per cent
to the tax rate on profits in the Group’s
continuing operations.
Certain items of expenditure charged in
arriving at profit before tax, including
depreciation on buildings, are not eligible
for a tax deduction. This factor increased
the rate of tax payable on profits above the
headline rates that apply in the UK, Ireland
and the Netherlands.
CASHFLOW
Cash generated from operations, including the
divested operations for the half year to 30 June
2021 was £303.2 million (2020: £377.7 million).
The decline compared to the prior year was
due to an investment of £64.1 million in
working capital to support growth in revenue
and to ensure that the Group’s businesses
were well placed to meet the anticipated level
of activity entering 2022. There was a cash
release of £81.2 million from working capital
in 2020.
Expenditure on acquisitions was £123.3
million (2020: £47.5 million) which comprised
the acquisition of IKH in Finland, Proline in
Ireland and Van den Anker and Govers in
the Netherlands.
CAPITAL EXPENDITURE AND
INVESTMENT IN INTANGIBLE ASSETS
We maintained disciplined control over the
allocation of capital and capital expenditure
for the period was £43.6 million (2020: £35.2
million). There was also expenditure of £0.8
million (2020: £1.9 million) on software costs
that are classified as intangible assets.
The Group incurred capital expenditure of
£19.0 million (2020: £15.1 million) on a range
of development initiatives including new
branches in Selco, Leyland SDM and the
Netherlands, upgrades to Woodie’s,
Chadwicks, Selco and Leyland SDM branches
and the creation of additional manufacturing
capacity in StairBox.
Asset replacement capital expenditure of
£24.6 million (2020: £20.1 million) compares
to the depreciation charge on property, plant
and equipment of £38.3 million and related
principally to the replacement of the
distribution fleet that supports customer
deliveries, replacement of fixtures and fittings,
plant and machinery, forklifts, plant and
tools for hire by customers and other
assets required to operate the Group’s
branch network.
Revenue
£2.11bn
(2020: £1.68bn)
Adjusted operating profit
£288.0m
(2020: £170.6m)
Net cash (pre IFRS 16 leases)
£588.0m
(2020: £181.9m)
58
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Annual Report and Accounts 2021
FINANCIAL REVIEW continued
Proceeds of £22.2 million (2020: £7.2 million)
were received on disposal of fixed assets.
Capital expenditure net of the proceeds on
disposal of fixed assets was £21.4 million
(2020: £28.0 million).
PENSIONS
The IAS 19 deficit on defined benefit pension
schemes was £11.5 million at 31 December
2021, a decrease of £39.1 million from £50.6
million at 31 December 2020. A payment of
£20.0 million was made in July 2021 as part of
a funding arrangement with Trustees to reduce
the deficit on the UK defined benefit scheme.
Changes to financial assumptions reduced
scheme liabilities by £2.0 million and reflected
the net impact of a gain from the increase in
discount rates and a loss from the increase
in inflation expectations. Experience gains
and changes in demographic assumptions
reducedthe deficit by £1.1 million and by
£0.9million respectively.
There was an increase in discount rates used
to discount scheme liabilities in line with
increases in corporate bond rates. The rate
used to discount UK liabilities increased by
50basis points to 1.9 per cent and the rate
used to discount Irish liabilities increased by
45basis points to 1.15 per cent.
Market forecasts for future inflation increased
significantly over the past 12 months. This
impacted the value of liabilities as future
benefit payments from the pension plans are
directly or indirectly linked to future inflation.
This is more relevant to the UK scheme where
inflation both in the period up to and after
retirement increases the projected growth in
benefits. In Ireland, pensions are fixed once
they come into payment with inflation only
increasing liabilities in the period up to the
date that members retire.
There was an actuarial gain of £10.9 million on
plan assets due to the investment performance
in the period exceeding the assumed interest
income on assets.
Grafton retained responsibility for the UK
defined benefit pension scheme which was
closed to future accrual at the end of 2020
when alternative arrangements were put
inplace.
NET CASH/DEBT
The Group’s net cash position, before
recognising lease liabilities, increased to
£588.0 million at 31 December 2021, up
from £181.9 million at 31 December 2020.
On 1 July 2021 the Group completed the IKH
acquisition at a cost of €199.3 million on a
cash and debt free basis.
The Group remains in a very strong financial
position with pre-IFRS 16 EBITDA interest
cover of 50.5 times (2020: 24.9 times).
Net cash including lease obligations was
£139.0 million at 31 December 2021. This
represents an improvement of £494.0 million
from net debt of £355.0 million at
31 December 2020. The Group’s net cash
position benefitted from the proceeds received
on the sale of the traditional merchanting
business in Great Britain for an enterprise
value of £520.0 million.
The Group’s policy is to maintain its investment
grade credit rating while investing in organic
developments and acquisition opportunities
that are expected to generate attractive returns
and maintain a progressive dividend policy.
£181.9m
£588.0m
2021
2020
LIQUIDITY
Grafton started the year in a very strong
financial position with excellent liquidity,
net cash before IFRS 16 lease liabilities
and a robust balance sheet.
The Group had liquidity of £1,235.4 million
at 31 December 2021 (31 December 2020:
£811.2 million) of which £840.7 million
(31 December 2020: £452.0 million) was
held inaccessible cash and £394.7 million
(31 December 2020: £359.2 million) in
undrawn revolving bank facilities.
At 31 December 2021, the Group had bilateral
loan facilities of £433.7 million with five
relationship banks and debt obligations of
£134.4 million (31 December 2020: £143.8
million) from the issue of unsecured senior
notes in the US Private Placement market.
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Annual Report and Accounts 2021
Strategic Report
A new one-year facility for £84.0 million was
put in place in 2021 and facilitated by one of
the Group’s five relationship banks under the
ECB’s Targeted Longer-Term Refinancing
Operations. This facility was used to
temporarily replace drawings on existing
facilities on more attractive terms.
The average maturity of the committed bank
facilities and unsecured senior notes at
31 December 2021 was 2.5 years.
The Group’s key financing objective continues
to be to ensure that it has the necessary
liquidity and resources to support the short,
medium and long-term funding requirements
of the business. These resources together with
strong cash flow from operations provide good
liquidity and the capacity to fund investment in
working capital, routine capital expenditure and
development activity including acquisitions.
The Group’s gross debt is drawn in euros and
provides a hedge against exchange rate risk
on euro assets in the businesses in Ireland,
the Netherlands and Finland following the
acquisition of IKH on 1 July 2021.
IFRS 16 LEASES
Leases that are recorded on the balance sheet
principally relate to properties, cars and
distribution vehicles.
IFRS 16 increased operating profit by
£13.0million and the finance (interest) expense
by £14.6 million in the year. Profit before tax
was reduced by £1.6 million and profit after
tax by £1.4 million as a result of IFRS 16.
The right-of-use asset in the balance sheet
at 31 December 2021 was £421.3 million
(31 December 2020: £505.9 million).
IFRS 16 does not alter the overall cashflows or
the economic effect of the leases to which the
Group is a party. Similarly, there is no effect on
Grafton’s banking covenants as a result of the
adoption of IFRS 16 in 2019.
SHAREHOLDERS’ EQUITY
The Group’s balance sheet strengthened
further with shareholders’ equity up by
£252.6million to £1.72 billion. Profit after
taxincreased shareholders’ equity by
£341.3million and there was a loss of
£25.2million on translation of euro
denominated net assets to sterling.
Shareholders’ equity was increased by
£11.7million for a remeasurement gain
on pension schemes and reduced for
dividends paid of £84.9million. Other
changes increased equity by £9.7million.
RETURN ON CAPITAL EMPLOYED
Return on Capital Employed in continuing
operations improved by 750 basis points to
19.4 per cent (2020: 11.9 per cent) including
leased assets.
11.9%
19.4%
2021
2020*
David Arnold
Chief Financial Officer
8 March 2022
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Annual Report and Accounts 2021
RISK MANAGEMENT
The Board of Directors
• Establishing and maintaining risk management and
internal control systems;
• Evaluating the effectiveness of the Group’s risk
management and internal control systems;
• Determining and reviewing risk appetite, and establishing
risk management strategies; and
• Monitoring principal risks.
RISK MANAGEMENT FRAMEWORK
Audit & Risk Committee
• Monitoring and reviewing the effectiveness of the
Group’s risk management and internal control systems;
• Receiving reports from management on its review of risk
management and internal controls;
• Reviewing principal risks as documented on the
Corporate Risk Register and monitoring emerging risks;
• Approving the internal audit plan and reviewing reports
from Group Internal Audit; and
• Receiving reports on internal control from the
External Auditors.
Group Risk Committee
• Reviewing and updating the Corporate Risk Register;
• Determining and maintaining risk management
policies and procedures;
• Performing ‘deep dive’ reviews of specific risk areas
and scanning for emerging risks which may impact
the Group;
• Reviewing Business Unit risk registers and sharing risk
management practices between businesses;
• Initiating Group-wide risk management actions; and
• Reporting to the Audit & Risk Committee.
Internal audit
• Establishing and delivering a risk based annual Internal
Audit plan;
• Reviewing internal controls and risk management
actions as part of the Internal Audit plan and reporting
the results to Management and the Board; and
• Reporting to the Audit and Risk Committee on the results
of their audit work, including on the completion of
internal control actions.
Business units, group functions and colleagues
• Sharing responsibility for effective management of risk;
• Maintaining risk registers and monitoring the
management of risk at Business Unit and
functional levels;
• Identifying and reporting emerging risks; and
• Implementing actions to address Internal Audit
control findings.
Managing our
principal risks
The Directors acknowledge that they have overall
responsibility for the Group’s system of internal control
and for reviewing its effectiveness. The Directors recognise
that such a system is designed to manage rather than
eliminate risk and can only provide reasonable but not
absolute assurance against material misstatement or loss.
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GRAFTON’S RISK
MANAGEMENT PROCESS
Risk management is a key factor in the
successful delivery of the Group’s
strategic objectives.
The Group has established a risk management
process, which is closely aligned with the
overall strategic development of the Group,
to ensure effective and timely identification,
reporting and management of risk events
that could materially impact upon the
achievement of Grafton’s strategic
objectives and financial targets.
A process for identifying, evaluating and
managing significant risks faced by the
Group, in accordance with the UK Corporate
Governance Code and the FRC Guidance on
Risk Management, Internal Control and Related
Financial and Business Reporting, has been in
place throughout the accounting period and up
to the date the financial statements were
approved. These risks are reviewed by the
Audit and Risk Committee and by the Board,
who also consider any emerging risks for
inclusion on the Corporate Risk Register.
Executive management is responsible for
implementing strategy and for the continued
development of the Group’s businesses within
the parameters set down by the Board.
The Group’s Risk Management Framework
is designed to facilitate the development,
maintenance, operation and review of risk
management processes that fulfil the Board’s
corporate governance obligations and support
the Group’s strategic objectives.
Group’s principal risks
1. Macro Economics
2. Cyber Security and
Data Protection
3. Acquisitions and Integration
of New Businesses
4. Supply Chain
5. Colleagues – Retention,
Recruitment, Succession,
Diversity, Wellbeing
6. Sustainability and
Climate Change
7. Competition
8. Health and Safety
9. IT Systems Implementation
10. Pandemic Risk – Covid-19
11. Internal Controls and Fraud
GROUP RISK COMMITTEE (‘GRC’)
The GRC is an internal committee comprised
of representatives of the Group’s businesses
and Group Office functions. The GRC and
executive management are responsible for the
oversight of risk management in the Group.
The committee is chaired by the Group CFO
and reports to the Audit and Risk Committee.
The Group Risk Committee met four times
during the year to review the risk management
processes in the businesses and to oversee
the Corporate Risk Register (‘CRR’). This
included a horizon scanning exercise to
identify any new or emerging risks which
may impact the Group. In addition, the GRC
performed deep dive reviews of specific risk
areas including, potential risks arising from the
divestment of the traditional Great Britain
merchanting businesses, the use of Artificial
Intelligence and Machine learning technologies
in the Group, and the impact of climate
change focusing on flood risk. The results
of these exercises were shared with
businesses and, where relevant, mitigating
actions were established.
CORPORATE RISK REGISTER
The CRR records the Group’s material risks
and the actions and controls in place and
required to manage each to an acceptable l
evel of risk consistent with the Group’s risk
appetite.The Principal risks facing the Group
are set out in detail on pages 64 to 69. All
updates to the CRR are reported to the
Audit and Risk Committee.
KEY CHANGES DURING
THE YEAR TO THE CRR
The risk environment in which the Group
operates does not remain static. As part of the
ongoing risk review process, the GRC and the
Board identify new risks for the Group, assess
the inherent risk associated with each principal
risk, and determine whether the risk trend
facing the Group is increasing, decreasing or
unchanged. Whilst the risk profile for the Group
remains relatively stable, the following key
changes were identified in 2021:
Supply Chain risk has increased in severity
because of the challenges in obtaining certain
products, more general supply chain issues,
and cost inflation. People risk has increased
reflecting the current skills shortages,
in operational and driver roles and rising
pay rates.
Pandemic risk has been reduced with
businesses demonstrating their ability to
adapt to changing Covid restrictions and the
likelihood that branches will remain open
to trade throughout any further waves.
LIKELIHOOD
Probable 4
Possible 3
Unlikely 2
Rare 1
1 2 3 4
Minor Moderate Major Severe
IMPACT
11
5
6
1
3
2
7
109
8
4
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Annual Report and Accounts 2021
RISK MANAGEMENT continued
EMERGING RISKS
The Board is required to undertake, under the
2018 UK Corporate Code, a robust assessment
of the emerging risks that may impact the
Group. In response to this requirement,
consideration of emerging risk has been
integrated into the Group’s risk management
practices. Each Business Unit is required to
maintain an individual Business Risk Register.
Changes to Business Risk Registers, including
any new risks or risks that have increased in
severity, are reported and discussed at GRC
meetings. The GRC also carries out an annual
Horizon Scanning exercise to identify any new
or emerging risks and the Audit and Risk
Committee performs a review of the CRR
each January which includes a consideration
of any emerging risks.
INTERNAL CONTROL SYSTEM
The key features of the Group’s system of
internal control and risk management include:
• Review, discussion and approval of the
Group’s strategy by the Board;
• Defined structures and authority limits for
the operational and financial management
of the Group and its businesses;
• A comprehensive system of reporting on
trading, on operational issues and on
financial performance incorporating
monthly results, cash flows, working capital
management, return on capital employed
and other relevant measures of
performance;
• Written reports from the CEO and the CFO
that form part of the papers considered by
the Board at every board meeting;
• Review and approval by the Board of annual
budgets incorporating operating
performance and cash flows;
• Board approval of major capital expenditure
proposals and significant acquisition
proposals. Capital expenditure proposals
below Board level are delegated to a
Management Committee comprising the
CEO, CFO and Group Financial Controller/
Company Secretary; and
• Review by senior management and the
Audit and Risk Committee of Internal Audit
Report findings, recommendations and
follow up actions.
The preparation and issue of financial reports,
including the Group’s annual and interim
results, is managed by the Group Finance
team based in the Group Corporate Office in
Dublin. The Group’s financial reporting
process is controlled by reference to the
Group Financial Accounting Policies and
Procedures Manual, which sets out the general
accounting principles and requirements and
internal controls standards applicable to all
Group businesses.
In line with best practice, the Group’s Risk
Management and Internal Audit procedures
are subject to a review of their effectiveness by
an independent third party on a periodic basis.
An external effectiveness review was
conducted in 2021 by a team from Grant
Thornton with the results reported to the Audit
and Risk Committee in January 2022. The
review found that in both the Risk Management
and Internal Audit functions there were several
areas of good practices and improvement
had been made since the previous review in
2017. The report did make a number of
recommendations to develop further the
maturity of both functions which will be
actioned in 2022.
The Audit and Risk committee is responsible
for approving the internal audit budget and is
satisfied that internal audit has the appropriate
resources. The role of Internal Audit is
articulated in the Group Internal Audit Charter,
which is available on request.
In the Board’s view, the ongoing information it
receives is sufficient to enable it to review the
effectiveness of the Group’s system of internal
control. The Directors confirm that they have
reviewed the effectiveness of internal controls.
In particular, during the year the Board has
considered the significant risks affecting the
business and the way in which these risks are
managed, controlled and monitored.
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Annual Report and Accounts 2021
Strategic Report
SEVERE BUT PLAUSIBLE DOWNSIDE SCENARIO
Scenario Link to principal risks Level of severity tested Conclusion
Severe downturn in
market conditions
Temporary suspension
of trading
Macro-Economic Conditions
Pandemic Risk
Significant reduction in revenue and
gross margin reduced for up to three
years partly offset by cost reductions
in each year.
Net cash position before lease
liabilities falls but remains strong.
The Group remains within its
banking covenants.
REVERSE STRESS TEST SCENARIO
Scenario Link to principal risks Level of severity tested Conclusion
Temporary suspension of trading
for four months
Pandemic Risk
Cyber Security and Data Protection
Inability to trade for four months
during 2022 across all regions
without any mitigating income.
Operating loss in 2022, with a
significant cash outflow.
Group would require a waiver from
lenders for the interest cover
covenant in that year but would return
to meeting all covenants in 2023 and
2024. Note that the Group would
remain in a strong net cash position
before lease liabilities and could use
surplus cash to repay bank facilities.
VIABILITY STATEMENT
The Directors have assessed the viability of the
Group over a three-year period to 31 December
2024, taking account of the Group’s current
position and prospects, the Group’s strategy
and principal risks and how they are managed
as documented on pages 64 to 69. Based on
this assessment, the Directors 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
to 31 December 2024.
Period of Viability Statement
In accordance with Provision 31 of the UK
Corporate Governance Code 2018, the Board
has reviewed the length of time to be covered
by the Viability Statement, particularly given its
primary purpose of providing investors with a
view of financial viability that goes beyond the
period of the Going Concern Statement. The
Directors have determined that the three-year
period to 31 December 2024 is an appropriate
period over which to provide its viability
statement. The Group prepares five-year
plans as part of its annual budgeting process
however, given the inherent uncertainties, the
outer two years are more difficult to forecast.
These two years are used mainly for scenario
planning with the Board placing greater
reliance on the initial three-year period.
Approach to Assessing Viability
In making this statement the Directors have
considered the resilience of the Group, taking
account of its current position, the principal
risks facing the business in severe and
reasonable scenarios, and the effectiveness
of mitigating actions that could be taken to
avoid or reduce the impact or occurrence of
the underlying risks that would realistically
be open to them in the circumstances. This
assessment has considered the potential
impacts of these risks on the business model,
future performance, solvency and liquidity over
the period with particular consideration given
to the Group’s debt funding covenants
including its interest cover covenant. The
Directors have also considered the Group’s
resilience and management response to the
Covid-19 pandemic as well as the experience
from the 2008 Global Financial Crisis.
The principal scenarios considered in the
review are those where negative macro-
economic and other impacts would be
experienced across all of the Group’s
businesses. These scenarios ranged from
depressed economic activity levels in the
Group’s markets to more severe cyclical
economic downturns. The Group also reviewed
and considered the impact of the Covid-19
pandemic or a cyber security denial of service
attack on the business which might restrict
trading or operations of the Group’s
businesses. In addition, the assessment
considered a ‘reverse’ stress test to determine
what level of disruption would need to be
experienced before a breach of the Group’s
interest cover covenant was unavoidable.
The downside scenarios applied to the
strategic plan are summarised in the
charts below.
The reverse stress test shows that a breach of
the interest cover covenant would occur on a
full lockdown or denial of service without any
income for a period of four months but the
Group would still remain in a strong net cash
position, before lease liabilities, and have
adequate liquidity.
Whist we believe the reverse stress test is
highly unlikely the Group would be able to
take a number of further mitigating actions
including management of working capital,
capital expenditure and dividends.
In making their assessment, the Directors
have taken account of: (i) the Group’s net cash
(including lease liabilities) of £139.0 million at
the end of 2021 (net cash position of £588.0
million on a pre IFRS 16 Lease basis); (ii) the
Group’s strong financial position; (iii) headroom
and duration of loan facilities currently in place;
(iv) key potential mitigating actions of reducing
the Group’s cost base, capital expenditure and
dividend payments; and (v) the Group’s ability
to generate positive cash inflows in a scenario
of falling revenue as working capital invested in
the business is reduced. These mitigating
actions were tested during the downturn in the
Group’s businesses from 2008 to 2012 which
highlighted the resilience of its business model
to a very severe and protracted economic
downturn by historic standards.
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Annual Report and Accounts 2021
RISK MANAGEMENT continued
Cyber security and
data protection
Risk movement
Strategic links
RISK DESCRIPTION
Increased levels of cybercrime represent
a threat to the Group’s businesses and may lead to
business disruption or loss of data. The Group is
exposed to the risk of external parties gaining access
to Group systems and deliberately disrupting its
business. This includes the risk of ransom demands,
a material loss of revenue and profitability while
systems are being restored, stolen information or
fraudulent acts.
Theft or leakage of data relating to employees,
business partners or customers may result in a
regulatory breach and could impact the reputation
of the Group.
MITIGATION
The Group has a number of IT security controls
in place including gateway firewalls, intrusion
prevention systems and virus scanning software.
The Group has a suite of information security
policies, which are communicated to colleagues,
through mandatory online training and regular
security awareness campaigns.
Regular IT audits are carried out in the Group’s
businesses. The Group has put in place a Security
Incident Management Plan and a Cyber Insurance
Policy to provide a degree of cover against cyber risk.
During 2021 a review of the Group cyber security
maturity was conducted by third party specialists.
The review found that many good practices and
controls are in place and made recommendations
to improve the Group’s ability to both prevent and
reduce the impact of any attack occurring. A
programme of initiatives will be implemented in
2022 to further reduce cyber risk. This will be
overseen by the Group’s Information Security
Steering Committee.
A Group-wide programme to oversee the
implementation of GDPR was completed in 2018
and compliance activity has now been embedded
into business processes, with roles established in
each business unit to co-ordinate ongoing activities.
During 2021 the Group invested in new technology
to maintain and improve its Data Protection
management processes and controls.
Macro-economic
conditions in the UK,
Ireland, the Netherlands
and Finland
Risk movement
Strategic links
RISK DESCRIPTION
Trading in the Group’s businesses is influenced by
macro-economic conditions in the UK, Ireland, the
Netherlands, and Finland. The Group’s markets are
cyclical in nature and a proportion of revenue is
dependent on the willingness of households to incur
discretionary expenditure on home improvement
projects. Investments of this nature closely correlate
with general economic conditions. A deterioration
in economic conditions in the UK, Ireland, the
Netherlands, or Finland could result in lower
demand in the Group’s businesses.
The Group’s customers are mainly professional
tradespeople engaged in residential, commercial and
industrial maintenance and new-build projects. These
markets are affected by trends in improvements,
remodelling and maintenance and construction.
Demand in these markets is also influenced by
economic factors including interest rates, the
availability of credit, inflation, changes in property
values, demographic trends, tax policy, employment
levels and gross domestic product. Any negative
movement in one or more of these factors could
adversely affect demand in the Group’s business.
MITIGATION
The Group has taken significant action in previous
years in response to the downturn in its markets to
increase the operating efficiency of its business
which leaves it well positioned to benefit from the
continuing recovery.
The strategic actions taken by the Group with the sale
of the traditional distribution business in Great Britain
and the acquisition of IKH in Finland, have increased
the geographical spread of the business and
reduced the concentration of revenue arising
from the UK market.
Exposure to the more resilient and less cyclical
Repair, Maintenance and Improvement (‘RMI’) market
has increased through ongoing expansion of the
network of Selco stores.
The distribution branches in Ireland were refocused
on the residential RMI market but are equally well
positioned to respond to an increase in the new
house build markets.
Branch showrooms have been upgraded and the
product portfolio expanded to meet the needs of
customers engaged in residential RMI projects which
currently account for a higher proportion of revenue.
The mitigation strategy also incorporates proactive
cost control in response to changes in market
conditions. An assessment of macro-economic,
construction and residential market conditions
helps inform the allocation of capital resources
to new projects.
The Group is also mindful of the potential impact in
changes in business model which may reduce sales
or profit, for example modern construction methods,
and monitors these closely so businesses react
accordingly.
KEY RISKS
The Audit and Risk Committee and the Board
have carried out a robust assessment of the
principal risks facing the Group. It is not
practical to document every risk that could
affect the Group in this report.
The risks identified below are those that could
have a material adverse effect on the Group’s
business model, future performance, solvency
or liquidity. The actions taken to mitigate risks
cannot provide assurance that other risks will
not materialise and adversely affect the
operating results and financial position of
the Group.
These principal risks are incorporated into the
modelling activity performed to assess the
ability of the Group to continue in operation
and meet its liabilities as they fall due for the
purposes of the Viability Statement on page 63.
65
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Annual Report and Accounts 2021
Strategic Report
Strategic links
Read more about our strategy pages 26 to 31
Excellence
in service
Strong
financial base
Organic growth
and acquisitions
Ethics
and integrity
A supportive organisational
structure and management
Acquisition and
integration of
new businesses
Risk movement
Strategic links
RISK DESCRIPTION
Growth through acquisition has historically been a
key element in the Group’s development strategy.
The Group may not be able to continue to grow if it
is unable to identify attractive targets, execute full
and proper due diligence, raise funds on acceptable
terms, complete acquisition transactions, integrate
the operations of the acquired businesses and
realise the anticipated levels of profitability, cash
flows and return on invested capital.
The Group recognises an elevated risk where it
completes larger transactions and/or transactions
in new countries such as with IKH in Finland which
was acquired in 2021.
Following the completion of the sale of the traditional
Great Britain merchanting businesses, the Group will
seek to make further acquisitions in new markets in
line with its development strategy.
MITIGATION
Acquisitions are made in the context of the Group’s
overall strategy. The Group has a long established,
experienced and skilled acquisition capability that
has significant relevant experience in all aspects of
acquisition transactions and in managing post
acquisition integration. This process is underpinned
by strategic and financial acquisition criteria and the
close monitoring of performance post acquisition
including one and three year post acquisition reviews
by Group Internal Audit, and the sharing of any
lessons learnt identified by those reviews.
Supply chain
Risk movement
Strategic links
RISK DESCRIPTION
Product availability is a key factor for all Group
businesses and the Group is exposed
to the risk of failure to supply by key suppliers.
During 2021 the Group’s businesses, similar to
the rest of the sector, faced challenges in securing
the supply of certain products due to global supply
chain issues.
The Group also recognises its potential exposure
to ethical sourcing risks for certain products (e.g.
timber) and the ethical behaviour of organisations
in its supply chain which may not meet Grafton’s
expected standards.
In addition, the total value of income the Group
receives from its suppliers in the form of volume
rebates and other amounts, including product and
marketing support, represents a material percentage
of its operating profit. There is a risk that the Group
does not collect all supplier rebates receivable or
that rebates are accounted for incorrectly.
MITIGATION
The Group seeks to maintain good relations with key
suppliers and, to proactively manage instances of
supplier shortages and product allocations.
The risk of over-reliance on single suppliers is
mitigated, where possible, by dual sourcing or
identifying alternative suppliers for key products.
Issues around product shortages in 2021 were
effectively managed by business unit procurement
teams working closely with key suppliers.
During 2021 the Group has implemented technology
to improve its third-party risk management and
compliance procedures. A consistent Group-wide
process for screening and obtaining information
from suppliers will be implemented in 2022. This
will cover a range of ethical and quality areas to
confirm compliance with Grafton policies and
relevant regulatory standards.
The Group’s policy is to have written agreements with
all key suppliers detailing the terms and conditions
of rebate arrangements. Finance and procurement
teams work closely to validate amounts due from
suppliers based on these agreements and quantities
purchased. Rebates receivable are regularly reviewed
and business units engage in dialogue with suppliers
regarding collection.
A proportion of rebate agreements provide for
repayment of rebates at regular intervals throughout
the year thereby reducing the amount receivable by
the Group at the year end. In view of its materiality,
rebates receivable are reviewed annually after the
year end by Group Internal Audit.
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Annual Report and Accounts 2021
RISK MANAGEMENT continued
Colleagues – retention,
recruitment, succession,
diversity and wellbeing
Risk movement
Strategic links
RISK DESCRIPTION
The Group has in the region of 8,700 colleagues
engaged in the operations and management of its
portfolio of businesses. Colleagues are fundamental
to the long term success and development of the
business. Attracting and retaining colleagues with
the relevant skills and experience and investing in
training and development is essential to sustaining
the existing operations and providing a platform for
the longer term development of the Group.
As an employer the Group acknowledges its
responsibility towards diversity and inclusion, and
the benefits of recruiting and retaining colleagues
from diverse backgrounds. We also recognise the
importance of looking after the wellbeing of our
colleagues mentally, physically and financially.
The Group is dependent on the successful
recruitment, development and retention of talented
and diverse executives to run the overall Group and
its businesses.
In addition, the Group’s ability to continue to
identify and develop opportunities is influenced
by management’s experience and knowledge of
its markets.
The Group has recognised an increase in this risk
during the year as a result of general tightening of
labour markets and skill shortages in certain sectors,
including drivers, which has led to pay inflation.
MITIGATION
The Group and its businesses are committed to
high standards of employment practice and are
recognised as good employers in the UK, Ireland, the
Netherlands and Finland. Remuneration and benefits
are designed to be competitive with other companies
in the sectors that the Group operates in and with
market practice.
Significant resources and time are devoted to training
and development. Turnover is closely monitored and
processes are in place to provide development
opportunities and actively manage succession
planning. The Group made a number of
appointments in recent years in planning for the
succession of key executives and to support its
longer term development enabling a number of
business unit CEO and senior management roles
to be filled internally. Succession plans are in place
for key management roles.
The Group has established working groups on
gender, sexual orientation, ethnicity and disability to
encourage better representation of diversity amongst
colleagues. Annual engagement surveys are carried
out which allow colleagues to provide feedback to
management. Action plans to address key issues
arising from the surveys are developed and
monitored. The Group has established local and
national colleague forums in all countries, and
developed wellness programmes for mental,
physical and financial wellbeing.
Sustainability and
climate change
Risk movement
Strategic links
RISK DESCRIPTION
The Group recognises its responsibility to minimise
the impact its operations have on the environment
and to promote sustainable and ethical business
practices amongst its customers, suppliers and
colleagues. The Group is also committed to being
an inclusive employer and promoting diversity in
its workforce.
The Group also recognises the potential financial and
operational impact of wider climate change on its
business activities, either due to physical risks such
as adverse weather event, or transitional risks
including changes in regulation affecting operations,
our cost base or the products we sell.
MITIGATION
The Group has developed a sustainability strategy
covering five key focus areas: customer and product;
people; planet; communities; and ethics. During 2021
the strategy was rolled out with each business unit
developing programmes and activities with targets,
aligned with the overall Group goals which are being
monitored and reported on.
The Group continues to monitor its exposure to
climate change risks and take steps to improve it
resilience. In 2021, this involved an exercise to
formally assess the risks and opportunities of climate
change to the Group as part of the Task Force on
Climate-related Financial Disclosures (TCFD)
requirements, this has driven a number of
actions including improved flood defences for
at-risk branches.
The Group measures its Scope 1 and 2 emission
levels and is currently in the process of measuring
Scope 3. The Group is committed to reducing its
carbon footprint and will set a Science Based Target
(Scope 1-3) by the end of 2024. Individual businesses
are taking steps to reduce energy consumption and
emission levels including LED lighting projects and
moving to alternative-fuelled vehicles.
The Group engages in numerous charitable and
community activities across its business units.
Environmental regulations are complied with and
reported on as required. Opportunities to reduce,
recycle, and reuse are promoted within the Group.
The Group has a Code of Business Conduct and
Ethics which is supported by policies including for
Equality, Diversity and Inclusion, Anti-Bribery and
Corruption, Modern Slavery, and Timber Sourcing,
which are reinforced through mandatory training.
During the year, business units within the Group
completed numerous inclusion and wellbeing
initiatives, including campaigns to promote
sustainable living. These will continue into 2022.
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Strategic Report
Strategic links
Read more about our strategy pages 26 to 31
Excellence
in service
Strong
financial base
Organic growth
and acquisitions
Ethics
and integrity
A supportive organisational
structure and management
Health and safety
Risk movement
Strategic links
RISK DESCRIPTION
The nature of the Group’s operations exposes
colleagues and third parties to health and
safety risks.
The prevention of injury or loss of life to colleagues,
customers and third parties is an absolute priority
for the Board and executive management. Potential
health and safety risks in branch locations concern
the manual handling of products, slips, trips and falls
and incidents involving forklift trucks and delivery
vehicles. Outside of the branch locations, the
principal health and safety risks relate primarily to
vehicles engaged in transferring building materials
from branch locations to customers’ sites.
MITIGATION
Health and safety forms part of the agenda at all
Board meetings. Statistics covering accident
frequency rates, lost time, hazard identification,
management of risks and the cost of accidents
and incidents are reviewed by the Board on a
regular basis.
The individual businesses invest significant
resources in health and safety management, training
and awareness, and actively work to minimise health
and safety risks. Accidents are monitored and
corrective action taken when appropriate to reduce
or eliminate the risk of recurrence. The Group
Director of Safety, Health, Environment and Quality,
who reports to the Group CEO, sets standards for
the businesses in conjunction with business unit
management teams and co-ordinates actions and
initiatives to continuously improve the management
of health and safety risks across the Group.
Competition in
distribution, retailing and
manufacturing markets
Risk movement
Strategic links
RISK DESCRIPTION
Grafton faces volume and price competition in
its markets. The Group competes with builders’
merchants and retailers of varying sizes, and faces
competition from existing general and specialist
merchants including the national builders’
merchanting chains in the UK together with retailers,
regional merchants and independents. The Group
also faces the risk of new entrants to its markets,
for example, by way of competition from new
competitors with low cost business models and/or
new technologies.
Actions taken by the Group’s competitors, as well
as actions taken by the Group to maintain its own
competitiveness and reputation for value for
money, may exert pressure on product pricing,
margins and profitability.
Some of the Group’s competitors may have access
to greater financial resources, greater purchasing
economies and a lower cost base, any of which may
confer a competitive advantage that could adversely
impact the Group’s revenues, profits and margins.
The Group remains alert to threats from new
business models in its markets and invests in
businesses such as Selco and the Netherlands
business in response to changing customer
needs and trends.
MITIGATION
The Group’s businesses monitor gross margins and,
where possible, develop appropriate tactical and
trading responses to changes in the competitive
and pricing environment. Mitigation of this risk is
achieved through ensuring a value proposition for
customers through the review of customer pricing
metrics, monitoring pricing developments in the
marketplace and the active management of pricing.
The Group has established and continues
to develop an online sales capability to respond to
changing customer requirements. During 2021 the
Group continued to invest in its online platforms
which supported a further rise in online revenue.
This includes activities to further develop the digital
capabilities of colleagues. Promotional and
marketing activity is also a feature of revenue and
margin management. Procurement strategies are
focused on reducing costs through supplier
consolidation and sourcing, as appropriate,
through overseas markets.
The Group maintains an open dialogue with suppliers
in order to mitigate the impact on customers and
Group profitability from commodity related cost
pressures. The Group’s businesses conduct surveys
and review feedback from customers in order to
improve the quality of the overall product and
service proposition and to ensure that customer
expectations are met.
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RISK MANAGEMENT continued
Information technology
systems – infrastructure
and new implementations
Risk movement
Strategic links
RISK DESCRIPTION
The Group’s businesses are dependent on IT
systems and supporting infrastructure to trade.
Either the failure of key systems or the inability to
compete through not having up to date trading
platforms could have a serious impact on the
business and could potentially result in the loss
of revenue and reduced profitability.
The rate and scale of IT change is increasing as
the Group undertakes a programme to replace
and upgrade legacy systems in Selco and CPI
Mortars. These changes have the potential to
disrupt operations.
MITIGATION
The Group has established a Project Management
Framework setting out the expected governance
standards for significant change projects. Back-up
facilities and Business Continuity Plans are in place
and tested regularly to ensure that interruptions to
the business are prevented or minimised and that
data is protected from unauthorised access.
The replacement and updating of systems and
technologies is supported by a full strategy and
business case analysis, planning and risk analysis for
each project. Implementation is supported by subject
matter experts and colleagues from a cross section
of functions to ensure that projects are managed to
deliver technical, functional and business solutions
within an appropriate cost and timeframe.
During the year several system implementations have
either completed or made considerable progress with
strong governance maintained.
System changes are subject to rigorous testing
and confirmation that they meet defined business
acceptance criteria prior to full implementation.
Systems are in place for the testing of critical IT
infrastructure and ERP applications.
IT controls are tested by internal audit and findings
are reported to the Audit and Risk Committee.
Regular progress reports are made to the Board
and planning and implementation is subject to
review by Group Internal Audit, with lessons learnt
from those reviews shared with colleagues working
on other projects.
Pandemic risk
– Covid-19
Risk movement
Strategic links
RISK DESCRIPTION
The Group is exposed to the impact of the Covid-19
virus in the countries where it operates and also in
countries where some of its suppliers are based.
There is a risk to profitability from interruption to
operations if Governments impose national or local
lockdowns resulting in the closure of our branches,
stores and plants or due to an absence of a
significant number of colleagues for a period due
to contracting the virus. The Group recognises the
wider risk of a fall in revenue and profitability due
to lower general economic activity in the countries
where it operates as a result of the pandemic. The
Group has also recognised the risk to the safety
and wellbeing of its colleagues and customers
from the virus and the changes to working
practices required to maintain adequate levels
of protection and social distancing.
Finally, the Group recognises a risk to the
supply of products as a result of the pandemic
because suppliers are unable to supply or
deliver their products.
MITIGATION
The health, safety and wellbeing of our colleagues,
customers and business partners was our highest
priority in shaping our response to the pandemic
over the past two years. Best in class operating
procedures and protocols were designed and
implemented across our businesses in line with or
exceeding guidance provided by Governments and
health authorities. Throughout 2021 these standards
have been maintained whilst branches have
continued to trade through further waves of the
pandemic. The Group’s office-based support
colleagues have continued to work effectively
with a mix of office and home working whilst
following government guidance.
The resilience shown by the business through the
pandemic and the low likelihood that branches will
be required by Government to close has reduced
the profile of this risk.
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Strategic Report
Strategic links
Read more about our strategy pages 26 to 31
Excellence
in service
Strong
financial base
Organic growth
and acquisitions
Ethics
and integrity
A supportive organisational
structure and management
Internal controls
and fraud
Risk movement
Strategic links
RISK DESCRIPTION
The Group is exposed to the risk of failure in financial
or operational controls in individual Business Units,
including the failure to prevent or detect fraud.
A breakdown in controls of this nature could
lead to a financial loss for the Group.
MITIGATION
The Group has established a framework of controls
incorporating a ‘three lines of defence’ model to
protect against significant control deficiencies and
the risk of fraud. This includes documented policies
and procedures for key financial and operational
processes, ongoing monitoring of management
accounts both at Group and business unit level,
monthly sign-off of business unit accounts by
local finance directors and an annual compliance
statement signed by business unit Chief Executives
and Finance Directors.
Business Units also complete an annual self-
assessment of key financial controls which is
subject to validation by Group Internal Audit.
Branch procedures are subject to regular review
and audit by Business Unit internal audit and loss
prevention teams.
A programme to perform fraud risk assessments
across key business units and Group Finance
will continue through 2022. Where instances of
attempted fraud occur within the Group, lessons
learnt are identified and shared across businesses.
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SUSTAINABILITY
Building a
sustainable
future
Our approach to sustainability is critical to achieving
our strategic priorities and underpins the Group’s
purpose of Building Progress Together.
At Grafton we believe there is a positive
connection between sustainability and
financial performance and we are facing up to
the bigger questions about what’s right for our
business, for society and for the environment.
We’ve developed a strategy that challenges us
to take the lead on the material issues that are
closest to our business, and which make the
biggest contribution to the UN Sustainable
Development Goals that are most relevant to
us. Our businesses are focusing on the issues
most relevant to them, and we are aligning
resources to these key areas to deliver
maximum impact.
We have set specific targets and KPIs across
the five focus areas of our sustainability
strategy to guide our performance and help
us work in a way that’s responsible and
sustainable. Our sustainability programme
informs our strategic decision making about
where to innovate and where to invest, as
well as the operational decisions we all
make every day.
We have made good progress to date and will
continue working towards our sustainability
strategy commitments, whilst also aiming
higher to ensure we make a valuable
contribution to society and help build a
sustainable future.
We were delighted to launch our first
sustainability report at our Capital Markets Day
on 10 November 2021. The report is available
on the Group website www.graftonplc.com
and contains further detail on the specific
targets in our strategy and our roadmap to
achieve them.
BUILDING PROGRESS TOGETHER
Our Group purpose is ‘building progress
together’, to enable a sustainable future that
respects people and the planet for all our
stakeholders. Our sustainability strategy
provides the blueprint for how we achieve this
across the activities, products and services
of our Group and brands. It is purposeful,
inclusive, useful and relevant.
We started on our sustainability journey by
assessing and putting in place the framework
to manage the material environmental and
social risks and opportunities of our activities,
products and services. This resulted in the
identification of five key focus areas –
Customer and Product, People, Planet,
Community and Ethics.
Our sustainability strategy is...
Our focus areas are designed to align with
several of the UN Sustainable Development
Goals (‘SDGs’), which set out a holistic
approach to sustainability. We recognise
their value in ensuring a sustainable, resilient
and inclusive future for our customers,
colleagues, suppliers and the communities
in which we operate.
Five SDGs were initially selected that aligned
with our five key focus areas. In 2021 the
selection was expanded to eight SDGs as our
Group sustainability ambitions have evolved.
https://graftonsustainability.com
Purposeful
It shows the difference
we want to make with
sustainability.
Useful
Considering our purpose
when we make decisions
helps us determine the
right course of action at a
Group and business level.
Inclusive
For all business areas,
and for internal and
external stakeholders
alike.
Relevant
Responsible and
trustworthy businesses
will help maintain a
strong financial base for
Grafton’s future growth.
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Our key focus areas are…
CUSTOMER
AND PRODUCT
Providing our
customers with
ethical, sustainable,
and high-quality
products.
PEOPLE
Creating a culture
for everyone to
thrive and be safe
inside and outside
our business.
PLANET
Reducing, reusing,
and recycling across
our operations.
COMMUNITY
Making a positive
contribution to
the communities
and customers
we serve.
ETHICS
Ensuring every
part of our
business operates
with integrity.
Our headline sustainability achievements and plans
ENVIRONMENT
• CDP Climate Change disclosure for Scope 1
and 2 emissions completed for the first time
for 2020 achieving a B- rating.
• Over 90 per cent certified renewable energy
is being procured for all businesses across
the Group.
• Trialling compressed natural gas trucks,
electric vans and reviewing other
alternative-fuel options to replace diesel
• Completed first disclosure under TCFD
reporting recommendations – see
disclosure on pages 82 to 85.
• Committing to calculating Scope 3
emissions and setting Science Based
Targets (Scope 1-3) before end 2024.
• Target of 100 per cent new cars ordered
for the business will be alternative fuelled
by 2025.
• 25 per cent reduction in single use plastic
packaging film for deliveries and storage
by 2025.
SOCIAL
• Maintenance of a Covid-19 safe
environment in all our business locations
to ensure that we keep all our colleagues,
customers and suppliers safe.
• Year on year increase in the number of
females working in the Group.
• As signatories to the Social Mobility Pledge,
we will continue to take steps to boost
opportunities and social mobility.
• Over £900,000 raised during the year for
charity during 2021. We will introduce one
paid volunteering day per colleague in 2022.
• By 2025 fundraising and community
investment to target at least one per cent
of profit.
• 100 per cent of colleagues to receive
at least one per cent above minimum
wage by 2023.
GOVERNANCE
• Top down and bottom up approach to
sustainability governance.
• Prioritised at Board level and implemented
through the Sustainability Working Group,
business unit management, and colleagues.
• Increased supplier engagement on
responsible sourcing and supply chain
integrity, with 80 per cent (by value) of
suppliers completing our updated ESG
questionnaire by the end of 2021.
• All colleagues have a channel available for
feedback to Board and senior management
(Colleague Forums).
• Bonus remuneration linked to sustainability
targets for Chief Executives of key
business units.
• Sustainability added to the due diligence
process for acquisitions.
…aligned with UN SDGs
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SUSTAINABILITY continued
CUSTOMER & PRODUCT
SUSTAINABLE PRODUCTS
To support the growth of green building
products in the market, we are increasing our
range of sustainable products including solar
thermal and solar PV, air source heat pumps,
ground source heat pumps, biomass heating,
rainwater harvesting and heat recovery
ventilation systems.
Our sustainability strategy commits our
businesses to an assessment across their
product ranges against sustainability
credentials with a view to achieving a year
on year improvement in the sustainable
rating of our product portfolio.
TIMBER SOURCING
Our Timber Sourcing Policy sets out our
commitment to the sourcing of sustainable
timber products and to meeting international
certification standards. Under this policy,
Grafton businesses that source timber
products must produce an annual summary
specifying either the certification (FSC and/or
PEFC) or the chain of custody of the timber
products sourced.
A number of Grafton Group businesses have
FSC and/or PEFC certification in place which
is specific to individual timber categories or
timber types.
Environmental
SUPPLY CHAIN TRANSPARENCY
To ensure compliance with Modern Slavery
legislation and drive responsible sourcing
across our supply chains, suppliers will be
required to comply with Group Supplier
Standards based on the Ethical Trading
Initiative best practice. Our approach
incorporates our modern slavery, anti bribery,
timber sourcing policies and traceability
requirements.
The Group Code of Business Conduct and
Ethics confirms that we will not purchase from
suppliers that procure products for us from
countries that are subject to trade sanctions,
or if the supplier or its sources are listed in
connection with a trade sanctions programme.
We require that all suppliers comply with our
anti-slavery policy as published on the Group
website www.graftonplc.com.
We have engaged an external due diligence
screening solution to assist with prioritising,
monitoring and mitigating the risks associated
with supplier relationships. Non-EU suppliers
are screened annually against relevant
sanctions lists, watch lists, PEP lists or
adverse media reports.
During 2021 we implemented a third-party risk
management and compliance management
solution with a view to developing a consistent,
risk-based approach to managing supplier
compliance across all of our business units.
As part of the implementation of this solution,
we commenced a process of further
engagement by way of an updated
questionnaire to all suppliers with over
£100,000 annual purchase spend. This
questionnaire is designed to enhance the
Group’s supply chain transparency, improve
supply chain governance and help rate our
supply chain’s sustainability credentials.
In 2022 we will be engaging with supply chain
partners to measure and manage our Scope 3
emissions as part of our commitment to the
Science Based Target initiative. We intend to
work collaboratively with suppliers to support
their own carbon reduction programmes
wherepossible.
As part of our sustainability goals, the Group
has also committed to working with our
aggregate suppliers to ensure that 100 per cent
of extraction sites are returned to sustainable
use and removing harmful chemicals from
the supply chain where an appropriate
alternative can be found.
CLIMATE CHANGE AND
ENERGY MANAGEMENT
We have been measuring and managing our
Scope 1 and 2 GHG emissions (CO
2
e) annually
since 2014. A targeted 3 per cent annual
reduction in CO
2
e intensity ratio was achieved
again in 2019 and significantly exceeded in
2020, predominantly as a result ofbusiness
closures during Covid-19.
Relevant focus areas
CUSTOMER
AND PRODUCT
PLANET
Relevant SDGs
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Strategic Report
The total carbon emissions for continuing
operations in 2021 (plus the addition of
Stairbox and IKH) are similar to 2019 levels
but the intensity ratio measure has improved
further due in part to the impact of recent price
inflation and more importantly, as a result of
our ongoing improvements in fuel and energy
efficiency. Group investment in energy
efficiency measures included an investment
of over £4 million in LED lighting projects and
our transition to more fuel efficient, low and
zero carbon transport has played a big part in
this reduction over the last few years.
We completed the CDP Climate Change
Questionnaire during 2021 for the first time
and were pleased toscore a B- which
recognised the solid foundations that we have
put in place. We will be progressing plans for
measuring and disclosing Scope 3 emissions
and we intend to update our future CO
2
e
reduction targets in line with our commitment
to the Science Based Targets initiative (SBTi)
across Scope 1, 2 and 3. We aim to complete
this submission before the end of 2024, which
supports our climate change strategy to stay
aligned with the objective of containing global
temperature rises to below 1.5°C.
Over 90 per cent of Group businesses were
procuring certificated renewable electricity by
the end of 2021 and our intention is for 100 per
cent supply as existing contracts end.
On the customer side, to drive the low carbon
market, the Chadwicks business in Ireland has
taken an innovative step to develop a carbon
credit scheme for customers in association
with the Sustainable Energy Authority of
Ireland and Bord Gáis.
Selco are contributing to carbon removal
through credible native forest planting. It
created the Selco Forest near Jedburgh in the
Scottish Borders which involved planting over
100,000 trees and Selco has plans to create
another Selco Forest in Wales in 2022.
CPI Mortars maintained its Construction
Products Certification (CPC) BES 6001
accreditation for product and supply chain
sustainability and ethics.
Protecting our natural resources, minimising
waste and reducing our carbon footprint are all
fundamental parts of our sustainability agenda
and we acknowledge our responsibilities and the
part we can play in effective management of the
wider environment.
Total GHG Emissions
(tonnes CO
2
e)
Scope 2 GHG Emissions
(tonnes CO
2
e)
Scope 1 GHG Emissions
(tonnes CO
2
e)
42,765
51,646
2021
2020*
11,035
12,892
2021
2020*
31,731
38,753
2021
2020*
* The results for 2020 have been restated to exclude
the traditional merchanting business in Great Britain
that was sold on 31 December 2021.
Emissions per £m turnover
(tonnes CO
2
e)
25.5
24.5
2021
2020*
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ENVIRONMENTAL MANAGEMENT
The CPI Mortars and TG Lynes businesses are
accredited to the ISO 14001 standard and the
Group Environmental Management Systems
(EMS) framework will be extended across all
businesses by the end of 2025.
FLEET AND LOGISTICS
We are committed to improving the fuel
efficiency of our fleet and are moving to low
or zero carbon transport wherever possible.
Selco are trialling compressed natural gas
alternatives in their transport fleet and other
businesses are trialling electric vans and
investigating the potential for using alternative
fuels to replace diesel in their forklift trucks and
commercial vehicles. We are targeting that 100
per cent of new company cars ordered will be
alternative-fuelled by the end of 2025, subject
to any supply and availability constraints.
WASTE, PLASTIC AND PACKAGING
During 2021 we have maintained our focus
on waste segregation and recycling to further
reduce the quantity of waste sent to landfill. We
reduced waste sent to landfill by five per cent
during the year as all businesses continue to
recover and recycle more of the waste that
they generate. We also continued to work with
suppliers to reduce overall packaging at source
in order to reduce waste created throughout
the supply chain.
CASE STUDIES: PLANET
Renewable energy
generation from solar
As part of Grafton’s move towards renewable energy, solar
panels are generating electricity at the ISERO head office
(HO) and distribution centre (DC) at Waddinxveen, NL, at
the Polvo HO and DC at Moerdijk, NL, and at the TG Lynes
DC in Enfield, UK.
Solar panels generate over 30 per cent of Isero’s current
annual energy consumption at the HO and DC. The
remainder of its electricity uses including branches is
sourced from 100 per cent certificated renewable sources.
Solar panels generate almost 50 per cent of requirements
at the Polvo HO and DC.
Isero and Polvo encourage energy efficient or electric cars,
and they currently have over 30 electric cars in their fleet
along with seven electric vans and one electric scooter for
local deliveries.
TG Lynes recently installed a solar PV system on the roof of
its Enfield HO and DC which provides over 50 per cent of its
electricity requirements with the remainder coming from
100 per cent renewable energy sources. Some of the
excess energy is also used to power its company car fleet
and other colleague-owned vehicles.
Total Recycling Rate
Total Recovery Rate
Waste diversion from Landfill
50%
56%
2021
2020*
39%
40%
2021
2020*
89%
96%
2021
2020*
* The results for 2020 have been restated to exclude
the traditional merchanting business in Great Britain
that was sold on 31 December 2021.
SUSTAINABILITY continued
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Strategic Report
HEALTH, SAFETY AND WELLNESS
We are committed to creating a culture where
everyone can thrive and be safe inside and
outside our businesses. We believe our
leadership of the health, safety and wellbeing
agenda is most effective when it is integrated
into routine business leadership behaviours,
and we continue to drive this approach
supported by our integrated Safety, Health
and Environment (SHE) support teams in
each business. This federated approach has
created autonomous local management
teams who own their own health, safety and
wellbeing agendas, with appropriate support
at Group level.
We deeply regret having to report that one of
our colleagues was involved in a fatal accident
in one of our branches during the year. This
tragic event has had a huge impact on many
people, especially the family, friends and
colleagues of the deceased colleague. We
continue to support those affected in every
way we can, including through counselling.
We have taken prompt action to try to ensure
that such an accident will not happen again in
our branches and we remain committed to
doing everything we can to ensure that our
colleagues, customers and business partners
return home safe and well at the end of each
day. This commitment is central to how we
manage health, safety and wellbeing across
the Group.
All colleagues are encouraged to take an active
part in helping us to maintain and develop their
own health, safety and wellbeing by raising any
concerns with management. This is achieved
through a combination of focus groups, team
meetings, committee meetings and through
the Group Risk Committee.
GROUP LOST TIME – INJURY FREQUENCY RATE (LTIFR)
Year Lost time injuries per 100,000 hours worked % change
2021 0.98 increased by 2%
2020 0.96
GROUP LOST DAYS – SEVERITY RATE
Year Lost time injuries per 100,000 hours worked % change
2021 0.24 reduced by 25%
2020 0.32
A key priority in 2021 was the ongoing
maintenance of a Covid-safe environment in all
our business locations to ensure that we could
keep all our colleagues, customers and
suppliers safe. Our bespoke risk assessments
at each site required some of our yard,
warehouse, office and trade counter areas to
be reorganised to ensure that social distancing
could be maintained. This approach helped to
ensure that our branches remained open with
minimal disruption from the pandemic. The
Group’s businesses also continued with their
individual strategies for SHE improvement,
focusing on the areas of health, safety and
wellbeing most relevant to their operations.
Each business is subject to regular health
and safety audits including branch
compliance checks by internal teams
and reviews of the compliance procedures
by Group Internal Audit.
Social
CUSTOMER
AND PRODUCT
PEOPLE COMMUNITY
Our key focus areas
Our people are key to everything we do, and the
success of our business is closely aligned with the
contribution and commitment of each of
our colleagues.
Relevant SDGs
* The results for 2020 have been restated to exclude
the traditional merchanting business in Great Britain
that was sold on 31 December 2021.
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SUSTAINABILITY continued
A new Safety Management System (‘Notify’)
has been launched across all businesses
focused on streamlining the reporting of all
incidents and unsafe events and the tracking
of actions and improvements. Notify also
centralises the completion of audits and
internal checks with all actions combined
in one place.
Further examples of different initiatives around
the Group include:
• Chadwicks maintained its focus on traffic
management to reduce vehicle movements
in yards and to separate pedestrian traffic
wherever possible and have seen a positive
reduction in injury frequency and severity
across all areas.
• The launch of the Workvivo internal
communications platform across the
whole Chadwicks operation provided a
fresh opportunity for short targeted safety
messages which proved very effective
during the year.
• Isero, Polvo and Woodie’s increased their
focus on the central distribution networks
and warehouses to improve the safe
handling of all products with particular
focus on hazardous goods in the
Netherlands. They also worked with Notify
to develop their own version of the Safety
Management System in Dutch which was
launched across the businesses in the
second half of 2021.
• Selco prioritised in-store safety initiatives
around vehicle movements and forklift
truck activities with an additional focus
area around delivery driver behaviours
and load security.
COLLEAGUE WELLNESS
Colleague wellness continued to be a key area
of focus across the Group’s businesses with a
wide range of initiatives offering support to
colleagues to be healthier and more content
both at work and at home.
As part of Stress Awareness November,
colleagues were encouraged to complete
“Start the Conversation” training to promote
awareness of good mental health. Businesses
across the Group also shared a series of ideas
and suggestions to promote awareness of
mental health. A number of Group businesses
and the Group Corporate Offices took part
in step challenges to promote colleagues’
health and wellbeing while also raising
funds for charity.
The Irish distribution business launched a
series of wellness initiatives during the year
including mental health first aid training,
facilitated by Mental Health First Aid Ireland
with the aim of having trained Mental Health
First Aiders in every branch nationwide who
are educated on how to notice and support
a colleague who may be going through a
difficult time with their mental health.
All Group colleagues have access to a
confidential professional advice service to
provide assistance with any issues or personal
difficulties. Helplines in each of the countries
where we operate are available 24 hours a day,
365 days a year.
In response to the changing business
environment and in recognition of the changing
ways colleagues live and work, we encourage
our colleagues to embrace flexible working
where appropriate to business needs.
Practices on working from home established
during 2020 as a result of the Covid-19
pandemic continued in 2021 and several
businesses have now introduced flexible
working policies.
COMMUNITY
We are proud to support a range of community
and charity initiatives both in Group Office
locations and through the branch network.
Colleagues around the Group took part in a
wide range of fundraising and volunteering
activity, raising a total of over £900,000.
SELCO
Selco raised over £100,000 in 2021 for its
charity partner, Global Make Some Noise,
which helps disadvantaged people across
the UK, taking the total amount raised for
the charity to over £200,000 since the
start of 2020.
CHADWICKS
Chadwicks were proud to be involved in the
second series of DIY SOS which will air on RTE,
the Irish national television broadcaster, in
2022. As the exclusive building materials
supplier for the season, Chadwicks supplied a
wide range of building materials to presenter
Baz Ashmawy and his team of volunteers as
they renovated the homes of some of Ireland’s
most worthy families.
CPI MORTARS
CPI Mortars were proud to raise over £7,000
for ten beneficiaries with the company
sponsoring every mile walked by colleagues
as part of the September challenge.
WOODIE’S
Woodie’s raised a total of €540,915 as part of
their Woodie’s Heroes campaign, now in its
seventh year. The funds were raised over a four
week period from a combination of customer
donations, instore events and sponsorship
and donations from suppliers. Two teams of
cyclists embarked on a 1,000km cycle as
part of the fund raising for the four charities
nominated by colleagues: Childline, Barnardo’s,
Down Syndrome Ireland and Autism
Assistance Dogs Ireland.
IKH
IKH continued with its long term partnership
with SUL, the Finnish athletics federation,
supporting the training and development
of local athletes as well as athletics events
and competitions.
GROUP
Colleagues in the Group Corporate Offices
took part in a range of charity and fundraising
initiatives during the year for their nominated
charities Children’s Health Foundation Crumlin
and Hollytrees Animal Rescue Trust.
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Selco raised over £140,000 for a range of charity and community organisations
during the year.
Chadwicks were proud to support ‘DIY SOS’ which will air on national television in
Ireland during 2022.
Cyclists from Woodie’s who embarked on a 1,000km cycle as part of their Woodie’s
Heroes fundraising campaign.
Colleagues took part
in a wide range of
fundraising and
volunteering activities,
raising a total of over
£900,000 during 2021.
Total raised for charity
£700,000
£500,000
£900,000
2021
2020
2019
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We believe that having a diverse workforce
brings not only diversity of thought, but it also
drives innovation and progress, which is key
to everything we do.
Ensuring that Grafton is a truly diverse and
inclusive business is a topic that the Group
leadership team prioritise with leaders across
the business.
In recent years we have been working on
developing our Diversity & Inclusion agenda
that promotes diversity in the broadest sense.
A Group Diversity & Inclusion Working Group
was formed in 2020 which consists of senior
HR leaders across our business. The purpose
of the Group is to support the businesses
and to encourage an inclusive culture that
promotes diversity. The Working Group
identified a number of key areas that will
support our Conscious Inclusion strategy:
Gender, Race & Ethnicity, Faith, Disability,
LGBTQI+ and Parents & Carers Status.
An Inclusion Network has also been
established to provide opportunities for
colleagues around the Group to participate
in our Diversity and Inclusion agenda.
Our Diversity agenda is built around four
key areas:
• ABLE – representing disability and
mental wellbeing;
• PRIDE – representing gender and
sexual orientation;
• BALANCE – representing gender
equality and working families; and
• REACH – representing ethnicity.
In 2020 we signed up to the Social Mobility
Pledge, the campaign aimed at increasing
social mobility through outreach, access to
opportunities and recruitment practice. We
are also part of the Valuable 500, the global
CEO community aimed at promoting
disability inclusion.
We are rolling out “ReciteMe” accessibility
software on the Group website and on
the websites of a number of the Group’s
businesses.
GENDER PAY
Monitoring the pay between men and women
is an important step to ensuring that all
colleagues are fairly rewarded for their work
and their contribution to our business.
We constantly review ways in which we can
address differences in pay between gender
and we work hard to support female
colleagues’ career development into senior
roles. We are meeting our regulatory
requirements by publicly reporting on gender
pay gaps for Selco and Leyland SDM.
PARTNERSHIPS
Both Woodie’s and Chadwicks are part of the
Irish Centre for Diversity, an organisation that
is focused on measuring, improving and
recognising efforts to improve diversity and
inclusion. The Centre works in partnership
with organisations across Ireland at all stages
of the equality, diversity and inclusion journey.
In partnership with the Irish Wheelchair
Association, Chadwicks carried out a review,
as part of the refit programme, to ensure
appropriate accessibility for wheelchair users.
RECRUITMENT
Selco undertook a review of its careers website
with a view to identifying areas of improvement
in terms of diversity and overall company
appeal. A new careers website was developed
SUSTAINABILITY continued
CASE STUDY: D&I AT GRAFTON
Pride
During the month of June 2021, we celebrated Pride at
Grafton. We shared information including the history of Pride
and a blog from the CEO Gavin Slark and CFO David Arnold.
Nigel Owens, the first openly gay international rugby union
referee, hosted an inspirational virtual event with colleagues,
which was very well attended.
Diversity and Inclusion at Grafton
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Female 17%
Male 83%
Full Time 77%
Part Time 23%
Female 30%
Male 70%
Under 21 6%
21-30 21%
31-40 23%
41-50 23%
51-60 20%
Over 60 7%
Gender Breakdown
Senior Management
Work Patterns
Gender Breakdown
Age Breakdown
with the aim of attracting a more diverse
workforce. All branch managers undertook
training to improve recruitment practices.
Woodie’s introduced artificial intelligence
technology to help reduce unconscious bias
during the recruitment process. Following
implementation of this technology, there was
a significant increase in the recruitment
of women and colleagues from ethnic
minority backgrounds.
DIVERSITY INFORMATION
As part of our sustainability strategy we
targeted a completion rate of 70 per cent for
updating voluntary diversity information in our
businesses in the UK and Ireland in 2021 and
we are pleased to have exceeded this target
with a response rate of 75 per cent. Collecting
diversity information helps us to understand
how we can improve and better meet the
needs of our colleagues.
Global Diversity
Awareness and Black
History Month
During October we launched the Everyone
Deserves Respect campaign to celebrate
Global Diversity Awareness and Black
History Month. This included inspiring
content and our guest speaker, the
remarkable British TV presenter and
wheelchair basketball player, Ade Adepitan,
left an abiding impression on all who
attended the event.
CASE STUDY: D&I AT GRAFTON
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SUSTAINABILITY continued
Relevant SDGs
Governance
Sustainability governance within Grafton
Relevant focus areas
ETHICS
Group Board
Responsible for the oversight and
success of the Group’s business, for
ensuring that appropriate management,
development and succession plans are in
place and for reviewing the sustainability,
environmental and health and safety
performance of the Group.
Group Audit and
Risk Committee
Oversight and responsibility for the
Group’s internal control and risk
management systems and the steps
taken to mitigate the Group’s risks which
include sustainability and climate change.
Sustainability
Working Group
The Working Group is tasked with
developing, progressing and
implementing the sustainability agenda.
The Working Group is made up of the
Deputy Company Secretary, Group SHEQ
Director, Group HR Director, Group
Procurement Director, Group Internal
Audit and Business Risk Director and the
Group Head of Property.
Group CEO and CFO
Responsible for implementing the
strategy and directing all aspects of the
sustainability agenda including climate
change related issues.
Business Unit
Management Directors
Responsible for the delivery of the Group
sustainability strategy and engaging with
colleagues on sustainability in their
operational businesses.
Group Sustainability Network
The Sustainability Network, includes representatives from each
of the Group’s businesses, helps to facilitate an informed
conversation and sharing of information and best practice
between Grafton’s business units in relation to progress on the
implementation of the Group’s sustainability strategy.
Safety, Health, Environment
and Quality (“SHEQ”) Director
Reports to the Group CEO to provide
strategic direction in the safety, health
and environmental field, establishing
key Group priorities, supporting
business units and monitoring
overall performance.
Group Risk Committee
Monitors and reports on the Group’s
risk management process for key
business risks.
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ETHICAL BUSINESS BEHAVIOUR
The Group Code of Business Conduct and
Ethics reflects our responsibility to uphold high
standards of ethics and integrity, and it sets
the standard of behaviour which colleagues,
contractors, agents and businesses are
expected to follow. The Code is available on
the Group website and made available to
colleagues in each business in the local
language. The Code and associated policies
are the subject of mandatory training courses
which are available to colleagues through the
Group’s online learning management system.
Completion rates are recorded and reported to
the GRC and Group Internal Audit who perform
testing to confirm compliance with key aspects
of the Code and Group policies as part of
annual reviews.
Our commitment to ethical business behaviour
and good governance was further strengthened
during 2021:
• Mandatory training courses were refreshed
including the Information Security course
which now has an annual repeat
requirement.
• Five short animated policy awareness
videos were developed and circulated to
colleagues. These emphasise key aspects
of the SpeakUp, Group Anti-Bribery and
Corruption, Anti-Money Laundering,
Competition Law Compliance and Equality,
Diversity and Inclusion policies. The videos
are translated into local languages.
• Implementation of a third party
classification and risk assessment system
to assist with establishing a consistent,
group-wide, supplier and third party
compliance and risk management process.
• A programme of fraud risks assessments
continued to identify any additional
anti-fraud controls which may be required
in significant business units and the Group
Head Office.
HUMAN RIGHTS AND
MODERN SLAVERY
We are committed to conducting all our
activities in a way that values and respects
human rights. The Group has established
stringent policies and controls to ensure that
the rights of all colleagues are fully respected.
The Group’s Modern Slavery Policy Statement
is available on the Group website and
describes the Group’s policy on forced or
involuntary labour and the safeguards in
place to mitigate against the risk of modern
slavery in its businesses or supply chains.
SPEAKUP REPORTING SERVICE
The Group’s SpeakUp policy sets out the duty
of colleagues to report any concerns they may
have about suspected wrongdoing. The policy
encourages colleagues to raise any concerns
with their manager or another member of
management in the first instance. The Group
also provides an independently run SpeakUp
service which allows colleagues to raise
concerns anonymously if they wish, either via
phone or a website in the local language. All
reports are passed to Group Internal Audit for
investigation, with the outcome reported to the
Audit and Risk Committee. Individuals who
raise concerns are also informed on the
outcome of the investigations. Contact details
for the service are publicised to colleagues
through posters and newsletters, on
engagement platforms, and via the awareness
video and mandatory training. Third parties
can also raise any concerns about suspected
wrongdoing by the Group or its colleagues via
a link to the service on both the Group’s
website and websites of individual businesses.
ANTI-BRIBERY AND CORRUPTION
The Group Anti-Bribery and Corruption Policy
sets out the Group’s zero tolerance approach
to all forms of bribery and corruption, and the
standards expected of all colleagues. It
includes thresholds and approval requirements
for the offering and receiving of gifts and
hospitality to and from third parties by
colleagues, and requires that a declaration of
independence be signed annually by senior
management and other individuals who are
considered to be exposed to a higher risk of
conflicts of interest, including colleagues who
have responsibility for contract negotiations
with customers and suppliers. Colleagues
are made aware of the policy requirements
through mandatory training and awareness
videos. Compliance with the policy and the
management of potential conflicts of interest
is reviewed and tested by Group Internal Audit
through annual compliance audits.
PRIVACY AND DATA PROTECTION
We continued to build on the progress of
previous years in respect of our process
improvements and investment in information
technology to detect and protect our data and
systems. Both data protection and information
security are key areas of focus, underpinned
by comprehensive policies and ongoing
awareness campaigns to ensure that all
colleagues play their part in keeping
information safe and secure.
Each business has a cyber attack incident plan
setting out the steps to react to and recover
from a cyber incident. The Group continues
to run phishing awareness campaigns for
colleagues, and carry regular penetration tests
on all external facing websites to identify and
resolve any vulnerabilities. During 2021 a
review of the Group’s cyber security maturity
was conducted by a third party specialist firm.
The review found many good practices and
controls in place. It made recommendations
to further improve the Group’s ability to both
prevent and reduce cyber attacks. There will
be a programme of initiatives in 2022 to
further reduce cyber risks. This will be
overseen by the Group’s Information
Security Steering Committee.
The Group Code of Business Conduct and Ethics
reflects our responsibility to uphold high
standards of ethics and integrity.
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SUSTAINABILITY continued
Task Force on Climate-related
Financial Disclosures (TCFD)
We support the Task
Force on Climate-
related Financial
Disclosures (TCFD) and
have summarised our
approach in relation to
its recommendations.
Grafton has been formally managing its
material climate risks and opportunities since
2014. Measuring, tracking to targets and
implementing reductions across Scope 1 and
2 GHG emissions (CO
2
e) has been the main
focus. As a next step we have committed to
verifying to Science Based Targets initiative
across Scope 1-3 by the end of 2024.
We are evolving our climate change and risk
management approaches to align with the
recommendations of the Taskforce on
Climate-related Financial Disclosures (TCFD).
In 2020, Grafton moved sustainability and
climate change to high risk in our corporate
risk register and during 2021 the Group
conducted an initial assessment of its
climate-related risks and opportunities. An
output from this assessment was a specific
Group Sustainability and Climate Change risk
register, and we will be doing further work in
this area in 2022 to align our disclosure with
TCFD including assessments at a business
unit level.
Recommendations and supporting recommended disclosures 2021 2022 2023
Governance – Disclose the organisation’s governance around climate-related risks and opportunities.
a) Describe the board’s oversight of climate-related risks and opportunities. √ √ √
b) Describe management’s role in assessing and managing climate-related risks and opportunities. √ √ √
Strategy – Disclose the actual and potential impacts of climate-related risks and opportunities on
the organisation’s businesses, strategy, and financial planning where such information is material.
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium, and long term. * √ √ √
b) Describe the impact of climate related risks and opportunities on the organisation’s businesses,
strategy, and financial planning. √ √
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario. √
GRAFTON DISCLOSURE AGAINST
THE RECOMMENDATIONS OF THE
TCFD PROGRESS.
In line with the FCA requirement, the table
below summarises the consistency of
disclosures made in the current year with
the TCFD framework and how we will build
on these in the future.
* Limited initial disclosure made in 2021 which will develop as processes evolve in later years.
** Scope 1&2 already disclosed, expected to disclose Scope 3 emissions from 2024.
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Recommendations and supporting recommended disclosures 2021 2022 2023
Governance – Disclose the organisation’s governance around climate-related risks and opportunities.
a) Describe the board’s oversight of climate-related risks and opportunities. √ √ √
b) Describe management’s role in assessing and managing climate-related risks and opportunities. √ √ √
Strategy – Disclose the actual and potential impacts of climate-related risks and opportunities on
the organisation’s businesses, strategy, and financial planning where such information is material.
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium, and long term. * √ √ √
b) Describe the impact of climate related risks and opportunities on the organisation’s businesses,
strategy, and financial planning. √ √
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario. √
GOVERNANCE
The Governance of climate-related risks
and opportunities is integrated into our overall
risk management structures, as set out in
the sustainability governance framework
on page 80.
At its meeting in June 2021 the Board held an
in-depth session on sustainability and climate
change, including the approach for setting
Scope 1, 2 and 3 emission targets, and more
generally receives regular updates on our
sustainability programme and targets. The
Audit and Risk Committee is responsible for
overseeing and monitoring the Group’s risk
management systems and steps taken to
mitigate key risks including sustainability
and climate change.
Climate risks and opportunities are assessed
and reviewed by our Group Risk Committee
(GRC), a committee chaired by the CFO with
representatives from all relevant Group
Functions and significant businesses which
meets quarterly and reports to the Audit and
Risk Committee. Sustainability and Climate
Change is a standing agenda item at GRC
meetings. The Sustainability Working Group,
led by the Deputy Company Secretary,
includes functional Heads with expertise
in procurement, people, environment and
ethics. The Working Group is responsible for
developing a sustainability strategy to respond
to the identified climate risks and opportunities
and to align with the relevant UN SDGs.
Having defined the Group Sustainability
Strategy and climate programme, these have
then been implemented at individual business
unit level. The CEOs of each business are
responsible for implementing and reporting on
their own sustainability and climate change
programme which is consistent with the
Group’s overall Strategy. The Sustainability
Working Group provides progress updates at
each GRC meeting encompassing climate
related risks and opportunities.
Recommendations and supporting recommended disclosures 2021 2022 2023
Risk management – Disclose how the organization identifies, assesses, and manages climate-related risks.
a) Describe the organisation’s processes for identifying and assessing climate-related risks.* √ √ √
b) Describe the organisation’s processes for managing climate-related risks. * √ √ √
c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated
into the organisation’s overall risk management. √ √ √
Metrics and targets – Disclose the metrics and targets used to assess and manage relevant
climate-related risks and opportunities where such information is material.
a) Disclose the metrics used by the organisation to assess climate related risks and opportunities in line
with its strategy and risk management process. √ √
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the
related risks. ** √ √ √
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets. * √ √ √
Our due diligence process for potential new
acquisitions includes an assessment of
climate-related risks and an objective that any
newly acquired businesses will align with the
Group’s sustainability targets within two years
of the date of acquisition.
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SUSTAINABILITY continued
STRATEGY
Our assessment of climate risks and
opportunities considered a range of scenarios
which were identified based on the guidance
published by TCFD, the International Panel on
Climate Change (IPCC) and disclosures from
other related businesses:
1. Rapid de-carbonisation – Government led
move to a low carbon economy in the next
3-5 years with global temperature rises
limited to below 1.5°C
2. Moderate de-carbonisation – Business led/
Government supported transition to a lower
carbon economy over next 10-15 years.
Global temperature rises around 2°C
3. Limited climate action – Little or no
concerted effort to reduce carbon
emissions resulting in global temperature
rises in excess of 4°C
These scenarios were used to consider a range
of possible outcomes for different climate risks
and opportunities at Grafton Group over the
short (1-3 years), medium (3-10 years) and long
(+10 years) term. The assessment involved
Group and Business management
representing relevant functions and business
units. A review was further undertaken
to identify what actions could be taken to
mitigate climate risks and take advantage
of opportunities.
Based on these scenarios the most material
opportunities and the most material risks
to the Group, as set out in the Group
Sustainability and Climate Change Register,
are set out in the table below.
Projects and actions to address the
opportunities and risks identified have
commenced and where relevant targets have
been defined in our Sustainability strategy
for the period up to 2030. We have outlined
a number of carbon and climate change
commitments within our 2021 Sustainability
Report: https://graftonsustainability.com/
some of which are referred to in the tables
on pages 84 and 85.
In 2022 we aim to repeat this assessment
exercise at a business level to identify specific
opportunities, risks and mitigating actions for
individual business units.
RISK MANAGEMENT
Identification and management of climate risks
and opportunities is incorporated into our
strategic risk assessment processes. Our
approach to climate risk takes on both a top
down and bottom-up management approach.
Climate risk is considered by the GRC and this
is fed back to the individual business level,
where each business maintains its own
register of the risks that are material to their
business along with their actions to mitigate
them, which will include climate related risks.
These individual business risk registers are
then incorporated at a group level, where the
combined registers are updated quarterly and
reported to the Group Risk Committee who
manage the Corporate Risk register of all
material risks to the Group – see Principal
Risks on pages 64 to 69.
For all our risks, including our climate-related
risks, we assess the recurring or one-off
impact on both financial measures, including
revenue, profit, and cash, and non-financial,
including management effort, regulatory
compliance and impact on stakeholders. We
have set numerical thresholds for each of
these metrics to define ‘material financial
Opportunities
Climate
change
scenario Timeframe Related projects/mitigating actions
The growing market for energy-efficient,
sustainable products and services in a low
carbon economy.
1 & 2 Short-
Medium term
Establish a sustainable products rating system in collaboration with suppliers
and relevant stakeholders by the end of 2022.
100 per cent of new cars ordered are alternative fuelled by 2025.
Analysing further the risks and opportunities associated with the market for low
carbon products and services and supply chain impacts.
Improvements to our operations and buildings
with more efficient energy use and through
reduction, reuse and recycling of consumables.
1 & 2 Short term Committing to calculating Scope 3 emissions and setting Science Based Targets
(Scope 1-3) before the end of 2024.
Incorporate appropriate sustainable heating/cooling, insulation, power and water
management systems in new-build properties by the end of 2022.
All businesses aligned to a Group level Environmental Management Framework
by 2025.
Reducing transport costs and emissions by
using more energy efficient modes of transport.
1 & 2 Short-
Medium term
Committing to calculating Scope 3 emissions and setting Science Based Targets
(Scope 1-3) before the end of 2024.
increased competitive advantage through
resilience planning around property,
infrastructure and supply chain.
2 & 3 Medium-
long term
Continuing to evolve our understanding of our climate related risks and
opportunities. This work will include further analysis of our property portfolio,
focusing on physical risks (such as flooding, increases in extreme weather) to
our branches, distribution centres and head offices.
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impact’. We monitor the likelihood of risks
relating to climate change over the short
(1-3 years), medium (3-10 years) and
long-term (over 10 years).
Actions to manage climate related risks are
overseen by the GRC through both Group and
individual business-led projects and initiatives,
consistent with the Group’s sustainability
strategy and targets. These will include
projects to improve the energy efficiency of
operations, transport and properties and
activities to develop the resilience of our
infrastructure and supply chain. See
Sustainability section on pages 72 to 74
for examples.
Grafton maintains its awareness of climate
change related risks, including changes to
regulatory requirements, through membership
of trade associations, working with third-party
consultants and attending relevant seminars
and training. The Group also consults with
its stakeholders, including colleagues and
investors, to ensure appropriate prioritisation
of climate-related risks.
An example of action taken to manage climate
risk within Grafton Group in 2020 was the use
of third-party consultants to undertake
extensive flood resilience surveys on 31 of our
sites. Of the 31 sites surveyed, 8 sites were
found to be exposed to medium or high risk
of river or coastal flooding (primary flood risk
drivers). A number of response measures were
recommended and we are currently working
with the businesses to implement those
recommendations.
METRICS AND TARGETS
As part of our Sustainability strategy, we have
set a series of targets to help manage climate
related risks and monitor progress, which align
with two of our five focus areas: Customer and
Product; and Planet. Relevant targets include
improving the sustainability rating of our
product portfolio; reducing our scope 1 & 2
carbon emissions (relative to revenue);
measuring our Scope 3 emissions and then
setting science-based targets to reduce scope
1, 2 and 3 emissions. Our current carbon
reduction target is a 15 per cent reduction in
Scope 1 & 2 emissions by 2025 compared to
the 2018 baseline. See Sustainability section
on pages 72 to 74.
Scope 1 & 2 emissions are calculated in
accordance with the GHG Protocol. For
Scope 3 we will again report in accordance
with the GHG Protocol as part of our planned
SBTi submission.
As part of the further climate change scenario
analysis that will be conducted next year, we
will assess whether any additional metrics
and targets are needed as part of this process
and begin to develop financial analysis to
help assess specific climate risks
and opportunities.
Risk
Climate
change
scenario Timeframe Related projects/mitigating actions
Changes in legislation or regulation impacting
our existing product range. This may result in
reduced demand, lower revenue and profit.
1&2 Medium-
long term
Establish a sustainable products rating system in collaboration with suppliers
and relevant stakeholders by the end of 2022.
Analysing further the risks and opportunities associated with the market for low
carbon products and services and supply chain impacts.
The potential impact of rising energy and
insurance costs on our business operations and
supply chain
1&2 Short term Committing to calculating Scope 3 emissions and setting Science Based Targets
(Scope 1-3) before end 2024.
Incorporate appropriate sustainable heating/cooling, insulation, power and water
management systems in new-build properties by the end of 2022.
Changes in legislation or regulation resulting in
higher operating and compliance costs, e.g.,
limits in emissions.
1&2 Medium-
long term
Committing to calculating Scope 3 emissions and setting Science Based Targets
(Scope 1-3) before the end of 2024.
Incorporate appropriate sustainable heating/cooling, insulation, power and water
management systems in new-build properties by the end of 2022.
100 per cent of new cars ordered are alternative fuelled by 2025.
Increased stakeholder concern due to lack of
action on climate change leads to reduction in
capital availability, loss of customers and
impacts recruitment and retention of colleagues.
1&2 Short term Committing to calculating Scope 3 emissions and setting Science Based Targets
(Scope 1-3) before the end of 2024.
Incorporate appropriate sustainable heating/cooling, insulation, power and water
management systems in new-build properties by the end of 2022.
100 per cent of new cars ordered are alternative fuelled by 2025.
All businesses aligned to a Group level Environmental Management Framework
by 2025.
Impact of increasing severity and frequency of
adverse weather events including storm and
flood damage on Group properties result in loss
of revenue due to closure, higher repair and
maintenance costs.
2&3 Short-
medium term
Continuing to evolve our understanding of our climate related risks and
opportunities. This work will include further analysis of our property portfolio,
focusing on physical risks (such as flooding, increases in extreme weather)
to our branches, distribution centres and head offices.
Climate change and increasing severity and
frequency of adverse weather impacts our
supply chain and the availability of products.
2&3 Medium-
long term
Analysing further the risks and opportunities associated with the market for low
carbon products and services and supply chain impacts.
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Annual Report and Accounts 2021
Governing our business
Board of Directors and Secretary 86
Directors’ Report on
Corporate Governance 90
Audit and Risk Committee Report 98
Nomination Committee Report 102
Report of the Renumeration Committee
on Directors’ Renumeration 105
– Chairman’s Annual Statement 105
– Renumeration Policy Report 109
– Annual Report on Renumeration 117
Report of the Directors 128
Corporate
governance
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Corporate Governance
GREAT PLACE TO WORK
Woodie’s was recognised as a Great Place
to Work for the sixth consecutive year.
Woodie’s retained its position as the top
retailer in Ireland in the Great Place to Work
Index and was also listed as one of Europe’s
Best Large Workplaces, as well as retaining
its status as a Best Workplace for Women.
For more see pages 14-15
Colleague Engagement – Woodie’s
99%
Participation rate
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COMMITTEE
MEMBERSHIP
BOARD LENGTH
OF SERVICE
AS AT 8 MARCH 2022
CURRENT
EXTERNAL
APPOINTMENTS
CAREER
SENIOR INDEPENDENT
DIRECTOR
CHIEF FINANCIAL
OFFICER
CHIEF EXECUTIVE
OFFICER
NON-EXECUTIVE
CHAIRMAN
Michael J. Roney
(USA)
MBA
Gavin Slark
(UK)
David Arnold
(UK)
BSc, FCMA, FCT
Paul Hampden Smith
(UK)
FCA
Joined the Board of Bellway plc
in 2013, was appointed
Non-Executive Chair in 2018
and is retiring from the Board
on 1 April 2022.
Appointed a Non-Executive
Director of Crest Nicholson
Holdings plc with effect from
1 September 2021.
Non-Executive Director of
Galliford Try Holdings plc, a
UK housebuilding and
construction group.
Michael Roney was appointed
to the Board as Non-Executive
Director, Deputy Chairman and
Chairman Designate on 1 May
2016 and assumed the role of
Non-Executive Chairman on
1 January 2017.
Mr. Roney was Chief Executive
of Bunzl plc from 2005 until his
retirement in April 2016. Prior
to joining Bunzl he was Chief
Executive Officer of Goodyear
Dunlop Tires Europe, having
previously been President of
Goodyear’s Eastern European,
African and Middle Eastern
businesses. He was formerly
Non-Executive Director of
Johnson Matthey Plc.
Gavin Slark joined the Group
and the Board as Chief
Executive Designate on 1 April
2011 and was appointed Chief
Executive Officer on 1 July 2011.
Mr. Slark was previously Group
Chief Executive of BSS Group
plc, a leading UK distributor of
plumbing, heating, pipeline and
mechanical services and
products.
David Arnold joined the Group
as Group Chief Financial
Officer on 9 September 2013.
Mr. Arnold was Group Finance
Director of Enterprise plc, the
UK Maintenance and Support
Services business, from 2010
to 2013 and was Finance
Director of Redrow plc, the
house builder, from 2003 to
2010. He previously held senior
financial positions with Six
Continents plc, the hotels
group and Tarmac plc, the
building materials company.
Paul Hampden Smith was
appointed to the Board on
27 August 2015 and was
appointed Senior Independent
Director on 9 May 2017.
Mr. Hampden Smith was
Group Finance Director of
Travis Perkins plc from 1996
until his retirement in February
2013. He was previously
Non-Executive Director of
Pendragon plc, Redrow plc,
DX Services plc and Clipper
Logistics plc.
Non-Executive Chair of Next
plc, the FTSE 100 listed UK
retailer; Non-Executive Director
of Brown-Forman Corporation,
the US based spirits business.
Audit and Risk Committee
(Chair), Nomination Committee
Remuneration Committee
Finance CommitteeFinance Committee (Chair)Nomination Committee (Chair)
6.5 years8.5 years10.9 years 5.9 years
Board of Directors
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Corporate Governance
COMMITTEE
MEMBERSHIP
BOARD LENGTH
OF SERVICE
AS AT 8 MARCH 2022
CURRENT
EXTERNAL
APPOINTMENTS
CAREER
NON-EXECUTIVE
DIRECTOR
NON-EXECUTIVE
DIRECTOR
NON-EXECUTIVE
DIRECTOR
Susan Murray
(UK)
Vincent Crowley
(IRL)
BA, FCA
Dr Rosheen
McGuckian (IRL)
BSc, MA, PhD
Non-Executive Director of Hays
plc, a provider of recruitment
and human resource services;
and Non-Executive Director of
William Grant & Sons, a
privately owned distiller and
distributor of premium spirits.
Susan Murray was appointed
to the Board on 14 October
2016.
Mrs. Murray is a former Chief
Executive of Littlewoods
Stores Limited and former
Worldwide President and
Chief Executive of The Pierre
Smirnoff Company, part of
Diageo plc. She is a former
Chair of Farrow & Ball and a
former Non-Executive Director
of Compass Group plc, 2
Sisters Food Group, Pernod
Ricard S.A., Imperial Brands
plc, EI Group plc, Aberdeen
Asset Management plc, SSL
International plc, Wm Morrison
Supermarkets plc and
Mitchells & Butlers plc.
Vincent Crowley was appointed
to the Board on 14 October
2016.
In the course of a 24 year
career with Independent News
& Media PLC, a leading Irish
newspaper and media
business, Mr. Crowley held a
number of leadership positions
including Chief Executive
Officer and Chief Operating
Officer and member of the
Board. Prior to joining
Independent News & Media
PLC, he held senior roles in
KPMG and Arthur Andersen.
Rosheen McGuckian was
appointed to the Board on
1 January 2020.
Dr. McGuckian is Chief
Executive Officer of NTR plc,
an unquoted Irish company
that acquires, constructs and
manages sustainable
infrastructure assets.
Immediately prior to joining
NTR, Dr. McGuckian was Chief
Executive Officer of GE Money
Ireland, the consumer finance
division of General Electric.
Dr. McGuckian previously
served as Non-Executive
Director of Green REIT plc,
the Social Innovation Fund of
Ireland, the Irish Aviation
Authority and the Strategic
Banking Corporation of Ireland.
Non-Executive Director of C&C
Group plc, an international
manufacturer and distributor
of branded drinks; Executive
Chair of Altas Investments plc,
an Irish company that holds
investments in infrastructure
and related businesses.
Chief Executive Officer of NTR
plc; Non-Executive Director of
Sicon Limited, the parent
company of John Sisk & Son.
Remuneration Committee
(Chair), Audit and Risk
Committee, Nomination
Committee
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Audit and Risk Committee
Nomination Committee
Remuneration Committee
5.4 years 5.4 years 2.2 years
GROUP FINANCIAL
CONTROLLER &
SECRETARY
Charles Rinn
(IRL)
MBA, FCCA
Finance Committee
N/A
NON-EXECUTIVE
DIRECTOR
Avis Darzins
(UK)
Avis Darzins was appointed to
the Board on 1 February 2022.
Ms. Darzins is a former Partner
at Accenture in London where
she worked with many
well-known national and
international brands in the
retail and consumer products
sectors. She has extensive
experience of business change
in a variety of sectors including
Director of Business
Transformation at Sky plc.
She is a former independent
consultant with EY. She served
as Non-Executive Director at
Moss Bros Group plc until the
business was taken private in
June 2020.
Non-Executive Director of
Marshalls plc, the UK’s leading
manufacturer of landscaping
products for the construction
and home improvement
markets; Trustee and Trustee
Board member of Barnardo’s,
the UK’s largest children’s
charity.
0.1 Years
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DIRECTORS’ REPORT ON CORPORATE GOVERNANCE
GROUP STRATEGY AND
OPERATIONS
• Received updates at all meetings on trading,
operations, markets, corporate
development, colleagues, financial
performance and outlook
• Reviewed and discussed papers from Group
management on corporate developments
• Oversaw the strategic review and approved
the divestment of the traditional
merchanting business in Great Britain
• Considered and approved all acquisitions
made during the year including IKH
and received updates on other
development opportunities
• Reviewed proposals for major items of
capital expenditure and new store openings
FINANCIAL REPORTING AND
CONTROLS, CAPITAL STRUCTURE
AND DIVIDEND POLICY
• Reviewed and discussed reports from
Group Management on key financial
reporting matters
• Monitored the Group’s financial
performance and financial results
• Approved the Final Results and Annual
Report and Accounts for 2020 and the
Interim Results for 2021
• Approved the reinstatement and payment of
the second dividend for 2019, the payment
of the full year dividend for 2020 and the
interim dividend for 2021
• Approved the Group Budget for the year
ending 31 December 2022, including
capital expenditure
PEOPLE, CULTURE AND
STAKEHOLDER ENGAGEMENT
• Received and considered reports from the
CEO at every meeting on Health and Safety
• Received regular reports on the impact of
Covid-19 on colleagues, business activities
and performance
• Received updates from the Company
Secretary on shareholder consultation
• Attended the Group EGM and Group AGM
• Engaged with colleagues through National
Colleague Forums
SUCCESSION PLANNING AND
BOARD EFFECTIVENESS
• Considered presentation from the CEO
on management development and
succession planning
• Reviewed the composition of the Board and
its Committees
• Oversaw the search process leading to the
appointment of Avis Darzins as Non-
Executive Director on 1 February 2022
following a recommendation from the
Nomination Committee
• Considered the findings of the 2020 internal
Board evaluation and the findings of an
externally-facilitated evaluation for 2021 of
the Board’s effectiveness and that of its
Committees and individual Directors
GOVERNANCE, REMUNERATION
AND RISK
• Received updates on sustainability and
approved the Group’s sustainability strategy
• Oversaw the Migration of the Group’s
securities from CREST to Euroclear Bank
• Received updates at each meeting from the
Chairs of the Audit and Risk Committee,
Remuneration Committee and Nomination
Committee on their activities
• Received an update on regulatory
implications of Brexit
• Approved an updated Policy Statement
on Modern Slavery
• Considered and agreed changes to
Non-Executive Directors Fees
• Received a presentation on Cyber Security
Read Committee Report
on pages 98 to 101
Read Committee Report
on pages 102 to 104
Read Committee Report
on pages 117 to 127
See more
on page 90
Senior Executive Team
Finance
Committee
Remuneration
Committee
Nomination
Committee
Audit and Risk
Committee
Board of Directors
Chairman
Chief Executive Officer
Governance Framework
WHAT THE BOARD DID IN 2021
The following table provides a general summary of the significant matters considered by the Board during the year.
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Corporate Governance
COMPLIANCE WITH THE 2018 UK CORPORATE GOVERNANCE CODE
Grafton Group plc (“the Company”) is incorporated in Ireland and is subject to Irish company law. Its Units (shares) are listed on the London Stock
Exchange and the Group is subject to the 2018 UK Corporate Governance Code (“the Code”) which sets out the key principles and specific
provisions which establish standards of good governance practice in relation to leadership, effectiveness, accountability, remuneration and
relations with shareholders. This report describes how the Company has applied principles of the Code during the year.
The Board considers that the Company has, throughout the accounting period, complied with the provisions of the Code. Below is a summary of
how the Company has complied with each individual principle and provision of the Code.
1. BOARD LEADERSHIP AND COMPANY PURPOSE
BOARD LEADERSHIP
The Board is responsible for the oversight and success of the Group’s business. The Board’s responsibilities include:
• Ensuring that appropriate management, development and succession plans are in place;
• Reviewing the environmental and health and safety performance of the Group;
• Approving the appointment of Directors and the Company Secretary;
• Approving policies relating to Directors’ remuneration and severance; and
• Ensuring that satisfactory dialogue takes place with shareholders.
BOARD MEETINGS
The Board met on 12 occasions during 2021, and the attendance of individual directors at each meeting is set out in the table on page 95. The
Board also received updates on developments from management between meetings as appropriate. The Board takes the major decisions as set
out in the schedule of matters reserved to it for decision, while allowing management sufficient scope to run the business within a tight reporting
framework. The Group has arranged insurance cover up to a specified limit in respect of legal actions against directors and officers.
BOARD COMMITTEES
The Board is assisted by Committees that focus on specific responsibilities as delegated by the Board. The Terms of Reference of the Audit and
Risk Committee, Remuneration Committee and Nomination Committee are on the Group’s website at www.graftonplc.com. Membership and
length of service of Board Committees is shown within each of the Committee reports. Ms. Susan Lannigan, Deputy Company Secretary, is
Secretary to the Audit and Risk Committee. Ms. Paula Harvey, Group HR Director, is Secretary to the Remuneration Committee. Mr. Charles Rinn is
Secretary to the Nomination Committee and he also supports the work of the Remuneration Committee.
The Finance Committee is chaired by Mr. Gavin Slark, CEO and also comprises Mr. David Arnold, CFO and Mr. Charles Rinn, Group Financial
Controller and Secretary. The Committee considers the financing requirements of the Group, considers amendments to the terms of existing bank
facilities, approval of leases for assets other than property up to a specified level and litigation matters.
The Board is briefed on key discussions and decisions by each Committee Chair at the Board meeting following the relevant committee meeting
and minutes of committee meetings are circulated to the Board.
The Disclosure Committee is a Management Committee comprising Mr. Gavin Slark, Group CEO and Mr. David Arnold, Group CFO. The Committee
holds meetings formally and informally as required to ensure the accuracy and timeliness of compliance with the EU Market Abuse Regulation.
COMPANY PURPOSE, VALUES AND STRATEGY
A description of the Group’s purpose of “Building Progress Together”, along with information on our core values and strategy is available on pages
12 to 13 and 36 to 31.
OBJECTIVES AND CONTROLS
The Group’s strategic objectives are set out on pages 26 to 27 and a summary of performance against the Group’s KPIs is at pages 36 to 39.
The Board also receives regular updates across a broad range of internal KPIs and performance metrics.
The Group has a clear risk management framework in place as described on page 60 to identify and manage the key risks to the Group’s business.
ENGAGEMENT
A description of how the Board engages with its stakeholders is set out on pages 16 to 17 and further information on engagement with colleagues
is set out in our People and Culture report on pages 14 and 15.
COLLEAGUE ENGAGEMENT
Colleague engagement is shared amongst Non-Executive Directors who attended meetings of the National Colleague Forums in the UK, Ireland
and the Netherlands during the year. The topics covered at the meetings were those which were raised by colleagues as being most important to
them. The forums discussed matters such as rewards, job security, wellbeing, sustainability, health and safety and remote working. The open
dialogue at these meetings enabled Non-Executive Directors attending to hear colleague feedback at first-hand and to update the Board. The
outcome of these meetings and the insights provided helped inform the Board’s decision-making.
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WORKFORCE CONCERNS
The Board has established structures to provide for effective engagement by the Board with the wider workforce. These include the confidential
colleague feedback surveys which provide the opportunity for colleagues to provide feedback to management.
BUSINESS MODEL AND RISKS
The Group’s Business model is set out on pages 24 and 25. The Risk Management Report on pages 60 to 69 contains an overview of the principal
and emerging risks facing the Group and a description of how they are managed.
ASSESSING AND MONITORING CULTURE
The Board recognises the importance of communication and engagement with the wider workforce as a means of assessing and monitoring
culture. While the Board was not able to visit branches or physically meet with senior management from across the Group in person during the year
due to the Covid-19 pandemic, Colleague Forums held via Teams provided opportunities for Directors to meet colleagues and enable their views to
be heard at Board level. The Board, via the Audit and Risk Committee, receives and considers whistleblowing reports received on matters raised
through ‘SpeakUp’, the independent Group wide confidential reporting service, and through reports and observations from Internal Audit reporting.
Colleague engagement is also monitored through engagement survey results.
SHAREHOLDER ENGAGEMENT
The Company recognises the importance of regular dialogue and communication with shareholders. Meetings are held with existing and
prospective institutional shareholders principally after the release of half-yearly and annual results. During the year these meetings were held
virtually. In November the Group held a Capital Markets Day to update investors on the progress of the Group and its businesses, capital allocation
model and sustainability strategy. The Group also issued Trading Updates in January, April, July and November of 2021.
Live audio conference calls for analysts and investors hosted by Gavin Slark and David Arnold were held via webcast on 25 February 2021 and
25 August 2021 following the announcement of the Final Results for 2020 and the Interim results for 2021 respectively. Pre-recorded presentations
for the Final Results for 2020 and the Interim results for 2021 are available to view or download at https://graftonplc.com
Significant or noteworthy acquisitions are announced to the market. The Company’s website https://graftonplc.com provides the full text of all
announcements including the half-yearly and annual results and investor presentations. As noted above, the Group also issues regular trading
updates on the performance of the overall group and individual business segments.
While the Chair takes overall responsibility for ensuring that the views of shareholders are communicated to the Board as a whole, contact with
major shareholders is maintained through the CEO and the CFO. The Chair and the Senior Independent Director are available to meet with
shareholders if they have concerns which have not been resolved through the normal channels of CEO or CFO or where such contacts are not
appropriate. The Board receives feedback from investors following meetings with management following the announcement of the Final Results
and the Interim Results and also receives analysts’ reports on the Group. The Chair normally attends the presentation of the interim and annual
results other than where this is not possible due to travel restrictions and is available to meet with major shareholders. The Chair also attended the
capital markets event which was hosted in London on 10 November 2021.
All shareholders are invited to attend the AGM which provides an opportunity for shareholders to put questions to the Chair, the Chair of each of
the Board Committees and Executive Directors and to meet informally with Directors before and after the meeting. In 2021 due to the Covid-19
pandemic, shareholders were given the opportunity to attend the AGM remotely and could raise questions verbally during the meeting by way of
a conference call facility.
The Company Secretary communicates with shareholders on corporate governance matters, particularly in the lead up to the AGM and other
shareholder meetings.
The Notice of the AGM, which specifies the time, date, place and the business to be transacted, is sent to shareholders at least 20 working days
before the meeting. The AGM is normally attended by all Directors. All resolutions at the 2022 AGM will be decided on a poll in accordance with the
Articles of Association of the Company and in line with market practice. In a poll, the votes of shareholders present and voting at the meeting are
added to the proxy votes received in advance and the total number of votes for, against and withheld for each resolution are announced. This
information is made available on the Company’s website following the meeting.
All other general meetings are called Extraordinary General Meetings (“EGMs”). An EGM called for the passing of a special resolution must be called
by at least 21 clear days’ notice. Provided shareholders have passed a special resolution at the immediately preceding AGM and the Company
allows shareholders to vote by electronic means, an EGM to consider an ordinary resolution may, if the Directors deem it appropriate, be called at 14
clear days’ notice. In view of the Group’s international shareholder base, it is the Board’s policy to give 21 days’ notice of EGMs unless the Directors
believe that a period of 14 days is merited by the business of the meeting and the circumstances surrounding the business of the meeting.
The Company held an EGM on 21 January 2021 to approve the migration of securities from the CREST settlement system to Euroclear and the
simplification of the Grafton Unit.
A quorum for a general meeting of the Company is constituted by two or more shareholders present in person and entitled to vote. The passing
of resolutions at a meeting of the Company, other than special resolutions, requires a simple majority. A special resolution requires a majority of
at least 75 per cent of the votes cast to be passed.
DIRECTORS’ REPORT ON CORPORATE GOVERNANCE continued
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Corporate Governance
Shareholders have the right to attend, speak, ask questions and vote at general meetings. In 2021, it was not possible for shareholders to attend
shareholder meetings in person however shareholders could participate in the meetings virtually via the Lumi platform. In accordance with Irish
company law, the Company specifies the record date for the general meeting, by which date shareholders must be registered in the Register of
Members of the Company to be entitled to attend. Record dates are specified in the notice of general meeting. Shareholders may exercise their right
to vote by appointing a proxy/ proxies, by electronic means or in writing, to vote some or all of their shares. The requirements for the receipt of valid
proxy forms are set out in the Notice convening the meeting.
A shareholder, or a group of shareholders, holding at least five per cent of the issued share capital of the Company, has the right to requisition a
general meeting. A shareholder, or a group of shareholders, holding at least three per cent of the issued share capital of the Company, has the right
to put an item on the agenda of an AGM or to table a draft resolution for inclusion on the agenda of a general meeting, subject to any contrary
provision in Irish company law.
2022 AGM
The 2022 AGM will be held at the Radisson Blu St. Helens Hotel, Stillorgan, Dublin, A94 V6W3 at 10.30am on 28 April 2022. The health and safety
of our shareholders, colleagues and advisers is a primary concern for the Company and its Board. We will take all recommendations and applicable
law into account in the conduct of the AGM. Shareholders are advised to monitor the Group’s website for updates relating to the AGM.
TIME COMMITMENT OF THE CHAIR AND NON-EXECUTIVE DIRECTORS
The Chair and prospective Non-Executive Directors are required to confirm prior to appointment to the Board that they will have sufficient time
available to discharge their responsibilities effectively and that they have no conflicts of interest. This matter is given very careful consideration by
the Nomination Committee and the Board before any appointments are made. Following appointment, the Board considers requests by Directors
wishing to undertake new directorships and considers both the time commitment involved and any potential conflicts of interest with their roles as
Directors of Grafton.
The Board recognises the benefits of the Chair and Non-Executive Directors having varied and broad experiences. It considers investor guidance on
this area as part of the annual review of the time commitments of each Director. The Chair and each of the Non-Executive Directors had a 100 per
cent attendance record at all scheduled and unscheduled Board and Committee Meetings held during the year and they also demonstrated high
levels of availability and responsiveness where discussions where required from time to time between Board Meetings. The Board remains
confident that the Chair and individual members continue to devote sufficient time to undertake their responsibilities effectively.
No new Directorships were taken on by members of the Board during the year except for the previously announced appointment of Mr. David Arnold
to the Board of Crest Nicholson plc. The Board supports Executive Directors having a non-executive directorship as part of their continuing
development provided they have sufficient time to balance their commitments to the business with any external role.
VOTES AGAINST 2021 AGM RESOLUTION
A resolution to re-elect the Company’s Non-Executive Chair, Michael Roney, as a director of the Company was passed with the requisite majority of
votes at the 2021 AGM. A minority of shareholders however chose not to support the resolution. In line with the provisions of the 2018 UK Corporate
Governance Code, the Company reached out to a number of shareholders to gain an understanding of the reasons behind their votes and noted that
the level of votes against Mr. Roney’s re-election was influenced by only two of the Board’s seven directors being female and a concern relating to
Mr Roney holding Board roles in three listed companies including Grafton.
The Board is committed to prioritising diversity and supports the recommendations of both the FTSE Women Leaders Review (formerly the
Hampton Alexander Review) on gender diversity and the Parker Review on ethnic diversity. Following the recent appointment of Avis Darzins as
Non-Executive Director, three of the Board’s eight directors are female (38 per cent). Ms. Darzins is from an ethnically diverse background as
defined by the Parker Review. The Board’s objectives of having at least one third female representation and at least one Director reflecting ethnic
diversity are therefore met.
The Board believes that Michael Roney has always devoted sufficient time to his role as Chair and is confident that he effectively discharges his
role. Mr. Roney brings significant business experience to the role, provides clear direction and leadership of the Board and makes a major
contribution to the strategic development of Grafton Group. The Board is strongly supportive of the role and guidance that Mr. Roney provides to the
Company for the benefit of all stakeholders.
As noted above, the Nomination Committee and the Board continues to monitor all directors’ external commitments and would take appropriate
action in the event of any concerns being raised about their ability to dedicate sufficient time to their roles as directors of the Company.
STAKEHOLDER VIEWS
The Code provides that the Board should understand the views of the Company’s key stakeholders other than shareholders and describe how their
interests and the matters set out in section 172 of the UK Companies Act 2006 (“s.172”) have been considered in Board discussions and decision-
making. While s.172 is a provision of UK company law, the Board acknowledges that as a premium listed issuer on the FTSE 250, it is important
to address the spirit intended by these provisions. An overview of how the Group engages with all of its stakeholders is set out on pages 16 and 17.
As set out above, Colleague Forums have been established to provide the opportunity for colleagues’ views to be heard by the Board.
WHISTLEBLOWING
All colleagues have access to a confidential SpeakUp reporting service which provides an effective channel to raise concerns to an independent
third party. The Board, via the Audit and Risk Committee, receives regular reports detailing all reports made through this service and subsequent
action taken.
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CONFLICTS OF INTEREST
The Board confirms that a system for the declaration of conflicts of interests is in place.
UNRESOLVED CONCERNS
No unresolved concerns about the operation of the Board or the management of the Group were raised by any Director during the year.
2. DIVISION OF RESPONSIBILITIES
CHAIR
The responsibilities of the Chair, as set out on page 95, are set out in writing and agreed by the Board.
BOARD BALANCE AND DIVISION OF RESPONSIBILITIES
The Board believes that it has an appropriate balance of Executive and Non-Executive Director representation and it is Board policy that no
individual or small group of individuals can dominate its decision-making.
A statement of how the Board operates, including a schedule of the decisions reserved for the Board and those delegated to management,
is set out in writing and agreed by the Board. The schedule of matters specifically reserved for Board decision covers:
• Strategic decisions and corporate developments;
• Risk management and internal controls;
• Acquisitions and capital expenditure above agreed thresholds;
• Interim and final dividends and share purchases;
• Changes to the capital structure;
• Tax and treasury management;
• Approval of half-yearly and annual financial statements; and
• Budgets and matters currently or prospectively affecting the Group and its performance.
EFFECTIVE AND EFFICIENT FUNCTIONING OF THE BOARD
Directors have full and timely access to all relevant information in an appropriate form. Reports and papers are circulated to Directors in sufficient
time to enable them to prepare for Board and Committee meetings. All Directors receive monthly management accounts and reports covering the
Group’s performance, development proposals and other matters to enable them to review and oversee the performance of the Group on an ongoing
basis. Each year the Board typically devotes one of its meetings to strategy and one to the following year’s budget. The strategy meeting covers the
macro-economic, political and social systems, construction market, housing market, business sectors, competitive landscape and challenges and
opportunities in existing and prospective countries of operation for the Group. It also covers a review of the existing portfolio of businesses,
specialist segments of the distribution market, competitive landscape and possible acquisition opportunities. All Directors have access to
independent professional advice at the Group’s expense where necessary to enable them to discharge their responsibilities as Directors.
INDEPENDENCE OF THE CHAIR
The Chair was independent on appointment to the role in January 2017.
INDEPENDENCE OF NON-EXECUTIVE DIRECTORS
The five Non-Executive Directors, Mr. Paul Hampden Smith, Mr. Vincent Crowley, Mrs. Susan Murray, Dr. Rosheen McGuckian and Ms. Avis Darzins
are considered by the Board to be independent in character and free from any business or other relationship which could materially interfere with
the exercise of independent judgement. The Board has determined that each of the Non-Executive Directors fulfilled this requirement and is
independent. In reaching that conclusion, the Board considered the principles relating to independence contained in the Code.
BOARD INDEPENDENCE
More than half of the Board, excluding the Chair, are Non-Executive Directors whom the Board considers to be independent.
SENIOR INDEPENDENT DIRECTOR
Mr. Paul Hampden Smith is the Senior Independent Director and is available to act as a sounding board for the Chair, and as an intermediary for the
other Directors, if necessary. He is also available to shareholders who may have concerns that cannot be addressed through the normal channels
of Chair, Chief Executive Officer or Chief Financial Officer. The role of the Senior Independent Director is clearly set out in a document approved by
the Board.
PERFORMANCE OF EXECUTIVE DIRECTORS
Non-Executive Directors constructively challenge management proposals and review the performance of the Group. During the year, the Chair and
Non-Executives met with and without the executive Directors present.
DIRECTORS’ REPORT ON CORPORATE GOVERNANCE continued
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ROLES AND RESPONSIBILITIES
There is a clear division of responsibility between the Chair and the Chief Executive Officer. The responsibilities of each role are clearly documented
in schedules approved by the Board.
CHAIR CHIEF EXECUTIVE OFFICER SENIOR INDEPENDENT DIRECTOR
• Leading and managing the business of the
Board to provide clear direction and focus
for the Group;
• Demonstrating ethical leadership and
promoting the highest standards of integrity
and probity;
• Demonstrating objective judgment and
promoting a culture of openness
and debate;
• Setting the agenda and culture in
the boardroom;
• Facilitating constructive Board relations;
• Ensuring that members of the Board receive
a timely flow of accurate, high quality and
clear information; and
• Ensuring that there is timely and appropriate
communication to shareholders.
• Being accountable to the Board for
all authority delegated to executive
management;
• Taking overall responsibility for the
management of the business;
• Proposing and delivering the
Group’s strategy;
• Implementing and delivering the annual
business plan;
• Effective leadership, coordination
and performance management of the
executive team;
• Ensuring the identification, enhancement
and development of the executive leadership
talent pool; and
• Monitoring closely the operating and
financial results of the Group against
plans and budgets.
• Being available to shareholders who have
concerns that cannot be addressed through
the Chair, the Chief Executive Officer or the
Chief Financial Officer;
• Acting as a sounding board for the Chair;
• Acting as an intermediary for the other
Directors when necessary;
• Working with the Chair and other directors
and/or shareholders to resolve significant
issues; and
• When called upon, seeking to meet a
sufficient range of major shareholders in
order to develop a balanced understanding
of their views.
The number of Board Meetings and Committee Meetings held during the year and attended by each Director was as follows:
Board Audit and Risk Committee Remuneration Committee Nomination Committee
Number of Meetings Total Attended Total Attended Total Attended Total Attended
M. Roney 12 12 – – – – 4 4
G. Slark 12 12 – – – – – –
D. Arnold 12 12 – – – – – –
P. Hampden Smith 12 12 4 4 4 4 4 4
S. Murray 12 12 4 4 4 4 4 4
V. Crowley 12 12 4 4 4 4 4 4
R. McGuckian 12 12 4 4 4 4 4 4
Ms. Avis Darzins was appointed to the Board with effect from 1 February 2022.
EXTERNAL COMMITMENTS
The Board is satisfied that the external commitments of the Chair and the Non-Executive Directors do not conflict in any way with their duties
and Commitments to the Company. Executive directors do not hold more than one non-executive role in a FTSE 100 company or other
significant appointment.
COMPANY SECRETARY
The Directors have access to the advice and services of the Company Secretary, Mr. Charles Rinn, who advises the Board on governance matters.
The Company’s Articles of Association and Schedule of Matters reserved for the Board provide that the appointment or removal of the Company
Secretary is a matter for the full Board.
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DIRECTORS’ REPORT ON CORPORATE GOVERNANCE continued
3. COMPOSITION, SUCCESSION AND EVALUATION
BOARD APPOINTMENTS PROCEDURE AND SUCCESSION PLANNING
The Board’s general policy is to keep the overall composition and balance of the Board under review and to manage the orderly succession of
Non-Executive Directors without compromising the effectiveness and continuity of the Board and its Committees. A description of the work of
the Nomination Committee and the procedure of appointment of new directors is set out on pages 102 to 104.
The Board considers senior management succession planning on a regular basis with a view to developing, over the coming years, a strong
succession pipeline for key positions up to and including Executive Director level.
BOARD MEMBERSHIP
It is the Group’s policy that the Board comprises a majority of Non- Executive Directors. At 31 December 2021, the Board was made up of seven
members comprising the Non-Executive Chair, two Executive Directors and four independent Non-Executive Directors. On 1 February 2022 the
Board appointed Ms. Avis Darzins as Non-Executive Director bringing the total number of Directors to eight.
The Board considers that its size and structure is appropriate to the scale, complexity and geographic spread of its operations and that the number
of Non-Executive Directors is considered sufficient to enable the Board and its Committees to operate effectively without excessive reliance on
any individual Non-Executive Director. The Board believes that Executive and Non-Executive Directors between them have the necessary skills,
knowledge and international business experience, gained from a diverse range of industries and backgrounds, required to manage the Group.
The skills, expertise and experience of the Board is used to review strategy, allocate capital, monitor financial performance and consider executive
management’s response to market developments and operational matters.
The terms and conditions of appointment of Non-Executive Directors, which include the time commitment expected from each Director, are
available for inspection by any person at the Company’s registered office during normal business hours and prior to the AGM.
The overall composition and balance of the Board is kept under review as outlined in the Chairman’s Statement on pages 20 to 23 and in the
programme of work undertaken by the Nomination Committee in its report on pages 102 to 104.
BOARD EVALUATION
A formal review of the performance of the Board, Board Committees and individual Directors is undertaken each year, including an external
evaluation every three years. The process is designed to ensure that the effectiveness of the Board is maintained and improved.
An externally facilitated evaluation was conducted during the year by Trusted Advisors Partnership (TAP), with whom the Group has no other
connection. The evaluation involved each Director and the Company Secretary independently completing a questionnaire that covered a range of
issues including the effectiveness of the Board and its Committees, strategy and development, internal controls and risk management, monitoring
financial and operating performance and shareholder value creation. A one-to-one interview was also carried out between the TAP assessor and
each Director and the Company Secretary. The key findings of the evaluation are set out in the Nomination Committee Report on page 103.
The Non-Executive Directors met without the Chair present to appraise his performance. The evaluation of individual directors and the Company
Secretary involved a meeting between each of them and the Chair.
The Board confirms that each of the Non-Executive and Executive Directors continues to perform effectively and demonstrate a strong
commitment to the role.
NOMINATION COMMITTEE
The Board plans for succession with the assistance of the Nomination Committee. The Board believes that it is necessary to have appropriate
Executive Director and Non-Executive Director representation to provide Board balance and also to provide the Board with the breadth of experience
required by the increasing scale, geographic spread and complexity of the Group’s operations.
The Nomination Committee takes account of the skills, knowledge and experience, including international business experience, required by
the Board. It also considers Board diversity as widely defined, including gender, ethnicity and nationality in selecting suitable candidates to
serve as Non- Executive Directors as part of the ongoing process of Board renewal and the need for an appropriately sized Board that can
function effectively.
A description of the activity of the Committee during the year is set out in the Nomination Committee Report on pages 102 to 104.
DIRECTOR RE-ELECTION
In accordance with the provisions of the Code, the Board has decided that all Directors should retire at the 2022 Annual General Meeting (“AGM”)
and offer themselves for re-election.
The Board undertakes a formal annual evaluation of the performance of its Directors and is satisfied that all Directors who are proposed for
re-election continue to discharge their obligations as Directors and contribute effectively to the work of the Board and its Committees. Further
details on the Board evaluation are set out below and in the Nomination Committee Report on pages 102 to 104.
CHAIR TENURE
Mr. Michael Roney was appointed as Chair Designate on 1 May 2016 and assumed the role of Non-Executive Chair on 1 January 2017.
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RECRUITMENT AGENCIES
The Board and the Nomination Committee generally use the services of external agencies to assist with the identification and appointment of
Non-Executive Directors. In 2021 the Board engaged Heidrick & Struggles to assist with the search for an additional Non-Executive Director.
4. AUDIT, RISK AND INTERNAL CONTROL
INDEPENDENCE OF INTERNAL AND EXTERNAL AUDIT
The key duties of the Audit and Risk Committee include monitoring the integrity of the Group’s financial statements and of the external audit
process, and overseeing the independence and effectiveness of the Internal Audit function and the external auditor.
FAIR, BALANCED AND UNDERSTANDABLE
The assessment of the company’s position and prospects as fair balanced and understandable is set out in the Statement of Directors’
Responsibilities on page 134.
RISK AND INTERNAL CONTROL
The Board confirms that there is a process for identifying, evaluating and managing the key risks faced by the Group. A description of the risk
management process and of how the Board identifies the principal and emerging risks facing the Group is set out on pages 60 to 62.
AUDIT AND RISK COMMITTEE
The Board has established an Audit and Risk Committee which is comprised of four independent Non-Executive Directors. The Committee has
competence relevant to the sector in which the Group operates.
ROLE AND RESPONSIBILITIES OF THE AUDIT AND RISK COMMITTEE
A description of the role and responsibilities of the Audit and Risk Committee is available in the Committee Report on pages 98 to 101. The Terms of
Reference of the Committee are available on the Group’s website www.graftonplc.com.
A description of the activity of the Committee during the year is available in the Committee Report on pages 99 to 100.
EFFECTIVENESS OF RISK MANAGEMENT AND INTERNAL CONTROLS
A description of how the Audit and Risk Committee monitors the effectiveness of the Group’s system of risk management and internal control is set
out on page 99.
GOING CONCERN ASSESSMENT
The Group’s net cash position, before recognising lease liabilities, increased to £588.0 million at 31 December 2021, up from £181.9 million at
31 December 2020. Net cash including lease obligations was £139.0 million at 31 December 2021. This represents an improvement of £494.0
million from net debt of £355.0 million at 31 December 2020. The Group had liquidity of £1,235.4 million at 31 December 2021 (31 December 2020:
£811.2 million) of which £840.7 million (31 December 2020: £452.0 million) was held in accessible cash and £394.7 million (31 December 2020:
£359.2 million) in undrawn revolving bank facilities.
The Directors, having made appropriate enquiries, believe that the Company and the Group as a whole has adequate resources to continue in
operational existence for the foreseeable future, being 12 months from the date of approval of the financial statements and, for this reason,
they continue to adopt the going concern basis in preparing the financial statements. Having reassessed the principal risks, as detailed on
pages 64 to 69, in particular the impact of the Covid-19 pandemic and based on expected cashflows, the strong liquidity position of the Group
and borrowing facilities available to the Group, the directors considered it appropriate to adopt the going concern basis of accounting in
preparing its financial statements
5. REMUNERATION
The Board has adopted remuneration policies that are considered sufficient to attract, retain and motivate Directors of the quality required to
manage the company successfully whilst ensuring that the performance related elements of pay are both stretching and rigorously applied.
The Board has established a Remuneration Committee comprising four independent Non-Executive Directors. Details of the Committee’s key
responsibilities and a description of its work during 2021 are contained in the Report of the Remuneration Committee on Directors’ Remuneration
on pages 105 to 127.
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AUDIT AND RISK COMMITTEE REPORT
KEY DUTIES OF THE COMMITTEE
Financial reporting
• Monitoring the integrity of the Group’s financial
statements and announcements relating to the
Group’s performance;
• Advising on whether the Annual Report and
accounts, taken as a whole, is fair, balanced and
understandable, and whether it provides the
information necessary for shareholders to
assess the Group’s performance, business
model and strategy;
Risk management and internal control
• Overseeing the effectiveness of the Group’s internal
control and risk management systems in place and
the steps taken to mitigate the Group’s risks;
• Reviewing the effectiveness of the Group’s internal
financial controls;
External auditor
• Monitoring the effectiveness of the external audit
process, conducting the tender process and making
recommendations to the Board in relation to the
appointment, reappointment and removal of the
External Auditor;
• Overseeing the relationship between the Group
and the External Auditor including approving the
remuneration, terms of engagement and scope
of audit;
Internal audit
• Monitoring and reviewing the scope, resourcing,
findings and effectiveness of the Group’s Internal
Audit function;
• Reporting to the Board on how the Committee has
discharged its responsibilities.
The full terms of reference of the Committee can be
found on the Group’s website www.graftonplc.com.
As Chair of Grafton’s Audit and Risk
Committee, I am pleased to present
the report of the Committee for the
year ended 31 December 2021.
Paul Hampden Smith
Chair of the Audit and Risk Committee
8 March 2022
Membership Length of service*
P. Hampden Smith (Chair) 6.5 years
V. Crowley 5.1 years
S. Murray 4.2 years
R. McGuckian 1.9 years
* As of 8 March 2022
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This report describes how the Committee has fulfilled its responsibilities during the year under its Terms of Reference and under the relevant
requirements of the Code.
The Committee is satisfied that its role and authority include those matters envisaged by the Code that should fall within its remit and that the
Board has delegated authority to the Committee to address those tasks for which it has responsibility.
All members of the Committee are determined by the Board to be independent Non-Executive Directors in accordance with provision 10 of the
Code. In accordance with the requirements of provision 24 of the Code, the Board considers that I have recent and relevant financial experience as
required by the Code. The biographical details on pages 88 and 89 demonstrate that all members of the Committee have a wide range of financial,
treasury, taxation, commercial and business experience that enables the Committee to act very effectively.
MEETINGS
The Committee met four times during the year and attendance by each Committee member is set out in the table on page 95.
Meetings are attended by the members of the Committee and others who attend by invitation, being principally the CEO, the CFO, the Group
Financial Controller and Company Secretary and the Group Internal Audit and Business Risk Director. Other members of executive management
and third party advisors may be invited to attend to provide insight or expertise in relation to specific matters. The PwC Group Engagement Leader
and other representatives of the External Auditor are also invited to attend Committee meetings to present their reports on the interim results and
full year audit. They also present their proposed audit plan to the Committee. The Committee also met privately with the External Auditor without
executive management present. No significant concerns were raised during these discussions. The Committee is supported by Ms. Susan
Lannigan, Deputy Company Secretary, who acts as Secretary to the Committee.
The Chairman of the Committee reports to the Board on a regular basis on the work of the Audit and Risk Committee and on its findings
and recommendations.
KEY AREAS OF ACTIVITY DURING 2021
A summary of the key activities of the Committee during the year is set out below:
Financial reporting The Committee reviewed the 2020 Final Results Announcement, the 2020 Annual Report and the 2021 Interim Results
Announcement and concluded that they each presented a fair, balanced and understandable assessment of the position
of the Group and its prospects. The Committee recommended the 2020 Final Results Announcement, the 2020 Annual
Report and the 2021 Interim Results Announcement to the Board for approval.
As part of these reviews, the Committee considered significant accounting policies, estimates and judgements. The
Committee also reviewed the Report of PwC following their audit including their findings on key areas of judgment and
other areas of audit focus. The Committee also considered the significant management letter points on internal controls in
the Group’s individual businesses identified by PwC during its audit process. The significant issues in relation to the
financial statements considered by the Committee and how these were addressed are set out on page 101.
The Committee also reviewed papers on the Viability Statement and Going Concern including assumptions and
financial forecasts.
Risk management
and internal control
The Board has delegated responsibility to the Committee for monitoring the effectiveness of the Group’s system of risk
management and internal control, which is set out in further detail in the Risk Management Report on pages 60 to 62. The
Committee reviewed the Group’s Risk Management Process and the procedures established for identifying, evaluating and
managing key risks, which included a review of the status of risk management performance against
the objectives set for the year.
The Group Risk Committee provides oversight of the Risk Management process and the Corporate Risk Register
throughout the year. This review includes identifying risks, assessing their likelihood and impact and the effectiveness
and adequacy of measures, actions and controls to mitigate these risks. The key risks facing the Group are set out on
pages 64 to 69 of the Strategic Report.
The Committee also considered the risks associated with increased levels of cyber crime and the potential to disrupt
trading including the loss of data.
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AUDIT AND RISK COMMITTEE REPORT continued
Internal audit The Group Internal Audit and Business Risk Director reports to the Chief Financial Officer and also has direct access to the
Audit and Risk Committee. The Committee met with the Group Internal Audit and Business Risk Director on four occasions
during the year when he presented Internal Audit report findings and recommendations and updated the Committee on the
actions taken to implement recommendations. The Committee also met with the Group Internal Audit and Business Risk
Director without executive management present. No significant concerns were raised during these discussions.
The scope, authority and responsibility of the Internal Audit function is set out in the Internal Audit Charter which has been
approved by the Committee.
During the year the Committee also considered and approved the programme of work to be undertaken by the Group’s
Internal Audit function in 2022. An external review of the effectiveness of the Internal Audit function was carried out by
Grant Thornton during 2021 and the results of this review were presented to the Committee in January 2022. The findings
of the review were positive and a number of operational and strategic recommendations made will be acted upon.
External auditor The Committee reviewed the External Auditor’s plan for the 2021 audit of the Group and approved the remuneration and
terms of engagement of the External Auditor. The Committee also considered the quality and effectiveness of the external
audit process and the independence and objectivity of the Auditor.
In order to ensure the independence of the External Auditor, the Committee received confirmation from the Auditors that
they are independent of the Group under the requirements of the Irish Auditing and Accounting Supervisory Authority’s
Ethical Standards for Auditors (Ireland). The Auditors also confirmed that they were not aware of any relationships between
the firm and the Group or between the firm and persons in financial reporting oversight roles in the Group that may affect
its independence. The Committee considered and was satisfied that the relationships between the Auditor and the Group
including those relating to the provision of non-audit services, of which there were none in the past two years, did not
impair the Auditor’s judgement or independence.
In line with audit independence criteria, Mr. Paul O’Connor stepped down as Group Engagement Leader at the conclusion
of the audit of the Financial Statements for 2020 and Ms. Siobhán Collier took over the role of Group Engagement Leader
for the 2021 audit of the Group.
Non-audit services The External Auditor is not prohibited from undertaking non-audit services that do not conflict with auditor independence,
provided the provision of the services does not impair the Auditor’s objectivity or conflict with their role as Auditor and
subject to having the required skills and competence to provide the services. The Auditor is precluded from providing
non-audit services that could compromise its independence or judgement.
The Committee has approved a policy on the provision by the External Auditor of non-audit services. Under this policy the
External Auditor will not be engaged for any non-audit services without the approval of the Audit & Risk Committee. The
External Auditor is precluded from providing certain services, or from providing any non-audit services that have the
potential to compromise its independence or judgement. With the exception of fees incurred in acquired businesses,
fees for non-audit services in any financial year are targeted not to represent more than 20 per cent of the audit fee.
The Committee monitors and reviews the nature of non-audit services provided by the Auditors. No non-audit services
were provided by PwC in 2021 or 2020.
Whistleblowing
and fraud
The Group Anti-Fraud and Theft Policy sets out the Group’s approach to all forms of fraud and theft, the responsibilities
of Business Unit management in relation to prevention and detection procedures and controls, the appropriate reporting
channels and the possible actions which may be taken by the Group in response to suspected fraud or theft. Instances of
fraud or theft over a specified threshold are reported to and monitored by the Committee.
The Committee periodically considers reports received on matters raised through SpeakUp, the independent Group-wide
confidential reporting service which allows colleagues to report, anonymously if they wish, any concerns they may have
regarding certain practices or conduct in their businesses including possible instances of fraud and theft. All concerns
raised through this channel and the outcomes of investigations are reported to the Committee. The Committee was
satisfied that the procedures in place to allow colleagues to raise matters in a confidential matter operated effectively
during the year.
Anti-bribery
and corruption
The Group’s Code of Business Conduct and Ethics sets out the ethical standards to which all Group employees are
expected to adhere. It sets out the core standards and procedures to be observed and provides practical guidance on
dealing with bribery risk. An annual declaration of independence is signed by senior management and other individuals
who are considered to be exposed to higher risk of conflicts of interest, including employees who have responsibility for
contract negotiations with customers and suppliers.
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ESTIMATES AND JUDGMENTS
The Committee reviewed in detail the following areas of significant judgment, complexity and estimation in connection with the Financial
Statements for 2021. The Committee considered a report from the external auditors on the audit work undertaken and conclusions reached as
set out in their audit report on pages 136 to 141. The Committee also had an in-depth discussion on these matters with the External Auditor.
Valuation of goodwill The Committee considered the goodwill impairment analysis provided by management and agreed with the conclusion
reached that no impairment charge should be recognised in the year. In arriving at its decision, the Committee considered
the impairment review conducted by management which involved comparing the recoverable amount and carrying
amount of the CGUs.
The review by management involved discounting the forecasted cash flows of each CGU based on the Group’s pre-tax
weighted average cost of capital adjusted to reflect issues associated with each CGU and carrying out sensitivity analysis
on the key assumptions used in the calculations including cash flow forecasts (revenue growth, margin), terminal growth
rate and pre-tax discount rate.
The Committee noted the significant overall level of headroom in the value in use model prepared by management and
considered the impact on the headroom of sensitivity analysis on the key assumptions used in the model. The Committee
also compared the year-end market capitalisation of the Group to its net asset position and noted that it was materially
higher than the net asset value.
The Committee also assessed the allocation of goodwill to the traditional merchanting business within the UK Distribution
CGU which is included in the net assets disposed within that business.
Recognition of
supplier rebates
Supplier rebates represent a significant source of income in the distribution industry and is an area of risk due to the
number, complexity and materiality of rebate arrangements. The Committee reviewed the basis used by management
for calculating rebate income for the year and rebates receivable at the year end and was satisfied that the accounting
treatment adopted was appropriate and that rebates receivable at the year-end were recoverable.
In reaching its conclusion, the Committee reviewed information and reports prepared by the Internal Audit function which
completed year-end reviews across a sample of significant Business Units with the primary objective of providing
independent assurance on the accuracy of rebate receivable balances at year-end.
These reviews included re-performing calculations on a sample of rebate income for 2021 with reference to agreements
with individual suppliers and reports of purchases made from suppliers. Rebates receivable in the continuing operations
at the end of 2021 were materially up on the prior year end because of the increase in volumes and prices over the course
of the year. The Committee also considered the value of rebates received after the year end relating to 2021.
Valuation of inventory The Group carries significant levels of inventory and key judgements are made by management in estimating the level of
provisioning required for slow moving inventory. In arriving at its conclusion that the level of inventory provisioning was
appropriate, the Committee received half year and full year updates from management on stock ageing and provisioning
at Business Unit level.
The Committee reviewed the basis for calculating the valuation of rebate attributable to inventory and was satisfied that
inventory was appropriately valued and that the Group continued to adopt a prudent approach to inventory provisioning.
As Chair of the Committee, I engaged with the Group CFO, the Group Internal Audit and Business Risk Director and the PwC Group Audit
Engagement Leader independently of each other in preparation for Committee meetings and periodically as appropriate.
I will be in attendance at the Annual General Meeting and respond to any questions that shareholders may have concerning the activities
of the Committee.
Paul Hampden Smith
Chair of the Audit and Risk Committee
8 March 2022
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NOMINATION COMMITTEE REPORT
Dear Shareholder,
I am pleased to present the report
of the Nomination Committee for
the year ended 31 December 2021.
Michael J. Roney
Chair of the Nomination Committee
8 March 2022
Membership Length of service*
M.J. Roney (Chair) 5.8 years
P. Hampden Smith 6.5 years
S. Murray 5.0 years
V. Crowley 5.0 years
R. McGuckian 1.9 years
* As of 8 March 2022
KEY DUTIES OF THE COMMITTEE
Board structure
• Regularly reviewing the structure, size, composition
and length of service on the Board and assessing the
skills, expertise, knowledge, experience and diversity
required by the Board and its Committees and the
Group’s senior management in the future;
Succession
• Identifying, and nominating for the approval of the
Board, candidates for appointment as Directors and
ensuring that there is a formal, rigorous and
transparent procedure for the appointment of new
Directors to the Board;
• Considering the re-appointment of Non-Executive
Directors at the conclusion of their specified term of
office and making recommendations to the Board;
• Annual review of succession plans for senior
executives across the Group;
Diversity
• Ensuring diversity policy is linked to Group strategy;
• Reviewing the gender balance of those in senior
management positions and their direct reports; and
Evaluation
• Evaluating the balance of skills, knowledge,
experience and diversity of the Board and
Committees and making recommendations to the
Board on any changes.
The full terms of reference of the Committee can be
found on the Group’s website www.graftonplc.com.
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ACTIVITIES OF THE COMMITTEE
DURING 2021
INTRODUCTION
The primary areas of focus of the Committee
during 2021 were the composition and
diversity of the Board and succession planning
at Board and senior management level. We
continued to seek to balance the need to
refresh the Board while maintaining a team
of knowledgeable and experienced Non-
Executive Directors.
During the year, the Committee considered
the structure, size, diversity and composition
of the Board and its Committees and also the
balance of skills, experience and knowledge
and agreed to initiate a process to appoint an
additional Non-Executive Director and to
prioritise both gender and ethnic diversity in
the search for suitable candidates. The search
process, which is described later in this report,
was completed in January 2022 and Ms. Avis
Darzins was appointed as Non-Executive
Director with effect from 1 February 2022.
We will continue to monitor the balance of the
Board to ensure that it has the expertise to lead
the Group as it develops and evolves. When
searching for potential candidates to fill Board
vacancies, the Committee considers the skills,
experience and attributes required to create a
diverse Board that will drive the future success
of the Group
INDEPENDENCE OF THE BOARD
To ensure that the independence of the
Non-Executive Directors is maintained, the
Committee keeps the tenure of the Board
as a whole under review. The tenure of the
Non-Executive Directors on the Board at
31 December 2021 was as follows:
Length of service
Number of Non-
Executive Directors
1-2 years 1
4-5 years 2
5-6 years 1
6-7 years 1
The Committee reviewed the time required to
fulfil the roles of Chair, Senior Independent
Director and Non-Executive Director and
was satisfied that all members of the Board
continue to devote appropriate time to their
duties and to be effective in their roles.
BOARD AND COMMITTEE CHANGES
There were no Board or Committee
membership changes to report save for
the appointment of Ms. Avis Darzins as
Non-Executive Director with effect from
1 February 2022 as noted above.
ELECTION/RE-ELECTION
OF DIRECTORS
The Committee agreed that a recommendation
would be made to the Board to approve the
election/re-election of all Directors at the 2022
AGM having considered their performance,
ability and continued contribution to the Board.
BOARD EFFECTIVENESS
Assessing the effectiveness and commitment
of individual Directors was based on virtual
meetings between each of the Non-Executive
Directors and the Chair. The Chair also had
virtual meetings with the Group Chief
Executive Officer, the Chief Financial Officer
and the Company Secretary.
The Board also conducts an annual evaluation
of its own performance and that of its
Committees and individual Directors to ensure
that they continue to be effective and that each
of the Directors demonstrates commitment to
his/her role and has sufficient time to meet
his/ her commitment to the Group.
An independent Board evaluation was carried
out by TAP (Trusted Advisors Partnership) in
2021. The 2019 and 2020 evaluations were
carried out internally using a questionnaire
which was completed by each of the Directors.
The key findings of the independent evaluation
carried out by TAP were that:
• The composition of the Board is highly
regarded with no significant gaps, following
the decision to appoint an additional
Non-Executive Director, identified in the
skillset of the Board and its Committees.
• The Chair of the Board is making a positive
contribution to the management of the
Board and the business and is driving
the pace of change and challenge in
the boardroom.
• The chemistry between the Non-Executive
Directors and the Executive Directors was
viewed to be very constructive and
collaborative with Non-Executive Directors
providing effective challenge whilst
fostering a positive atmosphere.
• The operation of the Audit and Risk,
Remuneration and Nomination Committees
were rated highly and are working well with
effective Chairs, clear priorities and strong
management support.
• The Board has embraced its commitment
to continually improve and made good
progress on many of the themes identified
in prior internal reviews.
The Board is keen to ensure that observations
from the current independent review help to
shape its priorities for the current year.
NOMINATION PROCESS
There is a formal, rigorous and transparent
procedure used by the Committee to nominate
suitable candidates for appointment to the
Board. Candidates are identified and selected
on merit against objective criteria and with due
regard to the benefits of diversity on the Board.
Specialist independent recruitment agencies,
that have no other connection with the
Company, are used to identify candidates
that match the requirements for each role.
The Committee makes recommendations to
the Board concerning the appointment of
Executive and Non-Executive Directors, having
considered the blend of skills, experience, and
diversity deemed appropriate for the particular
role and reflecting the international nature of
the Group and the opportunities and
challenges it is expected to face in the future.
The Nomination Committee also makes
recommendations to the Board concerning the
reappointment of Non-Executive Directors at
the conclusion of their three-year term and
the re-election of all Directors at the Annual
General Meeting each year. Appointments to
the Board are for a three-year period, subject to
shareholder approval and annual re-election,
following consideration of the conclusions
from the annual performance evaluation.
The terms and conditions of appointment
of Non-Executive Directors are set out in
formal letters of appointment.
SUCCESSION PLANNING
Each year the Committee considers the
leadership needs of the Group and succession
planning for senior management roles
including the Chief Executive Officer and
Chief Financial Officer.
Directors are committed to ensuring that
the Board is sufficiently diverse and
appropriately balanced. In the context of
normal refreshment, the Board’s objective is
to maintain female representation on the Board
to at least one third. On the recommendation
of the Committee, the Board has agreed that
diversity will continue to be given very careful
attention in shortlisting candidates for
appointment to the Board in the future.
The Committee continued to review
succession planning below Board level
including the pool of talent currently available
to succeed in senior roles and the progress
made recruiting and developing the next
generation of leaders. The Chief Executive
Officer presented his annual management
succession plan to the Committee which
provided reassurance on succession plans in
place and on the priority given to developing
high performing individuals.
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Initiatives for high-potential talent to broaden
their skillsets and prepare them for future
senior roles include participation in leadership
training programmes and access to business
school training as appropriate. As part of this
review, the Committee considered the
importance of developing a diverse talent
pipeline and the current and future skill
sets required to help the company implement
its strategy.
NON-EXECUTIVE DIRECTOR
SUCCESSION
The Chair led the process to appoint a
Non-Executive Director, receiving support
from the Senior Independent Director and the
Company Secretary as appropriate. Heidrick &
Struggles, a leading international search firm,
was appointed to assist with the process. It
had no previous connection to the Company
prior to appointment other than having
previously conducted a search in 2019 for a
Non-Executive Director. There was good
communication throughout, and the Directors
were kept well informed. The Committee held
a number of meetings in connection with
the appointment and members also received
a number of informal updates during
the process.
The Committee has a long-standing
commitment to prioritise diversity and
supports the recommendations of both the
FTSE Women Leaders (Hampton Alexander)
Review on gender diversity and the Parker
Review on ethnic diversity. The Committee is
committed to at least the minimum target of
one-third for female representation as set out
in the FTSE Women Leaders (Hampton
Alexander) Review and also to having at least
one Director reflecting ethnic diversity as
defined in accordance with the Parker Review.
The Committee agreed that the search should
prioritise gender and ethnic diversity and it
agreed the skills, experience and preferred
attributes for the appointee.
A thorough international search of potential
candidates was undertaken by Heidrick &
Struggles who presented long lists of
candidates with a broad range of skills,
experience and backgrounds. The Committee
eventually shortlisted a number of candidates
for interview. The Chair, Senior Independent
Director and Group CEO met with the
shortlisted candidates who confirmed their
interest in the role. Two of the shortlisted
candidates met with the other members of the
Committee and the Group CFO. The Board
considered and approved a recommendation
to appoint Ms. Avis Darzins as Non-Executive
Director and her appointment took effect on
1 February 2022.
Ms. Darzins has a strong business background
and varied experience including eight years as
a Partner at Accenture in London where she
worked closely with many well-known national
and international brands operating in the retail
and consumer products sectors to deliver
successful outcomes and drive performance
and growth. Ms. Darzins has extensive
experience of business change in a variety of
sectors including four years as Director of
Business Transformation at Sky plc. She was
previously an independent consultant with EY
and in her early career held leadership roles in
a number of major businesses and brands.
DIVERSITY AND INCLUSIVITY
The Group recognises the benefits of diversity
and its objective of achieving greater diversity
at Board, senior management and across the
wider workforce is supported by a Group
Equality, Diversity and Inclusion Policy. The
Board keeps this policy under review to ensure
that it is effective in achieving diversity in its
broadest sense having regard to experience,
age, gender, religious beliefs, sexual
orientation, race, ethnicity, disability,
nationality, background and culture.
While the Board will always seek to appoint the
most talented and skilled candidates on merit
against objective criteria, greater diversity is
actively considered when making Board
appointments. The composition of the Board
has evolved considerably over recent years
and the Committee has taken an active role
in improving the gender balance and ethnic
diversity of the Board.
Gender and ethnic diversity were prioritised
when shortlisting candidates as part of the
recent process of Board refreshment which
resulted in appointment of Ms. Avis Darzins to
the Board. I am pleased to confirm that the
Board’s objectives of having at least the
minimum target of one-third for female
representation as set out in the FTSE Women
Leaders (Hampton Alexander) Review and also
to having at least one Director reflecting ethnic
diversity are currently met. Three of our eight
Board directors are female (38 per cent)
following the appointment of Ms. Avis
Darzins to the Board. Ms. Darzins is from
an ethnically diverse background as defined
by the Parker Review.
The Group continues to prioritise diversity in
the widest senses when making appointments
at all levels in its business and, by setting the
tone from the top, to promote a culture where
there are no barriers to everyone achieving
their potential and succeeding at the highest
levels in Grafton.
The Group has a track record of appointing
females to leadership positions and is
committed to increasing representation
of females in senior leadership positions
across the Group. The Group has introduced
initiatives to provide career development
opportunities for female colleagues including
participation in management development
programmes, mentoring, coaching and
flexible work arrangements.
Diversity and inclusion continued to be
promoted across the Group with initiatives on
gender, ethnicity, sexual orientation (LGBTQI+)
and disabilities.
The Board and Management continues to
focus on implementing strategies for recruiting
and developing colleagues in ways that
promote diversity and inclusion.
THE YEAR AHEAD
Grafton has a strong Board with the range of
skills and experience to drive its success and
the capacity to support its future growth and
development. The Committee believes that all
Directors have the right blend of skills and
experience to advance the interests of
shareholders and to build on the Group’s track
record of profitable growth. In the year ahead,
succession planning will continue to be a
priority to ensure that the Group can retain,
attract and develop the best people available
at Board and senior management level to
implement its strategy, grow profitability
and manage the business in the interests
of all stakeholders.
Michael J. Roney
Chair of the Nomination Committee
8 March 2022
NOMINATION COMMITTEE REPORT continued
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REPORT OF THE REMUNERATION COMMITTEE
ON DIRECTORS’ REMUNERATION
Although not required under the Irish
Companies Act 2014, the Remuneration
Committee (the “Committee”) has continued
to prepare the Remuneration Report in
accordance with the UK regulations governing
the disclosure and approval of remuneration
of the Directors. The report also complies
with the European Union (Shareholders’ Rights)
Regulations 2020 introduced in Ireland in
March 2020.
The Committee was appreciative of the high
level of shareholder approval for the 2020
Annual Report on Remuneration which was
supported by 95.56 per cent of shares lodged
by proxy ahead of the 2021 AGM.
Our current Policy became effective from the
conclusion of the 2020 AGM and the following
pages describe how the Policy has been applied
in 2021 and how it will apply in 2022. In line with
regulatory requirements, a renewed policy will
be put to shareholders at the 2023 AGM.
OUR APPROACH TO REMUNERATION
The Committee’s overall remuneration
philosophy has not changed over the year and
remains to ensure that Executive Directors are
incentivised to successfully implement the
Board’s strategy and that remuneration is
aligned with the interests of shareholders
and other stakeholders over the longer term.
The Committee seeks to achieve this by:
• Rewarding Executive Directors fairly
and competitively for the delivery of
strong performance;
• Taking into account the need to attract,
retain and motivate executives of high
calibre and to ensure that Executive
Directors are provided with an appropriate
mix of short term and long term incentives;
• Taking a range of factors into account including
market practice, the changing nature of the
business and markets in which it operates, the
performance of the Group, the experience,
responsibility and performance of the individual
directors concerned and remuneration
practices elsewhere in the Group; and
• Setting targets that are stretching with full
payout of awards requiring exceptional
performance.
Dear Shareholder,
I am pleased to present
my report as Chair of the
Remuneration Committee.
Susan Murray
Chair of the Remuneration Committee
8 March 2022
Membership Length of service*
S. Murray (Chair) 5.1 years
P. Hampden Smith 6.2 years
V. Crowley 1.9 years
R. McGuckian 1.9 years
* All lengths of service are as at 8 March 2022
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PERFORMANCE OUTCOME FOR 2021
Grafton has performed strongly during 2021 with the share price increasing during the year as we continued to successfully execute our strategy.
The Group had an exceptional performance in 2021 with record full year adjusted operating profit in continuing operations.
At the Capital Markets Day on 10 November 2021, we set out the Group’s new medium-term financial return targets being an operating profit margin
of 10 per cent and a return on capital employed of 13 per cent.
In July 2021, we announced the divestment of our traditional merchanting business in Great Britain for an enterprise value of £520 million and this
transaction completed on 31 December 2021. This divestment was agreed following a comprehensive strategic review which concluded that
exiting this segment of the building materials distribution market in Great Britain would enable the Group to optimise shareholder value. Completion
of this transaction will also enable the Group to focus on its international development strategy which will be a key priority over the coming years.
We also completed the acquisition of IKH in Finland during the year.
REMUNERATION FOR 2021
The Committee approved a salary increase of 0.6 per cent with effect from 1 January 2021 for the Chief Executive Officer and the Chief Financial
Officer. When reviewing salary levels, the Committee considered the salary principles that generally applied across the Group, the performance of
the Group and market data.
ANNUAL BONUS SCHEME
The annual bonus for 2021 was based on two financial performance targets being operating profit (70 per cent) and return on capital employed
(30 per cent). Reflecting the strong performance for the year, operating profit and return on capital employed performance exceeded the maximum
targets set and a maximum bonus of 120 per cent of basic salary was awarded to the Chief Executive Officer. The bonus award to the Chief
Financial Officer was 100 per cent of basic salary, the maximum potential bonus payable. To ensure performance is being assessed on a like-for-like
basis with the targets set for the year, annual bonus targets were adjusted to remove the operating profit contribution of the traditional merchanting
business in Great Britain for 2021 that was treated as a deemed disposal as at 30 June 2021 and classified as discontinued operations for the year.
VESTING OF LTIP AWARDS MADE IN 2019
The performance conditions for LTIP awards granted in April 2019, that covered the performance period of the three years ending on 31 December
2021, were based 50 per cent on growth in Adjusted Earnings Per Share (“EPS”) and 50 per cent on Total Shareholder Return (“TSR”) performance
versus a comparator group consisting of the members of the London Stock Exchange’s FTSE 250 Index excluding investment trusts. As the
Group’s TSR was ranked above the upper quintile, 100 per cent of this half of the award will vest.
The adjusted EPS targets for the financial year ended 31 December 2021 were in the range of 82.0 pence to 94.0 pence. Adjusted EPS for
continuing operations for 2021 was 93.0 pence. In July 2021, the Group announced the divestment of the traditional merchanting business in Great
Britain for an enterprise value of £520 million and, as noted above, this transaction completed on 31 December 2021. This business has been
treated as discontinued for the year and is therefore not included in continuing operations. For the purpose of assessing EPS performance the
Committee has adjusted the Adjusted EPS for continuing operations to ensure that performance is assessed on a like-for-like basis to the greatest
extent possible with the targets set. To most closely align with the shareholder experience during the year, the Committee determined that it was
appropriate to include the operating profit after tax of the traditional merchanting businesses in Great Britain for the period 1 January 2021 to
30 April 2021 and the daily ticker payment received from the purchaser for the period from 1 May 2021 to the date of completion on 31 December
2021. The consideration received on divestment was based on the balance sheet as at 30 April 2021 with all cashflow generated after that date for
the benefit of the purchaser. The daily ticker payment received of £30.2 million compensated Grafton for the loss of profits from that date up to
completion on 31 December 2021. This approach is consistent with the Committee’s decision in 2019 when the Group divested its Plumbase and
the Belgian merchanting businesses. This adjustment resulted in an increase in adjusted EPS of 18.1 pence from 93.0 pence to 111.1 pence.
The Committee further considered the adjusted EPS performance for 2021 to ensure that the performance reflected management actions and the
shareholder experience during the year. Historically, property profits have been included when assessing performance outcomes. However, given
the significant progress we have made with our property disposal programme and the fact that property profits are likely to be more difficult to
forecast in future years, the Committee agreed that it was appropriate to exclude property profits when assessing performance in future years.
In view of the high level of property profit in 2021 and the Committee’s decision to exclude property profit from adjusted EPS in future years, the
Committee agreed in the interests of consistency to exclude property profit from the adjusted EPS calculation for 2021 for the purpose of
determining vesting of the 2019 LTIP award.
The Woodie’s business was classified as an essential retailer and continued to trade in the early months of 2021 when Ireland was in lockdown and
experienced exceptional demand particularly in the first four months of the year. The Committee, therefore, also agreed that it was appropriate to
exclude profit associated with this exceptional demand when assessing the performance outcomes for the 2019 LTIP award.
The 111.1 pence adjusted EPS performance arrived at following adjustment for the divestment of the traditional merchanting business in Great
Britain as described above was therefore reduced by earnings from property profits (5.6 pence) and the estimated exceptional profit in Woodie’s
(6.7 pence) to give an overall adjusted EPS outcome for the purpose of the LTIP of 98.8 pence. As this exceeded the target range of 94.0 pence,
100 per cent of this half of the award will vest.
On the basis of the foregoing, 100 per cent of the total awards granted in 2019 to the Chief Executive Officer and Chief Financial Officer will vest
in May 2022.
REPORT OF THE REMUNERATION COMMITTEE
ON DIRECTORS’ REMUNERATION continued
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2021 LONG TERM INCENTIVE PLAN
The renewed Grafton Group plc 2021 Long Term Incentive Plan (the “Plan”) was approved by shareholders at the Annual General Meeting of the
Company held on 28 April 2021. The Plan was updated to reflect changes to legislation since 2011, the simplification of the Grafton Unit and other
changes to bring the scheme into line generally with investor expectations and market practice. The performance conditions under the new scheme
and the maximum value of awards which may be granted in any financial year will be determined in line with the Remuneration Policy approved at
the 2020 AGM.
2021 SAVE AS YOU EARN SCHEME
The renewed Grafton Group plc 2021 Approved SAYE Plan (the “SAYE Plan”) was approved at the Annual General Meeting of the Company held on
28 April 2021. The SAYE Plan was updated for changes in legislation and the simplification of the Grafton Unit which was approved by shareholders
at the 2021 EGM.
OVERVIEW OF REMUNERATION FOR 2021
The Committee believes that the remuneration policy operated as intended in the context of the level of bonus payable relative to the demanding
performance targets set by the Committee for 2021. Vesting of LTIP awards was based on the achievement of the upper range of the EPS target
for the three years to the end of 2021 and the TSR element of the LTIP opportunity reflected the strong share price performance of Grafton relative
to the FTSE 250 excluding investment trusts.
The Remuneration Committee was satisfied with the balance of short and long term elements of remuneration for the year.
IMPLEMENTATION OF POLICY IN 2022
The Directors’ Remuneration Policy was approved by c.95 per cent of the shares lodged by proxy at the AGM on 29 April 2020 and the Committee
does not propose any changes to the Policy in 2022. In-line with the three-year regulatory cycle, a renewed policy will be put to a vote at the 2023
AGM. The Remuneration Policy is set out on pages 109 to 116.
SALARY
The Committee approved a salary increase of 3.1 per cent with effect from 1 January 2022 for the Chief Executive Officer and Chief Financial
Officer which reflects the typical level of salary increase for the wider workforce. Base salaries from 1 January 2022 will therefore be £629,756 and
£431,310 respectively.
BONUS OPPORTUNITY
As part of the 2020 Policy, the bonus opportunity was increased from 120 per cent to 150 per cent of base salary for the CEO and from 100 per cent
to 125 per cent for the CFO. At that time the Committee indicated that it did not intend to utilise the increased headroom for 2020. Following the
outbreak of Covid-19 the CEO and CFO voluntarily requested the suspension of the Bonus Scheme and no bonuses were paid in respect of 2020.
Given the continuing uncertainty due to the Covid-19 pandemic, the Committee did not consider that it was appropriate to increase the annual
bonus for 2021.
The full year Group adjusted operating profit in continuing operations increased by 68.8 per cent to £288.0 million. In November 2021, we
announced the Group’s new medium-term financial return targets of an operating profit margin of 10 per cent and a return on capital employed
of 13 per cent.
As noted above, in July 2021, the Group completed the divestment of the traditional merchanting business in Great Britain for an enterprise value
of £520 million on 31 December 2021 and as part of our international development strategy we completed the acquisition of IKH in Finland during
the year.
Taking into account the strong performance of the business and the evolving complexity and geographical spread of its operations, the Committee
has concluded that now is an appropriate time to increase the maximum annual bonus opportunity as provided for under our Policy.
For 2022 therefore the maximum annual bonus for the CEO will be 150 per cent of salary and 125 per cent of base salary for the CFO. Given this
increase, if the bonus earned exceeds 120 per cent of salary for the CEO or 100 per cent of salary for the CFO then the additional amount earned
will be required to be deferred into shares for three years. While this decision was not based on benchmarking data, the Committee did sense
check the positioning of the annual bonus opportunity and the packages as a whole against other companies of a similar size and complexity.
The Committee concluded that the revised package positioning was appropriate and not excessive for a company of our size and complexity.
The annual bonus for 2022 will continue to be based 70 per cent on operating profit and 30 per cent of ROCE. These measures are intended to
focus the executive team on both profitability and the maintenance of a disciplined approach to the use of capital. For 2023 and future years the
Committee will review the performance measures for the annual bonus and consider whether to introduce measures linked to our Sustainability
strategy in addition to the financial measures.
The Committee consulted with major shareholders in advance of agreeing this change and was pleased with the level of support received.
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REPORT OF THE REMUNERATION COMMITTEE
ON DIRECTORS’ REMUNERATION continued
LONG-TERM INCENTIVE PLAN (LTIP)
LTIP awards will continue to be made at 200 per cent of salary to the CEO and at 175 per cent of salary to the CFO.
Half of the awards will be based on a TSR performance condition and half on an adjusted EPS performance condition. This is in line with the awards
made in 2021. The TSR performance condition will be measured, in line with the policy, against a comparator group consisting of the constituents
of the London Stock Exchange’s FTSE 250 Index excluding investment trusts.
When setting the target EPS range for the 2022 LTIP award, the Committee adjusted the base year EPS performance for 2021 to exclude property
profit and profit associated with exceptional demand at Woodie’s. This is consistent with the approach adopted when assessing performance for
the 2019 LTIP award. As noted above, in respect of the 2019 LTIP vesting, historically, property profits have been included when assessing
performance outcomes. However, given the significant progress we have made with our property disposal programme and the fact that property
profits are likely to be more difficult to forecast in future years, the Committee agreed that it was appropriate to exclude property profits when
assessing performance in future years.
Annual compound growth targets for the 2022 LTIP awards have been set at a slightly higher rate than in previous years at 8.0 per cent per annum
for threshold vesting and 13.0 per cent per annum for maximum vesting applied to the revised 2021 base year adjusted EPS of 80.7 pence. This
gives a threshold target of 101.7 pence and maximum target of 116.4 pence. The Committee believes that these targets are appropriately stretching
against the adjusted EPS outturn for 2021 of 93.0 pence as reduced to exclude property profit of 5.6 pence and the exceptional profit in Woodie’s of
6.7 pence.
The Committee believes that this range is aligned with delivery of the Group’s strategic and financial objectives. 25 per cent of the award will vest if
the lower target in the range is achieved. Where EPS is between the lower and higher targets in the range, then between 25 per cent and 100 per
cent of this part of the award will vest on a straight-line basis.
PENSION
The pensions of incumbent Directors will be aligned to the level available for the majority of the wider workforce by the end of 2022 and for all future
appointments to the Board, the pension will be set in line with the level available to the majority of our workforce, which is currently 3.1 per cent.
COLLEAGUE ENGAGEMENT
The Remuneration Committee reviewed workforce remuneration including base pay, benefits and incentives and this was also taken into
consideration in deciding the pay of Executive Directors and Senior Management.
Members of the Committee attended Colleague Forums during the year in the UK, Ireland and the Netherlands. Colleague Forums, made up of
colleagues from each of our businesses, provide the opportunity for our people to engage with Non-Executive Directors and their views to be heard
at management and board level.
SHAREHOLDER ENGAGEMENT
The Committee is committed to ongoing dialogue with shareholders and institutional investor bodies on remuneration matters and welcomes the
opportunity to engage with shareholders. The Committee welcomes feedback from shareholders as it helps to shape and inform its decisions.
The Committee takes an active interest in voting on Annual General Meeting resolutions and is pleased with the very high level of support received
historically for its Annual Reports on Remuneration and for the three-yearly renewal of the Remuneration Policy.
I believe that the implementation of the Policy approved by shareholders at the 2020 AGM has been aligned with shareholders’ interests and that it
should continue to support the delivery of the Group’s strategy and the creation of sustainable value for shareholders.
I hope that we can rely on your continued support at this year’s AGM. I am available to respond to any questions that shareholders have about the
Policy, the Annual Report on Remuneration or indeed on any other aspect of the work of the Committee and can be contacted by email at
remunerationchair@graftonplc.com.
Susan Murray
Chair of the Remuneration Committee
8 March 2022
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Corporate Governance
This part of the Directors’ Remuneration Report sets out the Remuneration
Policy for the Company and has been prepared in accordance with
Schedule 8 to the UK Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended) and the
disclosure requirements set out in the Listing Rules of the UK Financial
Conduct Authority. This report also complies with the European Union
(Shareholders’ Rights) Regulations 2020 introduced in Ireland in March
2020. The policy has been developed taking into account the principles
of the 2018 UK Corporate Governance Code and was applied from
1 January 2020 onwards.
This policy took effect from the 2020 AGM and is intended to apply until the 2023 AGM and cover the financial years 2020, 2021 and 2022.
Please note that some of the information shown has been updated to take account of the fact that the policy is now approved and enacted
rather than proposed.
POLICY OVERVIEW
The objective of the Remuneration Policy is to provide remuneration packages for each Executive Director that will:
• Attract, retain and motivate executives of high calibre;
• Ensure that executive management is provided with appropriate incentives to encourage enhanced long term performance;
• Ensure that the overall package for each director is linked to the short and longer term strategic objectives of the Group; and
• Have a significant proportion of the potential remuneration package paid in equity, which is designed to ensure that executives have a strong
alignment with shareholders.
When setting the levels of short term and long term variable remuneration and the balance of equity and cash within the package, consideration is
given to discouraging unnecessary risk-taking whilst ensuring that performance hurdles are suitably challenging.
In determining the policy, the Remuneration Committee took into account all factors which it considered necessary, including market practice, the
changing nature of the business and markets in which it operates, the performance of the Group, the experience, responsibility and performance of
the individuals concerned and remuneration practices elsewhere in the Group.
HOW THE VIEWS OF SHAREHOLDERS ARE TAKEN INTO ACCOUNT
The Remuneration Committee considered the guidelines issued by bodies representing institutional shareholders and feedback from shareholders
on the Group’s remuneration policies and practices. Leading shareholders and investor bodies were consulted prior to finalising proposed changes
to the current Remuneration Policy. The Committee also takes on board any shareholder feedback received prior to and during the AGM each year.
This feedback, together with any feedback received during meetings and contacts with shareholders from time to time, was considered as part of
the review of the Remuneration Policy and its effectiveness.
When any significant changes are proposed to the Remuneration Policy in the future, the Remuneration Committee Chair will inform major
shareholders of these in advance and will offer a meeting to discuss these changes. The Remuneration Committee will actively engage
with shareholders and give serious consideration to their views.
Details of votes cast for and against the resolution to approve the prior year’s remuneration report and any matters discussed with shareholders
during the year are referred to in the Annual Report on Remuneration on page 126 and in the Chair’s Annual Statement on page 107.
HOW THE VIEWS OF EMPLOYEES ARE TAKEN INTO ACCOUNT
When setting the Remuneration Policy for Executive Directors the Remuneration Committee takes into account the pay and employment conditions
of other employees in the Group although it did not directly consult with employees on Directors’ remuneration.
REMUNERATION POLICY REPORT
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DETERMINING THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
The Remuneration Committee addressed the following factors when determining the Remuneration Policy for Executive Directors:
CLARITY
Remuneration arrangements are transparent and the outcomes of variable elements are dependent on the achievement of performance measures
that are aligned with strategy and the interests of all stakeholders. Performance targets are set in line with the Group’s budgets and plans and are
reviewed by the Committee. Executive directors are required to build meaningful personal shareholdings in the company.
SIMPLICITY
The Group follows a UK/Ireland market standard approach to remuneration which is familiar to all stakeholders. Variable schemes are operated
on a clear and consistent basis and are assessed by measuring the performance of the Group.
RISK
The Remuneration Policy includes the following features:
• Setting defined limits on the maximum awards which can be earned;
• Aligning the performance conditions with the strategy of the Company;
• Ensuring a focus on long term sustainable performance through the LTIP;
• Ensuring there is sufficient flexibility to adjust bonus payments and LTIP awards through malus and clawback provisions; and
• The Committee has discretion to override formulaic outcomes that may not accurately reflect the underlying performance of the Group.
PREDICTABILITY
Shareholders are given full information on the potential values which could be earned under the bonus and LTIP plans through the Annual Reports
on Directors Remuneration and by immediately publishing details of new LTIP awards on the RNS.
PROPORTIONALITY
The performance metrics for the Annual Bonus and the LTIP are clearly aligned to strategy and are designed to reward the successful execution of
strategy over the medium to long term. Outcomes are tested based on a regular assessment of the performance of the overall Group, its principal
businesses and developing businesses to which the Group is allocating capital.
ALIGNMENT TO CULTURE
The Group’s culture encourages high performance and sustainable growth while recognising that the Group operates in sectors that are cyclical.
The Committee believes that the Remuneration Policy drives the right behaviour, reflects the Group’s values and supports its purpose and culture.
REMUNERATION POLICY REPORT continued
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THE REMUNERATION POLICY FOR DIRECTORS
The table below summarises the key aspects of the Group’s remuneration policy for Executive Directors.
Element, purpose and
link to strategy
Operation
Maximum
opportunity/limit
Performance
targets/comments
Base Salary
To recruit, retain and
reward executives of a
suitable calibre for the
roles and duties required
Salaries of Executive Directors are reviewed
annually in January and any changes made
are effective from 1 January.
When conducting this review and the level of
increase, the Committee considers a range
of factors including:
• The performance of the Group and
the individual;
• Market conditions;
• The prevailing market rates for similar
positions in UK and Irish companies of
broadly comparable size and a number
of industry specific peers;
• The responsibilities and experience
of each Executive Director; and
• The level of salary increases
implemented across the Group.
There is no set maximum, however any
increases are normally in-line with the
general increase for the broader
employee population.
Individual adjustments in excess of this may
be made at the discretion of the Committee
for example:
• To recognise an increase in the scale,
scope or responsibility of a role; and
• Development of an individual within
the role.
Not applicable
Benefits
Provide market
competitive benefits
Benefits may include company car, mobile
telephone, life assurance, private medical
cover and permanent health insurance.
Executive directors are also eligible for other
benefits on broadly similar terms to those
introduced for the wider workforce.
Any reasonable business-related expenses
may be reimbursed, including tax thereon.
Relocation expenses or other related
expenses may be offered as required.
The value of other benefits is based
on the cost to the company and is not
pre-determined.
Relocation expenses must be reasonable
and necessary.
Not applicable
Pension
Provide market
competitive benefits
A company contribution to a money
purchase pension scheme or provision
of a cash allowance in lieu of pension.
Current pension arrangements will remain
in place until 31 December 2022. From
31 December 2022, pension contributions
for existing Executive Directors will reduce
to the level available for the majority of the
workforce. The cash amount payable to Mr.
Slark will remain frozen at the current level
(£128,040) and Mr. Arnold’s pension will
remain at 20 per cent of his salary.
Pension contributions for new Executive
Directors will be aligned to the level available
for the majority of the wider workforce at the
date of appointment.
Not applicable
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Element, purpose and
link to strategy
Operation
Maximum
opportunity/limit
Performance
targets/comments
Annual Bonus
To encourage and
reward delivery of the
Group’s annual financial
and strategic objectives
Bonus payments are determined by the
Committee after the year end, based on
performance against the targets set.
Performance measures and targets are
reviewed annually. The bonus is payable in
cash. An Executive Director is required to
apply 30 per cent of their annual bonus after
statutory deductions for the purchase of
shares in the Group until their shareholding
is equivalent to at least 200 per cent of
basic salary.
Clawback applies as set out on page 114.
The maximum award under the annual
bonus plan is 150 per cent of basic salary for
the CEO and 125 per cent of salary for the
CFO and any Executive Directors appointed
in the future (other than a CEO).
The Committee will review the bonus
outcome to ensure that it reflects underlying
Company performance over the year. The
Committee may amend the pay-out to
better reflect performance if it feels it is
appropriate to do so.
The bonus will be primarily based on the
achievement of appropriate financial
measures but may also include an element
for non-financial measures including
personal performance and strategic
measures.
Financial measures which will account for
the vast majority of the bonus opportunity
in any year may include measures such as
earnings per share, profit, return on capital
employed, free cash flow and such other
measures as determined from time to time
by the Committee. The metrics chosen and
their weightings will be set out in the Annual
Report on Remuneration.
For financial measures, a sliding scale is set
by the Committee. No bonus is payable if
performance is below a minimum threshold,
up to 20 per cent is payable for achieving
threshold and the bonus payable increases
on a straight line or similar basis thereafter
with full bonus payable for achieving the
upper point on the scale.
Any additional amount earned from the
increase in the bonus opportunity in 2022
and future years will be required to be
deferred into shares for three years.
Long Term Incentives (“LTIP”)
To encourage and
reward delivery of the
Group’s strategic
objectives; to provide
alignment with
shareholders through
the use of shares and
to assist with retention
The 2021 LTIP is an incentive plan that is
designed to reward Executive Directors and
senior executives in a manner that aligns
their interests with those of shareholders.
An Executive Director nominated to
participate in the plan is granted an award
over “free shares” which vest subject to the
achievement of performance conditions
measured over three financial years and
the Executive Director remaining employed
in the Group.
There is a holding period of two years on
shares received by Executive Directors from
LTIP awards that vest after taking into
account any shares sold to pay tax and
other statutory obligations.
Malus and clawback applies as set out
on page 114.
The maximum value of awards which may
be granted in any financial year is 200 per
cent of salary.
The Company’s policy is to make awards of
up to 200 per cent of basic salary in the case
of the CEO and 175 per cent of basic salary
in the case of the CFO and any Executive
Directors (other than a CEO) appointed in
the future.
The Committee will review the vesting
outcome to ensure that it reflects the
underlying Company performance over the
performance period. The Committee may
amend the pay-out to better reflect
performance if it feels it is appropriate
to do so.
LTIP awards vest subject to the achievement
of challenging financial and total shareholder
return performance targets measured over a
three year performance period.
The vesting of LTIP awards made to
Executive Directors is currently subject to
EPS (earnings per share) and TSR (total
shareholder return) performance conditions.
The Remuneration Committee has the
authority to set appropriate metrics (not
limited to EPS and TSR) for each award
taking account of the medium to long term
strategic objectives of the Group.
The EPS (as defined in the scheme rules)
condition if chosen will be subject to
achieving EPS within a target range. 25 per
cent of this part of the award will vest if the
lower target in the range is achieved. Where
the EPS is between the lower and higher
targets in the range, then between 25 per
cent and 100 per cent of this part of the
award will normally vest on a straight
line basis.
If TSR is chosen as a metric, the Group’s
TSR must equal the median TSR of the peer
group with 25 per cent of this part of the
award vesting on achieving threshold
performance and full vesting for upper
quintile performance or better. Awards will
vest on a straight line basis for performance
between the median and upper quintile.
Notwithstanding the achievement of a TSR
performance condition, no shares will vest
unless the Committee considers that overall
financial results have been satisfactory in the
circumstances over the performance period.
REMUNERATION POLICY REPORT continued
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Corporate Governance
Element, purpose and
link to strategy
Operation
Maximum
opportunity/limit
Performance
targets/comments
All-Employee Share Plans
To encourage share
ownership and align the
interests of employees
with shareholders
Executive Directors are entitled to
participate in employee share schemes
in operation during the period of the policy
on the same basis as other colleagues.
The Group currently operates the 2021
Approved SAYE Plan for UK colleagues.
The limits are set by the UK tax authorities.
Currently this limit is £500 per month for the
SAYE scheme.
Not applicable
Share Ownership Guidelines
To increase the
alignment of interests
between Executive
Directors and
shareholders
An Executive Director is required to apply
30 per cent of their annual bonus after
statutory deductions for the purchase
of shares in the Group until his/her
shareholding is equivalent to at least
200 per cent of basic salary.
Half of any LTIP awards that vest, after
taking into account any shares sold to pay
tax and other statutory obligations, must
be held until the share ownership guideline
has been met.
Future LTIP awards made from 2020
onwards will be subject to the two year
holding period and will be deemed to be part
of an executive directors’ shareholding.
Minimum 200 per cent of basic salary to
be held in Grafton Group plc shares, built
up over time.
200 per cent of salary to be held in Grafton
Group plc shares for two years after leaving
the Group. This will apply to shares vesting
under future long term awards from 2020
onwards but will exclude shares purchased
from personal resources.
Not applicable
Chair and Non-Executive Director Fees
To attract and retain a
high-calibre Chair and
Non-Executive Directors
by offering a market
competitive fee level
The Chair’s fee is set based on
a recommendation from the
Remuneration Committee.
The Board sets the level of remuneration
of all Non-Executive Directors within an
aggregate limit approved from time to
time by shareholders.
Additional fees may be payable for chairing
the main Board Committees.
The level of fees paid to the Chair of the
Board and all Non-Executive Directors
should recognise the time commitment
and responsibilities of the role.
Non-Executive Directors may be reimbursed
for travel and accommodation expenses
(and any personal tax that may be due on
those expenses).
Fees are reviewed from time to time
to ensure that they remain in line with
market practice.
Fees are paid in equal monthly instalments.
The Chair and Non-Executive Directors
do not participate in any pension or
incentive plans.
Details of the outcome of the most recent
fee review are provided in the Annual Report
on Remuneration.
Not applicable
114
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CLAWBACK AND MALUS
ANNUAL BONUS
The Bonus scheme is subject to clawback if:
• The Remuneration Committee forms the view that the Company materially misstated its financial results for whatever reason and that such
misstatement resulted either directly or indirectly in a bonus award vesting to a greater degree than would have been the case had that
misstatement not been made;
• The Remuneration Committee forms the view that in assessing the extent to which any performance condition and or any other condition
imposed on any bonus award was based on an error, or on inaccurate or misleading information or assumptions and that such error, information
or assumptions resulted either directly or indirectly in a bonus being made to a greater degree than would have been the case had that error not
been made;
• The Group or any part of the Group in the reasonable opinion of the Remuneration Committee, following consultation with the Audit & Risk
Committee, suffered a material failure of risk management and where the Remuneration Committee forms the view that the conduct of a
director contributed to the circumstances leading to such failure;
• A director is found guilty or pleads guilty to a crime that is related to or damages the business or reputation of any member of the Group;
• There is reasonable evidence of fraud or material dishonesty by a director that is related to or damages the business or reputation of any
member of the Group; or
• A director is in breach of any applicable restrictions on competition, solicitation or the use of confidential information.
LONG TERM INCENTIVES
The Remuneration Committee has the discretion, in circumstances in which the Remuneration Committee considers such action is appropriate,
to decide at any time prior to the vesting of an award that the director to whom the award was issued shall be subject to forfeiture or reduction
(including by way of imposition of additional conditions) of all or part of an award before it has vested.
The Remuneration Committee also has the discretion to require the repayment of vested awards (within six years of the date of award) in specified
circumstances, including:
• where there is a material misstatement in the Company’s financial results and that such misstatement resulted either directly or indirectly in an
award vesting to a greater degree than would have been the case had that misstatement not been made;
• where in calculating the number of shares to which an award relates or in determining the performance conditions and/or any other condition
imposed on the award or in assessing the extent to which any performance condition and/or any other condition imposed on the award was
satisfied such calculation, determination or assessment was based on an error, or on inaccurate or misleading information or assumptions and
that such error, information or assumptions resulted either directly or indirectly in that award vesting over a greater number of shares or to a
greater degree than would have been the case had that error not been made;
• where it is determined that there has been a material failure of risk management; (d) where the conduct of the relevant participant contributed
to circumstances leading to an insolvency or corporate failure resulting in the value of the Company’s shares being materially reduced;
• where the relevant participant is found guilty of or pleads guilty to a crime that is related to or damages the business or reputation of any
member of the Company’s group;
• there is reasonable evidence of fraud or material dishonesty by the relevant participant that is related to or damages the business or reputation;
and
• breach of any applicable restrictions on competition, solicitation or the use of confidential information.
The LTIP is subject to malus provisions including but not limited to the material misstatement of financial results, a material failure of risk
management, serious reputational damage or where a participant contributed to circumstances leading to the Group receiving a notification
that it may become subject to any regulatory sanctions.
ANNUAL BONUS AND LTIP DISCRETIONS
The Committee will operate the annual bonus and LTIP according to their respective rules and in accordance with the Listing Rules and applicable
tax rules. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration
of these plans. These include (but are not limited to) the following (albeit with the level of award restricted as set out in the policy table above):
• Who participates in the plan;
• The timing of grant of awards;
• The size of awards;
• The choice of performance measures and performance target conditions in respect of each annual award (including the setting of EPS targets
and the selection of a TSR comparator group);
• The determination of vesting, including discretion to override formulaic outcomes;
• Whether malus and/or clawback shall be applied to any award and, if so, to the extent to which they shall apply;
• Discretion relating to the measurement of performance in the event of a change of control or reconstruction;
• Determination of a good leaver status (in addition to other specified categories) for incentive plan purposes based on the rules of the plan;
• Adjustments required in certain circumstances (e.g., in the event of a de-merger, special dividend or an alteration to the capital structure of
the Company including a capitalisation of reserves or rights issue); and
• The ability to adjust existing performance conditions for exceptional events so that they can still fulfil their original purpose.
REMUNERATION POLICY REPORT continued
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Annual Report and Accounts 2021
Corporate Governance
LEGACY ARRANGEMENTS
For the avoidance of doubt, it is noted that the Group will honour any commitments entered into with current or former Directors that have been
previously disclosed to shareholders except for the changes to pension arrangements as set out in the Remuneration Policy.
DIFFERENCES IN REMUNERATION POLICY FOR EXECUTIVE DIRECTORS COMPARED TO OTHER EMPLOYEES
The Committee is made aware of pay structures across the wider Group when setting the Remuneration Policy for Executive Directors.
The Committee considers the general basic salary increase for the broader employee population when determining the annual salary review for
the Executive Directors.
Overall, the Remuneration Policy for the Executive Directors is more heavily weighted towards variable pay than for other employees. This ensures
that there is a clear link between value created for shareholders and remuneration received by Executive Directors and recognises that Executive
Directors should have the greatest accountability and responsibility for increasing shareholder value.
APPROACH TO RECRUITMENT AND PROMOTIONS
The Committee will as a general principle seek to offer a remuneration package to a new executive Director which can secure the best individual for
the role while seeking to pay no more than it believes is necessary to make the appointment
The remuneration package for a new Director will be set in accordance with and subject to the limits set out in the Group’s approved policy as set
out earlier in this report, subject to such modifications as are set out below.
Salary levels for Executive Directors will be set in accordance with the Group’s Remuneration Policy, taking into account the experience and calibre
of the individual and his/her existing remuneration package.
Where it is appropriate to offer a lower salary initially, a series of increases to the desired salary positioning may be made over subsequent years
subject to individual performance and development in the role. Benefits will generally be provided in line with the approved policy. Where necessary
the Committee may approve the payment of relocation expenses to facilitate recruitment and flexibility is retained for the Company to pay for legal
fees and other costs incurred by the individual in relation to their appointment. The rate of pension contribution will be aligned to the level available
for the majority of the wider workforce at the date of appointment.
The structure of the variable pay element will be in accordance with and subject to the limits set out in the Group’s approved policy detailed above.
Different performance measures may be set initially for the annual bonus in the year an Executive Director joins the Group taking into account the
responsibilities of the individual and the point in the financial year that he or she joins the Board. Subject to the rules of the scheme, an LTIP award
may be awarded after joining the Group.
If it is necessary to buy-out incentive pay or benefit arrangements (which would be forfeited on leaving the previous employer) in the case of an
external appointment, this would be provided for taking into account the form (cash or shares), timing and expected value (i.e., likelihood of meeting
any existing performance conditions) of the remuneration being forfeited. The general policy is that payment should be no more than the
Committee considers is required to provide reasonable compensation for remuneration being forfeited.
Share awards may be used to the extent permitted under the Group’s existing share plans and the Listing Rules where necessary.
In the case of an internal hire, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out according to its terms
of grant or adjusted as considered desirable to reflect the new role.
Fees for a new Chair or Non-Executive Director will be set in line with the approved policy.
SERVICE CONTRACTS & PAYMENTS FOR LOSS OF OFFICE
The Remuneration Committee determines the contractual terms for new Executive Directors, subject to appropriate professional advice to ensure
that these reflect best practice.
The Group’s policy is that the period of notice for Executive Directors will not exceed 12 months. The employment contracts of the current CEO and
the CFO may be terminated on six months’ notice by either side. In the event of a director’s departure, the Group’s policy on termination is as follows:
• The Group will pay any amounts it is required to make in accordance with or in settlement of a director’s statutory employment rights;
• The Group will seek to ensure that no more is paid than is warranted in each individual case;
• There is no entitlement to bonus paid following notice of termination unless expressly provided for in an Executive Director’s employment
contract, but the Group reserves the right to pay a bonus for the notice period subject to performance conditions;
• The Committee also retains the discretion to meet any reasonable legal fees or outplacement costs if deemed necessary; and
• Following service of notice to terminate employment, the Company may place the executive on garden leave. During this time, the executive
will continue to receive salary and benefits (or a sum equivalent to) until the termination of employment.
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Annual Report and Accounts 2021
REMUNERATION POLICY REPORT continued
A Director’s service contract may be terminated without notice and without any further payment or compensation, except for sums accrued up to
the date of termination, on the occurrence of certain events such as gross misconduct.
If the Group terminates employment in lieu of notice in other circumstances, compensation payable is as provided for in employment contracts
which is as follows:
• Gavin Slark – basic salary due for any unexpired notice period; and
• David Arnold – basic salary together with benefits and bonus which would have been payable during the notice period or any unexpired balance
thereof. Any bonus payable is subject to performance conditions. Payments may be made in monthly instalments.
The Group may pay salary, benefits and pension in lieu of notice for a new director.
The treatment of unvested awards previously granted under the LTIP upon termination will be determined in accordance with the plan rules.
As a general rule, an LTIP award will lapse upon a participant giving or receiving notice of his/her cessation of employment. However, for certain
good leaver reasons including death, ill health, injury, disability, redundancy, agreed retirement, their employing company or business being sold out
of the Group, or any other reason at the Committee’s discretion after taking into account the circumstances prevailing at the time, awards will vest
on the normal vesting date subject to the satisfaction of performance conditions and pro-rating the award to reflect the reduced period of time
between the commencement of the performance period and the Executive Director’s cessation of employment as a proportion of the total
performance period. Alternatively, the Committee can decide that the award will vest on the date of cessation, subject to the extent to which
the performance conditions have been satisfied at the date of cessation and pro-rated to the date of cessation of employment.
NON-EXECUTIVE DIRECTORS
All Non-Executive Directors have letters of appointment with the Company for an initial period of three years, unless otherwise terminated earlier
by and at the discretion of either party upon one month’s written notice or otherwise in accordance with the Group’s Articles of Association and
subject to annual re-appointment at the AGM.
The appointment letters for Non-Executive Directors provide that no compensation is payable on termination other than accrued fees
and expenses.
REMUNERATION SCENARIOS FOR EXECUTIVE DIRECTORS
The Group’s normal policy results in a significant portion of remuneration received by Executive Directors being dependent on performance.
The chart below shows how the total pay opportunities for 2022 for Executive Directors vary under four performance scenarios – Minimum,
In line with Expectation, Maximum and Maximum plus 50 per cent share price growth.
CHIEF EXECUTIVE OFFICER (£’000) CHIEF FINANCIAL OFFICER (£’000)
17%
33%
42% 35%
25%
32% 26%
100% 42% 26% 22%
Maximum plus 50%
Share Price Growth
MaximumIn line with
expectation
Minimum
£790
£1,892
£2,994
£3,624
17%
32%
41% 34%
22%
29% 24%
100% 46% 30% 25%
Maximum plus 50%
Share Price Growth
MaximumIn line with
expectation
Minimum
£546
£1,193
£1,840
£2,217
Fixed Annual Bonus Long Term Share Awards Share Price Growth
Chart labels show proposition of the total package comprised of each element.
ASSUMPTIONS
Minimum = fixed pay only (2022 salary, benefits and pension).
In line with Expectation (which is not target) = 50 per cent vesting of the annual bonus and LTIP awards.
Maximum = 100 per cent vesting of the annual bonus and LTIP awards.
Maximum plus 50 per cent Share Price Growth = 100 per cent vesting of the annual bonus and LTIP awards plus 50 per cent share price growth.
Note these charts have been updated from those included in the Policy approved by shareholders at the 2020 AGM to reflect the implementation
of the Policy in 2022.
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Corporate Governance
Although not required under Irish Companies legislation, this report
includes the disclosures required by UK legislation contained in Part 3
of Schedule 8 to The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013, and the
disclosures required by 9.8.6R of the Listing Rules. The report also
complies with the European Union (Shareholders’ Rights)
Regulations 2020 introduced in Ireland in March 2020.
MEMBERSHIP OF THE REMUNERATION COMMITTEE
The Committee currently comprises Mrs. Susan Murray, Chair, Mr. Vincent Crowley, Mr. Paul Hampden Smith and Dr. Rosheen McGuckian,
all of whom are Non- Executive Directors determined by the Board to be independent.
The Committee members have no personal financial interest, other than as shareholders, in matters to be decided, no potential conflicts of
interests arising from cross directorships and no day-to-day involvement in running the business. The Non-Executive Directors are not eligible for
pensions and do not participate in the Group’s bonus or share schemes. The Committee’s Terms of Reference can be found on the Group website.
Mr. Michael Roney, Chair, attended meetings of the Committee during 2021 by invitation and participated in discussions. During the year the
Committee consulted with the CEO who was invited to attend part of the meetings of the Committee. The Chair of the Committee was assisted in
her work by Mr. Charles Rinn, Company Secretary, Rebecca McAleavey, Assistant Company Secretary and Ms. Paula Harvey, Group HR Director.
No Director or the Company Secretary take part in discussions relating to their own remuneration and/or benefits.
Deloitte LLP (“Deloitte”) are the Committee’s advisor on remuneration matters and fees paid to them during the year were £34,300. Fees were
charged on a time and material basis.
The Committee is satisfied that the Deloitte team, which provided remuneration advice to the Committee, do not have connections with Grafton
Group plc or its Directors that may impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there
were appropriate safeguards against such conflicts.
Deloitte also provided other services during the year which were not of a material nature.
During the year Deloitte provided a market practice update to the Committee on remuneration trends and governance. Deloitte also provided advice
on the implementation of policy for 2022 and on other remuneration matters.
The Committee is satisfied that the advice provided by Deloitte is objective and independent. Deloitte are a signatory to the Remuneration
Consultants’ Code of Conduct which requires its advice to be impartial and Deloitte have confirmed to the Committee its compliance with the Code.
ANNUAL REPORT ON REMUNERATION
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Annual Report and Accounts 2021
ANNUAL REPORT ON REMUNERATION continued
Activity During the Year
January 2021
• Considered a draft of the Report of the Remuneration Committee on Directors’ Remuneration;
• Determined the performance conditions for the 2021 Bonus Award; and
• Initial review of the 2021 revised LTIP Scheme Rules.
February 2021
• Considered and approved the Report of the Remuneration Committee on Directors’ Remuneration;
• Determined the extent of vesting of the LTIP awards made in 2018;
• Agreed the quantum of 2021 LTIP awards to be granted to Executive Directors and the Company Secretary;
• Considered the performance conditions for the 2021 LTIP awards including the EPS range;
• Considered the TSR comparator Group for the 2021 LTIP award;
• Considered and approved the revised scheme rules for the 2021 Long Term Incentive Plan for shareholder approval at the 2021 AGM;
• Considered and approved the revised scheme rules for the 2021 Save As You Earn Scheme for shareholder approval at the 2021 AGM; and
• Reviewed the CEO Pay Ratio with the wider workforce.
May 2021
• Approved the partial vesting of LTIP awards granted in 2018.
October 2021
• Considered an update from Deloitte on latest executive remuneration trends and corporate governance developments;
• Considered shareholder and proxy advisor feedback received on the 2020 Report of the Remuneration Committee on Directors’ Remuneration;
• Considered an update on pay across the Group’s workforce;
• Considered whether any remuneration benchmarking is required and if remuneration policy remains appropriate;
• Reviewed share allocation and dilution limits;
• Reviewed and determined Chair’s Fees; and
• Reviewed the Committee Terms of Reference.
November 2021
• Considered level of potential Bonus Awards for 2021;
• Considered level of potential vesting of 2019 LTIP Awards in 2022;
• Considered and determined 2022 Bonus Scheme opportunity and financial targets for the year including an increase in the bonus opportunity,
in line with the Policy subject to consultation with shareholders;
• Determined the rate of increase in basic salaries for 2022 for Executive Directors and Company Secretary;
• Initial consideration of 2022 LTIP Awards; and
• Reviewed Executive Directors’ shareholdings against Policy.
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Corporate Governance
SINGLE TOTAL REMUNERATION FIGURE OF DIRECTORS’ REMUNERATION
The following table sets out the total remuneration for Directors for the year ending 31 December 2021 and the prior year.
Salary/Fees (a) Bonus (b) Pension (c) Other Benefits (d)
Long Term Incentive
Plan (e)
Total
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Executive Directors
G. Slark 611 581 733 – 128 123 32 42 1,772 576 3,276 1,322
D. Arnold 418 398 418 – 84 80 28 41 1,062 345 2,010 864
1,029 979 1,151 – 212 203 60 83 2,834 921 5,286 2,186
Non-Executive Directors
M. J. Roney 231 220 – – – – – – – – 231 220
P. Hampden Smith 61 59 – – – – – – – – 61 59
F. van Zanten(i) – 20 – – – – – – – – - 20
S. Murray 61 59 – – – – – – – – 61 59
V. Crowley 61 59 – – – – – – – – 61 59
R. McGuckian 61 59 – – – – – – – – 61 59
475 476 – – – – – – – – 475 476
Total Remuneration 1,504 1,455 1,151 – 212 203 60 83 2,834 921 5,761 2,662
The following table sets out the total remuneration for Executive Directors split between fixed and variable pay for the year ending 31 December
2021 and the prior year. Fixed pay includes salary, fees, pension and other benefits. Variable pay includes bonus and Long Term Inventive Plan. The
remuneration of Non-Executive Directors is all fixed pay.
Total Fixed Pay Total Variable Pay Total
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Executive Directors
G. Slark 771 746 2,505 576 3,276 1,322
D. Arnold 530 519 1,480 345 2,010 864
1,301 1,265 3,985 921 5,286 2,186
(i) Mr. F. van Zanten retired from the board on 29 April 2020
Comparative figures included in the table above have been presented on a consistent basis with the current year. Further details on the valuation
methodologies applied are set out in notes (a) to (e) below. These valuation methodologies are as required by the Regulations and are different from
those applied within the financial statements which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).
The total expense relating to the Directors recognised within the income statement in respect of the Long Term Incentive Plan (LTIP) is £1,248,000
(2020: £459,000).
NOTES TO THE DIRECTORS’ REMUNERATION TABLE:
(a) This is the amount of salaries and fees earned in respect of the financial year. Non-Executive Directors’ fees are payable in Euro. A benchmark
review of fees payable to Non-Executive Directors and the Chair was undertaken during the year and it was agreed that a fee increase of 0.6 per
cent to €70,420 would apply with effect from 1 January 2021. The sterling equivalent amounts to £60,533 on the basis of the average exchange
rate for the year of 85.96 pence. During 2020 Directors took a voluntary reduction in salaries, fees and pension of 20 per cent effective from
8 April until 30 June 2020 in response to the Covid-19 pandemic and the impact on the business. The amount shown in the single figure is after
this reduction.
(b) This is the amount of bonus earned in respect of the financial year. The CEO and CFO requested that the annual bonus plan be suspended for
2020 and therefore no bonus was payable. The amount in respect of 2021 will be paid in cash at the end of March 2022.
(c) This is the amount of contribution payable in respect of the financial year by way of a company contribution to a pension scheme or a taxable
payment in lieu of pension made through the payroll.
(d) Benefits comprise permanent health and medical insurance and the provision of a company car.
(e) For the year ended 31 December 2021, this is the value of LTIP awards that will vest in May 2022. The vesting of these awards was subject to
performance conditions over the period from 1 January 2019 to 31 December 2021. The value of the awards is based on the average share price
of £12.54 for the three months to 31 December 2021. This represents an increase of £4.06 or 47.9 per cent from the share price at the date of
grant which was £8.48. For the year ended 31 December 2020, this is the value of LTIP awards that vested in May 2021 which has been updated
from that disclosed last year to reflect the share price of £12.28 on the date of vesting. The amounts disclosed in the 2020 report were £373,000
in respect of G. Slark and £224,000 in respect of D. Arnold.
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ANNUAL REPORT ON REMUNERATION continued
FIXED PAY IN 2021
SALARY AND FEES
Having taken account of both external market developments and internal Group considerations, the Committee agreed in December 2020 that
the basic salary of the Chief Executive Officer and the Chief Financial Officer would increase by 0.6 per cent from 1 January 2021 in line with the
wider workforce.
Salary/Fees
2021
£’000
2020
£’000 Change
G. Slark 611 607 0.6%
D. Arnold 418 416 0.6%
Non-Executive Directors’ fees were increased by 0.6 per cent with effect from 1 January 2021 to £60,533 per annum (based on an exchange rate of
Stg85.96 pence to 1 Euro) (constant currency (€70,420). No additional fees were paid for chairing Board Committees during the year. The fee paid to
Mr. Roney, Non- Executive Chair, was increased by 0.6 per cent to £231,380 with effect from 1 January 2021.
All Directors took a voluntary reduction in salaries, fees and pension arrangements of 20 per cent effective from 8 April until 30 June 2020 in
response to the Covid-19 pandemic and the impact on the business.
BENEFITS
Benefits comprise permanent health and medical insurance and the provision of a company car.
Health and
Medical
Insurance
£’000
Provision
of a
Company
car
£’000
Total 2021
Taxable
Benefits
£’000
Total 2020
Taxable
Benefits
£’000
G. Slark 9 23 32 42
D. Arnold 7 21 28 41
PENSION
Pension benefits comprise either a company contribution to an Executive Director’s personal pension plan, a company contribution to the Group
defined contribution pension scheme or a taxable non- pensionable allowance paid through the payroll in lieu of pension benefit.
2021
Base
Salary
% of
salary
2021
Pension
Contribution
2020
Pension
Contribution
G. Slark 611 20.9% 128 123
D. Arnold 418 20.0% 84 80
The pension contributions shown in the table above reflect a 20 per cent reduction volunteered by Directors in the period from 8 April to the
30 June 2020.
Mr. Slark’s pension benefit comprised a payment made to a defined contribution scheme and a taxable allowance in lieu. The total pension benefit
received was £128,040 The pension benefit for Mr. Arnold was paid as a taxable non-pensionable cash allowance.
With effect from 31 December 2022, the pension contributions for the Group CEO and the Group CFO will be aligned to the level available for the
majority of the wider workforce at that time.
PAY FOR PERFORMANCE
ANNUAL BONUS
The maximum bonus opportunity for Mr. Slark and Mr. Arnold was 120 per cent and 100 per cent of salary respectively. The bonus was based on
two financial measures.
The table below analyses the composition of the bonus opportunity for the year (% of salary):
Operating Profit Capital Employed Bonus Payable
G. Slark 84% 36% 120%
D. Arnold 70% 30% 100%
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Corporate Governance
Financial targets were set at the beginning of the year by reference to the Group’s budget for 2021. The actual targets and performance
against those targets are set out in the table below for 2021:
Threshold
(0% Payable)
Budget
(50% Payable)
Stretch
(100% Payable) Actual
% of
Maximum
Payable
Operating profit (£’000)* 146,287 162,541 178,795 258,216 100
Return on capital employed** 16.0% 17.8% 19.5% 24.3% 100
* Pre IFRS16 adjusted operating profit, before property profit, from continuing operations.
* *Based on capital employed in budget/monthly management accounts.
To ensure performance is being assessed on a like for like basis with the targets set for the year, annual bonus targets were adjusted to remove the
operating profit contribution of the traditional merchanting business in Great Britain for 2021 that was treated as a deemed disposal as at 30 June
2021 and classified as discontinued operations for the year. This business was divested on 31 December 2021.
The award for each financial measure was based on a sliding scale from 90 per cent to 110 per cent of the Group’s budget for 2021. No bonus was
payable if performance was below a minimum threshold of 90 per cent of budget. The bonus opportunity then increased on a straight line basis up
to 100 per cent of the bonus opportunity on achieving 110 per cent of budget.
The Committee considered the extent to which these targets were achieved and agreed a payment of 120 per cent of salary for Mr. Slark and 100
per cent of salary for Mr. Arnold out of a maximum bonus opportunity of 120 per cent and 100 per cent of salary respectively. The Committee
determined that no changes to these outcomes were required.
LONG TERM INCENTIVE PLAN (LTIP)
The Remuneration Committee has the authority to set appropriate criteria for each award. The Committee believes that the LTIP should align
management and shareholder interests and assist the Group in the recruitment and retention of senior executives.
LTIP AWARDS WITH A PERFORMANCE PERIOD COVERING THE THREE YEARS TO 31 DECEMBER 2021
The performance conditions for LTIP awards made in April 2019 were based on growth in EPS and TSR. Half of the awards to Executive Directors
were based on relative TSR versus a comparator group consisting of the constituents of the London Stock Exchange’s FTSE 250 Index excluding
investments trusts. The other half was based on the Group’s adjusted EPS for the financial year ended 31 December 2021.
The relevant targets and results for the year were as follows:
50% TSR relative to a peer group 50% Adjusted EPS
Performance ranking required % of element vesting Performance required % of element vesting
Below threshold Below median 0% Below 82p 0%
Threshold Median 25% 82p 25%
Between threshold and stretch Median-80th percentile 25%-100% 82-94p 25%-100%
Stretch or above Above 80th percentile 100% 94p 100%
Actual achieved Above 80th percentile 100% 98.8p 100%
The adjusted EPS targets for the financial year ended 31 December 2021 were in the range of 82.0 pence to 94.0 pence. Adjusted EPS for continuing
operations for 2021 was 93.0 pence. In July 2021, the Group announced its agreement to divest the traditional merchanting business
in Great Britain for an enterprise value of £520 million and this transaction completed on 31 December 2021. This business has been treated as
discontinued for the year in line with IFRS and is therefore not included in the performance of continuing operations. For the purpose of assessing
EPS performance the Committee has agreed to increase the Adjusted EPS for continuing operations to ensure that performance is assessed on a
like-for-like basis to the greatest extent possible with the targets set. To most closely align with the shareholder experience during the year, the
Committee determined that it was appropriate to include the operating profit after tax of the traditional merchanting businesses in Great Britain for
the period 1 January 2021 to 30 April 2021 and the daily ticker cash payment received from the purchaser for the period from 1 May 2021 to the date
of completion on 31 December 2021. The consideration received on divestment was based on the balance sheet as at 30 April 2021 with all cashflow
generated after that date for the benefit of the purchaser. The daily ticker rate amounted to £30.2 million and compensated Grafton for the loss of
profits from 1 May 2021 to completion on 31 December 2021. This approach is consistent with the Committees decision in 2019 when the Group
divested its Plumbase and the Belgian merchanting businesses. This adjustment resulted in an increase in adjusted EPS of 18.1 pence to 111.1 pence.
The Committee further considered the adjusted EPS performance for 2021 to ensure that the performance reflected management actions and the
shareholder experience during the year. Historically, property profits have been included when assessing performance outcomes. However, given
the significant progress we have made with our property disposal programme and the fact that property profits are likely to be more difficult to
forecast in future years, the Committee agreed that it was appropriate to exclude property profits when assessing performance in future years. In
view of the high level of property profit in 2021 and the Committee’s decision to exclude property profit from adjusted EPS in future years, the
Committee agreed in the interests of consistency to exclude property profit from the adjusted EPS calculation for 2021 for the purpose of
determining vesting of the 2019 LTIP award.
The Woodie’s business was classified as an essential retailer and continued to trade in the early months of 2021 when Ireland was in lockdown and
experienced exceptional demand particularly in the first four months of the year. The Committee, therefore, also agreed that it was appropriate to
exclude profit associated with this exceptional demand when assessing the performance outcomes for the 2019 LTIP award.
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ANNUAL REPORT ON REMUNERATION continued
The 111.1 pence adjusted EPS performance arrived at following the adjustment for the divestment of the traditional merchanting business in
Great Britain described above was therefore reduced by earnings from property profits (5.6 pence) and the estimated exceptional profit in Woodie’s
(6.7 pence) to give an overall adjusted EPS outcome for the purpose of the LTIP of 98.8 pence. As this exceeded the target range of 94.0 pence,
100 per cent of this half of the award will vest.
The Committee considered the underlying financial performance of the Company during 2021, taking into account performance against key
financial and strategic performance indicators as well as the experience of shareholders and other stakeholders during the period. The Committee
also considered whether there had been a significant negative event (such as an ESG event) which would warrant an adjustment and determined
that no adjustment was required to the proposed payout outcome.
The following is a summary of the awards that will vest under the scheme in 2022:
Director
Total number of
shares granted
Percentage of
award vesting (%)
Number of
shares vesting
Value of shares
vesting (£)
1
G. Slark 141,336 100% 141,336 1,772,354
D. Arnold 84,699 100% 84,699 1,062,125
1 As these awards do not vest until 12 April 2022, a deemed share price is used to calculate the value of shares vesting. This is taken as the three-month average to 31 December
2021 being £12.54.
LTIP AWARDS GRANTED DURING THE YEAR ENDED 31 DECEMBER 2021
The following awards were made during the year ended 31 December 2021:
Date of Grant
Number of
nil cost Units
% of
Base Salary
Share Price at
Grant Date
Value of Award
at Grant Date
G. Slark 17 May 2021 101,761 200 £12.0050 £1,221,641
D. Arnold 17 May 2021 60,983 175 £12.0050 £732,101
The 2021 awards to Mr. Slark and Mr. Arnold are subject to the achievement of the following TSR and Adjusted EPS performance conditions:
50% TSR relative to a peer group 50% Adjusted EPS
Performance ranking required % of element vesting Performance required % of element vesting
Below threshold Below median 0% Below 70.4p 0%
Threshold Median 25% 70.4p 25%
Between threshold and stretch Median-80th percentile 25%-100% 70.4-80.7p 25%-100%
Stretch or above Above 80th percentile 100% Above 80.7p 100%
The TSR comparator group consists of the constituents of the London Stock Exchange’s FTSE 250 Index excluding investment trusts.
In line with best practice and shareholder expectations, the Committee retains discretion to adjust the vesting outcome if it is not considered to be
reflective of the underlying financial and/or non-financial performance of the business, the performance of the individual over the performance
period or where the outcome is not considered appropriate in the context of the experience of shareholders and other stakeholders. Vested awards
are subject to a two-year holding period. Clawback provisions will also apply.
EXTERNAL APPOINTMENTS
The Company recognises that Executive Directors may be approached to become Non-Executive Directors of other companies and that
opportunities of this nature can provide valuable experience that benefits the company.
Mr. Slark is a Non-Executive Director of Galliford Try Holdings plc and is permitted to retain his fee for the role which amounted to £44,700 in 2021.
Mr. Arnold is a Non-Executive Director of Crest Nicholson Holdings plc and is permitted to retain his fee for the role which amounted to £20,000 in 2021.
LOSS OF OFFICE PAYMENTS AND PAYMENTS TO PAST DIRECTORS
No loss of office payments or any payments to past Directors were made during the year.
APPLICATION OF REMUNERATION POLICY IN 2022
SALARIES
The Remuneration Policy for 2020 notes there is no prescribed maximum annual salary increase but the Committee will be guided by the general
increases for the broader employee population but on occasion may need to recognise an increase in the scale, scope or responsibility of the role.
The Committee approved a salary increase of 3.1 per cent with effect from 1 January 2022 for the Chief Executive Officer and Chief Financial
Officer which reflects the typical level of salary increase for the wider workforce.
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Corporate Governance
The following salaries will apply from 1 January 2022:
2022
Base
Salary
2021
Base
Salary % Increase
G. Slark £629,756 £610,820 3.1 %
D. Arnold £431,310 £418,341 3.1 %
CHAIR AND NON-EXECUTIVE DIRECTORS’ FEES
A benchmark review of fees payable to Non-Executive Directors and the Chair was undertaken during the year and it was agreed that a fee increase
of 0.6 per cent would apply with effect from 1 January 2021 and an increase of 3.1 per cent would apply with effect from 1 January 2022 which
reflects the general level of salary increase for the broader employee population. It was further agreed that with effect from 1 January 2022
additional fees of €11,594 would be paid to each of the Chairs of the Audit and Risk Committee and the Remuneration Committee. For further
details on Non-Executive Director and Chair fees paid during 2021 see page 119.
PENSION AND BENEFITS
Mr. Slark and Mr. Arnold will receive taxable pension contributions/ salary supplements in lieu of pension of £128,040 and 20 per cent of salary
respectively which is consistent with the arrangements in place for 2021.
The Committee is mindful of the preference of some shareholders and shareholder advisory firms that the pensions for incumbent directors should
be aligned with the wider workforce by the end of 2022. With effect from 31 December 2022, the pension contributions for the Group CEO and the
Group CFO will be aligned to the level available for the majority of the wider workforce at the time.
ANNUAL BONUS
Taking into account the strong performance of the business and the evolving complexity and geographical spread of the Group’s operations, the
Committee has concluded that now is an appropriate time to increase the maximum annual bonus opportunity as provided for under our Policy.
The maximum potential performance related bonus pay award will increase from 120 per cent to 150 per cent of salary for the Chief Executive
Officer and from 100 per cent to 125 per cent for the Chief Financial Officer. Given this increase, if the bonus earned exceeds the current maximum
bonus opportunity of 120 per cent of salary for the CEO and 100 per cent of salary for the CFO then the additional amount earned will be required to
be deferred into shares for three years. This is in addition to the existing requirement for Executive Directors to apply 30 per cent of their annual
bonus after statutory deductions for the purchase of share until their shareholding guideline is met.
For further information on the Committee’s decision to increase the maximum annual bonus opportunity as provided for under Policy see page 107.
70 per cent of the annual bonus is based on Operating profit and 30 per cent on Return on capital employed. The measures and weightings for 2022
are as follows:
CEO Bonus Based on
% of Salary
2022
% of Salary
2021
Operating profit 105% 84%
Return on capital employed 45% 36%
CFO Bonus Based on
% of Salary
2022
% of Salary
2021
Operating profit 87.5% 70%
Return on capital employed 37.5% 30%
The actual bonus targets are commercially sensitive and will be disclosed in the 2022 Annual Report.
Clawback provisions operate as set out in the Remuneration Policy on page 114.
LONG TERM INCENTIVES
Awards to be made in 2022 will be at the same level as 2021 being 200 per cent of salary for the CEO and 175 per cent of salary for the CFO. Vesting
of the 2022 award will be based on relative TSR (50 per cent) and on EPS (50 per cent) performance conditions year as follows:
50% TSR relative to a peer group 50% Adjusted EPS
Performance ranking required % of element vesting Performance required % of element vesting
Below threshold Below median 0% Below 101.7p 0%
Threshold Median 25% 109.1p 25%
Between threshold and stretch Median-80th percentile 25%-100% 109.1p-116.4p 25%-100%
Above 80th percentile Above 80th percentile 100% 116.4p 100%
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The TSR performance condition will continue to be measured against a comparator group consisting of the constituents of the London Stock
Exchange’s FTSE 250 Index excluding investment trusts.
Notwithstanding the achievement of the TSR performance conditions, no shares will vest unless the Committee considers that the overall financial
results of the Group have been satisfactory in the circumstances over the performance period.
When setting the target EPS range for the 2022 LTIP award the Committee adjusted the base year EPS performance for 2021 to exclude property
profit and the performance associated with exceptional levels of demand during the year at Woodie’s consistent with its approach to assessing
performance for the 2019 LTIP award. As noted above in respect of the 2019 LTIP vesting, historically, property profits have been included when
assessing performance outcomes. However, given the significant progress we have made with our property disposal programme and the fact that
property profits are likely to be more difficult to forecast in future years, the Committee agreed that it was appropriate to exclude property profits
when assessing performance in future years.
Annual compound growth targets for the 2022 LTIP awards have been set at a slightly higher rate than in previous years at 8.0 per cent per annum for
threshold vesting and 13.0 per cent per annum for maximum vesting applied to the revised 2021 base year adjusted EPS of 80.7 pence. This gives a
threshold target of 101.7 pence and maximum target of 116.4 pence. The Committee believes that these targets are appropriately stretching against
the adjusted EPS outturn for 2021 of 93.0 pence as reduced to exclude property profit of 5.6 pence and the exceptional profit in Woodie’s of 6.7 pence.
The Committee set the percentage growth range having considered that the threshold is appropriately challenging whilst the upper end of the range
is stretching and will only be achieved if performance is exceptional.
A holding period of two years will apply to LTIP awards received by Executive Directors that vest, after taking into account any shares sold to pay tax
and other statutory obligations in line with the Remuneration Policy. Shares held during the two-year holding period will be deemed to be part of an
executive directors’ shareholding, for the purposes of monitoring the shareholding guidelines. The vesting period and the holding period will be five
years in total.
RELATIVE IMPORTANCE OF SPEND ON PAY
The following table sets out the percentage change in dividends and overall spend on employee pay in the 2021 financial year compared with the
prior year.
2021
£’000
2020
£’000
Percentage
Change
Dividends payable 73,050 34,685 110.6%
Employee remuneration costs* 317,056 260,997 21.5%
*From continuing operations
There were no share purchases by the Company in 2021.
PERCENTAGE CHANGE IN DIRECTORS PAY
The table below shows the percentage year-on-year change in the value of salary/fees, annual bonus and benefits for all Directors between the
current and previous year compared to that of the average employee.
Salaries or fees (% change) Benefits (% change) Bonus (% change)
2020 to 2021* 2019 to 2020 2020 to 2021 2019 to 2020 2020 to 2021** 2019 to 2020
Gavin Slark 5.1% (3.0%) (23.3%) (6.7%) 100% (100.0%)
David Arnold 5.1% (3.0%) (32.4%) (6.8%) 100% (100.0%)
M. J. Roney 5.3% (4.5%) – – – –
P. Hampden Smith 5.3% (4.5%) – – – –
S. Murray 5.3% (4.5%) – – – –
V. Crowley 5.3% (4.5%) – – – –
R. McGuckian 5.3% – – – – –
Average employee
Salary, Benefits and Bonus (£)*** 10.4% ( 7.3%)
* During 2020 Directors took a voluntary reduction in salaries, fees and pension of 20 per cent effective from 8 April until 30 June 2020. The percentage change is calculated
using unrounded figures in the currency of base pay after this reduction. Excluding the 2020 temporary reduction the increase was 0.6% for all Directors.
** The CEO and CFO requested that the annual bonus plan be suspended for 2020 and therefore no bonus was payable.
*** Based on average number of persons employed during the year, from continuing operations. The increase in constant currency was 12.6 per cent.
CEO PAY RATIO TO THE WORKFORCE
The table on page 125 shows the ratio of the CEO’s total remuneration for 2021 and the lower, median and upper quartile full-time equivalent
remuneration of the Group’s UK employees. The pay ratios for 2020 and 2019 are also shown for comparison. Grafton Group plc has decided to
use Option A as it provides the most statistically accurate method for identifying the pay ratios. Option A requires a company to calculate the total
full-time equivalent pay and benefits of all its UK employees for the relevant financial year (using the same methodology as for CEO pay) in order to
identify and rank the 25th, 50th and 75th percentiles.
ANNUAL REPORT ON REMUNERATION continued
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Annual Report and Accounts 2021
Corporate Governance
The total remuneration for employees includes wages and salaries, taxable benefits, bonuses, share based payments remuneration and pensions.
The period of analysis is between 1 January and 31 December 2021. The total number of UK colleagues included in the 2021 pay ratio analysis
was 3,085. The analysis included colleagues employed as of 31 December 2021.
Financial year Method
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
2019 Option A 93:1 77:1 59:1
2020 Option A 68:1 57:1 44:1
2021 Option A 150:1 130:1 99:1
TOTAL PAY AND BENEFITS AMOUNTS USED TO CALCULATE CEO PAY RATIO
25th percentile pay ratio 50th percentile pay ratio 75th percentile pay ratio
Financial year Method
Total pay and
benefits Total Salary
Total pay and
benefits Total Salary
Total pay and
benefits Total Salary
2021 Option A £21,419 £18,979 £24,662 £22,608 £32,246 £29,571
For the purpose of calculating the pay ratio, the CEO’s remuneration is based on the single figure for 2021 which includes bonus and LTIP payments
in respect of 2021 performance. Details of colleague bonus payments in respect of 2021 is based on bonuses paid in 2021. This is consistent with
the calculation method used in previous years. Consistent with our practice in previous years, next year’s report will be updated for bonuses paid to
colleagues in respect of 2021.
The pay ratio reported for 2020 has been re-calculated to reflect the value of the CEO LTIP award that vested in May 2021. As outlined above, when
we reported the 2020 ratio full details of colleague bonuses in respect of 2020 were not available and therefore colleague bonus pay data was
based on bonuses paid in 2020, some of which relate to performance in respect of 2019. The ratio has also been updated to be based on colleague
bonuses paid in respect of 2020 such that it is on a like for like basis the CEO’s single figure calculation. On average bonuses for 2020 were lower
than for 2019 due to the impact of the pandemic. These two adjustments resulted in the median CEO ratio increasing from 47:1 to 57:1.
PERFORMANCE GRAPH AND SINGLE TOTAL FIGURE OF REMUNERATION
TOTAL SHAREHOLDER RETURN
The graph below compares the TSR performance of Grafton Group plc, assuming dividends are re-invested, with the TSR performance of the FTSE
250 over the period 31 December 2011 to 31 December 2021.
Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020
0
100
200
300
400
500
600
700
800
Dec 2021
Grafton Group plc FTSE250 Index
Source: FactSet
This graph shows the value, by 31 December 2021, of £100 invested in Grafton Group plc on 31 December 2011, compared with the value of £100
invested in the FTSE 250 Index on the same date. This comparator group was chosen on the basis that the Company is a constituent of the index
and it includes comparable sized businesses. The other points plotted are the values at intervening financial year-ends.
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Annual Report and Accounts 2021
The table below shows the total remuneration figure for the position of CEO over the ten years to 2021.
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CEO single total figure of remuneration (£’000) 1,001 1,524 3,080 2,255 1,692 1,689 2,211 1,852 1,322 3,276
Annual bonus payout relative to maximum 49% 49% 98% 53% 60% 100% 93% 19% 0% 100%
LTIP vesting N/A 45% 100% 87% 50% 26% 72% 95% 30% 100%
STATEMENT OF SHAREHOLDER VOTING
The 2020 Annual Report on Remuneration received the following votes from shareholders at the 2021 AGM:
Total Number
of Votes % of Votes Cast
For 91,165,066 95.56
Against 4,234,358 4.44
Total 95,399,424 100
The number of votes withheld for the Annual Report on Remuneration was 508.
The 2020 Directors Remuneration Policy received the following votes from shareholders at the 2020 AGM:
Total Number
of Votes % of Votes Cast
For 141, 317,978 94.54
Against 8,158,554 5.46
Total 149,476,532 100
The number of votes withheld for the Remuneration Policy was 2,306,700.
DIRECTORS’ AND SECRETARY’S INTERESTS
The beneficial interests of the Directors in the share capital of the Company were as follows:
Director
31 December
2021
Grafton Units**
31 December
2020
Grafton Units*
Unvested
LTIP
Awards**
Unvested
SAYE
Options***
G. Slark 295,813 451,236 407,811 –
D. Arnold 149,383 148,459 244,391 1,557
M. J. Roney 33,824 33,824 – –
P. Hampden Smith 32,990 32,990 – –
V. Crowley 8,000 8,000 – –
S. Murray 1,500 1,500 – –
R. McGuckian 1,332 1,332 – –
Secretary
C. Rinn 460,307 452,646 77,636 –
* At 31 December 2020 a Grafton Unit comprised one ordinary share of 5 cents each and seventeen ‘A’ ordinary shares of 0.001 cent each in Grafton Group plc and one ‘C’
ordinary share of Stg0.0001p in Grafton Group (UK) plc. At 31 December 2021 a Grafton Unit consists of one Ordinary Share of €0.05 in Grafton Group plc. The simplification
of the Grafton Unit was approved by Shareholders at the Extraordinary General Meeting of Grafton Group plc held on 21 January 2021 and took effect from 7 March 2021.
** Vesting of these awards is subject to performance conditions and includes awards granted in 2019, 2020 and 2021.
*** Option to buy shares at the agreed price within six months of the end of the three year period 1 December 2021 (1,367 units) and 1 December 2023 (1,557 units).
The closing price of a Grafton Unit on 31 December 2021 was 1,233.0p (31 December 2020: 922.5p) and the price range during the year was
between 859.50p and 1412.0p (2020: 371.0p and 990.0p).
There have been no changes in the interests of the Directors and Secretary between 31 December 2021 and the date of this report.
ANNUAL REPORT ON REMUNERATION continued
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Corporate Governance
To further align the interests of senior management with those of shareholders, Executive Directors are subject to share ownership guidelines.
Executive Directors are required to build a holding of shares in the Company with a minimum value of 200 per cent of their salary. Directors are
required to apply 30 per cent of their annual bonus after statutory deductions for the purchase of shares in the Group until this share ownership
requirement is fulfilled.
Mr. Slark held shares at the year-end valued at 5.97 times his salary. Mr. Arnold held shares at the year-end valued at 4.4 times his salary.
This is based on the closing price of a Grafton Unit on 31 December 2021 of 1,233p.
During the year 2018 LTIP awards over 46,905 Grafton Units vested in May in favour of Mr. Slark who instructed the Company to immediately
sell 22,328 of these Grafton Units to meet tax liabilities and brokers commission and he retained the remainder being 24,577 Grafton Units.
2018 LTIP awards over 28,109 Grafton Units vested in May in favour of Mr. Arnold who instructed the Company to immediately sell 13,381 of
these Grafton Units to meet tax liabilities and brokers commission and he retained the remainder being 14,728 Grafton Units.
DIRECTORS’ AND SECRETARY’S INTERESTS UNDER THE 2011 & 2021 LONG TERM INCENTIVE PLANS
The grant of awards over Grafton Units to the Directors and Secretary under the LTIP are shown below:
Number of Units
Grant Date
Share Price
on date of
Grant
1 January
2021 Granted Lapsed
Shares
Received
31 Dec
2021
EPS
Condition
TSR
Condition
Performance
Period Vesting Date***
G. Slark
9 April
2018 £7.5 4 156,613 – (109,708) (46,905)* – – –
1 Jan 2018-
31 Dec 2020 9 April 2021
12 April
2019 £8.48 141,336 – – – 141,336 70,668 70,668
1 Jan 2019-
31 Dec 2021 12 April 2022
10 Sept
2020 £7.37 164,714 – – – 164,714 – 164,714
1 Jan 2020-
31 Dec 2022 10 Sept 2023
17 May
2021 £12.005 – 101,761 – – 101,761 50,881 50,880
1 Jan 2021-
31 Dec 2023 17 May 2024
462,663 101,761 (109,708) (46,905) 407,811 121,549 286,262
D. Arnold
9 April
2018 £7.5 4 93,854 – (65,745) (28,109)* – – –
1 Jan 2018-
31 Dec 2020 9 April 2021
12 April
2019 £8.48 84,699 – – – 84,699 42,349 42,350
1 Jan 2019-
31 Dec 2021 12 April 2022
10 Sept
2020 £7.37 98,709 – – – 98,709 – 98,709
1 Jan 2020-
31 Dec 2022 10 Sept 2023
17 May
2021 £12.005 – 60,983 – – 60,983 30,492 30,491
1 Jan 2021-
31 Dec 2023 17 May 2024
277,262 60,983 (65,745) (28,109) 244,391 72,841 171,550
C. Rinn
9 April
2018 £7.5 4 25,579 – (17,918) (7,661)* – – –
1 Jan 2018-
31 Dec 2020 9 April 2021
12 April
2019 £8.48 26,291 – – – 26,291 13,145 13,146
1 Jan 2019-
31 Dec 2021 12 April 2022
10 Sept
2020 £7.37 32,434 – – – 32,434 – 32,434
1 Jan 2020-
31 Dec 2022 10 Sept 2023
17 May
2021 £12.005 – 18,911 – – 18,911 9,456 9,455
1 Jan 2021-
31 Dec 2023 17 May 2024
84,304 18,911 (17,918) (7,661) 77,636 22,601 55,035
* The market price at the date of vesting was £12.28.
** This is the earliest date for vesting. The actual date of vesting is subject to approval by the Remuneration Committee.
The Group’s previous long term incentive share scheme was approved by shareholders at the 2011 AGM and expired in April 2021. The Grafton
Group plc 2021 Long Term Incentive Plan (the “Plan”) was approved by shareholders at the Annual General Meeting of the Company held on
28 April 2021 and the first awards made under the Plan were on 17 May 2021.
Susan Murray
Chair of the Remuneration Committee
8 March 2022
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REPORT OF THE DIRECTORS
The Directors present their report to the shareholders together with the audited financial statements for the year ended 31 December 2021.
GROUP RESULTS
Group revenue from continuing operations which excludes the Traditional Merchanting Business in Great Britain that is classified as discontinued,
increased by 25.6 per cent to £2.11 billion (2020: £1.68 billion) and by 28.5 per cent in constant currency. Statutory operating profit was
£269.2 million (2020: £157.8 million). Adjusted operating profit from continuing operations of £288.0 million (2020: £170.6 million) increased
by 68.8 per cent.
The net finance expense decreased by £4.8 million to £19.4 million (2020: £24.2 million). This charge includes £14.6 million (2020: £15.6 million)
of an interest charge on lease liabilities recognised under IFRS 16.
The income tax expense of £43.0 million (2020: £24.1 million) is equivalent to an effective tax rate of 17.2 per cent on profit from continuing
operations (2020: 18.1 per cent).
Basic earnings per share from continuing operations was 86.4 pence (2020: 45.9 pence). Adjusted earnings per share from continuing operations
was 93.0 pence (2020: 50.3 pence).
The Group and Company financial statements for the year ended 31 December 2021 are set out in detail on pages 142 to 209.
DIVIDENDS
On 21 January 2021, the Group announced the reinstatement of the second interim dividend 2019 (which was originally due to be paid on 6 April 2020
but suspended on 24 March 2020) of 12.5p per share. This second interim dividend was paid on 19 February 2021 in the amount of £29.9 million.
A final dividend for 2020 of 14.5p per ordinary share in Grafton Group plc was approved by shareholders at the AGM on 28 April 2021 and paid on
5 May 2021 to shareholders on the register of members at the close of business on 9 April 2021.
An interim dividend for 2021 of 8.5p per ordinary share in Grafton Group plc was paid on 1 October 2021 to shareholders on the register of
members at the close of business on 3 September 2021. A final dividend for 2021 of 22.0p per ordinary share in Grafton Group plc is proposed for
approval by shareholders at the AGM on 28 April 2022 and, if approved, will be paid on 5 May to shareholders on the register of members at the
close of business on 8 April 2022. The ex-dividend date is 7 April 2022.
REVIEW OF THE BUSINESS
Shareholders are referred to the Chairman’s Statement, Chief Executive Officer’s Review, Sectoral and Strategic Review and Financial Review which
contain a review of operations and the financial performance of the Group for 2021, the outlook for 2022 and the key performance indicators used
to assess the performance of the Group. These are deemed to be incorporated in the Report of the Directors.
CAUTIONARY STATEMENT
Certain statements made in this Annual Report are forward looking statements. Such statements are based on current expectations and are subject
to a number of risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied by these
forward-looking statements. They appear in a number of places throughout this Annual Report and include statements regarding the intentions,
beliefs or current expectations of Directors and senior management concerning, amongst other things, the results of operations, financial conditions,
liquidity, prospects, growth rate and potential growth opportunities, potential operating performance improvements, the effects of competition and
the strategy of the overall Group and its individual businesses. You should not place undue reliance on forward looking statements. These forward
looking statements are made as at the date of this Directors Report. The Company and its Directors expressly disclaims any obligation to update or
revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.
The risk factors included on pages 64 to 69 of this Annual Report could cause the Group’s results to differ materially from those expressed in
forward-looking statements. There may be other risks and uncertainties that the Group is unable to predict at this time or that the Group currently
does not expect to have a material adverse effect on its business. These forward-looking statements are made as of the date of this Annual Report.
BOARD OF DIRECTORS
Under the Company’s Articles of Association, Directors are required to submit themselves to shareholders for election at the Annual General
Meeting following their appointment and all Directors are required to submit themselves for re-election at intervals of not more than three years.
However, in line with the provisions contained in the UK Corporate Governance Code, all Directors retired at the conclusion of the 2021 Annual
General Meeting and being eligible offered themselves for re-election. All Directors were re-elected to the Board on the same day.
The Board has decided that all Directors seeking re-election should retire at the 2022 Annual General Meeting and offer themselves for re-election.
SHARE CAPITAL
At an Extraordinary General Meeting on 21 January 2021, shareholders approved a resolution relating to the surrender and cancellation of the ‘A’
Ordinary Shares and the purchase of the ‘C’ Ordinary Shares and related waiver of rights. These changes took effect from 6.00 p.m. on 7 March
2021. From that date shareholders retained only their holdings of Ordinary Shares of 5 cent each in Grafton Group plc.
The Group has in place a number of employee share schemes, the details of which are set out in the Report of the Remuneration Committee on
Directors’ Remuneration and in Note 31 to the Group Financial Statements.
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Corporate Governance
ANNUAL GENERAL MEETING (AGM)
The AGM of the Company will be held at the Radisson Blu St. Helen’s Hotel, Stillorgan Road, Dublin, A94 V6W3 at 10.30am on 28 April 2022. The
Notice of Meeting for the 2022 AGM will be made available on the Group’s website, www.graftonplc.com. The resolutions to be considered at the
Annual General Meeting are summarised below.
FINANCIAL STATEMENTS
To receive and consider the Company’s financial statements for the year ended 31 December 2021 together with the reports of the Directors and
the Auditors.
FINAL DIVIDEND
Shareholders are being asked to declare a final dividend of 22.0 pence per Ordinary Share for the year ended 31 December 2021 payable on 5 May
2022 to the holders of Ordinary Shares on the register of members at close of business on 8 April 2022.
ELECTION/RE-ELECTION OF DIRECTORS
To elect/re-elect the directors of the Company.
CONTINUATION IN OFFICE OF AUDITORS
While it is not required under Irish law, an advisory, non-binding resolution is being presented in relation to the continuation of PwC in office as Auditors.
REMUNERATION OF THE AUDITORS
As required under Section 381(1)(b) of the Companies Act 2014, a resolution is being presented authorising the Directors to fix the remuneration of
the Auditors.
REPORT OF THE REMUNERATION COMMITTEE ON DIRECTORS’ REMUNERATION
In line with best practice, the Board is proposing to submit the Chairman’s Annual Statement and the Annual Report on Remuneration of the
Remuneration Committee (other than the Remuneration Policy Report which was approved at the 2020 AGM), as set out on pages 105 to 108 and
117 to 127, to a non-binding advisory vote.
NOTICE PERIOD FOR EXTRAORDINARY GENERAL MEETINGS
This resolution will, if adopted, maintain the existing authority in the Articles of Association which permits the Company to convene an extraordinary
general meeting on 14 days’ notice in writing where the purpose of the meeting is to consider an ordinary resolution. As a matter of policy, the 14
days’ notice will only be utilised where the Directors believe that it is merited by the business of the meeting and the circumstances surrounding the
business of the Meeting.
AUTHORITY TO ALLOT RELEVANT SECURITIES
Shareholders are being asked to renew the Directors’ authority to allot and issue any unissued ordinary share capital of the Company. The total
number of shares which the Directors may issue under this authority will be limited to approximately 27 per cent of the issued share capital of the
Company. The Directors have no present intention to make a share issue other than in respect of employee share schemes.
DISAPPLICATION OF PRE-EMPTION RIGHTS
At each Annual General Meeting, the Directors seek authority to disapply statutory pre-emption rights in relation to allotments of shares for cash up
to an aggregate nominal value for all allotments and all treasury shares of approximately €599,028 representing five per cent of the nominal value of
the issued ordinary share capital of the Company.
Under the Articles of Association, shareholders are required to renew this power at each year’s Annual General Meeting. The Directors confirm their
intention to follow the provisions of the Pre-emption Principles regarding cumulative usage of authorities within a rolling three-year period. These
principles provide that companies should consult shareholders prior to issuing, other than to existing shareholders, shares for cash representing in
excess of 7.5 per cent of the Company’s issued share capital in any rolling three-year period.
AUTHORITY TO MAKE MARKET PURCHASES OF THE COMPANY’S OWN SHARES
At the 2021 Annual General Meeting, shareholders gave the Company and/or any of its subsidiaries authority to make market purchases of up to 10
per cent of the Company’s own shares. Shareholders are being asked to renew this authority.
The Directors consider it appropriate to maintain the flexibility that this authority provides. The Directors monitor the Company’s share price and
may from time to time exercise this power to make market purchases of the Company’s own shares, at price levels which they consider to be in the
best interests of the shareholders generally, after taking account of the Company’s overall financial position. The minimum price which may be paid
for any market purchase of the Company’s own shares will be the nominal value of the shares and the maximum price which may be paid will be
105 per cent of the then average market price of the shares. The Directors have no present intention to exercise this authority.
AUTHORITY TO RE-ISSUE TREASURY SHARES
Shareholders are being asked to sanction the price range at which any treasury share (that is a share of the Company redeemed or purchased
and held by the Company rather than being cancelled) may be re-issued other than on the Stock Exchange. The maximum and minimum prices
at which such a share may be re-issued are 120 per cent and 95 per cent respectively of the average market price of a share calculated over the
five business days immediately preceding the date of such re-issue.
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Annual Report and Accounts 2021
The authorities which will be sought at the forthcoming AGM to allot relevant securities, dis-apply pre-emption rights, purchase the Company’s
Units and re-issue treasury shares will, if granted, expire on the earlier of the date of the Annual General Meeting in 2023 or 15 months after the
passing of these resolutions.
AMENDMENT TO TRUST DEED FOR GROUP SHARE PARTICIPATION SCHEME
Shareholders are asked to approve a change to the definition of Eligible Employee in the Trust Deed relating to the Grafton Group plc Employee
Share Participation Scheme which would reduce the service requirement for participation in the scheme from 18 months to six months.
SUBSTANTIAL HOLDINGS
So far as the Company is aware, the following held shares representing 3 per cent or more of the ordinary share capital of the Company
(excluding treasury shares) at 31 December 2021 and 1 March 2022:
31 December 2021 1 March 2022
Name Holding % Holding %
Mr. Michael Chadwick* 21,926,409 9.15 21,926,409 9.15
Investec Asset Management Limited 19,046,178 7.95 19,046,178 7.95
Blackrock, Inc. 18,866,053 7. 87 16,640,432 6.94
ABRDN plc 13,692,322 5.72 13,364,058 5.58
JPMorgan Asset Management Holdings Inc. 9,557,700 3.99 9,190,317 3.84
Dimensional Fund Advisors LP 9,513,966 3.97 9,513,966 3.97
Aegon N.V. 8,694,488 3.63 8,694,488 3.63
Aviva plc 7,13 3,5 0 3 2.98 7,202,072 3.01
GLG Partners LP – – 7,236,268 3.02
* Beneficial holding of 19,436,079 Grafton Units and non-beneficial holding of 2,490,330 Grafton Units.
Apart from these holdings, the Company has not been notified at 1 March 2022 or at 31 December 2021 of any interest of 3 per cent or more in its
ordinary share capital.
Directors’ and Secretary’s interests in the share capital of the Company are set out in the Report of the Remuneration Committee on
Directors’ Remuneration.
ACCOUNTING RECORDS
The Directors are responsible for ensuring that adequate accounting records are maintained by the Company as required by Sections 281-285
of the Companies Act, 2014. The Directors believe that they have complied with this requirement by providing adequate resources to maintain
proper books and accounting records throughout the Group including the appointment of personnel with appropriate qualifications, experience
and expertise. The books and accounting records of the Company are maintained at Heron House, Corrig Road, Sandyford Business Park,
Dublin 18, Ireland.
TAKEOVER REGULATIONS 2006
The capital structure of the Company is detailed in Note 18 to the Group Financial Statements. Details of employee share schemes are set out in
Note 31. In the event of a change of control, the vesting/conversion/ exercise of share entitlements/options may be accelerated. The Group’s
borrowing facilities may require repayment in the event of a change of control. The Company’s Articles of Association provide that the business
of the Company shall be managed by the Directors, who may exercise all such powers of the Company subject to the Companies Act and the
Articles of Association. Details of the powers of the Directors in relation to the issuing or buying back by the Company of its shares are set out
above. The Company’s Memorandum and Articles of Association, which are available on the Company’s website, www.graftonplc.com, are
deemed to be incorporated in this part of the Report of the Directors.
CORPORATE GOVERNANCE REGULATIONS
As required by company law, the Directors have prepared a Report on Corporate Governance which is set out on pages 90 to 97 and which, for
the purposes of Section 1373 of the Companies Act 2014, is deemed to be incorporated in this part of the Report of the Directors. This includes
the Report of the Audit and Risk Committee. Details of the capital and employee share schemes are included in Notes 18 and 31 respectively.
DIRECTORS COMPLIANCE STATEMENT
It is the policy of the Company to comply with its relevant obligations as defined in the Companies Act 2014. The Directors have drawn up a
compliance policy statement as defined in section 225(3)(a) of the Companies Act 2014. Arrangements and structures have been put in place
that are, in the directors’ opinion, designed to secure a material compliance with the Company’s relevant obligations. These arrangements and
structures were reviewed by the Company during the financial year. As required by section 225(2) of the Companies Act 2014, the Directors
acknowledge that they are responsible for the Company’s compliance with its relevant obligations. In discharging their responsibilities under
section 225, the Directors relied on the advice of third parties who they believe have the requisite knowledge and experience to advise the
Company on compliance with its relevant obligations.
REPORT OF THE DIRECTORS continued
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Annual Report and Accounts 2021
Corporate Governance
PRINCIPAL RISKS AND UNCERTAINTIES
The Company is required under Irish company law to give a description of the principal risks and uncertainties. These principal risks
and uncertainties are set out on pages 64 to 69 and are deemed to be incorporated in this section of the Report of the Directors.
TRANSPARENCY REGULATIONS 2007 AND THE EUROPEAN UNION (DISCLOSURE OF NON-FINANCIAL
AND DIVERSITY INFORMATION BY CERTAIN LARGE UNDERTAKINGS AND GROUPS) REGULATIONS 2017
The following are deemed to be incorporated in this part of the Report of the Directors:
Reporting Requirement Location of Information Page
Environmental Matters Sustainability Report 72 to 74
Social & Employee Matters Sustainability Report 75 to 79
Our People and Culture 14 to 15
Engaging with our Stakeholders 16 to 17
Note 11 to the Group Financial Statements 164
Note 6 to the Group Financial Statements 161
Diversity Sustainability Report 78 to 79
Nomination Committee Report 94
Human Rights Sustainability Report 81
Anti-bribery & Corruption Sustainability Report 81
Audit & Risk Committee Report 100
Business Model Business Model 24 to 25
Non-Financial KPIs Key Performance Indicators 38 to 39
Sustainability Report 73 to 74
Principal Risks Risk Management 64 to 49
Financial Instruments Note 21 to the Group Financial Statements 178 to 183
SUBSIDIARIES
The Group’s principal operating subsidiary undertakings are set out on page 208.
POLITICAL CONTRIBUTIONS
There were no political contributions which require disclosure under the Electoral Act, 1997.
EVENTS AFTER THE BALANCE SHEET DATE
There have been no material events subsequent to 31 December 2021 that would require adjustment to or disclosure in this report, save as
disclosed in Note 34 on page 199.
AUDITOR
The statutory Auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office in accordance with Section 382 (2) of the
Companies Act 2014 and a resolution authorising the Directors to fix their remuneration will be submitted to the Annual General Meeting.
DISCLOSURE OF INFORMATION TO STATUTORY AUDITORS
In accordance with the provisions of section 330 of the Companies Act 2014, each of the persons who are Directors of the Company at the date of
approval of this report confirms that:
• So far as the Director is aware, there is no relevant audit information (as defined in the Companies Act 2014) of which the statutory Auditor is
unaware; and
• The Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information
(as defined) and to ensure that the statutory Auditor is aware of such information.
On behalf of the Board.
Gavin Slark David Arnold
Director Director
8 March 2022 8 March 2022
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Annual Report and Accounts 2021
132
Building
stronger
financials
Financial statements
Statement of Directors’ Responsibilities 134
Independent Auditor’s Report 136
Group Income Statement 142
Group Comprehensive Income Statement 143
Group Balance Sheet 144
Group Cash Flow Statement 145
Group Statement of Changes in Equity 146
Notes to the Group Financial Statements 148
Company Balance Sheet 200
Company Statement of Changes in Equity 201
Notes to the Company
Financial Statements 202
Grafton Group plc
Annual Report and Accounts 2021
133
Financial Statements
Total Revenue 2020
£1.68bn
Total Revenue 2021
£2.11bn
+26%
RECORD RESULTS AND
CONTINUED GROWTH
Grafton achieved record results
in 2021, a year that also marked
the completion of a key phase of
our strategic development with
the divestment of the traditional
merchanting business in Great
Britain. We also continued to
invest both organically and through
acquisitions in our existing businesses
and in July we acquired IKH in
Finland which provides a new
growth platform in the Nordics.
For more see pages 4 to 5
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Annual Report and Accounts 2021
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements, in accordance with applicable law
and regulations.
Irish law requires the Directors to prepare Group and Company financial statements each year. Under that law, the Directors have prepared the
Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and
have prepared the Company financial statements in accordance with Generally Accepted Accounting Practice in Ireland (accounting standards
issued by the Financial Reporting Council of the UK, including Financial Reporting Standard 101 Reduced Disclosure Framework and Irish law.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
assets, liabilities and financial position of the Group and Company as at the end of the financial year and the profit or loss of the Group for the
financial year.
In preparing these financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State that the Group financial statements comply with IFRS as adopted by the European Union, and as regards the Company, have been prepared
in accordance with Generally Accepted Accounting Practice in Ireland (accounting standards issued by the Financial Reporting Council of the
UK, including Financial Reporting Standard 101 Reduced Disclosure Framework and Irish law; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue
in business.
The Directors are also required by the Companies Act 2014 and the Listing Rules to include a report containing a fair review of the business and a
description of the principal risks and uncertainties facing the Group.
The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities,
and financial position, and which enable them to ensure that the financial statements of the Company comply with the provisions of the Companies
Act 2014. The Directors are also responsible for taking all reasonable steps to ensure such records are kept by its subsidiaries which enable them to
ensure that the financial statements of the Group comply with the provisions of the Companies Act 2014. They are also responsible for
safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website
(www.graftonplc.com). Legislation in the Republic of Ireland concerning the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
RESPONSIBILITY STATEMENT AS REQUIRED BY THE LISTING RULES
AND THE UK CORPORATE GOVERNANCE CODE
Each of the Directors, whose names and functions are listed on pages 88 and 89 of this Annual Report, confirm that, to the best of each person’s
knowledge and belief:
• The Group financial statements, prepared in accordance with IFRS as adopted by the European Union and the Company financial statements
prepared in accordance with Generally Accepted Accounting Practice in Ireland (accounting standards issued by the Financial Reporting
Council of the UK, including Financial Reporting Standard 101 Reduced Disclosure Framework, and promulgated by the Institute of Chartered
Accountants in Ireland) and Irish law, as applied in accordance with the provisions of the Companies Act 2014, give a true and fair view of the
assets, liabilities, financial position of the Group and Company at 31 December 2021 and of the profit of the Group for the year then ended;
• The Report of the Directors contained in the Annual Report includes a fair review of the development and performance of the business and
the position of the Group and that a fair description of the principal risks and uncertainties faced by the Group is provided on pages 64 to 69; and
• The Annual Report and Consolidated Financial Statements, taken as a whole, provides the information necessary for shareholders to assess the
Company’s and Group’s position and performance, business model and strategy and is fair, balanced and understandable.
On behalf of the Board
Gavin Slark David Arnold
Director Director
8 March 2022
DIRECTORS’ RESPONSIBILITY STATEMENT
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Annual Report and Accounts 2021
Financial Statements
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
• Grafton Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the
Group’s and the Company’s assets, liabilities and financial position as at 31 December 2021 and of the Group’s profit and cash flows for the
year then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as
adopted by the European Union;
• the Company financial statements have been properly prepared in accordance with Generally Accepted Accounting Practice in Ireland
(accounting standards issued by the Financial Reporting Council of the UK, including Financial Reporting Standard 101 “Reduced Disclosure
Framework” and Irish law); and
• the financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014.
We have audited the financial statements, included within the Annual Report and Accounts 2021 (the “Annual Report”), which comprise:
• the Group Balance Sheet as at 31 December 2021;
• the Company Balance Sheet as at 31 December 2021;
• the Group Income Statement and Group Statement of Comprehensive Income for the year then ended;
• the Group Cash Flow Statement for the year then ended;
• the Group Statement of Changes in Equity for the year then ended;
• the Company Statement 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.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (Ireland) (“ISAs (Ireland)”) and applicable law. Our responsibilities
under ISAs (Ireland) 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
Ireland, which includes IAASA’s Ethical Standard as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
OUR AUDIT APPROACH
OVERVIEW
Materiality
Materiality
Key audit
matters
Audit sco
p
e
• £9.75 million (2020: £8.0 million) – Group financial statements
• Equates to c. 4% of profit before tax (2020: Based on c. 5% of an average of profit before tax for the three
years, FY18 to FY20).
• €7.1 million (2020: €7.5 million) - Company financial statements.
• Equates to c. 0.4% of total assets (2020: c. 0.5% of total assets).
Audit scope
• We conducted an audit of the complete financial information of 10 of the Group’s 15 reporting components
across the United Kingdom, Ireland, the Netherlands and Finland. These accounted for in excess of 90% of
the Group’s revenue, in excess of 87% of Group profit before tax from continuing operations and in excess
of 90% of the Group’s total assets.
Key audit matters
• Valuation of goodwill.
• Completeness and accuracy of rebate income and valuation of rebate receivables.
• Valuation of inventory.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFTON GROUP PLC
136
Grafton Group plc
Annual Report and Accounts 2021
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. In particular,
we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override
of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due
to fraud.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the key audit matter
Valuation of goodwill
Refer to page 101 (Audit and Risk Committee Report), note 1,
Summary of significant accounting policies and note 12, Goodwill.
As at 31 December 2021 Goodwill amounted to £599.8 million.
Goodwill is allocated to 5 groups of Cash Generating Units (“CGUs”)
in order to conduct impairment testing. The groups of CGUs
represent the lowest level within the Group at which goodwill is
monitored for internal management purposes.
Goodwill must be tested for impairment on at least an annual basis.
The Group tests goodwill for impairment using value-in-use (“VIU”)
models. The cash flows included in these VIU models are those
included in the management approved budget for 2022 and
management approved forecasts for the following years from 2023
to 2026 with long-term growth rates being used to estimate cash
flows beyond that period.
As set out in note 12 to the financial statements, impairment testing
of goodwill involves a number of areas of judgement and estimates,
in particular estimating the revenue growth and operating margin
assumptions in the years 2022 to 2026, long term growth rates used
in estimating cash flows for the purposes of calculating a terminal
value and pre-tax discount rates for each CGU.
Goodwill of £126.3 million has been allocated to the traditional
merchanting business within the UK Distribution CGU and therefore
has been accounted for as disposed as part of that business. The
allocation of goodwill to the traditional merchanting business has
been determined based on the relative values of the traditional
merchanting business and the portion of the UK Distribution CGU
which has been retained at the disposal date of 30 June 2021.
We determined valuation of goodwill to be a key audit matter:
• due to the significance of this asset, which accounts for 20% of
total assets of the Group at 31 December 2021,
• as the Directors’ assessment of the recoverable amount of
goodwill involves complex and subjective judgements about the
future results of the business, and
• because the allocation of goodwill to the disposed traditional
merchanting business involves subjective judgements regarding
the valuation of the residual UK Distribution CGU.
We agreed the underlying cash flow forecast models for each of the
groups of CGUs to the management approved budget and forecasts and
checked the mathematical accuracy of the models.
We considered the reliability of management’s forecasting process by
considering how actual results compared to forecasts for the years 2016
to 2021.
We critically assessed and challenged management on the key
assumptions included in the models, in particular the revenue growth and
operating margin assumptions over the period 2022 to 2026.
We compared the growth rates to external data and considered them to
be within reasonable ranges. We assessed the appropriateness of
forecast operating margins through comparison to actual historic
margins achieved.
We assessed the appropriateness of the Group’s forecast long term
growth rates used to calculate terminal values by comparing them to
independent sources. We found that the rates were within a reasonable
range.
With assistance from our in-house valuation experts, we also considered
the appropriateness of the discount rates applied to each of the groups of
CGUs by recalculating an acceptable range of discount rates using
observable inputs from independent external sources and concluded the
discount rates used by management fell within that range.
We performed sensitivity analyses on the impact of changes in key inputs
and assumptions on the goodwill impairment assessment, focussing on
the cash flows, discount rate and the rates of growth assumed by
management.
We also assessed management’s estimate of the value of goodwill
allocated to the disposed traditional merchanting business at the
disposal date of 30 June 2021.
We assessed the appropriateness of the related disclosures in note 12 to
the Group’s financial statements.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFTON GROUP PLC continued
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Annual Report and Accounts 2021
Financial Statements
Key audit matter How our audit addressed the key audit matter
Completeness and accuracy of rebate income and valuation of
rebate receivables
Refer to page 101 (Audit and Risk Committee Report), note 1,
Summary of Significant Accounting Policies and note 17a, Trade and
Other Receivables.
The Group has entered into rebate arrangements with a significant
number of its suppliers. Supplier rebates received and receivable in
respect of goods purchased are deducted from cost of sales in the
income statement, or the cost of inventory to the extent that those
goods remain in inventory at the year end.
Due to the nature of the agreements in place, a significant portion of
the Group’s supplier rebate income recognised during the year is not
finalised or received until after the year end. Certain arrangements
have volume targets that span the year end. In addition, in certain
businesses of the Group, the process for calculating rebate income
requires manual input and use of spreadsheets.
We determined this to be a key audit matter as the calculation of
supplier rebates recognised in the year and the rebates receivable at
31 December 2021 involves the use of estimates and because of the
manual nature of the underlying calculations in some businesses.
We assessed the reasonableness of the significant estimates made by
management in the calculation of rebate income and rebate receivables.
We recalculated, on a sample basis, rebate income recognised during the
year and year end receivables by reference to supplier agreements and
purchases reports. Where arrangements had volume targets, we
assessed the appropriateness of assumptions made by reference to
actual purchases in the period. For a sample of suppliers, we obtained
third party confirmation of rebate income and rebates due at
31 December 2021. Where responses were not received, we performed
alternative procedures including obtaining rebate agreements and
re-computing rebate income and rebates receivable.
We also considered the actual results of the collection of rebates during
the year, including those relating to the prior year, comparing the amount
collected to the related estimated rebates receivable and noted that
recovered amounts did not vary significantly from amounts estimated.
We assessed the appropriateness of the related disclosures within the
financial statements
Valuation of inventory
Refer to page 101 (Audit and Risk Committee Report), note 1,
Summary of significant accounting policies and note 16, Inventories.
Inventory, net of provisions at 31 December 2021 amounted to
£344.2 million. The inventory provision at 31 December 2021 was
£41.9 million. The Group holds a significant number of product lines
across its branch network in the UK, Ireland, the Netherlands and
Finland. Significant judgement is exercised by management in
assessing the level of inventory provision in respect of slow-moving
or obsolete inventory.
Management assesses the required level of provision based on a
model that reflects the age of inventory on hand at year end and
other considerations in respect of specific inventory.
Where inventory on which rebates have been earned is held at the
year end, an appropriate rebate deduction is made from the gross
carrying value of that inventory.
We determined this to be a key audit matter due to the judgement
and complexity involved in estimating the inventory provisions
across multiple product lines and locations.
We tested the accuracy of inventory ageing reports where they supported
the calculation of inventory provisions by selecting a sample of inventory
items on hand and testing the aged classification by reference to
purchase documentation.
We recomputed provisions recorded to assess whether they were in line
with Group policy. We assessed the appropriateness of Group policy by
reference to past experience. We also obtained an understanding from
management of plans to liquidate slower moving inventory and we
considered the appropriateness of provisions made.
In locations where stocktaking occurred before the year end, we
evaluated the reasonableness of the shrinkage provisions recorded by
reference to the historical shrinkage experience of those businesses.
We recalculated on a sample basis the rebates allocated to inventory held
at year end, by reference to rebate arrangements applying to those
purchases.
We concluded that provisions were within a reasonable range.
We assessed the appropriateness of the related disclosures within the
financial statements.
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Annual Report and Accounts 2021
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, the accounting processes and controls, and the industry in which the Group operates.
The Group financial statements are a consolidation of 15 reporting components across 4 geographical markets. The Group’s accounting process is
structured around a local finance function for each of the reporting components. These functions maintain their own accounting records and
controls and report to the head office finance team in Dublin.
In establishing the scope of the Group audit, we identified 3 reporting components that each contribute over 15% of Group profit before tax and/or
Group turnover, which in our view required an audit of their complete financial information due to their size and financial significance to the Group.
A further 7 reporting components had an audit of their complete financial information based on our risk assessment, the materiality of the reporting
component and statutory audit requirements.
This resulted in a total of 10 reporting components being subject to an audit of their full financial information. Specific audit procedures on certain
balances and transactions were performed at 3 of the remaining reporting components primarily to ensure appropriate audit coverage.
The full scope audits of reporting components and Group functions accounted for in excess of 87% of the Group’s revenue, profit before tax and
total assets.
The Group team was responsible for the scope and direction of the audit process. The Group audit team performed the work on 4 components.
PwC ROI and other PwC network firms performed work on 5 components and 1 component was audited by a non-PwC network firm, operating
under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the
audit work at those reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our
opinion on the Group financial statements as a whole.
Due to restrictions on travel and social distancing measures, enacted as a response to the global pandemic, the Group audit team did not physically
visit component teams in the current year but have interacted regularly with the component teams during all stages of the audit. The Group audit
team attended all 10 of the component audit closing meetings with local management by video conference. We obtained and considered the
detailed findings reports from all component teams. In addition, the Group audit team reviewed working papers of the auditors for the significant
components and the component that was audited by a non-PwC network firm.
As part of our audit, we made enquiries of management to understand their assessment of the potential impact of climate change risk on the
judgements and estimates used in the Group’s financial statements, specifically in the impairment analysis. Management considers that the impact
of climate change does not give rise to a material financial statement impact in this context. We used our knowledge of the Group to evaluate
management’s assessment. In particular, we considered how climate change risks could impact the assumptions made in the forecasts prepared
by management. We also considered the consistency of the disclosures in relation to climate change made in the other information within the
Annual Report with the financial statements and our knowledge from our 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:
Group financial statements Company financial statements
Overall materiality £9.75 million (2020: £8.0 million). €7.1 million (2020: €7.5 million).
How we determined it Equates to c. 4% of profit before tax
(2020: Based on c. 5% of an average of profit
before tax for the three years, FY18 to FY20.
Equates to c. 0.4% of total assets
(2020: c. 0.5% of total assets)
Rationale for benchmark applied We have applied this benchmark as profit
before tax is a key accounting benchmark,
which is also a key performance indicator
for the Group.
We considered total assets to be the most
relevant benchmark as the Company is primarily
an investment holding company which holds
investments in subsidiaries and receivables
from Group companies.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £487,500 (Group audit) (2020:
£400,000) and €355,000 (Company audit) (2020: €375,000) as well as misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFTON GROUP PLC continued
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Annual Report and Accounts 2021
Financial Statements
CONCLUSIONS RELATING TO GOING CONCERN
Our evaluation of the directors’ assessment of the Group and Company’s ability to continue to adopt the going concern basis of accounting
included evaluating management’s budgets and forecasts for the going concern assessment period (being the period of twelve months from the
date on which the financial statements are authorised for issue) and challenging the key assumptions. In evaluating these forecasts we considered
the Group’s historic performance, its past record of achieving strategic objectives and its financial performance and liquidity for the going concern
assessment period.
We also considered whether the assumptions underlying the budget and forecasts were consistent with related assumptions used in other areas of
the entity’s business activities, for example in testing for goodwill impairment; assessed liquidity through the going concern assessment period
including considering the Group’s available financing and maturity profile of facilities; tested the mathematical integrity of the budgets, forecasts
and models and reconciled these to Board approved budgets; and reperformed management’s sensitivity analysis to assess appropriate downside
scenarios.
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 or the Company’s ability to continue as a going concern for a period of at least twelve months
from the date on which 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 or the Company’s ability
to continue as a going concern.
In relation to the Company’s 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.
We are required to report if the directors’ statement relating to going concern in accordance with Rule 9.8.6R(3) of the Listing Rules of the
UK Financial Conduct Authority is materially inconsistent with our knowledge obtained in the audit. We have nothing to report in respect of
this responsibility.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
140
Grafton Group plc
Annual Report and Accounts 2021
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report and Accounts 2021 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 Report of the Directors, we also considered whether the disclosures required by the Companies Act 2014 (excluding the
information included in the “Non Financial Statement” as defined by that Act on which we are not required to report) have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (Ireland), the Companies Act 2014 (CA14)
and the Listing Rules applicable to the Company (Listing Rules) require us to also report certain opinions and matters as described below (required
by ISAs (Ireland) unless otherwise stated).
Report of the Directors
• In our opinion, based on the work undertaken in the course of the audit, the information given in the Report of the Directors (excluding the
information included in the “Non Financial Statement” on which we are not required to report) for the year ended 31 December 2021 is consistent
with the financial statements and has been prepared in accordance with the applicable legal requirements. (CA14)
• Based on our 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 Report of the Directors (excluding the information included in the “Non Financial Statement” on which
we are not required to report). (CA14)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing material to add or to draw attention to regarding:
• The directors’ confirmation on page 64 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
Group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 63 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding of the Group and the Company and their environment obtained in the course
of the audit. (Listing Rules)
Other Code provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors on page 134 that they consider the Annual Report taken as a whole to be fair, balanced and understandable
and provides the information necessary for the members to assess the Group’s and Company’s position and performance, business model and
strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit.
• The section of the Annual Report on pages 98 to 101 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of
the Code specified, under the Listing Rules, for review by the auditors.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF GRAFTON GROUP PLC continued
141
Grafton Group plc
Annual Report and Accounts 2021
Financial Statements
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 (Ireland) 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.
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 IAASA website at:
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsibilities_for_audit.pdf
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 section 391 of the
Companies Act 2014 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 2014 OPINIONS ON OTHER MATTERS
• We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
• In our opinion the accounting records of the Company were sufficient to permit the Company financial statements to be readily
and properly audited.
• The Company Balance Sheet is in agreement with the accounting records.
OTHER EXCEPTION REPORTING
DIRECTORS’ REMUNERATION AND TRANSACTIONS
Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of directors’ remuneration and transactions
specified by sections 305 to 312 of that Act have not been made. We have no exceptions to report arising from this responsibility.
PRIOR FINANCIAL YEAR NON FINANCIAL STATEMENT
We are required to report if the Company has not provided the information required by Regulation 5(2) to 5(7) of the European Union (Disclosure of
Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 in respect of the prior financial year. We have
nothing to report arising from this responsibility.
Siobhán Collier
for and on behalf of PricewaterhouseCoopers
Chartered Accountants and Statutory Audit Firm
Dublin
8 March 2022
142
Grafton Group plc
Annual Report and Accounts 2021
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
Notes
2021
£’000
2020 Restated
£’000
Revenue 2 2, 109 ,909 1,679, 247
Operating costs before exceptional items 3 (1 , 857 ,487 ) (1, 5 18 , 8 6 8 )
Property profits/(losses) 16 , 74 0 (8 3 )
Operating profit before exceptional items 269, 1 62 160,296
Exceptional items 4 – (2 , 4 8 1 )
Operating profit 269, 1 62 15 7, 8 15
Finance expense 7 (21, 2 6 9 ) (24 ,9 3 6 )
Finance income 7 1, 9 0 4 698
Profit before tax 24 9,79 7 13 3 , 5 7 7
Income tax charge 9 (42,952 ) (2 4 ,14 9 )
Profit after tax for the financial year from continuing operations 206,8 45 109, 428
Profit/(loss) after tax from discontinued operations 27 1 34,422 (1, 8 8 6 )
Profit after tax for the financial year 3 41 , 2 67 1 0 7, 5 4 2
Profit attributable to:
Owners of the Parent 3 41, 26 7 1 0 7, 5 4 2
Profit attributable to:
Continuing operations 206,84 5 109, 428
Discontinued operations 1 34,422 (1, 8 8 6 )
Earnings per ordinary share (continuing operations) – basic 11 86.4 4 p 4 5 .9 0 p
Earnings per ordinary share (continuing operations) – diluted 11 86.27 p 4 5.89 p
Earnings per ordinary share (discontinued operations) – basic 11 5 6 .1 7 p (0.7 9 p)
Earnings per ordinary share (discontinued operations) – diluted 11 5 6.06 p (0 .7 9 p)
Earnings per ordinary share (total) – basic 11 14 2 . 61 p 4 5 .11 p
Earnings per ordinary share (total) – diluted 11 1 42.33 p 4 5 .1 0 p
On behalf of the Board
Gavin Slark David Arnold
Director Director
8 March 2022
143
Grafton Group plc
Annual Report and Accounts 2021
Financial Statements
Notes
2021
£’000
2020
£’000
Profit after tax for the financial year 3 41, 26 7 1 0 7, 5 4 2
Other comprehensive income
Items that are or may be reclassified subsequently to the income statement
Currency translation effects:
– on foreign currency net investments (2 5 ,16 8 ) 1 1 , 777
Fair value movement on cash flow hedges:
– Effective portion of changes in fair value of cash flow hedges 57 (74 )
Deferred tax on cash flow hedges 25 – –
(2 5 ,111 ) 11, 7 0 3
Items that will not be reclassified to the income statement
Remeasurement gain/(loss) on Group defined benefit pension schemes 30 14 , 8 8 6 (2 1, 7 7 9 )
Deferred tax on Group defined benefit pension schemes 25 (3 , 2 12 ) 3,70 9
Total other comprehensive expense (13 , 4 3 7 ) (6 , 3 6 7 )
Total comprehensive income for the financial year 3 2 7, 8 3 0 10 1,1 7 5
Total comprehensive income attributable to:
Owners of the Parent 3 2 7, 8 3 0 10 1 ,17 5
Total comprehensive income for the financial year 3 2 7, 8 3 0 10 1,1 7 5
On behalf of the Board
Gavin Slark David Arnold
Director Director
8 March 2022
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
144
Grafton Group plc
Annual Report and Accounts 2021
GROUP BALANCE SHEET
AS AT 31 DECEMBER 2021
Notes
2021
£’000
2020
£’000
ASSETS
Non – current assets
Goodwill 12 5 9 9, 810 704,064
Intangible assets 15 14 4 , 3 2 7 115 , 9 0 5
Property, plant and equipment 13(a) 3 19, 2 9 5 493 ,5 39
Right – of – use asset 13(b) 42 1, 2 5 4 505, 922
Investment properties 13(d) 26,527 12 , 3 2 8
Deferred tax assets 25 8 ,793 13 , 3 8 6
Lease receivable 17(b) 8 81 2 , 0 15
Retirement benefit assets 30 3,596 2,099
Other financial assets 14 12 6 12 8
Total non – current assets 1,5 24,609 1 ,8 4 9 ,386
Current assets
Properties held for sale 13(c) 6 ,12 5 18 , 0 5 8
Inventories 16 3 4 4 ,17 2 3 2 1, 5 5 8
Trade and other receivables 17(a) 233,4 86 3 3 6 ,9 4 4
Finance lease receivable 17(b) 212 3 01
Cash and cash equivalents 20 8 44,6 63 45 6,028
Total current assets 1 ,428, 658 1 ,13 2 , 8 8 9
Total assets 2, 9 53 ,2 6 7 2,9 82,27 5
EQUITY
Equity share capital 18 8,570 8,5 69
Share premium account 18 2 19 , 4 4 7 2 16 , 4 9 6
Capital redemption reserve 19 643 621
Revaluation reserve 19 12 , 519 12 , 7 3 3
Shares to be issued reserve 19 11 , 8 3 7 6 , 7 14
Cash flow hedge reserve 19 (8 ) (6 5 )
Foreign currency translation reserve 19 56 ,751 8 1 ,9 19
Retained earnings 1, 413 , 7 3 7
Treasury shares held 18 (3 , 89 7 ) (3, 8 9 7 )
Total equity attributable to owners of the Parent 1, 7 19, 5 9 9 1 ,4 67 ,023
LIABILITIES
Non – current liabilities
Interest – bearing loans and borrowings 20 172 , 6 0 1 2 74 , 0 3 0
Lease liabilities 20 396,070 4 7 9 , 0 19
Provisions 23 14 , 8 6 2 20,620
Retirement benefit obligations 30 15 , 0 6 7 52 ,6 83
Deferred tax liabilities 25 56,402 5 4,399
Total non – current liabilities 655,002 8 8 0 ,751
Current liabilities
Interest – bearing loans and borrowings 20 84,03 0 –
Lease liabilities 20 52 ,92 4 5 7, 9 1 5
Derivative financial instruments 22 8 65
Trade and other payables 24 4 19 ,111 5 4 5 ,9 4 9
Current income tax liabilities 15 , 9 5 6 2 1 ,11 6
Provisions 23 6,6 37 9,4 5 6
Total current liabilities 578, 666 6 3 4, 501
Total liabilities 1,233,668 1, 5 15 , 2 5 2
Total equity and liabilities 2, 9 53 ,2 6 7 2,9 82,27 5
On behalf of the Board
Gavin Slark David Arnold
Director Director
8 March 2022
145
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Annual Report and Accounts 2021
Financial Statements
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021
Notes
2021
£’000
2020 Restated
£’000
Profit before taxation from continuing operations 24 9,79 7 13 3 , 5 7 7
Profit/(loss) before taxation from discontinued operations 27 1 43,846 (8 3 9 )
Profit before taxation (including discontinued operations) 393,64 3 13 2 , 7 3 8
Finance income 7 (1, 9 0 4 ) (6 9 8 )
Finance expense (continuing and discontinued) 7 22,512 2 7, 6 3 9
Operating profit (including discontinued operations) 414 , 2 5 1 159,679
Depreciation 13(a)(b) 9 7, 8 9 4 1 0 7, 2 1 2
Amortisation of intangible assets 15 1 7,1 8 4 14 ,14 6
Share – based payments charge 31 5, 601 7 19
Movement in provisions 23 (1, 95 0 ) 3,9 5 4
Loss on sale of property, plant and equipment 522 1, 2 9 4
Property profit – continuing operations (6 , 8 9 0 ) (2 , 613 )
Property profit – discontinued operations (39 6 ) –
Fair value gains recognised as property profits 13(d) (9 , 85 0 ) –
Asset impairment and fair value losses 13 24 8 5, 498
Profit on sale of Group businesses 27 (12 5 ,11 6 ) –
Gain on derecognition of leases (5 0 0 ) –
Contribution to pension schemes (in excess of)/less than IAS 19 charge 30 (2 3 ,6 5 0 ) 6,6 39
(Increase)/decrease in working capital 26 (6 4 ,12 9 ) 8 1 ,16 4
Cash generated from operations 3 0 3 , 219
Interest paid (20 , 4 6 4 ) (27,272 )
Income taxes paid 9 (4 3 , 7 2 2 ) (34,087 )
Cash flows from operating activities 2 3 9,0 3 3 3 1 6,333
Investing activities
Inflows
Proceeds from sale of property, plant and equipment 2 , 6 11 816
Proceeds from sale of properties held for sale 18 , 8 8 1 6, 378
Proceeds from sale of investment properties 756 –
Proceeds from sale of Group businesses (net) 27 498,530 –
Interest received 19 3 698
Outflows
Acquisition of subsidiary undertakings and businesses (net of cash acquired) 27 (12 3 , 3 0 9 )
(47,508 )
Investment in intangible assets – computer software 15 (82 7 ) (1, 8 9 3 )
Purchase of property, plant and equipment 13(a) (4 3 , 616 ) (3 5 ,18 2 )
(1 6 7, 7 5 2 ) (8 4 , 5 8 3 )
Cash flows from investing activities 3 5 3 , 2 19 (7 6 , 6 9 1 )
Financing activities
Inflows
Proceeds from the issue of share capital 2 , 9 74 2,8 30
Proceeds from borrowings 96,897 2 61 , 0 9 9
Outflows
Repayment of borrowings (15 2 , 0 0 4 ) (3 4 8 , 6 3 6 )
Dividends paid 10 (8 4,9 21 ) –
Payment on lease liabilities (5 6 ,0 4 3 ) (5 6 , 4 93 )
(29 2 ,9 6 8 ) (4 0 5 ,12 9 )
Cash flows from financing activities (1 93,097 ) (14 1, 2 0 0 )
Net increase in cash and cash equivalents 399 , 1 55 98 , 4 42
Cash and cash equivalents at 1 January 456,028 3 4 8 ,78 7
Effect of exchange rate fluctuations on cash held (10 , 52 0 ) 8 ,79 9
Cash and cash equivalents at 31 December 84 4,66 3 456 ,028
Cash and cash equivalents are broken down as follows:
Cash at bank and short – term deposits 84 4,66 3 4 56, 028
146
Grafton Group plc
Annual Report and Accounts 2021
Equity share
capital
£’000
Share premium
account
£’000
Capital redemption
reserve
£’000
Revaluation
reserve
£’000
Shares to be
issued reserve
£’000
Cash flow
hedge reserve
£’000
Foreign currency
translation reserve
£’000
Retained earnings
£’000
Treasury shares
£’000
Total equity
£’000
Year to 31 December 2021
At 1 January 2021 8,56 9 216 , 4 9 6 6 21
12,733 6,714 (65) 81,919 1,143,933 (3,897) 1,467,023
Profit after tax for the financial year – – – – – – – 341,267 – 341,267
Total other comprehensive income
Remeasurement gain on pensions (net of tax) – – –
– – – – 11,674 – 11,674
Movement in cash flow hedge reserve (net of tax) – – – – – 57 – – – 57
Currency translation effect on foreign currency net investments – – – – – – (25,168) – – (25,168)
Total other comprehensive income – – – – – 57 (25,168) 11,674 – (13,437)
Total comprehensive income – – – – – 57 (25,168) 352,941 – 327,830
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
– – – – (84,921) – (84,921)
Issue of Grafton Units 23 2 ,9 51 – – – – – – – 2,974
Cancellation of A Shares (2 2 ) – 22 – – – – – – –
Share – based payments charge – – – – 5,601 – – – – 5,601
Tax on share – based payments – – – – 1,092 – – – – 1,092
Transfer from shares to be issued reserve – – – – (1,570) – – 1,570 – –
Transfer from revaluation reserve – – – (214) – – – 214 – –
At 31 December 2021 8,570 2 19 , 4 47 643 12,519 11,837 (8) 56,751 1,413,737 (3,897) 1,719,599
Equity share
capital
£’000
Share premium
account
£’000
Capital redemption
reserve
£’000
Revaluation
reserve
£’000
Shares to be issued
reserve
£’000
Cash flow
hedge reserve
£’000
Foreign currency
translation reserve
£’000
Retained earnings
£’000
Treasury shares
£’000
Total equity
£’000
Year to 31 December 2020
At 1 January 2020 8 , 5 16 213 , 7 19 621
12,954 12,889 9 70,142 1,0 47,698 (3,897) 1,362,651
Profit after tax for the financial year – – – – – – – 107,542 – 107, 5 42
Total other comprehensive income
Remeasurement loss on pensions (net of tax) – – –
– – – – (18,070) – (18,070)
Movement in cash flow hedge reserve (net of tax) – – – – – (74) – – – (74)
Currency translation effect on foreign currency net investments – – – – – – 11,777 – – 11,777
Total other comprehensive income – – – – – (74) 11,777 (18,070) – (6,367)
Total comprehensive income – – – – – (74) 11,777 89,472 – 101,175
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
– – – – – – –
Issue of Grafton Units 53 2, 777 – – – – – – – 2,830
Share – based payments charge – – – – 719 – – – – 719
Tax on share – based payments – – – – (352) – – – – (352)
Transfer from shares to be issued reserve – – – – (6,542) – – 6,542 – –
Transfer from revaluation reserve – – – (221) – – – 221 – –
At 31 December 2020 8,5 69 2 16 , 4 9 6 621 12,733 6,714 (65) 81,919 1,143,933 (3,897) 1,467,023
GROUP STATEMENT OF CHANGES IN EQUITY
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Financial Statements
Equity share
capital
£’000
Share premium
account
£’000
Capital redemption
reserve
£’000
Revaluation
reserve
£’000
Shares to be
issued reserve
£’000
Cash flow
hedge reserve
£’000
Foreign currency
translation reserve
£’000
Retained earnings
£’000
Treasury shares
£’000
Total equity
£’000
Year to 31 December 2021
At 1 January 2021 8,569 216,496 621
Profit after tax for the financial year – – – – – – – 3 41, 2 67 – 3 41, 2 67
Total other comprehensive income
Remeasurement gain on pensions (net of tax) – – –
Movement in cash flow hedge reserve (net of tax) – – – – – 57 – – – 57
Currency translation effect on foreign currency net investments – – – – – – (2 5 ,16 8 ) – – (2 5 ,1 6 8 )
Total other comprehensive income – – – – – 57 (2 5 ,16 8 ) 11 , 6 7 4 – (13 , 4 3 7 )
Total comprehensive income – – – – – 57 (2 5 ,16 8 ) 3 5 2 , 9 41 – 3 2 7, 8 3 0
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
Issue of Grafton Units 23 2,951 – – – – – – – 2 , 9 74
Cancellation of A Shares (22) – 22 – – – – – – –
Share – based payments charge – – – – 5,6 01 – – – – 5 ,6 01
Tax on share – based payments – – – – 1,092 – – – – 1 ,092
Transfer from shares to be issued reserve – – – – (1, 5 70 ) – – 1, 5 7 0 – –
Transfer from revaluation reserve – – – (214 ) – – – 2 14 – –
1 2,951 22 (2 14 ) 5 ,12 3 – – (8 3 ,13 7 ) – (75 , 25 4 )
At 31 December 2021 8,570 219,447 643 12 , 5 19 11 , 8 3 7 (8 ) 56 ,751 1 , 413 , 73 7 (3 , 89 7 ) 1,7 19 , 5 9 9
Equity share
capital
£’000
Share premium
account
£’000
Capital redemption
reserve
£’000
Revaluation
reserve
£’000
Shares to be issued
reserve
£’000
Cash flow
hedge reserve
£’000
Foreign currency
translation reserve
£’000
Retained earnings
£’000
Treasury shares
£’000
Total equity
£’000
Year to 31 December 2020
At 1 January 2020 8,516 213,719 621
(3 , 89 7 ) 1, 3 6 2 , 6 5 1
Profit after tax for the financial year – – – – – – – 1 0 7, 5 4 2 – 1 0 7, 5 4 2
Total other comprehensive income
Remeasurement loss on pensions (net of tax) – – –
Movement in cash flow hedge reserve (net of tax) – – – – – (74 ) – – – (74 )
Currency translation effect on foreign currency net investments – – – – – – 1 1 ,777 – – 1 1 ,777
Total other comprehensive income – – – – – (74 ) 1 1 ,777 (18 , 0 7 0 ) – (6 , 3 6 7 )
Total comprehensive income – – – – – (74 ) 1 1 ,777 89, 472 – 1 0 1 ,17 5
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
Issue of Grafton Units 53 2,777 – – – – – – – 2,830
Share – based payments charge – – – – 7 19 – – – – 7 19
Tax on share – based payments – – – – (3 52 ) – – – – (3 52 )
Transfer from shares to be issued reserve – – – – (6 , 5 42 ) – – 6, 5 42 – –
Transfer from revaluation reserve – – – (2 2 1 ) – – – 221 – –
53 2,777 – (2 2 1 ) (6 ,17 5 ) – – 6 ,76 3 – 3 ,19 7
At 31 December 2020 8,569 216,496 621 12 , 7 3 3 6 , 7 14 (65 ) 8 1 ,9 19 1 ,14 3 , 9 3 3 (3 , 89 7 ) 1 ,4 67 ,023
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF COMPLIANCE
The consolidated financial statements of Grafton Group plc have been prepared in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union (“EU”).
The IFRSs applied in these financial statements were those effective for accounting periods ending on 31 December 2021.
NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2021,
and have been applied in preparing these financial statements. None of these have had a significant effect on the financial statements of the
Group or parent company.
NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS NOT YET ADOPTED
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2022,
and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial
statements of the Group or parent company.
BASIS OF PREPARATION
The consolidated Financial Statements are presented in sterling, rounded to the nearest thousand. As set out in the Directors’ Report on Corporate
Governance the Directors, having made appropriate enquiries, believe that the Company and the Group as a whole has adequate resources to
continue in operational existence for the foreseeable future, being 12 months from the date of approval of the financial statements and, for this
reason, they continue to adopt the going concern basis in preparing the financial statements. The Statements have been prepared under the
historical cost convention, as modified by the previous revaluation of land and buildings, the measurement at fair value of share-based payments
at initial date of award, the measurement at fair value of all derivative financial instruments and the measurement at fair value of investment property.
Assets classified as held for sale are stated at the lower of carrying value and fair value less costs to sell. The carrying values of recognised assets
and liabilities that are fair value hedged are adjusted to record changes in the fair values attributable to the risks that are being hedged.
The preparation of consolidated financial statements in accordance with IFRS as adopted by the EU requires management to make certain estimates
and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expense. Management
believes that the estimates and assumptions made are reasonable based on the information available to it at the time that those estimates and
assumptions are made. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant in
relation to the consolidated financial statements are set out in Note 32 and relate primarily to provisions for liabilities, valuation of inventory, accounting
for defined benefit pension schemes, goodwill impairment, fair value of investment properties, rebate income, current taxation and IFRS 16 “leases”.
In preparing the financial statements, the Directors have also considered the impact of climate change. These considerations did not have a
material impact on the financial reporting judgements and estimates in the current year, specifically in the impairment and going concern
analysis. The Group’s analysis of the impact of climate change continues to evolve with Grafton committed to reducing its carbon impact.
The 2020 income statement has been restated as a result of the divestment of the traditional merchanting business in Great Britain which is treated
as discontinued operations.
BASIS OF CONSOLIDATION
The consolidated financial statements include the financial statements of the Company and all subsidiaries drawn up to 31 December each year.
The financial year-end of the Group’s subsidiaries are coterminous.
SUBSIDIARIES
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control is obtained and they
cease to be consolidated from the date on which the Group loses control. The definition of control is when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity.
TRANSACTIONS ELIMINATED ON CONSOLIDATION
Intra-group balances and transactions, and any unrealised gains and income and expenses arising from such transactions, are eliminated in
preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent
that there is no evidence of impairment.
REVENUE RECOGNITION
Revenue comprises the fair value of consideration receivable for goods and services supplied to external customers in the ordinary course of the
Group’s activities and excludes inter-company revenue and value added tax.
In general, revenue is recognised to the extent that the Group has satisfied its performance obligations to the buyer and the buyer has obtained
control of the goods or services being transferred. In the case of sales of goods, this generally arises when products have either been delivered to
or collected by a customer and there is no unfulfilled obligation that could affect the acceptance of the products. Service revenue comprises tool
hire revenue and is recognised over the period of hire.
Revenues are recorded based on the price specified in the sales invoices/contracts net of actual and estimated returns, rebates and any discounts
granted and in accordance with the terms of sale. Accumulated experience is used to estimate returns, rebates and discounts using the expected
value method and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur.
NOTES TO THE GROUP FINANCIAL STATEMENTS
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Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
BASIS OF CONSOLIDATION continued
SEGMENT REPORTING
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses
for which discrete financial information is available, including revenues and expenses that relate to transactions with any of the Group’s other
components. All operating segments’ operating results are reviewed regularly by the Group’s Chief Operating Decision Maker, being the Board,
who is responsible for allocating resources and assessing performance.
FOREIGN CURRENCY TRANSLATION
FUNCTIONAL AND PRESENTATION CURRENCY
The consolidated financial statements are presented in sterling. Items included in the financial statements of each of the Group’s entities are
measured using its functional currency, being the currency of the primary economic environment in which the entity operates which is primarily
euro and sterling. The functional currency of the parent company is euro.
TRANSACTIONS AND BALANCES
Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated to the relevant functional currency at the rate of exchange ruling at the balance sheet date.
All currency translation differences on monetary assets and liabilities are taken to the income statement except for the effective portion
designated as a hedge of a net investment in a foreign operation which is recognised in other comprehensive income.
FOREIGN OPERATIONS
The assets and liabilities of foreign operations, including goodwill arising on consolidation, are translated to sterling at the foreign exchange rates
ruling at the balance sheet date. Results and cash flows of subsidiaries which do not have sterling as their functional currency are translated into
sterling at average exchange rates for the year and the related balance sheets are translated at the rates of exchange ruling at the balance sheet
date. Foreign exchange movements arising on translation of the net investment in a foreign operation, including those arising on long term
intra-Group loans deemed to be quasi equity in nature, are recognised directly in other comprehensive income, in the currency translation
reserve. The portion of exchange gains or losses on foreign currency borrowings or derivatives used to provide a hedge against a net investment
in a foreign operation that is designated as a hedge of those investments is recognised directly in other comprehensive income to the extent that
they are determined to be effective. The ineffective portion is recognised immediately in the income statement.
Movements since 1 January 2004, the date of transition to IFRS, are recognised in the currency translation reserve and are reclassified to the
income statement on disposal of the related business.
SHARE CAPITAL AND SHARE PREMIUM
The company’s share capital and share premium has been translated from euro into sterling at historic rates of exchange at the dates of transactions.
EXCEPTIONAL ITEMS AND NON-RECURRING ITEMS
The Group has adopted a policy in relation to its income statement which seeks to highlight significant items within the Group’s results. Such items
may include significant restructuring and onerous lease provisions, profit or loss on disposal or termination of operations, litigation costs and
settlements and impairment of assets. Judgement is used by the Group in assessing the particular items which, by virtue of their scale and nature,
should be disclosed in the income statement or related notes. Where exceptional items are not significant for separate presentation, they are
disclosed as non-recurring items.
Property profit is disclosed as a separate line item on the face of the Income Statement. Property profit arises when the proceeds, less costs to sell,
exceed the carrying value of the disposed property.
REBATE ARRANGEMENTS
Rebate arrangements are a common component of supplier agreements in the merchanting industry. As part of its on-going business activities,
Grafton Group plc has entered into such arrangements with a significant number of its suppliers.
Supplier rebates received and receivable in respect of goods which have been sold to the Group’s customers are deducted from cost of sales in
the income statement. Where goods on which rebate has been earned remain in inventory at the year-end, an appropriate rebate deduction is
made from the gross balance sheet carrying value of that inventory. The rebate deduction is only released to the income statement when the
goods are ultimately sold.
At the year-end the balance sheet includes a balance representing unpaid amounts receivable from suppliers.
FINANCE EXPENSE
Finance expense comprises interest payable on borrowings calculated using the effective interest rate method, net foreign exchange losses on
monetary items and gains and losses on hedging instruments that are recognised in the income statement. The net finance cost of pension
scheme obligations is recognised as a finance expense in the income statement. The interest expense component of lease payments is recognised
in the income statement using the effective interest rate method. Where appropriate the fair value adjustment to hedged items that are the subject
of a fair value hedge is included as a finance expense or finance income. Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognised in the income statement as incurred using the effective interest rate method.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
FINANCE INCOME
Finance income comprises interest income on cash and cash equivalents, dividend income, gains on the disposal of financial assets, and gains
on hedging instruments that are recognised in profit or loss. The net expected return on defined benefit pension scheme plan assets is recognised
as finance income in the income statement. Interest income is recognised in the income statement as it accrues using the effective interest
rate method.
BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred
to the Group. Control is defined as when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect these returns through its power over the entity.
The Group measures goodwill at the acquisition date as:
• The fair value of the consideration transferred; plus
• The recognised amount of any non-controlling interests in the acquiree; plus
• If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less
• The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in the income statement. The consideration transferred does
not include amounts related to the settlement of the pre-existing relationships. Such amounts are generally recognised in the income statement.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a
business combination are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity,
it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration
are recognised in the income statement.
GOODWILL
Goodwill is the excess of the consideration paid over the fair value of the identifiable assets, liabilities and contingent liabilities in a business
combination and relates to assets which are not capable of being individually identified and separately recognised.
Goodwill acquired is allocated, at acquisition date, to the groups of Cash Generating Units (“CGUs”) expected to benefit from synergies related
to the acquisition. Where management reassesses its groups of CGUs, goodwill is reallocated on a relative value basis.
Goodwill is measured at cost less accumulated impairment losses. The CGUs represent the lowest level within the Group at which goodwill is
monitored for internal management purposes. These units are no larger than the operating segments determined in accordance with IFRS 8:
Operating Segments. Goodwill is subject to impairment testing on an annual basis and at any time during the year if an indicator of impairment exists.
Where the recoverable amount of a cash generating unit is less than the carrying amount, an impairment loss is recognised. Impairment losses
arising in respect of goodwill are not reversed once recognised.
Where a business is disposed of from a CGU to which goodwill had been allocated on acquisition, an allocation is made to the disposed business
and included in determining the profit or loss arising on disposal. The allocation of goodwill to the disposed business is determined on the basis of
the fair value of the disposed business relative to the fair value of the portion of the CGU retained. Fair value of the disposed business is based on
the disposal consideration and fair value of the portion of the CGU retained is determined on a value in use basis.
INTANGIBLE ASSETS (COMPUTER SOFTWARE)
Acquired computer software, including computer software which is not an integrated part of an item of computer hardware, is stated at cost less any
accumulated amortisation and any accumulated impairment losses. Cost comprises of purchase price and any other directly attributable costs.
Computer software is recognised if it meets the following criteria:
• An asset can be separately identified;
• It is probable that the asset created will generate future economic benefits;
• The development cost of the asset can be measured reliably;
• The completion and implementation of the asset is technically feasible;
• It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
• The cost of the asset can be measured reliably.
Costs relating to the development of computer software for internal use are capitalised once the recognition criteria outlined above are met.
Computer software is amortised over its expected useful life, which ranges from 4 to 10 years, by charging equal instalments to the income
statement from the date the assets are ready for use.
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Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
INTANGIBLE ASSETS (OTHER THAN GOODWILL AND COMPUTER SOFTWARE)
An intangible asset, other than goodwill and computer software, is recognised to the extent that it is probable that the expected future economic
benefits attributable to the asset will flow to the Group and that its fair value can be measured. The asset is deemed to be identifiable when it is
separable (i.e. capable of being divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a
related contract, asset or liability) or when it arises from contractual or other legal rights, regardless of whether those rights are transferable or
separable from the Group or from other rights and obligations.
Intangible assets acquired as part of a business combination are capitalised separately from goodwill at fair value on the date of acquisition if the
intangible asset meets the definition of an asset and the fair value can be reliably measured.
Intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The carrying value of intangible
assets is reviewed for impairment at each reporting date and is also subject to impairment testing when events or changes in circumstances
indicate that the carrying values may not be recoverable.
Intangible assets are amortised on a straight-line basis. In general, finite life intangible assets are amortised over periods ranging from one to
twenty years, depending on the nature of the intangible asset.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and impairment losses. The Group’s freehold
properties in Ireland were revalued to fair value in 1998 and are measured on the basis of deemed cost being the revalued amount at the date of
that revaluation less accumulated depreciation. The valuations were deemed to be cost for the purposes of transition to IFRS as adopted by the EU.
Property, plant and equipment are depreciated over their useful economic life on a straight line basis at the following rates:
Freehold buildings 50 – 100 years
Freehold land Not depreciated
Leasehold buildings Lease term or up to 100 years
Plant and machinery 5 – 20 years
Motor vehicles 5 – 10 years
Plant hire equipment 4 – 10 years
The residual value and useful lives of property, plant and equipment are reviewed and adjusted if appropriate at each balance sheet date.
On disposal of property, plant and equipment, the cost and related accumulated depreciation and impairments are removed from the balance
sheet and the net amount, less any proceeds, is taken to the income statement.
The carrying amounts of the Group’s property, plant and equipment are reviewed at each balance sheet date to determine whether there is any
indication of impairment. An impairment loss is recognised whenever the carrying amount of an asset or its cash generation unit exceeds its
recoverable amount. Impairment losses are recognised in the income statement.
Cost includes expenditure that is directly attributable to the acquisition of the asset. Subsequent costs are included in an asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Group and the cost of replacing the item can be reliably measured. All other repair and maintenance costs are charged to the income statement
during the financial period in which they are incurred.
LEASES
IDENTIFICATION OF LEASES
The identification of leases involves judgement as IFRS 16 defines a lease as a contract (or part of a contract) that, for a period of time in exchange
for consideration, conveys the right to:
• Control an identified asset;
• Obtain substantially all economic benefits from use of the asset; and
• Direct the use of the asset
LEASE TERM
The lease term is the non-cancellable period for which the Group has the right to use an underlying asset together with:
• Periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and
• Periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option. This assessment involves
the exercise of judgement by the Group.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
LEASES continued
INITIAL MEASUREMENT OF LEASE LIABILITY
The lease liability is initially measured at the present value of the lease payments that are payable for the lease term, discounted using the
incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• Fixed lease payments (including in-substance fixed payments);
• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• The amount expected to be payable by the lessee under residual value guarantees (e.g. if the fair value of the asset at the end of the lease term
is below an agreed amount, the lessee would pay to the lessor an amount equal to the difference between the fair value and agreed amount);
• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability does not include variable elements which are dependent on external factors, e.g. payments that are based on turnover. Instead,
such variable elements are recognised directly in the income statement.
Judgements applied include determining the lease term for those leases with termination or extension options and the discount rate used which is
based on incremental borrowing rate. Such judgements could impact the lease term and significantly the resultant lease liability and right-of-use
asset recognised.
Where a lease agreement contains a clause to restore the asset to a specified condition i.e. dilapidation costs, the Group recognises a provision for
dilapidations under IAS 37 in its balance sheet.
INITIAL MEASUREMENT OF RIGHT-OF-USE ASSET
The right-of-use asset comprises the amount of the initial measurement of the lease liability, adjusted for:
• Any lease payments made at or before the commencement date, less any lease incentives; and
• Any initial direct costs incurred by the Group.
In addition, where the Group subleases a headlease (or part thereof) to a third party and such sublease is deemed by the Group to be a finance
sublease, the right-of-use asset relating to sublease is derecognised and a finance lease receivable is recognised.
SUBSEQUENT MEASUREMENT OF LEASE LIABILITY
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reflect the lease payments made.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount rate;
• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which
cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments
change is due to a change in a floating interest rate, in which case a revised discount rate is used); and
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured
by discounting the revised lease payments using a revised discount rate.
The Group did not make any material adjustments outlined above during the periods presented.
SUBSEQUENT MEASUREMENT OF RIGHT-OF-USE ASSET
After initial measurement, the right-of-use assets are measured at cost less accumulated depreciation, adjusted for:
• Any impairment losses in accordance with IAS 36 Impairment of Assets; and
• Any remeasurement of the lease liability.
Right-of-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset. If a lease transfers ownership of
the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset
is depreciated over the useful life of the underlying asset.
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Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
LEASES continued
LEASE MODIFICATIONS
A lease modification is a change to the original terms and conditions of the lease. The effective date of the modification is deemed to be the date
when both parties agree to a lease modification.
A lease modification is accounted for as a separate lease if:
• The modification increases the scope of the lease by adding the right to use one or more underlying assets; and
• The consideration for the lease increases by an amount commensurate with the standalone price for the increase in scope of the lease.
If both criteria are met, the Group adopts the accounting policy on the initial recognition and measurement of lease liabilities and
right-of-use assets.
If a change in the lease terms does not meet the test outlined above, the Group must modify the initially recognised components of the lease contract.
SUBLEASE ACCOUNTING
Where the Group acts as a lessor, the sublease is classified as a finance lease or an operating lease. A lease is deemed to be a finance lease where
the lease transfers substantially all the risks and rewards incidental to the ownership of the underlying asset. Otherwise, the lease is deemed to be
an operating lease.
Where the Group is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. The Group assesses the lease
classification of a sublease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.
If the head lease is not a short term lease or low-value lease and the sublease is deemed to be a finance lease, the Group recognises a lease liability
relating to the head lease but does not recognise a corresponding right-of-use asset. Instead, the Group recognises a finance lease debtor relating
to the sublease.
INVESTMENT PROPERTIES
Investment property is initially measured at cost and subsequently at fair value with any change therein recognised in profit or loss.
Any gain or loss on disposal of investment property (calculated as the difference between the net proceeds from disposal and the carrying amount
of the item) is recognised in profit or loss. When investment property that was previously classified as property, plant and equipment is sold, any
related amount included in the revaluation reserve is transferred to retained earnings.
When the use of a property changes from owner occupied or held for sale to investment property, the property is remeasured to fair value and
reclassified accordingly. Any gain on this remeasurement is recognised in profit or loss to the extent that it reverses a previous impairment loss
on the specific property, with any remaining gain recognised in Other Comprehensive Income and presented in the revaluation reserve. Any loss
is recognised in profit or loss.
ASSETS HELD FOR SALE
Non-current assets that are expected to be recovered principally through sale rather than continuing use and meet the IFRS 5 criteria are
classified as held for sale. These assets are shown in the balance sheet at the lower of their carrying amount and fair value less any costs
to sell. Impairment losses on initial classification as non-current assets held for sale and subsequent gains or losses on re-measurement
are recognised in the income statement.
INVESTMENTS
Investments, other than investments in joint ventures and associates, are stated in the balance sheet at fair value with changes in fair value
recognised directly in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit and loss
following derecognition of the investment. Dividends from such investments are recognised in the income statement and are reported as
non-operating items.
Where investments are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid
prices at the close of business on the balance sheet date. Where it is impracticable to determine fair value in accordance with IFRS 13, unquoted
equity investments are recorded at historical cost and are included within financial assets on this basis in the Group balance sheet. They are
assessed for impairment annually.
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 all expenditure
incurred in acquiring the inventories and bringing them to their present location and condition. Raw materials and purchased finished goods are
valued on the basis of purchase cost on a first-in, first-out basis. In the case of manufactured finished goods and work-in-progress, cost includes
direct materials, direct labour and attributable overheads based on normal operating capacity and excludes borrowing costs. Net realisable value is
the estimated proceeds of sale less all further costs to completion and less all costs to be incurred in marketing, selling and distribution.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
TRADE AND OTHER RECEIVABLES AND PAYABLES
Trade and other receivables and payables are stated at amortised cost (less any impairment losses), which approximates to fair value given the
short term nature of these assets and liabilities.
Trade receivables are carried at original invoice amount less an allowance for potentially uncollectable debts. Provision is made using the expected
credit loss model which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables
are grouped based on shared credit risk characteristics and days past due.
Bad debts are written-off in the income statement when there is no reasonable expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and the commencement
of legal proceedings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances held for the purposes of meeting short term cash commitments and money market
instruments which are readily convertible to a known amount of cash. Where money market instruments are categorised as cash equivalents, the
related balances have an original maturity of three months or less. In addition, for the purposes of the Group cash flow statement, bank overdrafts
are netted against cash and cash equivalents where the overdrafts are repayable on demand and form an integral part of cash management.
Bank overdrafts are included within current interest-bearing loans and borrowings in the Group balance sheet.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments, principally interest rate and currency swaps/forwards, are used in certain circumstances to hedge the Group’s
exposure to foreign exchange and interest rate risks arising from its financing activities.
Derivative financial instruments are recognised initially at fair value and thereafter are subsequently re-measured at their fair value. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value of interest rate and currency swaps/forwards is the estimated amount that the Group would receive or pay to terminate the
swap at the balance sheet date, taking into account current interest and currency exchange rates and the current creditworthiness of the
swapped counterparts.
The method of recognising the resulting gain or loss on re-measurement to fair value depends on whether the derivative is designated as a hedging
instrument. Where derivatives are not designated or do not fulfil the criteria for hedge accounting, changes in fair values are reported in the income
statement. Where derivatives qualify for hedge accounting, recognition of the resulting gains or losses depends on the nature of the item being
hedged. The Group designates certain derivatives for various purposes in hedge relationships in one or more of the following types of relationships:
(i) Fair value hedge: Hedges of the fair value of recognised liabilities;
(ii) Cash flow hedge: Hedges of a particular risk associated with a highly probable forecast transaction; or
(iii) Net investment hedge: Hedges of a net investment in a foreign operation.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. The Group also documents whether changes in the cash
flows of the hedging instruments are expected to offset changes in the cash flows of the hedged items.
(I) FAIR VALUE HEDGE
Any gain or loss stemming from the re-measurement of the hedging instrument to fair value is reported in the income statement. In addition, any
gain or loss on the hedged item which is attributable to the fair value movement in the hedged risk is adjusted against the carrying amount of the
hedged item and reflected in the income statement.
Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or
liability, hedge accounting is not applied and any gain or loss accruing on the hedging instrument is recognised as finance income or expense
in the income statement.
If the hedge no longer meets the criteria for hedge accounting, hedge accounting ceases and the adjustment to the carrying amount of a hedged
item for which the effective interest method is used is amortised to profit or loss over the period to maturity.
(II) CASH FLOW HEDGES
The effective part of any gain or loss on the derivative financial instrument is recognised in other comprehensive income and presented in the cash
flow hedge reserve in equity with the ineffective portion being reported as finance expense or income in the income statement. If a hedge of a
forecasted transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains and losses that were
recognised in other comprehensive income are reclassified into profit or loss in the same period or periods during which the asset acquired or
liability assumed affects profit or loss. For cash flow hedges, other than those covered by the preceding statements, the associated cumulative
gain or loss is removed from other comprehensive income and recognised in the income statement in the same period or periods during which
the hedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is recognised immediately in the income statement.
Hedge accounting is discontinued when a hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. The cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction
occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is
transferred to the income statement in the period.
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Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES continued
(III) HEDGE OF NET INVESTMENT IN FOREIGN OPERATION
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income and
presented in the foreign currency translation reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in
the income statement within finance income or finance expense. Cumulative gains and losses remain in equity until disposal or partial disposal
of the net investment in the foreign operation at which point the related differences are reclassified to the income statement as part of the overall
gain or loss on sale.
INTEREST-BEARING LOANS AND BORROWINGS
All loans and borrowings are initially recorded at fair value, net of related transaction costs. After initial recognition, current and non-current
interest-bearing loans and borrowings are measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the
redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method. Amortised
cost includes any issue costs and any discount or premium on settlement. Borrowings are classified as current liabilities unless the Group has
an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of
the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that
some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the
facility to which it relates.
PROVISIONS
A provision is recognised on a discounted basis when the Group has a present (either legal or constructive) obligation as a result of a past event
and it is probable that a transfer of economic benefits will be required to settle the obligations and a reliable estimate can be made of the amount
required to settle the obligation. A provision for restructuring is recognised when the Group has approved a restructuring plan and the restructuring
has commenced. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower
than the unavoidable costs of meeting its obligations under the contract. The provision is measured at the lower of the present value of the
expected cost of terminating the contract and the present value of the expected net cost of continuing with the contract.
RETIREMENT BENEFIT OBLIGATIONS
Obligations to the defined contribution pension plans are recognised as an expense in the income statement as service is received from the
relevant employees. The Group has no legal or constructive obligation to pay further contributions in the event that these plans do not hold
sufficient assets to provide retirement benefits.
The Group operates a number of defined benefit pension schemes which require contributions to be made to separately administered funds.
The Group’s net obligation in respect of defined benefit pension schemes is calculated separately for each plan by estimating the amount of future
benefits 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 asset is deducted. The discount rate employed in determining the present value of the schemes’ liabilities is
determined by reference to market yields at the balance sheet date on high quality corporate bonds for a term consistent with the currency and
term of the associated post-employment benefit obligations.
The net surplus or deficit arising in the Group’s defined benefit pension schemes are shown within either non-current assets or liabilities on the face
of the Group Balance Sheet. The deferred tax impact of pension scheme surpluses and deficits is disclosed separately within deferred tax assets or
liabilities as appropriate. The Group recognises actuarial gains and losses immediately in other comprehensive income.
Any increase in the present value of the plans’ liabilities expected to arise from employee service during the period is charged to operating profit.
The Group determines net interest expense/(income) on the net defined benefit liability/(asset) for the period by applying the discount rate used to
measure the defined benefit obligation at the beginning of the period. Differences between the income recognised based on the discount rate and
the actual return on plan assets, together with the effect of changes in the current or prior assumptions underlying the liabilities are recognised in
other comprehensive income. When the benefits of a defined benefit plan are improved, the portion of the increased benefit relating to past service
by employees is recognised as a past service cost in the income statement at the earlier of the date when the plan amendment occurs and when
the related restructuring costs are recognised. To the extent that the benefits vest immediately, the expense is recognised immediately in the
income statement.
SHARE-BASED PAYMENT TRANSACTIONS
The 2011 Long Term Incentive Plan (“LTIP”) and the SAYE Scheme for UK employees should enable employees to acquire shares in the Company
subject to the conditions of these schemes. New units are issued to satisfy obligations under the SAYE scheme. Entitlements under the LTIP
may be satisfied by the issue of units or by a market purchase of units. The fair value of share entitlements at the grant date is recognised as an
employee expense in the income statement over the vesting period with a corresponding increase in equity. The fair value is determined by an
external valuer using a binomial model. Share entitlements granted by the Company are subject to certain non-market based vesting conditions.
Non-market vesting conditions are not taken into account when estimating the fair value of entitlements as at the grant date. The expense for share
entitlements shown in the income statement is adjusted to reflect the number of awards for which the related non-market based vesting conditions
are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related
non-market based vesting conditions at the vesting date. The proceeds received by the Company on the vesting of share entitlements are credited
to share capital and share premium when the share entitlements are converted or issued.
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
GOVERNMENT GRANTS
Government grants and assistance are recognised at their fair value in the income statement when there is a reasonable assurance that the grant
will be received and all attaching conditions have been complied with. When the grant relates to an expense item, it is recognised in operating costs
within the income statement over the period necessary to match on a systematic basis to the costs that it is intended to compensate. Where the
grant relates to a non-current asset, the value is credited to a deferred income account and is released to the income statement over the expected
useful life of the relevant asset.
GOVERNMENT GRANTS – APPLICABLE FOR 2020
Government grants were received in 2020 in relation to the ongoing Covid-19 pandemic. These comprised of amounts receivable under the
Coronavirus Job Retention Scheme (“CJRS”). CJRS comprised of grants receivable in relation to the costs incurred by the Group for furloughed
employees and were recognised in the income statement, within operating costs, in the same period as the related costs and when there was
reasonable assurance that the grant would be received.
INCOME TAX
Income tax in the income statement represents the sum of current tax and deferred tax.
Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income.
Current tax is based on taxable profit and represents the expected tax payable for the year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes certain items
that are not tax deductible including property depreciation. The Group’s liability for current tax is calculated using rates that have been enacted or
substantially enacted at the balance sheet date. The Group’s income tax charge reflects various allowances and reliefs and planning opportunities
available in the tax jurisdictions in which the Group operates. The determination of the Group’s charge for income tax in the income statement
requires estimates to be made, on the basis of professional advice, in relation to certain matters where the ultimate outcome may not be certain and
where an extended period may be required before such matters are determined. The amount shown for current taxation reflects tax uncertainties
and is based on the Directors’ estimate of (i) the most likely amount; or (ii) the expected value of the probable outflow of economic resources that
will be required. The estimates for income tax included in the financial statements are considered appropriate but no assurance can be given that
the final determination of these matters will not be materially different to the estimates included in the financial statements. Whilst it is possible, the
Group does not currently anticipate that any such differences could have a material impact on the income tax provision and profit for the period in
which such a determination is made nor does it expect any significant impact on its financial position in the near term. This is based on the Group’s
knowledge and experience, as well as the profile of the individual components which have been reflected in the current tax liability, the status of the
tax audits, enquiries and negotiations in progress at each year-end, previous claims and any factors specific to the relevant tax environments.
Deferred tax is provided, using the liability method, on all temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected
to apply in the year when the asset is realised or the liability is settled based on rates that have been enacted or substantially enacted at the balance
sheet date.
Deferred tax assets and liabilities are not recognised for the following temporary differences:
• Goodwill that is not deductible for tax purposes;
• Temporary differences arising from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit or taxable profit or loss; and
• Temporary differences associated with investments in subsidiaries in which case deferred tax is only recognised to the extent that it is probable
that the temporary differences will reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit would be available to allow all or part of the deferred tax asset to be utilised.
SHARE CAPITAL
ORDINARY SHARES
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from
equity, net of any tax effects.
REPURCHASE OF SHARE CAPITAL
When share capital recognised as equity is purchased, the amount of the consideration paid, including directly attributable costs, is recognised
as a change in equity.
DIVIDENDS
Dividends on ordinary shares are recognised as a liability in the Group’s financial statements in the period in which they are declared by the
Company. In the case of interim dividends, these are considered to be declared when they are paid. In the case of final dividends these are
declared when authorised by the shareholders in General Meeting.
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Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
SHARE CAPITAL continued
EARNINGS PER SHARE
The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss
attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted
for treasury shares held. Diluted EPS is calculated by dividing the profit or loss attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding adjusted for treasury shares held and for the effects of all dilutive potential ordinary shares related to
employee share schemes.
2. SEGMENT INFORMATION
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports that are regularly reviewed by the Chief
Operating Decision Maker, being the Board, in order to allocate resources to the segments and to assess their performance. Three reportable
segments have been identified, Distribution, Retailing and Manufacturing.
The Distribution segment is engaged in the distribution of building and plumbing materials primarily to professional trades people engaged
in residential repair, maintenance and improvement projects and also in residential and other new build construction from a network of 302
branches in the UK, Ireland, the Netherlands and Finland. The traditional merchanting business in Great Britain was disposed in 2021.
The aggregation of operating segments into the Distribution segment reflects, in the opinion of management, the similar economic characteristics
within each of these segments as well as the similar products and services offered and supplied and the classes of customers. This is assessed by
reference to gross margins and long term growth rates of the segments.
The Retailing segment operates Ireland’s largest DIY and home improvement business from a network of 35 stores that supply mainly retail
customers with a wide range of products for DIY and for the home and garden.
The Manufacturing segment comprises the largest manufacturer of dry mortar in Great Britain operating from 10 plants, an industry
leading manufacturer and distributor of bespoke staircases in the UK operating from one manufacturing facility and a plastics manufacturing
business in Ireland.
Information regarding the results of each operating segment is included in this note. Performance is measured based on segment operating profit/
(loss) as included in the internal management reports that are reviewed by the Group’s Chief Operating Decision Maker. Segment operating profit is
used to measure performance as such information is the most relevant in evaluating the results of the Group’s segments. The impact of IFRS 16
“Leases” on the reportable segments is set out within the APM’s.
No segment is over reliant on any major customer and credit risk is well diversified as disclosed in Note 17. Segment results, assets and liabilities
include all items directly attributable to a segment.
Segment capital expenditure is the total amount incurred during the period to acquire segment assets that are expected to be used for more than
one accounting period.
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
2. SEGMENT INFORMATION continued
GROUP INCOME STATEMENT
2021
£000
2020 Restated
£’000
Revenue
UK distribution 821,923 630,890
Ireland distribution 544,289 463,894
Netherlands distribution 290,540 276,563
Finland distribution 70,810 –
Total distribution – continuing 1,727,562 1,371,347
Retailing 282,756 246,576
Manufacturing 112,436 71,723
Less: inter-segment revenue – manufacturing (12,845) (10,399)
Total revenue from continuing operations 2,109,909 1,679,247
Segmental operating profit before exceptional items, intangible amortisation arising on acquisitions and
other acquisition related items
UK distribution 102,523 55,816
Ireland distribution 66,792 41,848
Netherlands distribution 30,544 28,590
Finland distribution 9,952 –
Total distribution – continuing 209,811 126,254
Retailing 50,858 42,028
Manufacturing 24,049 13,301
284,718 181,583
Reconciliation to consolidated operating profit
Central activities (13,479) (10,887)
271,239 170,696
Property profits/(losses) 16,740 (83)
Operating profit before exceptional items, intangible amortisation arising on acquisitions and other
acquisition related items 287,979 170,613
Acquisition related items (4,129) (1,380)
Amortisation of intangible assets arising on acquisitions (14,688) (8,937)
Exceptional items – (2,481)
Operating profit 269,162 157,815
Finance expense (21,269) (24,936)
Finance income 1,904 698
Profit before tax 249,797 133,577
Income tax expense (42,952) (24,149)
Profit after tax for the financial period from continuing operations 206,845 109,428
Profit/(loss) after tax from discontinued operations 134,422 (1,886)
Profit after tax for the financial period 341,267 107,5 42
The amount of revenue, from continuing operations, by geographic area is as follows:
2021
£’000
2020
Restated
£’000
Revenue*
United Kingdom 914,971 687,251
Ireland 833,588 715,433
Netherlands 290,540 276,563
Finland 70,810 –
Total revenue – continuing operations 2,109,909 1,679,247
* Service revenue from continuing operations, which is recognised over time, amounted to £8.7 million for the period (2020: £8.3 million)
The analysis of geographic revenue above is the same whether it is based on location of assets or customers.
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Financial Statements
2. SEGMENT INFORMATION continued
GROUP BALANCE SHEET
2021
£’000
2020
£’000
Segment assets
Distribution 1,782,973 2,190,663
Retailing 210,400 216,907
Manufacturing 102,716 103,064
2,096,089 2,510,634
Unallocated assets
Deferred tax assets 8,793 13,386
Retirement benefit assets 3,596 2,099
Other financial assets 126 128
Cash and cash equivalents 844,663 456,028
Total assets 2,953,267 2,982,275
2021
£’000
2020
£’000
Segment liabilities
Distribution 658,122 861,964
Retailing 201,147 225,258
Manufacturing 30,335 25,737
889,604 1,112,959
Unallocated liabilities
Interest bearing loans and borrowings (current and non-current) 256,631 274,030
Retirement benefit obligations 15,067 52,683
Deferred tax liabilities 56,402 54,399
Current income tax liabilities 15,956 21,116
Derivative financial instruments (current) 8 65
Total liabilities 1,233,668 1,515,252
OTHER SEGMENT INFORMATION – CONTINUING AND DISCONTINUED OPERATIONS
Year Ended 31 December
Distribution Retailing Manufacturing Group
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Capital expenditure 34,357 32,782 5,440 1,246 3,819 1,154 43,616 35,182
Investment in intangible assets 243 631 – 1,262 584 – 827 1,893
Intangible assets acquired 79,094 2,113 – – – 20,402 79,094 22,515
Depreciation on property, plant & equipment 31,520 38,597 3,579 3,529 3,171 2,846 38,270 44,972
Depreciation on right-of use asset 43,174 45,234 15,621 16,553 829 453 59,624 62,240
Amortisation of intangible assets 15,000 13,811 122 124 2,062 211 17,184 14,146
ADDITIONAL GEOGRAPHIC ANALYSIS – CONTINUING AND DISCONTINUED OPERATIONS
The following is a geographic analysis of the information presented above.
Finland Ireland Netherlands UK Group
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Capital expenditure 1,268 – 12,075 6,790 3,529 2,905 26,744 25,487 43,616 35,182
Investment in intangible assets – – – 1,456 75 350 752 87 827 1,893
Intangible assets acquired 74,354 – 4,740 933 – – – 21,582 79,094 22,515
Segment non-current assets 128,591 – 440,020 490,648 207,553 199,980 736,142 1,14 3,4 46 1,512,306 1,834,074
Properties held for sale 6,125 18,058
Inventories 344,172 321,558
Trade and other receivables 233,486 336,944
Total segment assets 2,096,089 2,510,634
Segment liabilities 32,034 – 377,483 396,946 78,834 80,872 401,253 635,141 889,604 1,112,959
160
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
3. OPERATING COSTS AND INCOME BEFORE EXCEPTIONAL ITEMS
The following have been charged/(credited) in arriving at operating profit:
2021
Continuing
£’000
2021
Total
£’000
2020
Continuing
£’000
2020
Reported
£’000
(Increase)/decrease in inventories (Note 26) (74,856) (81,014) (3,817) 8,572
Purchases and consumables 1,353,858 1,745,756 1,049,368 1,644,794
Staff costs before non-recurring items (Note 6) 317,056 373,552 260,997 363,725
Auditor’s remuneration – Group and subsidiaries 1,020 1,040 815 1,110
Auditor’s remuneration – Audit services provided by other firms 186 186 141 141
Depreciation (Note 13a) 30,289 38,270 27, 824 44,972
Depreciation on right-of-use assets (Note 13b) 54,552 59,624 51,747 62,240
Lease rentals and other hire charges (Note 13b) 1,374 1,464 973 1,228
Amortisation of intangible assets (Note 15) 15,536 17,184 9,877 14,146
Loss on disposal of property, plant and equipment 337 522 231 1,294
Acquisition related costs 4,129 4,129 1,380 1,380
Selling, distribution and administrative expenses 154,006 190,647 119,332 183,736
1,857,487 2,351,360 1,518,868 2,327,338
Operating profit includes Government Assistance of £Nil (2020: £19.6 million) in respect of the Coronavirus Job Retention Scheme in the UK.
Any assistance received in respect of the Temporary Covid-19 Wage Subsidy Scheme in Ireland was subsequently repaid. In addition, rates relief
income in the UK and Ireland amounted to £1.0 million (2020: £11.1 million) and is included in operating profit. The Group incurred additional costs
in relation to Covid-19 with regard to PPE, safety screens, signage, training and other items and this amounted to £1.1 million (2020: £3.6 million)
in the year.
The following services were provided by the Group’s Auditor:
2021
£’000
2020
£’000
Audit services (i)
– Group Auditor – PwC Ireland 662 547
– Other network firm – PwC* 355 540
1,017 1,087
Other assurance services (ii)
– Group Auditor – PwC Ireland 13 13
– Other network firm – PwC 10 10
23 23
Auditor’s remuneration – Group and subsidiaries (i) & (ii) 1,040 1,110
Other non-audit services
– Group Auditor – PwC Ireland – –
– Other network firm – PwC – –
Tax advisory services – –
– Group Auditor – PwC Ireland – –
– Other network firm – PwC – –
– –
Total (including expenses) – –
– Group Auditor – PwC Ireland 675 550
– Other network firm – PwC 365 550
1,040 1,110
* 2021 fees disclosed include overruns from previous years of £Nil (2020: £20,000).
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Financial Statements
4. EXCEPTIONAL ITEMS
There were no exceptional items recognised in 2021 other than the disposal costs of the discontinued operations which are detailed in Note 27.
Branch and organisational changes were implemented in a number of our traditional UK distribution businesses in the second half of 2020. These
measures provided sustainable benefits to the business and resulted in an exceptional charge of £24.7 million, including changes related to defined
benefit scheme arrangements (Note 30). £22.2 million of the exceptional charge related to the traditional merchanting business in Great Britain
which was disposed in 2021 (Note 27).
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
Exceptional items
Redundancy 140 7,513 7,653
Fixed asset write-offs – 1,809 1,809
Inventory write-offs – 1,151 1,151
Pension scheme changes (Note 30) – 8,019 8,019
Lease impairments – 2,176 2,176
Dilapidation provisions – 838 838
Other 2,341 698 3,039
2,481 22,204 24,685
5. DIRECTORS’ REMUNERATION, PENSION ENTITLEMENTS AND INTERESTS
2021
£’000
2020
£’000
Emoluments 2,927 1,741
Benefits under Long Term Incentive Plan (“LTIP”)* 2,834 921
Total emoluments 5,761 2,662
Emoluments above include the following:
Pension payments/contributions** 212 203
212 203
* For the year ended 31 December 2021, this is the value of LTIP awards that will vest in May 2022. The vesting of these awards was subject to performance conditions over the
period from 1 January 2019 to 31 December 2021. The value of the awards is based on the average share price of £12.54 for the three months to 31 December 2021. For the
year ended 31 December 2020, this is the value of LTIP awards that vested in May 2021. The value of this award has been updated from that disclosed last year to reflect the
share price of £12.28 on the date of vesting.
** This is the amount of contribution payable in respect of the financial year by way of a company contribution to a pension scheme or a taxable payment in lieu of pension made
through the payroll. This amount is accruing to two directors at 31 December 2021 (2020: two).
Further information on Directors’ remuneration, pension entitlements and interests in shares and share entitlements is presented in the Report of
the Remuneration Committee on Directors’ Remuneration on pages 105 to 127.
6. EMPLOYMENT
The average number of persons employed during the year by segment was as follows:
2021
Continuing
2021
Total
2020
Continuing
2020
Reported
Distribution 6,819 10,236 6,327 9,944
Retailing 1,544 1,544 1,228 1,228
Manufacturing 332 332 296 296
Holding company 22 22 23 23
8,717 12,134 7,874 11,491
The aggregate remuneration costs of employees were:
2021
Continuing*
£’000
2021
Total
£’000
2020
Continuing*
£’000
2020
Reported
£’000
Wages and salaries 271,683 321,337 224,071 315,022
Social welfare costs 29,383 33,836 25,689 34,916
Share based payments charge 4,387 5,601 836 719
Defined benefit pension (Note 30) 2,932 2,932 2,829 2,829
Defined contribution pension and related costs 8,671 9,846 7, 5 72 10,239
Staff costs charged to operating profit 317,056 373,552 260,997 363,725
Net finance cost on pension scheme obligations (Note 30) 383 383 339 339
Charged to income statement 317,439 373,935 261,336 364,064
Remeasurement (gain)/loss on pension schemes (Note 30) (14,886) (14,886) 21,779 21,779
Total employee benefit cost 302,553 359,049 283,115 385,843
* This amount represents the aggregate remuneration costs of employees from continuing operations only.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
6. EMPLOYMENT continued
The share-based payments charge was derived on the basis of the Group’s expectation of the number of shares likely to vest having regard to the
service, the historic performance of the Group over the period since the share entitlements were granted and the forecast performance over the
remaining life of share awards.
Total capitalised costs in 2021 were £Nil (2020: £Nil).
KEY MANAGEMENT
The cost of key management including Directors is set out in the table below:
2021 2020
Number of individuals* 8 8
2021
£’000
2020
£’000
Short term employee benefits 3,276 1,856
Share-based payment charge 1,395 514
Retirement benefits expense 272 262
Charged to operating profit 4,943 2,632
* 2020 includes Mr. Frank van Zanten to the end of April 2020.
7. FINANCE EXPENSE AND FINANCE INCOME
2021
£’000
2020
Restated
£’000
Finance expense:
Interest on bank loans, US senior notes and overdrafts 6,249* 8,218*
Interest on lease liabilities 14,637* 15,553*
Net finance cost on pension scheme obligations 383 339
Foreign exchange loss – 826
21,269 24,936
Finance income:
Interest income on bank deposits (193)* (698)*
Foreign exchange gain (1,711) –
(1,904) (698)
Net finance expense recognised in income statement 19,365 24,238
* Net bank/loan note interest of £6.1 million (2020: £7.5 million). Including interest on lease liabilities, this amounts to £20.7 million (2020 restated: £23.1 million)
Amounts relating to items not at fair value through income statement
– Total finance expense on financial liabilities 21,269 24,936
– Total finance income on financial assets (1,904) (698)
Recognised directly in other comprehensive income
Currency translation effects on foreign currency net investments (25,168) 11,777
Effective portion of changes in fair value of cash flow hedges 57 (74)
(25,111) 11,703
8. FOREIGN CURRENCIES
The results and cash flows of the subsidiaries with euro functional currencies have been translated into sterling using the average exchange rate for
the year. The balance sheets of subsidiaries with euro functional currencies have been translated into sterling at the rate of exchange ruling at the
balance sheet date.
The average sterling/euro rate of exchange for the year ended 31 December 2021 was Stg85.96 pence (2020: Stg88.97 pence). The sterling/euro
exchange rate at 31 December 2021 was Stg84.03 pence (2020: Stg89.9 pence).
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Financial Statements
9. INCOME TAX
(A) INCOME TAX RECOGNISED IN INCOME STATEMENT
2021
£’000
2020
Restated
£’000
Current tax expense
Irish corporation tax 15,324 10,004
UK and other corporation tax 23,190 15,590
38,514 25,594
Deferred tax expense
Irish deferred tax relating to the origination and reversal of temporary differences 731 (169)
Deferred tax expense resulting from change in tax rates 3,493 2,006
UK and other deferred tax expense/(credit) relating to the origination and reversal of temporary differences 214 (3,282)
4,438 (1,445)
Total income tax expense in income statement 42,952 24,149
TAXATION
The income tax expense of £43.0 million (2020: £24.1 million) was equivalent to an effective tax rate of 17.2 per cent on profit from continuing operations
(2020: 18.1 per cent). The rate is based on the prevailing rates of corporation tax and the mix of profits between the UK, Ireland, the Netherlands and
Finland. The tax rate is impacted by the disallowance of a tax deduction for certain overheads including depreciation on property. The charge for the year
includes a once-off increase in deferred tax arising from the UK tax rate increasing to 25 per cent from 19 per cent which is effective from 1 April 2023.
This change was enacted in UK legislation in May 2021 and adds 1.3 per cent to the tax rate on profits in the Group’s continuing operations.
Taxation paid in 2021 was £43.7 million (2020: £34.1 million).
The amount shown for current taxation reflects tax uncertainties and is based on the Directors’ estimate of: (i) the most likely amount; or (ii) the
expected value, of the probable outflow of economic resources that will be required. As with all estimates, the actual outcome may be different
to the current estimate.
(B) RECONCILIATION OF EFFECTIVE TAX RATE
2021
£’000
2020
Restated
£’000
Profit before tax 249,797 133,577
Profit before tax multiplied by the Irish standard rate of tax of 12.5% (2020: 12.5%) 31,225 16,697
Effects of:
Expenses not deductible for tax purposes 1,522 2,638
Differences in effective tax rates on overseas earnings 9,149 3,303
Effect of change in tax rates 3,493 2,006
Items not previously recognised for deferred tax (629) (17)
Other differences (1,808) (478)
Total income tax expense in income statement 42,952 24,149
(C) DEFERRED TAX RECOGNISED DIRECTLY IN EQUITY/OTHER COMPREHENSIVE INCOME
2021
£’000
2020
£’000
Actuarial movement on pension schemes (Note 30) 3,212 (3,709)
Employee share schemes (1,092) 352
Financing – cash flow hedge – –
2,120 (3,357)
Deferred income tax liabilities have not been recognised for any taxes that would be payable on the unremitted earnings of certain subsidiaries as it
is probable that any temporary differences will not reverse in the foreseeable future.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
10. DIVIDENDS
2021
£’000
Group
Interim dividend for 2019 of 12.50p per Grafton Unit – paid 19 February 2021 29,892
Final dividend for 2020 of 14.50p per Grafton Unit – paid 5 May 2021 34,685
Interim dividend for 2021 of 8.50p per Grafton Unit – paid 1 October 2021 20,344
84,921
On 24 March 2020, the Group announced that, as a precautionary measure to preserve liquidity in light of Covid-19, it was suspending the second
interim dividend for 2019 of 12.5p per share, which was due to be paid on 6 April 2020. On 21 January 2021, the Group announced the reinstatement
of this dividend and it was paid on 19 February in the amount of £29.9 million. The final dividend for the year ended 31 December 2020 of 14.5p was
paid on 5 May 2021 in the amount of £34.7 million.
An interim dividend for 2021 of 8.5p per share was paid on 1 October 2021 in the amount of £20.3 million.
A final dividend for 2021 of 22.0p per share will be paid to all holders of Grafton Units on the Company’s Register of Members at the close of
business on 8 April 2022 (the ‘Record Date’). The Ex-dividend date is 7 April 2022. The cash consideration will be paid on 5 May 2022. A liability in
respect of the final dividend has not been recognised at 31 December 2021, as there was no obligation to pay any dividends at the end of the year.
11. EARNINGS PER SHARE – GROUP
The computation of basic, diluted and adjusted earnings per share is set out below.
2021
£’000
2020
Restated
£’000
Numerator for basic, adjusted and diluted earnings per share:
Profit after tax for the financial year from continuing operations 206,845 109,428
Profit/(loss) after tax for the financial year from discontinued operations 134,422 (1,886)
Numerator for basic and diluted earnings per share 341,267 107,5 42
Profit after tax for the financial year from continuing operations 206,845 109,428
Amortisation of intangible assets arising on acquisitions 14,688 8,937
Tax relating to amortisation of intangible assets arising on acquisitions (3,151) (2,013)
Acquisition related items* 4,129 1,380
Tax on acquisition related items (74) –
Exceptional items – 2,481
Tax on exceptional items – (400)
Numerator for adjusted earnings per share 222,437 119,813
Denominator for basic and adjusted earnings per share:
Number of
Grafton Units
Number of
Grafton Units
Weighted average number of Grafton Units in issue 239,294,286 238,379,488
Dilutive effect of options and awards 478,708 82,675
Denominator for diluted earnings per share 239,772,994 238,462,163
Earnings per share (pence) – from continuing operations
– Basic 86.44 45.90
– Diluted 86.27 45.89
Adjusted earnings per share (pence) – from continuing operations*
– Basic 92.95 50.26
– Diluted 92.77 50.24
Earnings per share (pence) – from discontinued operations
– Basic 56.17 (0.79)
– Diluted 56.06 (0.79)
Earnings per share (pence) – from total operations
– Basic 142.61 45.11
– Diluted 142.33 45.10
The weighted average potential employee share entitlements over 1,169,931 Grafton Units (2020: 1,076,909) which are currently anti-dilutive are not
included in the above calculation for diluted earnings per share and adjusted diluted earnings per share.
* The adjustment of acquisition related items to the adjusted earnings per share APM is a change on previous years and thus the 2020 comparative has been restated to conform
to current year presentation.
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Financial Statements
12. GOODWILL
Cost
2021
£’000
2020
£’000
At 1 January 704,064 657,845
Arising on acquisitions (Note 27) 40,725 31,702
Disposal of Group businesses (Note 27) (126,291) –
Translation adjustment (18,688) 14,517
At 31 December 599,810 704,064
GOODWILL ACQUIRED
Goodwill acquired during the year in the amount of £40.7 million (2020: £31.7 million) was allocated to the Ireland and Finland distribution CGUs.
Goodwill on these acquisitions reflects the anticipated purchasing and operational synergies to be realised as part of the enlarged Group.
Intangible assets which formed part of the acquisition consideration are detailed in Note 15.
DISPOSAL OF GROUP BUSINESSES
In 2021, the Group completed the disposal of the traditional merchanting business in Great Britain which was no longer considered to be a good
strategic fit in the Group’s portfolio of businesses. This resulted in a reduction of goodwill amounting to £126.3 million.
GOODWILL IMPAIRED
There were no impairments during the year (2020: £Nil). Total accumulated impairment losses at 31 December 2021 amounted to £Nil (2020: £Nil).
CASH GENERATING UNITS
Goodwill arising as part of a business combination is allocated to groups of cash generating units (“CGUs”) for the purpose of impairment
testing based on the Group’s existing business segments or, where appropriate, recognition of a new CGU. The CGUs represent the lowest
level at which goodwill is monitored for internal management purposes and are not larger than the operating segments determined in
accordance with IFRS 8, Operating Segments. A total of seven CGUs (2020: six) have been identified and these are analysed between
the three reportable segments as follows:
Cash Generating Units Goodwill
2021
Number
2020
Number
2021
£’000
2020
£’000
Distribution 4 3 571,355 675,609
Retailing 1 1 – –
Manufacturing 2 2 28,455 28,455
7 6 599,810 704,064
IMPAIRMENT TESTING
Goodwill is subject to impairment testing on an annual basis at 31 December and additionally during the year if an indicator of impairment is
considered to exist. The recoverable amount of each cash generating unit is determined based on value-in-use calculations. The carrying value
ofeach cash generating unit was compared to its estimated value-in-use. There were no impairments during the year (2020: £Nil).
VALUE-IN-USE CALCULATIONS
The value-in-use is calculated on the basis of estimated future cash flows discounted to present value. Estimated future cash flows were
determined by reference to the budget for 2022 and management forecasts for each of the following years from 2023 to 2026 inclusive which
incorporates the impact of Covid-19. The terminal value was calculated using a long term growth rate in respect of the years after 2026.
Theestimates of future cash flows were based on consideration of past experience together with an assessment of the future prospects
or eachof the businesses within the CGUs. The assumptions used are also referenced against external industry data.
The key assumptions used in the value-in-use calculations are the revenue growth rate, the discount rate and the long term growth rate. The pre-tax
discount rates used were based on the Group’s estimated weighted average cost of capital, adjusted to reflect risks associated with each CGU.
The pre-tax discount rates range from 9.3 per cent to 10.1 per cent (2020: 6.6 per cent to 7.5 per cent). In determining the terminal value of the
value-in-use, it was assumed that cash flows after the first five years will increase at a long term growth rate of two per cent (2020: two per cent).
The rate assumed was based on an assessment of the likely long term growth prospects of the individual CGUs.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
12. GOODWILL continued
SIGNIFICANT GOODWILL AMOUNTS
The UK distribution, Irish distribution and Netherlands distribution CGUs have significant amounts of goodwill.
A summary of the allocated goodwill and the assumptions relating to the recoverable amounts of these CGUs is shown below:
UK Distribution Irish Distribution Netherlands Distribution
2021 2020 2021 2020 2021 2020
Goodwill 275,769 401,353 155,938 163,399 105,206 110,857
Recoverable amount basis Value-in-use Value-in-use Value-in-use Value-in-use Value-in-use Value-in-use
Revenue growth rate average 4.1% 2.4% 4.2% 3.1% 3.8% 5.5%
Long term growth rate 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Discount rate (pre-tax) 10.2% 7.5% 9.3% 7.0% 10.1% 6.6%
The remaining goodwill balance of £62.9 million (2020: £28.5 million) is allocated to the Finland Distribution CGU and the UK manufacturing CGU
(2020: UK Manufacturing CGU) and the goodwill amount of these CGU’s is not significant.
SENSITIVITY ANALYSIS
The value-in-use calculations are sensitive to changes in the key assumptions of the revenue growth rate, the discount rate and the long term
growth rate. While management believes that the value-in-use assumptions are prudent, sensitivity analysis was performed based on reasonable
changes in each of the three key assumptions in the significant CGUs. No reasonably possible change in any of the key assumptions would cause
the carrying amount to exceed the recoverable amount in significant CGUs.
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES
13. (A) PROPERTY, PLANT AND EQUIPMENT
Freehold land
and buildings
£’000
Leasehold
improvements/
buildings
£’000
Plant and
Machinery
£’000
Motor Vehicles
£’000
Total
£’000
Year ended 31 December 2021
Opening net book amount 268,375 73,580 99,129 52,455 493,539
Additions 1,428 6,617 29,100 6,471 43,616
Arising on acquisitions (Note 27) 11,244 – 5,912 880 18,036
Disposal of Group businesses (Note 27) (115,532) (10,598) (24,884) (26,501) (177,515)
Disposals (2,054) (99) (900) (80) (3,133)
Depreciation charge (Note 3) (3,420) (6,740) (19,995) (8,115) (38,270)
Impairment charge – (20) (146) – (166)
Reclassification to properties held for sale (324) – – – (324)
Reclassification to investment properties (5,900) – – – (5,900)
Exchange adjustment (7,455) (434) (2,417) (282) (10,588)
Closing net book amount 146,362 62,306 85,799 24,828 319,295
At 31 December 2021
Cost 189,626 113,265 259,281 48,253 610,425
Accumulated depreciation & impairment loss (43,264) (50,959) (173,482) (23,425) (291,130)
Net Book Amount 146,362 62,306 85,799 24,828 319,295
Year ended 31 December 2020
Opening net book amount 269,851 72,328 103,645 55,100 500,924
Additions 932 7,949 17,94 8 8,353 35,182
Arising on acquisitions 1,204 – 901 323 2,428
Disposals (25) (178) (1,745) (162) (2,110)
Depreciation charge (4,139) (6,992) (22,523) (11,318) (44,972)
Impairment charge (1,152) (110) (763) – (2,025)
Reclassification to properties held for sale (3,901) – – – (3,901)
Reclassification from investment properties 101 – – – 101
Reclassification to investment properties – (313) – – (313)
Reclassifications (400) 400 18 (18) –
Exchange adjustment 5,904 496 1,648 177 8,225
Closing net book amount 268,375 73,580 99,129 52,455 493,539
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Financial Statements
At 31 December 2020
Cost 318,896 122,715 304,675 82,584 828,870
Accumulated depreciation & impairment loss (50,521) (49,135) (205,546) (30,129) (335,331)
Net Book Amount 268,375 73,580 99,129 52,455 493,539
The Group’s freehold and long leasehold properties located in the Republic of Ireland were professionally valued as at December 1998 by
professional valuers in accordance with the Appraisal and Valuation Manual of the Society of Chartered Surveyors. Property acquired/purchased
after December 1998 is stated at fair value or cost. The valuations, which were made on an open market for existing use basis, were deemed to
be cost for the purpose of the transition to IFRS as adopted by the EU. The remaining properties, which are located in the United Kingdom, the
Netherlands and Finland, are included at cost less depreciation.
Following a review of the assets in the UK distribution businesses during 2020, an impairment charge of £2.0 million was recognised. £1.8 million
of these impairment charges related to the branch and organisational changes in the second half of 2020 and were recognised in exceptional
items in 2020 (Note 4).
13. (B) RIGHT-OF-USE ASSET
Property &
Land Leases
£’000
Vehicles
£’000
Other
Assets
£’000
Total
£’000
Year ended 31 December 2021
Opening balance at 1 January 2021 492,139 13,681 102 505,922
Additions 15,004 6,808 818 22,630
Arising on acquisitions (Note 27) 24,192 – – 24,192
Depreciation charge (Note 3) (54,034) (5,488) (102) (59,624)
Disposal of Group businesses (Note 27) (55,162) (5,415) (36) (60,613)
Disposals (2,603) (193) – (2,796)
Remeasurements 5,341 467 13 5,821
Translation adjustment (13,822) (451) (5) (14,278)
Closing net book amount 411,055 9,409 790 421,254
Year ended 31 December 2020
Recognised at 1 January 2020 507,597 14,483 165 522,245
Additions 13,603 6,353 47 20,003
Arising on acquisitions 8,669 – – 8,669
Depreciation charge (55,168) (6,960) (112) (62,240)
Impairment charge (3,448) – – (3,448)
Disposals (4,502) (43) – (4,545)
Remeasurements 13,226 (536) – 12,690
Translation adjustment 12,162 384 2 12,548
Closing net book amount 492,139 13,681 102 505,922
The impairment charge in 2020 of £3.4 million primarily related to the branch and organisational changes in the UK in the second half of the year,
of which £2.2 million was recognised in exceptional items (Note 4).
The carrying value of assets, which the Group sublease as operating leases and generate income from, amounted to £14.5 million (2020 £26.1 million).
Cashflows relating to extension options and termination options, which are not reflected in the measurement of lease liabilities are £Nil (2020: Nil).
The average lease term is 4.0 years (2020: 5.9 years).
The amounts recognised in the income statement include:
2021
Continuing
£’000
2021
Total
£’000
2020
Continuing
£’000
2020
Reported
£’000
Depreciation expense on right-of-use assets (Note 3) 54,552 59,624 51,747 62,240
Interest expense on lease liabilities (Note 7) 14,637 15,880 15,553 18,256
Expense relating to short term leases (Note 3) 1,167 1,257 903 1,158
Expense relating to leases of low-value assets (Note 3) 38 38 46 46
Expense relating to variable lease payments not included in the measurements of
lease liability (Note 3) 169 169 24 24
Income from subleasing right-of-use assets – operating leases 883 883 651 651
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES continued
13. (A) PROPERTY, PLANT AND EQUIPMENT continued
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES continued
13. (B) RIGHT-OF-USE ASSET continued
The total cash outflow for leases amounted to £70.7 million (2020: £75.2 million).
There have been no sale and leaseback transactions in the current year.
The undiscounted lease amounts to be received on an annual basis, in relation to the sublease operating lease income, is £0.6 million for years one
to three, £0.5 million for year four, £0.4 million for year five onwards with total income from subleasing right-of-use assets amounting to £3.3 million
(2020: £2.6 million).
Further detail on the impact of IFRS 16 “Leases” is set out within the APM’s.
13. (C) PROPERTIES HELD FOR SALE
Carrying
Amount
£’000
At 1 January 2020 16,274
Transfers from property, plant and equipment 3,901
Transfers from investment properties 810
Fair value losses (25)
Disposals (3,765)
Translation adjustment 863
At 31 December 2020 18,058
Transfers from property, plant & equipment 324
Transfers from investment properties 546
Disposals (11,915)
Translation adjustment (888)
At 31 December 2021 6,125
During the year, five UK and two Irish held for sale properties were sold. The six properties in Belgium were also sold in 2021. One property was
transferred from property, plant and equipment and one property from investment properties. The total number of properties held for sale at
31 December 2021 was 8 (2020: 19), of which seven (2020: 11) are located in the UK and one (2020: two) in Ireland. These properties are shown in
the balance sheet at the lower of their carrying amount and fair value less any disposal costs. Four properties are included at a fair value of £4.8
million (2020: seven properties at £6.8 million).
Properties held for sale are not used in the course of business and are available for immediate sale in their present condition subject to terms that
are usual and customary for properties of this nature. The individual properties were being actively marketed at the year end and the Group is
committed to its plan to sell these properties in an orderly manner.
13. (D) INVESTMENT PROPERTIES
Fair Value
£’000
At 1 January 2020 12,526
Transfers to properties held for sale (810)
Transfers from property, plant & equipment 313
Transfers to property, plant & equipment (101)
Translation adjustment 400
At 31 December 2020 12,328
Fair value gains 9,850
Fair value losses (82)
Transfers from property, plant & equipment 5,900
Transfers to properties held for sale (546)
Disposals (436)
Translation adjustment (487)
At 31 December 2021 26,527
The total number of investment properties at 31 December 2021 was 15 (2020: 13) of which seven (2020: three) are located in the UK and eight
(2020: 10) in Ireland. These properties are being held with a view to enhancing their value.
Investment properties of £26.5 million, which are separately classified in non-current assets, are carried at fair value in the financial statements. An internal
review undertaken by the Group Property Director was used to determine fair values. The valuation techniques used were the market value of comparable
transactions that were recently completed or on the market. In cases where there are no recent precedent transactions, valuations were based on
estimated rental yields, consideration of residual value and consultations with external agents who have knowledge of local property markets.
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Financial Statements
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES continued
13. (E) FAIR VALUE HIERARCHY – PROPERTIES HELD FOR SALE CARRIED AT FAIR VALUE
AND INVESTMENT PROPERTIES
As noted in the Group’s accounting policies on pages 151 and 153, properties held for sale are held at the lower of carrying amount and fair value
less costs to sell. Investment properties are carried at fair value. Fair value is defined as the price that would be received if the asset was sold in an
orderly transaction between market participants based on the asset’s highest and best use. Valuations are reviewed each year by the Directors with
movements in fair value recognised in the income statement.
The Group reviewed its property portfolio during the year. Properties held for sale comprise land and buildings in a number of locations across the
UK and Ireland. Investment properties, comprising land and buildings located in the UK and Ireland, are held for capital appreciation and or rental
income and are not occupied by the Group for trading purposes. This also includes parts of properties which are sub-let to third parties. Properties
held for sale comprise properties that are held at a carrying amount of £1.4 million (2020: £11.2 million) and properties held at a fair value of £4.8
million (2020: £6.8 million). Investment properties are held at a fair value of £26.5 million (2020: £12.3 million).
In general, valuations have been undertaken having regard to comparable market transactions between informed market participants. Due to
very limited transactions for properties of a similar nature in the UK and Ireland, the valuations of a number of properties were determined internally
with reference to local knowledge, valuation techniques and the exercise of judgement following consultation with property advisers with recent
experience of the location and nature of the properties being valued.
Property valuations are derived from data which is not publicly available and for these reasons, the valuations of the Group’s property portfolio is
classified as level 3 as defined by IFRS 13.
The following is a summary of valuation methods used in relation to the Group’s held for sale and investment properties which are carried at
fair value:
At 31 December 2021
Comparable
market
transactions
£’000
Offers
from third
parties
£’000
Total
2021
£’000
Properties Held for Sale
Distribution segment 4,757 – 4,757
Comparable
market
transactions
£’000
Other
methods
£’000
Total
2021
£’000
Investment Properties
Distribution segment 23,171 – 23,171
Manufacturing segment 2,213 1,143 3,356
Total 25,384 1,143 26,527
At 31 December 2020
Comparable
market
transactions
£’000
Offers
from third
parties
£’000
Total
2020
£’000
Properties Held for Sale
Distribution segment 6,813 – 6,813
Comparable
market
transactions
£’000
Other
methods
£’000
Total
2020
£’000
Investment Properties
Distribution segment 8,544 – 8,544
Manufacturing segment 2,561 1,223 3,784
Total 11,105 1,223 12,328
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES continued
13. (E) FAIR VALUE HIERARCHY – PROPERTIES HELD FOR SALE CARRIED AT FAIR VALUE
AND INVESTMENT PROPERTIES continued
The following table shows a reconciliation from the opening balance to the closing 2021 balance for level 3 fair values:
Properties
held for sale
2021
£’000
Investment
properties
2021
£’000
Balance at beginning of year 18,058 12,328
Transfers from property, plant and equipment 324 5,900
Transfers to properties held for sale 546 (546)
Disposals (11,915) (436)
Fair value gains and losses* – 9,768
Foreign exchange movement (888) (487)
Balance at end of year 6,125 26,527
Recorded at fair value 4,757 26,527
Recorded at cost 1,368 –
Total 6,125 26,527
* During 2021, a fair value gain of £9.9 million was recognised on five properties which were transferred to investment properties during the period. Four of these were properties
which were retained by the Group following the agreement to divest the traditional merchanting business in Great Britain. These four properties have a fair value of £15.75
million and a market value of circa £25 million that reflected their planning potential. A net fair value loss of £0.1 million was also recognised on two Irish investment properties.
The following table shows a reconciliation from the opening balance to the closing 2020 balance for level 3 fair values:
Properties
held for sale
2020
£’000
Investment
properties
2020
£’000
Balance at beginning of year 16,274 12,526
Transfers from property, plant and equipment 3,901 313
Transfers from investment properties 810 (810)
Transfers to property, plant and equipment – (101)
Disposals (3,765) –
Fair value losses (25) –
Foreign exchange movement 863 400
Balance at end of year 18,058 12,328
Recorded at fair value 6,813 12,328
Recorded at cost 11,245 –
Total 18,058 12,328
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Financial Statements
13. PROPERTY, PLANT AND EQUIPMENT, RIGHT-OF-USE ASSET, PROPERTIES HELD FOR SALE
AND INVESTMENT PROPERTIES continued
13. (E) FAIR VALUE HIERARCHY – PROPERTIES HELD FOR SALE CARRIED AT FAIR VALUE
AND INVESTMENT PROPERTIES continued
VALUATION TECHNIQUES AND SIGNIFICANT UNOBSERVABLE INPUTS
The following tables show the valuation techniques used in measuring the fair value of properties held for sale and investment properties and the
significant unobservable inputs used. Where market transactions are present, the comparable market transaction method is used for land and
buildings held for sale or capital appreciation.
PROPERTIES HELD FOR SALE
Valuation technique Significant unobservable inputs
Inter-relationship between key unobservable inputs
and fair value measurement
Comparable market transactions
– price per square metre:
The value is based on comparable market
transactions after discussion with independent
agents and/or with reference to other
information sources.
UK – Regional (excluding major cities)
• Comparable industrial development land
prices of £50,000 – £460,000 per acre.
Ireland – Urban (major cities)
• Comparable industrial or development
land prices of £240,000 per acre.
The estimated fair value would increase/
(decrease) if:
• Comparable market prices
per square metre were higher/(lower).
INVESTMENT PROPERTIES
Valuation technique Significant unobservable inputs
Inter-relationship between key unobservable inputs
and fair value measurement
Comparable market transactions
– price per square metre:
The value is based on comparable market
transactions after discussion with independent
registered property appraisers and/or with
reference to other information sources.
Ireland – Urban
• Comparable office market prices
of £226 – £1,283 per square metre
(2020: £450 – £1,176 per square metre).
• Comparable minimum warehouse market
prices of £210 – £837 per square metre
(2020: £225 – £895 per square metre).
• Comparable agricultural land market prices
of £11,334 per acre (2020: £12,137 per acre).
• Comparable minimum industrial land price
of £84,080 per acre (2020: £89,900 per acre).
Ireland – Regional
• Comparable warehouse market prices
of £150 – £315 per square metre
(2020: £160– £373 per square metre).
UK – Regional (excluding major cities)
• Comparable warehouse market price
of £350 per square metre
(2020: £350 per square metre).
• Comparable residential market prices of
dilapidated residential in region of £50,000.
• Comparable industrial development land at
£250,000 per acre.
UK – Urban
• Comparable market prices for development
sites of £0.6 million – £4.5 million per acre.
The estimated fair value would increase/
(decrease) if:
• Comparable market prices per square metre
were higher/(lower).
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14. OTHER FINANCIAL ASSETS
Other
Investments
£’000
At 1 January 2020 127
Translation adjustment 1
At 31 December 2020 128
Translation adjustment (2)
At 31 December 2021 126
Other investments represent sundry equity investments at cost less provision for impairment.
15. INTANGIBLE ASSETS
Computer
Software
£’000
Trade
Names
£’000
Customer
Relationships &
Technology
£’000
Total
£’000
Cost
At 1 January 2020 43,631 7, 311 7 7,079 128,021
Additions 1,893 – – 1,893
Acquisitions – 6,276 16,239 22,515
Translation adjustment 97 247 2,616 2,960
At 1 January 2021 45,621 13,834 95,934 155,389
Additions 827 – – 827
Acquisitions (Note 27) 388 23,172 55,534 79,094
Disposal of Group businesses (Note 27) (39,019) (501) (4,681) (44,201)
Translation adjustment (250) (899) (4,578) (5,727)
At 31 December 2021 7,567 35,606 142,209 185,382
Amortisation
At 1 January 2020 7,4 36 1,804 15,513 24,753
Charge for the year 5,209 813 8,124 14,146
Translation adjustment 30 60 495 585
At 1 January 2021 12,675 2,677 24,132 39,484
Charge for the year 2,496 2,928 11,760 17,184
Disposal of Group businesses (Note 27) (11,497) (279) (2,598) (14,374)
Translation adjustment (108) (135) (996) (1,239)
At 31 December 2021 3,566 5,191 32,298 41,055
Net book amount
At 31 December 2021 4,001 30,415 109,911 144,327
At 31 December 2020 32,946 11,157 71,802 115,905
Computer software of £4.0 million at 31 December 2021 (2020: £32.9 million) reflects the carrying value of the Group’s investment to upgrade
the IT systems and infrastructure that supports a number of UK businesses as part of a multi-year programme of investment.
Customer relationships, technology and trade names arise from business combinations (Note 27) and are amortised over their estimated useful
lives. The average remaining amortisation period is 6.9 years (2020: 6.9 years).
The amortisation expense of £17.2 million (2020: £14.1 million) has been charged in operating costs in the income statement. Amortisation on
acquired intangibles amounted to £14.7 million (2020: £8.9 million).
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
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Financial Statements
16. INVENTORIES
2021
£’000
2020
£’000
Raw materials 4,716 3,467
Finished goods 1,524 1,667
Goods purchased for resale 337,932 316,424
344,172 321,558
The inventory provision at 31 December 2021 was £41.9 million (2020: £47.9 million).
MOVEMENT IN IMPAIRMENT PROVISION
2021
£’000
2020
£’000
At 1 January 47,856 37, 3 86
Utilised/released during year (2,922) (2,380)
Acquired during the year 3,820 50
Disposed during the year (12,967) –
Additional provision* 7,431 11,653
Translation adjustment (1,275) 1,147
At 31 December 41,943 47, 856
* Includes £1.2 million of inventory written off in 2020 and included as exceptional items (Note 4).
17. TRADE AND OTHER RECEIVABLES AND FINANCE LEASE RECEIVABLES
17. (A) TRADE AND OTHER RECEIVABLES
2021
£’000
2020
£’000
Amounts falling due within one year:
Trade receivables 153,155 238,150
Other receivables 80,331 98,794
233,486 336,944
The carrying amount of trade and other receivables represents the maximum credit exposure. Other receivables primarily includes prepayments
and rebates receivable. Rebates receivable amounted to £64.8 million (2020: £78.6 million).
The maximum exposure to credit risk for trade debtors and other receivables at the reporting date by geographic region was as follows:
Carrying Amount
2021
£’000
2020
£’000
United Kingdom 87,970 215,177
Ireland 88,049 82,521
Netherlands 40,051 39,246
Finland 17,416 –
233,486 336,944
Credit risk is well diversified over a broad customer base with only a small number of accounts with balances in excess of £100,000 that collectively
account for a small proportion of total trade receivables. A number of businesses also have credit insurance policies in place which provide cover
for the most significant amounts receivable from customers in the UK and Ireland.
The ageing of trade and other receivables, under the expected credit loss model, at 31 December 2021 was:
Gross Value
£’000
Impairment
£’000
Carrying Amount
£’000
Weighted
Average Loss
Rate %
Not Past Due 195,253 (1,415) 193,838 0.7%
Past Due
0-30 days 32,731 (4,435) 28,296 13.5%
30-60 days 8,738 (2,422) 6,316 27.7%
+60 days 6,754 (1,718) 5,036 25.4%
48,223 (8,575) 39,648 17.8%
243,476 (9,990) 233,486 4.1%
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
17. TRADE AND OTHER RECEIVABLES AND FINANCE LEASE RECEIVABLES continued
17. (A) TRADE AND OTHER RECEIVABLES continued
The ageing of trade and other receivables at 31 December 2020 was:
Gross Value
£’000
Impairment
£’000
Carrying
Amount
£’000
Weighted
Average Loss
Rate
%
Not Past Due 286,388 (2,074) 284,314 0.7%
Past Due
0-30 days 35,780 (1,814) 33,966 5.1%
30-60 days 12,901 (3,036) 9,865 23.5%
+60 days 14,386 (5,587) 8,799 38.8%
63,067 (10,437) 52,630 16.5%
349,455 (12,511) 336,944 3.6%
MOVEMENT IN IMPAIRMENT PROVISION
2021
£’000
2020
£’000
At 1 January
12 ,511
9,350
Written-off during the year
(2,178)
(3,828)
Additional provision 4,033 6,762
Acquired during the year – 18
Disposed during the year (4,039) –
Translation adjustment (337) 209
At 31 December 9,990 12,511
17. (B) FINANCE LEASE RECEIVABLES
Finance lease receivables are presented in the balance sheet as follows:
2021
£’000
2020
£’000
Lease receivables:
Lease receivables – falling due within one year 212 301
Lease receivables – falling due after more than one year 881 2,015
1,093 2,316
The maturity profile of the Group’s finance lease receivables can be summarised as follows:
2021
£’000
2020
£’000
Lease receivables:
Due within one year 212 301
Between one and two years 192 291
Between two and three years 168 264
Between three and four years 134 203
Between four and five years 128 195
After five years 259 1,062
1,093 2,316
The average lease term is 4.0 years (2020: 20.5 years). The finance income on the finance lease receivable recognised during the year amounted
to £0.1 million (2020 Restated: £0.1 million).
18. SHARE CAPITAL AND SHARE PREMIUM
GROUP AND COMPANY
2021
€’000
2020
€’000
Authorised:
Equity shares
306 million ordinary shares of 5c each (2020: 300 million) 15,300 15,000
30 billion ‘A’ ordinary shares of 0.001c each – 300
15,300 15,300
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Financial Statements
18. SHARE CAPITAL AND SHARE PREMIUM continued
GROUP AND COMPANY continued
Year Ended 31 December 2021
Issue Price
Number of
Shares
2021
Nominal
Value
£’000
Issued and fully paid:
Ordinary shares – nominal value of €0.05 At 1 January 239,535,567 8,547
Issued under UK SAYE scheme* 453,388 19
2011 Long Term Incentive Plan
April 2018 LTIP Award Nil 82,675 4
At 31 December 240,071,630 8,570
‘A’ ordinary shares
At 1 January 4,072,104,639 22
‘A’ ordinary shares issued in year 2,353,684 –
Cancellation of ‘A’ ordinary shares (4,074,458,323) (22)
At 31 December – –
Total nominal share capital issued 8,570
* Refer to Note 31 which outlines the issue price of the 2020, 2019, 2018 and the 2017 SAYE Schemes.
Year Ended 31 December 2020
Issue Price
Number of
Shares
2020
Nominal
Value £’000
Issued and fully paid:
Ordinary shares – nominal value of €0.05
At 1 January 238,307,798 8,494
Issued under UK SAYE scheme** 413,489 18
2011 Long Term Incentive Plan
April 2017 LTIP Award Nil 748,994 32
May 2017 LTIP Award Nil 65,286 3
At 31 December 239,535,567 8,547
‘A’ ordinary shares
At 1 January 4,051,232,566 22
‘A’ ordinary shares issued in year (net of cancellations) 20,872,073 –
At 31 December 4,072,104,639 22
Total nominal share capital issued 8,569
** Refer to Note 31 which outlines the issue price of the 2020, 2019, 2018 and the 2017 SAYE Schemes.
SHARE PREMIUM
Group
2021
£’000
2020
£’000
At 1 January 216,496 213,719
Premium on issue of shares under UK SAYE scheme 2,951 2,777
At 31 December 219,447 216,496
GRAFTON UNITS ISSUED AND CANCELLED DURING 2021
The number of Grafton Units issued during the year under the Group’s Executive Share Schemes and the UK SAYE scheme was 536,063
(2020: 1,227,769). Costs relating to the issues were £Nil (2020: £Nil). The number of Grafton units cancelled during the year was Nil (2020: Nil).
The total consideration received, net of cancellations, amounted to £2,974,000 (2020: £2,830,000).
GRAFTON UNITS
At 31 December 2020, a Grafton Unit comprised one ordinary share of Euro five cent and 17 ‘A’ ordinary shares of 0.001 cent each in Grafton
Group plc and one ‘C’ ordinary share of Stg0.0001p in Grafton Group (UK) plc.
At an Extraordinary General Meeting on 21 January 2021, shareholders approved a resolution relating to the surrender and cancellation of the ‘A’
Ordinary Shares and the purchase of the ‘C’ Ordinary Shares and related waiver of rights. These changes took effect from 6.00 p.m. on 7 March
2021. From that date and as at 31 December 2021, a Grafton Unit comprised one ordinary share of Euro five cent in Grafton Group plc.
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
18. SHARE CAPITAL AND SHARE PREMIUM continued
ORDINARY SHARES
The holders of ordinary shares are entitled to attend, speak and vote at all General Meetings of the Company.
SIMPLIFICATION OF GRAFTON UNIT
The Grafton Unit was simplified with effect from 7 March 2021 and now comprises 1 ordinary share in Grafton Group plc.
TREASURY SHARES
The Group holds 500,000 (2020: 500,000) Grafton Units at a cost of £3,897,000 (2020: £3,897,000) as treasury shares.
19. GROUP STATEMENT OF CHANGES IN EQUITY
The capital redemption reserve is a legal reserve which arose from the purchase of ‘A’ ordinary shares, the redemption of redeemable shares in prior
years and the buy-back and cancellation of shares.
The revaluation reserve was created as a result of a revaluation of Irish properties in 1998.
The shares to be issued reserve comprises amounts expensed in the income statement in connection with share-based payments, net of transfers
to retained earnings on the exercise of share entitlements and the lapsing of such entitlements.
The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related
to hedged transactions that have not yet occurred.
The foreign currency translation reserve arises from the currency effect on translation of the investment in subsidiaries with euro functional
currencies as adjusted for foreign currency borrowings and derivatives designated as net investment hedges.
20. INTEREST-BEARING LOANS AND BORROWINGS
2021
£’000
2020
£’000
Non-current liabilities
Euro bank loans 38,699 130,842
US senior notes 133,902 143,188
Total interest-bearing loans and borrowings 172,601 274,030
Lease liabilities 396,070 479,019
568,671 753,049
Current liabilities
Euro bank loans 84,030 –
Lease liabilities 52,924 57,915
136,954 5 7,915
The decrease in non-current interest-bearing loans and borrowings largely reflects a movement to current liabilities and a foreign exchange
movement on translation of the Group’s euro denominated bank loans/US senior notes into sterling at the year end.
MATURITY OF FINANCIAL LIABILITIES
The maturity profile of the Group’s interest-bearing financial liabilities (bank debt, loan notes and lease liabilities) can be summarised as follows:
Bank loans
2021
£’000
US senior
2021
£’000
Lease
liabilities
2021
£’000
Total
2021
£’000
Bank loans
2020
£’000
US senior
2020
£’000
Lease
liabilities
2020
£’000
Total
2020
£’000
Due within one year 84,030 – 52,924 136,954 – – 5 7,915 57,915
Between one and two years 38,699 – 53,024 91,723 – – 5 7, 208 57,208
Between two and three years – – 52,492 52,492 130,842 – 55,983 186,825
Between three and four years – – 51,131 51,131 – – 54,558 54,558
Between four and five years – – 47,436 47,436 – – 52,695 52,695
After five years – 133,902 191,987 325,889 – 143,188 258,575 401,763
122,729 133,902 448,994 705,625 130,842 143,188 536,934 810,964
Derivatives 8 65
Gross debt 705,633 811,029
Cash and short term deposits (844,663) (456,028)
Net (cash)/debt (139,030) 355,001
Shareholders’ equity 1,719,599 1,467,023
Net cash, excluding the impact of leases, amounted to £588.0 million (2020: £181.9 million).
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Financial Statements
The following table indicates the effective interest rates at 31 December 2021 in respect of interest bearing financial assets and financial liabilities
and the periods during which they re-price.
Effective Interest Rate
Total
£’000
6 months
or less
£’000
6 to 12
months
£’000
1-2 years
£’000
2-5 years
£’000
More than 5
years
£’000
Euro deposits – – – – – – –
Sterling deposits 0.10% 16,714 16,714 – – – –
Cash at bank (0.65%) – 0.10% 827,949 827,949 – – – –
Total cash and cash equivalents 844,663 844,663 – – – –
Floating rate debt:
Euro loans (0.34%) (122,729) (122,729) – – – –
Total floating rate debt (122,729) (122,729) – – – –
Fixed rate debt:
Lease liabilities 3.26% (448,994) (26,462) (26,462) (53,024) (151,059) (191,987)
US senior notes 2.49% (133,902) – – – – (133,902)
Total fixed rate debt (582,896) (26,462) (26,462) (53,024) (151,059) (325,889)
Derivatives (8) (8) – – – –
Total net cash/(debt) 139,030 695,464 (26,462) (53,024) (151,059) (325,889)
BORROWING FACILITIES AND US SENIOR NOTES
At 31 December 2021, the Group had bilateral loan facilities of £433.7 million (2020: £490.7 million) with five relationship banks which all mature
in March 2023.
A new one-year term facility for £84.0 million was put in place in 2021 facilitated by one of the Group’s five relationship banks under the ECB’s
Targeted Longer-Term Refinancing Operations. This facility was used to temporarily replace drawings on existing facilities on more attractive terms.
The Group had an undrawn committed borrowing facility at 31 December 2021 of £394.7 million (2020: £359.2 million) in respect of which all
conditions precedent were met. In 2020, the Group had access to the Bank of England’s Covid Corporate Financing Facility (“BOE CCFF”) and
was approved to borrow up to £300 million. In view of the Group’s concern about liquidity at a time of high uncertainty caused by the pandemic,
debt of £261.1 million that had been prudently drawn in April under the committed revolving bank facilities and held in cash was repaid in June
2020. The CCFF was allowed to lapse unutilised on 31 December 2020.The Group had liquidity of £1,235.4 million at 31 December 2021 (2020:
£811.2 million) of which £840.7 million (2020: £452.0 million) was held in accessible cash and £394.7 million (2020: £359.2 million) in undrawn
revolving bank facilities.
In September 2018, the Group raised €160 million (31 December 2021: £134.4 million before costs; 31 December 2020: £143.8 million before
costs) through an issue of unsecured senior notes in the US Private Placement market with ten and twelve year maturities at an average fixed
annual coupon of 2.5 per cent and used the proceeds received to refinance existing debt. The issue of these notes diversified the Group’s sources
of funding by re-entering the US Private Placement market, extended the maturity profile of debt and provided greater certainty over the cost of
debt for an extended period at attractive rates.
The average maturity of committed bank facilities and unsecured senior notes at 31 December 2021 was 2.5 years (2020: 3.7 years).
20. INTEREST-BEARING LOANS AND BORROWINGS continued
MATURITY OF FINANCIAL LIABILITIES continued
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
20. INTEREST-BEARING LOANS AND BORROWINGS continued
BORROWING FACILITIES AND US SENIOR NOTES continued
The following table indicates the effective interest rates at 31 December 2020 in respect of interest bearing financial assets and financial liabilities
and the periods in which they re-price. The effective interest rate and timing of re-pricing were adjusted for the effect of derivatives.
Effective
Interest Rate
Total
£’000
6 months
or less
£’000
6 to 12
months
£’000
1-2 years
£’000
2-5 years
£’000
More than 5
years
£’000
Euro deposits 0.00% 7,4 61 7, 4 61 – – – –
Sterling deposits 0.11% 129,624 129,624 – – – –
Cash at bank (0.65%) – 0.10% 318,943 318,943 – – – –
Total cash and cash equivalents 456,028 456,028 – – – –
Floating rate debt:
Euro loans 0.60% (130,842) (130,842) – – – –
Total floating rate debt (130,842) (130,842) – – – –
Fixed rate debt:
Lease liabilities 3.40% (536,934) (28,957) (28,958) (57,208) (163,236) (258,575)
US senior notes 2.49% (143,188) – – – – (143,188)
Total fixed rate debt (680,122) (28,957) (28,958) (5 7, 208) (163,236) (401,763)
Derivatives (65) (65) – – – –
Total Net Debt (355,001) 296,164 (28,958) (57,208) (163,236) (401,763)
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK
The fair values of financial assets and liabilities together with the carrying amounts shown in the balance sheet are as follows:
At 31 December 2021
Fair value
through OCI
£’000
Amortised
cost
£’000
Total carrying
value
£’000
Fair value
£’000
Other financial assets* 126 – 126 –
Trade and other receivables* – 233,486 233,486 –
Lease receivables* – 1,093 1,093 –
Cash and cash equivalents* – 844,663 844,663 –
126 1,079,242 1,079,368 –
Interest rate swaps and other derivatives (8) – (8) (8)
Euro bank loans – (122,729) (122,729) (123,017)
US senior notes – (133,902) (133,902) (134,448)
Lease liabilities – (448,994) (448,994) (448,994)
Trade and other payables* – (419,111) (419,111) –
(8) (1,124,736) (1,124,744) (706,467)
At 31 December 2020
Fair value
through OCI
£’000
Amortised
cost
£’000
Total carrying
value
£’000
Fair value
£’000
Other financial assets* 128 – 128 –
Trade and other receivables* – 336,944 336,944 –
Lease receivables* – 2,316 2,316 –
Cash and cash equivalents* – 456,028 456,028 –
128 795,288 795,416 –
Interest rate swaps (65) – (65) (65)
Euro bank loans – (130,842) (130,842) (131,521)
US senior notes – (143,188) (143,188) (143,840)
Lease liabilities – (536,934) (536,934) (536,934)
Trade and other payables* – (545,949) (545,949) –
(65) (1,356,913) (1,356,978) (812,360)
* The Group has not disclosed the fair values of financial instruments such as short term receivables and payables because their carrying value closely approximates fair value.
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Financial Statements
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK continued
FAIR VALUE
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets
and liabilities. Set out below is an analysis of financial instruments carried at fair value, by valuation method. The different levels in the fair value
hierarchy have been defined as follows:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable, either directly or indirectly.
Level 3: inputs that are not based on observable market data.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
TRADE AND OTHER RECEIVABLES/TRADE AND OTHER PAYABLES
• For receivables and payables with a remaining life of less than six months or demand balances, fair value is the amount that is payable
contractually less an impairment provision where appropriate.
CASH AND CASH EQUIVALENTS, INCLUDING SHORT TERM BANK DEPOSITS
• For short term bank deposits and cash and cash equivalents, all of which have a remaining maturity of less than three months, the carrying
amount is a reasonable approximation of fair value. At 31 December 2021, £4.0 million of cash (2020: £4.0 million) is retained in the event of
a default by the Group on a letter of credit. This arrangement can be replaced at any time.
OTHER FINANCIAL ASSETS
• Certain of the Group’s financial assets are comprised of investments that do not have a quoted market price in an active market and whose fair
value cannot be reliably measured. Such investments are measured at cost less provision for impairment where appropriate and applicable.
DERIVATIVE INSTRUMENTS (INTEREST RATE SWAPS & FOREIGN CURRENCY FORWARDS)
• The fair values of interest rate swaps and foreign currency forwards are calculated as the present value of the estimated future cash flows based
on the terms and maturity of each contract and using the spot, forward currency rates and market interest rates as applicable for a similar
instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit
risk of the Group entity and counterparty where appropriate.
INTEREST BEARING LOANS AND BORROWINGS
• For floating rate interest bearing loans and borrowings with a contractual repricing date of less than six months, the nominal amount is deemed
to reflect fair value. For loans with repricing dates of greater than six months, the fair value is calculated based on the present value of the
expected future principal and interest cash flows discounted at interest rates effective at the balance sheet date and adjusted for credit spread.
The following table shows the fair values of financial assets and liabilities including their level in the fair value hierarchy, all of which are considered
Level 2. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a
reasonable approximation of fair value.
2021
Total
£’000
2021
Level 2
£’000
Liabilities measured and recognised at fair value
Designated as hedging instruments
Other derivative instruments (8) (8)
Liabilities not measured at fair value
Liabilities at amortised cost
Euro bank loans (123,017) (123,017)
US senior notes (134,448) (134,448)
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK continued
FAIR VALUE continued
2020
Total
£’000
2020
Level 2
£’000
Liabilities measured and recognised at fair value
Designated as hedging instruments
Other derivatives and interest rate swaps (65) (65)
Liabilities not measured at fair value
Liabilities at amortised cost
Euro bank loans (131,521) (131,521)
US senior notes (143,840) (143,840)
Level 2 Fair Values
Type Valuation technique Significant unobservable inputs
Inter-relationship between key
unobservable inputs and fair value
measurement
Financial assets and liabilities measured at fair value
Interest rate swaps and foreign
currency forwards
The fair value of interest rate swaps
and foreign currency forwards is
calculated as the present value of
the estimated future cashflows
based on observable yield curves,
spot and forward currency rates
Not applicable Not applicable
Financial assets and liabilities not held at fair value
Other financial liabilities* Discounted cash flows Not applicable Not applicable
* Other financial liabilities include Euro bank loans and US senior notes.
RISK EXPOSURES AND GROUP TREASURY POLICY
The Group’s operations expose it to various financial risks that include credit risk, liquidity risk, currency risk and interest rate risk. The Group’s
treasury policies, which are regularly reviewed, are designed to reduce financial risk in a cost-efficient way. A limited number of foreign currency
spot contracts, foreign exchange swaps, foreign currency forwards and interest rate swaps are undertaken periodically to hedge underlying interest
rate, fair value and currency exposures and it is Board policy to manage these risks in a non-speculative manner.
The Group has exposure to the following risks from its use of financial instruments:
• Credit risk;
• Liquidity risk;
• Currency risk; and
• Interest rate risk.
RISK EXPOSURES AND GROUP TREASURY POLICY
The manner in which the Group is exposed to each of these risks and the risk management policies applied are discussed below. The Board of
Directors has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board is responsible
for developing and monitoring the Group’s risk management policies. The Board and the Audit and Risk Committee have reviewed the process for
identifying, evaluating and managing the significant risks affecting the business.
CREDIT RISK
Credit risk arises from credit granted to customers. Credit risk also arises on cash and cash equivalents, derivative financial instruments and cash
and deposits with banks and financial institutions.
Exposure to credit risk is monitored on an ongoing basis. The Group’s exposure to customer credit risk is diversified over a large customer base
and the incidence of default by customers is tightly managed by Business Unit credit control teams. Credit insurance is in place, subject to annual
renewal, to cover major exposures in the UK and Irish merchanting businesses. Credit evaluations are performed regularly. New customers are
subject to initial credit checks that include trade and bank references and are generally subject to restricted credit limits prior to developing a
credit history.
Due to the established nature of the businesses, a high proportion of customers have long-standing trading relationships with Group companies.
These established customers are reviewed regularly for financial strength and the appropriateness of their credit limit.
The Group establishes a provision for impairment that represents its estimate of losses in respect of trade and other receivables. The main
components of this provision are a specific loss component that relate to individually significant exposures and a collective loss component
established for groups of similar assets in respect of losses that have been incurred but not yet identified.
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Financial Statements
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK continued
RISK EXPOSURES AND GROUP TREASURY POLICY continued
Cash and short term bank deposits are invested with a range of banks, all with original maturities of less than 3 months at 31 December 2021.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments,
in the balance sheet.
The maximum exposure to credit risk at 31 December 2021 and 31 December 2020 was:
2021
£’000
2020
£’000
Trade and other receivables 233,486 336,944
Cash and cash equivalents 844,663 456,028
1,078,149 792,972
Additional disclosures in relation to the Group’s exposure to credit risk arising from trade and other receivables is set out in Note 17.
The maximum exposure to credit risk for cash and cash equivalents, based on the domicile of the parent bank, at the reporting date was:
Carrying Amount
2021
£’000
2020
£’000
United Kingdom 747,536 346,116
Republic of Ireland 55,825 98,805
Netherlands 17,949 6,658
Finland 17,538 –
France 5,815 4,426
Belgium – 23
844,663 456,028
The majority of the Group’s cash on deposit and cash balances is held with financial institutions that have an upper investment grade credit rating.
2021
£’000
2020
£’000
Gross amounts of cash and cash equivalents 857,197 457,148
Amounts set off in the balance sheet* (12,534) (1,120)
Net amounts of cash and cash equivalents in the balance sheet 844,663 456,028
* The Group has netting arrangements in place with Bank of Ireland and HSBC Bank with cash balances and overdrawn positions being netted, as a legal right of set-off exists
with each bank.
FOREIGN CURRENCY RISK MANAGEMENT
Transactional foreign exchange risk arises from foreign currency transactions, assets and liabilities. Group operations manage foreign exchange
trading risks against their functional currencies. The majority of trade conducted by the Group’s Irish, Dutch and Finnish businesses is in euro.
Sterling is the principal currency for the Group’s UK businesses. Currency risks are regularly monitored and managed by utilising spot and forward
foreign currency contracts as appropriate for settling liabilities arising from the purchase of goods for resale in non-functional currencies. The
majority of transactions entered into by Group entities are denominated in functional currencies and no significant level of hedging is required.
A proportion of the Group’s net worth is denominated in euro. This is reflected in profit after tax reserves retained in euro denominated trading
and finance companies which gives rise to translation differences on conversion to sterling. Borrowings made in a non-functional currency are
swapped into a functional currency.
SENSITIVITY ANALYSIS
A ten per cent strengthening of the sterling exchange rate against the euro exchange rate at the balance sheet date would have decreased
equity and profit after tax by the amount shown below. This assumes that all variables, in particular the results and financial position of each
euro functional currency entity and interest rates, remained constant. A ten per cent weakening of the sterling exchange rate against the euro
exchange rate would have an equal and opposite effect on the amounts shown below on the basis that all variables remain constant.
Equity
£’000
Profit after tax
£’000
31 December 2021
10% strengthening of sterling currency against the euro (52,944) (16,053)
31 December 2020
10% strengthening of sterling currency against the euro (39,134) (6,168)
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK continued
HEDGING
The Group has exposure to changes in interest rates on certain debt instruments and can hedge an element of this risk by entering into interest rate
swaps. There were no contracts outstanding at 31 December 2021 (2020: £Nil).
INTEREST RATE RISK
The majority of the Group’s ongoing operations are financed from a mixture of cash generated from operations and borrowings. Bank borrowings
are initially secured at floating interest rates and interest rate risk is monitored on an ongoing basis. Interest rate swaps are used to manage interest
rate risk when considered appropriate having regard to the interest rate environment.
In September 2018, the Group raised €160 million (31 December 2021: £134.4 million before costs) through an issue of unsecured senior notes in
the US Private Placement market with ten and twelve year maturities at an average fixed annual coupon of 2.5 per cent and used the proceeds
received to refinance existing debt. The issue of these notes diversified the Group’s sources of funding by re-entering the US Private Placement
market, extended the maturity profile of debt and provided greater certainty over the cost of debt for an extended period at attractive rates.
CASH FLOW SENSITIVITY ANALYSIS FOR VARIABLE RATE INSTRUMENTS
A reduction of 50 basis points in interest rates at the reporting date would have increased profit before tax and equity by £0.6 million (2020: £0.7 million)
on the basis of the Group’s gross debt of £705.6 million at 31 December 2021. £122.7 million of the gross debt is exposed to variable rates with the
interest rate on the US senior notes of £133.9 million and the implicit interest rate on lease liabilities of £449.0 million is fixed. An increase of 50
basis points, on the same basis, would have an equal and opposite effect.
CAPITAL MANAGEMENT
The capital structure of the Group comprises share capital, reserves and net debt.
The overall approach is to optimise shareholder value by leveraging the balance sheet to an appropriate level having regard to economic and trading
conditions in the Group’s markets, the level of internal cash generation, credit conditions generally and interest rates payable.
The Group’s capital structure is kept under ongoing review and the debt component is actively managed with a view to maintaining diversified
sources of funding, significant undrawn facilities and cash deposits.
The Directors monitor the Company’s share price and may from time to time exercise their powers to make market purchases of the Company’s
own shares, at price levels which they consider to be in the best interests of the shareholders generally, after taking account of the Company’s
overall financial position.
The principal bank covenants, which are tested on a pre-IFRS 16 basis, are a net debt to equity ratio limit of 85 per cent, EBITDA interest cover of
4 times and a minimum shareholders’ equity of £1.16 billion at 31 December 2021.
At 31 December 2021 the net debt to equity ratio was negative 8 per cent (2020: 24 per cent) as the Group was in a net cash position of £139.0 million
(2020: £355.0 million net debt) and shareholders’ equity was £1.72 billion. EBITDA, from continuing operations, for the year was £373.4 million
(2020: £250.6 million) and underlying EBITDA interest cover for 2021 was 18.0 times (2020: 10.9 times). On a pre-IFRS 16 basis, the Group had
net cash of £588.0 million and EBITDA for the year was £305.8 million and underlying EBITDA interest cover for 2021 was 50.5 times.
FUNDING AND LIQUIDITY
The Group has cash resources at its disposal through the holding of deposits and cash balances of £844.7 million at the year end (2020: £456.0
million) which together with undrawn bank facilities of £394.7 million (2020: £359.2 million) and cash – flow from operation provides flexibility in
financing its operations.
The following are the undiscounted contractual maturities of financial liabilities, including interest payments.
31 December 2021
Carrying
Amount
£’000
Contractual
Cash Flow*
£’000
Within
1 Year
£’000
Between
1 and 2 Years
£’000
Between
2 and
5 Years
£’000
Greater Than
5 Years
£’000
Non-Derivative Financial Liabilities
Bank loans 122,729 122,676 83,642 39,034 – –
US senior notes 133,902 160,250 3,341 3,341 10,023 143,545
Lease liabilities 448,994 536,325 71,388 65,256 178,034 221,647
Trade and other payables 419,111 419,111 419,111 – – –
Derivative Financial Instruments
Other derivatives 8 8 8 – – –
1,124,744 1,238,370 577,490 107,631 188,057 365,192
* Includes interest based on the rates in place at 31 December 2021.
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Financial Statements
21. FINANCIAL INSTRUMENTS AND FINANCIAL RISK continued
FUNDING AND LIQUIDITY continued
31 December 2020
Carrying
Amount
£’000
Contractual
Cash Flow*
£’000
Within
1 Year
£’000
Between
1 and 2 Years
£’000
Between
2 and
5 Years
£’000
Greater Than
5 Years
£’000
Non-Derivative Financial Liabilities
Bank loans 130,842 133,252 793 793 131,666 –
US senior notes 143,188 175,018 3,574 3,574 10,723 15 7,147
Lease liabilities 536,934 672,450 71,695 72,311 198,006 330,438
Trade and other payables 545,949 545,949 545,949 – – –
Derivative Financial Instruments
Other derivatives 65 65 65 – – –
1,356,978 1,526,734 622,076 76,678 340,395 4 87,585
* Includes interest based on the rates in place at 31 December 2020.
The following table indicates the periods in which cash flows associated with derivatives that are cash flow hedges are expected to occur.
31 December 2021
Carrying
Amount
£’000
Expected
Cash Flow
£’000
6 Months or
Less
£’000
6 to 12
Months
£’000
1 to 2
Years
£’000
2 to 3
Years
£’000
3 to 4
Years
£’000
4 to 5
Years
£’000
Other derivatives (8) (8) (8) – – – – –
31 December 2020
Carrying
Amount
£’000
Expected
Cash Flow
£’000
6 Months or
Less
£’000
6 to 12
Months
£’000
1 to 2
Years
£’000
2 to 3
Years
£’000
3 to 4
Years
£’000
4 to 5
Years
£’000
Other derivatives (65) (65) (65) – – – – –
22. DERIVATIVES
2021
£’000
2020
£’000
Included in current liabilities and current assets:
Fair value of other derivatives (8) (65)
The movement in derivatives at 31 December 2021 is due to the movement in the fair values of the other derivatives.
Nature of Derivative Instruments as at 31 December 2021
Hedge Period Nature of hedging instrument
Notional payable
amount of
contracts
outstanding
Notional
receivable
amount of
contracts
outstanding
Fair value
asset
£’000
Fair value
liability
£’000
Foreign Currency
Forwards*
December 2021 –
January 2022
Forward purchase of
foreign currency
liabilities £646,000 £646,000 – (8)
* The fair value of foreign currency forwards (derivative financial instruments) are shown as current liabilities of £8,000 in the balance sheet.
Nature of Derivative Instruments as at 31 December 2020
Hedge Period Nature of hedging instrument
Notional payable
amount of
contracts
outstanding
Notional
receivable
amount of
contracts
outstanding
Fair value
asset
£’000
Fair value
liability
£’000
Foreign Currency
Forwards*
September 2020 –
June 2021
Forward purchase of
foreign currency
liabilities £3,485,000 £3,485,000 – (65)
* The fair value of foreign currency forwards (derivative financial instruments) are shown as current liabilities of £65,000 in the balance sheet.
184
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
23. PROVISIONS
2021
£’000
2020
£’000
Non-current liabilities
Insurance provision 8,790 10,221
Dilapidations provision 4,396 8,193
Other provisions 1,676 2,206
14,862 20,620
Current liabilities
Insurance provision 3,760 4,040
Dilapidations provision – 1,086
Disposal provisions 1,321 2,370
Other provisions 1,556 1,960
6,637 9,456
Insurance Dilapidations
2021
£’000
2020
£’000
2021
£’000
2020
£’000
At 1 January 14,261 12,546 9,279 6,293
Charge in year 4,227 4,265 554 3,089
Utilised – – (159) (197)
Released (2,740) (1,268) (65) –
Paid during the year (2,284) (2,003) – –
Disposed during the year (Note 27) – – (5,075) –
Foreign exchange (914) 721 (138) 94
At 31 December 12,550 14,261 4,396 9,279
Non-current 8,790 10,221 4,396 8,193
Current 3,760 4,040 – 1,086
Disposal Provisions Other Provisions Total
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
At 1 January 2,370 2,401 4,166 3,845 30,076 25,085
Charge in year – – – 7,755 4,781 15,109
Utilised (915) (165) (280) (7, 4 68) (1,354) (7,8 30)
Released – – (288) (54) (3,093) (1,322)
Paid during the year – – – – (2,284) (2,003)
Disposed during the year (Note 27) – – (264) – (5,339) –
Foreign exchange (134) 134 (102) 88 (1,288) 1,037
At 31 December 1,321 2,370 3,232 4,166 21,499 30,076
Non-current – – 1,676 2,206 14,862 20,620
Current 1,321 2,370 1,556 1,960 6,637 9,456
INSURANCE PROVISION
The insurance provision relates to actual obligations under the self-insurance elements of the Group’s overall insurance arrangements which are
subject to limits in respect of both individual and aggregate claims. This provision was based on an independent actuarial valuation. The provision
principally covers the combined public and employer liability claims for the Group’s businesses. The Group has third party insurance cover above
specific limits for individual claims and has an overall maximum aggregate payable for all claims for any one year. Given the nature of employer
and public liability claims, the timing of cash outflows can vary significantly. The outflow arising from the payment of claims in 2022 is expected
to be at a similar level to 2021. Based on historical experience, it is the Directors best estimate that the balance of claims which are provided for
at 31 December 2021 will be paid over a two to six year period.
The incurred but not reported (“IBNR”) element of the insurance provision is classified as non-current as the normal cycle for settlement of such
claims is likely to be more than 12 months from the year end.
Claims no longer being challenged by the Group are classified as current liabilities at year end. The Group no longer has an unconditional right to
defer payment and it is only the timing of the payment that is uncertain.
Claims in legal process are classified as non-current liabilities at year end as the Group does not control the extent and duration of the legal
process, and hence, it does not appear that it has an unconditional right to defer settlement.
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Annual Report and Accounts 2021
Financial Statements
23. PROVISIONS continued
DILAPIDATIONS PROVISION
The dilapidations provision covers the cost of reinstating certain Group properties at the end of the lease term. This is based on the terms of
individual leases which set out the conditions relating to the return of property. The timing of the outflows will match the ending of the relevant
leases which ranges from two to 20 years.
DISPOSALS PROVISION
The disposal provision covers the future legal costs in relation to the disposal of the Belgium business.
OTHER PROVISIONS
Other provisions relate to restructuring, pension contributions, legal provisions, deferred consideration and Waste Electrical & Electronic Equipment
(“WEEE”) provisions. None of these are individually material to require separate disclosure in the financial statements.
24. TRADE AND OTHER PAYABLES
2021
£’000
2020
£’000
Trade payables 270,862 402,081
Accruals 114,146 106,138
Social welfare 1,218 3,764
Employee income tax 4,550 6,294
Value added tax 28,335 27,672
419,111 545,949
25. DEFERRED TAXATION
Recognised Deferred Tax Assets and Liabilities
Assets
2021
£’000
Liabilities
2021
£’000
Net (assets)/
liabilities
2021
£’000
Assets
2020
£’000
Liabilities
2020
£’000
Net (assets)/
liabilities
2020
£’000
Property, plant and equipment (119) 23,362 23,243 (2,943) 31,659 28,716
Employee share schemes (2,309) – (2,309) (943) – (943)
Other items (4,729) 1,106 (3,623) (840) 1,186 346
Intangibles – 31,934 31,934 – 21,554 21,554
Pension (1,636) – (1,636) (8,660) – (8,660)
(Assets)/liabilities (8,793) 56,402 47,609 (13,386) 54,399 41,013
The decrease in the deferred tax asset reflects a large decrease in the deferred tax asset on the pension scheme deficit and a decrease in the
deferred tax asset in respect of property, plant and equipment offset by an increase in the deferred tax asset on employee share schemes and
other items.
At 31 December 2021, there were unrecognised deferred tax assets in relation to capital losses of £3.1 million (31 December 2020: £1.7 million),
trading losses of £1.1 million (31 December 2020: £2.0 million) and deductible temporary differences of £8.5 million (31 December 2020: £7.7 million).
Deferred tax assets were not recognised in respect of certain capital losses as they can only be recovered against certain classes of taxable profits.
The Directors believe that it is not probable that such profits will arise in the foreseeable future. The trading losses arose in entities that have
incurred losses in recent years and the Directors believe that it is not probable there will be sufficient taxable profits in the relevant entities
against which they can be utilised. Separately, the Directors believe that it is not probable the deductible temporary differences will be utilised.
Analysis of Net Deferred Tax (asset)/liability – 2021
Balance
1 Jan 21
£’000
Recognised
in profit
or loss
£’000
Recognised
in profit
or loss
(discontinued)
£’000
Recognised in
equity/other
comprehensive
income
£’000
Foreign
exchange
retranslation
£’000
Arising on
disposal
£’000
Arising on
acquisitions
£’000
Balance
31 Dec 21
£’000
Property, plant and equipment 28,716 4,827 3,146 – (966) (12,503) 23 23,243
Employee share schemes (943) (274) – (1,092) – – – (2,309)
Other items 346 (3,298) – – (62) – (609) (3,623)
Intangibles 21,554 (535) 1,000 – (1,011) (4,459) 15,385 31,934
Pension (8,660) 3,718 – 3,212 94 – – (1,636)
41,013 4,438 4,146 2,120 (1,945) (16,962) 14,799 47,609
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Annual Report and Accounts 2021
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
25. DEFERRED TAXATION continued
Analysis of Net Deferred Tax (asset)/liability – 2020
Balance
1 Jan 20
£’000
Recognised
in profit
or loss (Total
Operations)
£’000
Recognised in
equity/other
comprehensive
income
£’000
Foreign
exchange
retranslation
£’000
Arising on
acquisitions
£’000
Balance
31 Dec 20
£’000
Property, plant and equipment 26,908 838 – 835 135 28,716
Employee share schemes (1,168) 127 352 – – (943)
Other items 420 (102) – 30 (2) 346
Intangibles 16,577 212 – 546 4,219 21,554
Pension (3,228) (1,581) (3,709) (142) – (8,660)
39,509 (760) (3,357) 1,269 4,352 41,013
26. MOVEMENT IN WORKING CAPITAL
Inventory
£’000
Trade and
other
receivables
£’000
Trade and
other payables
£’000
Total
£’000
At 1 January 2020 317,632 388,023 (511,855) 193,800
Translation adjustment 7,524 6,930 (10,554) 3,900
Acquisitions (Note 27) 4,974 1,933 (5,211) 1,696
Deferred acquisition consideration (Note 27) – – (5,679) (5,679)
Movement in 2020 (8,572) (59,942) (12,650) (81,164)
At 1 January 2021 321,558 336,944 (545,949) 112,553
Translation adjustment (10,864) (8,546) 15,501 (3,909)
Acquisitions (Note 27) 51,717 22,640 (14,777) 59,580
Disposal of Group businesses (Note 27) (99,253) (216,013) 242,467 (72,799)
Deferred acquisition consideration (Note 27) – – (1,007) (1,007)
Movement in 2021 81,014 98,461 (115,346) 64,129
At 31 December 2021 344,172 233,486 (419,111) 158,547
Working Capital Movement
Discontinued operations 6,158 63,763 (62,427) 7,494
Continuing operations 74,856 34,698 (52,919) 56,635
At 31 December 2021 81,014 98,461 (115,346) 64,129
27. ACQUISITION & DISPOSALS OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES
ACQUISITION OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES
On 22 December 2020, the Group announced that it had agreed to acquire Proline Architectural Hardware Limited (“Proline”), a leading distributor
of architectural ironmongery products for doors from a single location in Dublin. Proline specialises in the supply of a wide range of high quality
traditional and contemporary architectural ironmongery products, in a variety of designs and finishes, including door locks, hinges and handles.
The acquisition was completed on 11 February 2021 and is incorporated in the distribution segment.
On 13 January 2021, the Group acquired the entire share capital of Van Den Anker IJzerhandel Katwijk B.V. (“VDA”). VDA is a single branch
merchanting business based in the Netherlands and is incorporated in the distribution segment. On 21 April 2021, the Group acquired the entire
share capital of Govers B.V. (“Govers”). Govers is a four-branch business located in the Netherlands that complements the Isero branch network
and is incorporated in the distribution segment.
Further to the announcement on 22 June 2021, the Group completed the acquisition of Isojoen Konehalli Oy and Jokapaikka Oy (“IKH”) on 1 July
2021. IKH is one of the largest workwear, personal protective equipment (“PPE”), tools, spare parts and accessories technical wholesalers and
distributors in Finland. The business is incorporated in the distribution segment.
On 9 December 2021, the Group expanded its coverage of the Northern Ireland market with the acquisition of P. McDermott & Sons
(Omagh) Ltd. (“McDermotts), a single branch builders’ distribution business located in Omagh, County Tyrone. The business is incorporated
in the distribution segment.
Goodwill on these acquisitions reflects the anticipated purchasing and operational synergies that should be realised as part of the enlarged Group.
187
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Annual Report and Accounts 2021
Financial Statements
27. ACQUISITION & DISPOSALS OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
ACQUISITION OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
The fair values of assets and liabilities acquired in 2021 are set out below:
IKH
£’000
Other
£’000
Total
£’000
Property, plant and equipment (Note 13a) 16,321 1,715 18,036
Right-of-use asset (Note 13b) 21,497 2,695 24,192
Intangible assets – customer relationships (Note 15) 53,259 2,275 55,534
Intangible assets – trade names (Note 15) 20,707 2,465 23,172
Intangible assets – computer software (Note 15) 388 – 388
Inventories (Note 26) 47,422 4,295 51,717
Trade and other receivables (Note 26) 16,194 6,446 22,640
Trade and other payables (Note 26) (11,031) (3,746) (14,777)
Lease liability (21,497) (2,695) (24,192)
Corporation tax liability (2,370) (303) (2,673)
Deferred tax liability (Note 25) (14,793) (615) (15,408)
Deferred tax asset (Note 25) 609 – 609
Debt acquired* (55,647) – (55,647)
Cash acquired 7,582 4,814 12,396
Net assets acquired 78,641 17,346 95,987
Goodwill (Note 12) 35,263 5,462 40,725
Consideration 113,904 22,808 136,712
Satisfied by:
Cash paid 113,904 21,801 135,705
Deferred consideration (Note 26) – 1,007 1,007
113,904 22,808 136,712
Net cash outflow – arising on acquisitions
Cash consideration 113,904 21,801 135,705
Less: cash and cash equivalents acquired (7,582) (4,814) (12,396)
106,322 16,987 123,309
* Debt of £55.6 million (€64.7 million), which was outstanding following the buy-back of shares from minority shareholders, was settled on completion. The total cash
consideration paid for IKH of £113.9 million excludes the debt amount whereas the amount previously announced of €199.3 million was on a cash and debt free basis.
Acquisitions would have contributed revenue of £177.4 million (unaudited) and operating profit of £25.6 million (unaudited) in the year ended
31 December 2021 on the assumption that they had been acquired on 1 January. Acquisitions completed in 2021 contributed revenues of
£88.3 million and operating profit of £12.3 million for the period from the date of acquisition until the year end.
In 2021, the Group incurred acquisition related costs of £4.1 million (2020: £1.4 million). These have been included in operating costs in the Group
Income Statement. The fair value of identifiable net assets acquired in 2021 was £96.0 million.
Fair Value
£’000
Consideration
£’000
Goodwill
£’000
Total acquisitions 95,987 136,712 40,725
Any adjustments to these fair values within the twelve month timeframe from the date of acquisition will be disclosed in the 2022 Annual Report
as stipulated by IFRS 3 Business Combinations.
There were no adjustments processed during the year to the fair value of business combinations completed during the year ended 31 December 2020.
Deferred consideration is payable within 3 years and is not contingent. In addition to this deferred consideration, the Group has an agreement to make
further payments to selling shareholders who as part of the agreement are required to remain in employment with the Group for the deferred period.
DISPOSAL OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES
TRADITIONAL MERCHANTING BUSINESS IN GREAT BRITAIN – DISPOSAL
In April 2021, the Group announced that it had appointed Rothschild & Co to undertake a review of a number of its traditional merchanting
businesses in Great Britain. This strategic review was focused solely on the Buildbase, Civils & Lintels, PDM Buildbase, The Timber Group,
Bathroom Distribution Group and NDI businesses.
On 30 June 2021, the Group entered into an agreement to divest its traditional merchanting business in Great Britain (“the Business”) for an
enterprise value of £520.0 million to Huws Gray, one of the UK’s largest independent builders’ merchants, that is controlled by equity funds
managed by Blackstone. The Group retained freehold properties with development potential that have a market value of circa £25 million
(fair value of £15.75 million).
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
27. ACQUISITION & DISPOSALS OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
DISPOSAL OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
TRADITIONAL MERCHANTING BUSINESS IN GREAT BRITAIN – DISPOSAL continued
The decision to divest followed a comprehensive strategic review of the Business which concluded that exiting this segment of the building
materials distribution market in Great Britain would enable the Group to optimise shareholder value. Completion of this transaction will also
enable the Group to focus on its international development strategy which will be a key priority over the coming years.
In accordance with IFRS, for reporting purposes, the disposal of the traditional merchanting business in Great Britain has been accounted for
as discontinued operations, in line with the accounting treatment of the deemed disposal at 30 June 2021. As a result, the net assets of the
Group increased by £113.2 million representing an overall profit on disposal after costs of disposal. The profit on the disposal reflects the cash
consideration of £602.3 million offset by the net book value of the assets being disposed of £477.2 million. The net assets disposed include the
write-off of the carrying value of the allocated goodwill of £126.3 million.
The transaction completed on 31 December 2021 and the proceeds, which amounted to £602.3 million, were received on that date.
These included £116.0 million of intercompany balances which were due to Grafton Group at 30 June 2021.
The carrying value of assets and liabilities disposed in 2021 are set out below:
Total
£’000
Goodwill 126,291
Intangible assets 29,827
Property, plant and equipment 177,515
Right-of-use assets 60,613
Lease receivable 1,931
Deferred tax asset 1,729
Inventories 99,253
Trade and other receivables 216,013
Cash 103,778
Trade and other payables (242,467)
Provisions (5,339)
Lease liabilities (current and non-current) (67,100)
Deferred tax liability (18,691)
Corporation tax liability (6,161)
Net assets disposed 477,192
Cash consideration received and settlement of intercompany balances (602,308)
Net profit on disposal of Group businesses, before disposal costs (125,116)
Total
£’000
Reconciliation of cash consideration receivable from 30 June 2021
Cash consideration receivable at 30 June 2021 465,734
Cash received for intercompany balances owed to Group at 30 June 2021 115,969
Additional consideration payable to date of completion (daily ticker rate) 20,385
Other adjusting items upon completion 220
602,308
Total
£’000
Net cash inflow on disposal of Group businesses
Cash consideration received and settlement of intercompany balances 602,308
Cash disposed with Group businesses (103,778)
498,530
Total
£’000
Amounts recognised in the period within discontinued operations
Gross profit on disposal of Group businesses 125,116
Disposal costs* (11,945)
Net profit on disposal of Group businesses 113,171
Result for the period from discontinued operations 21,251
134,422
* Disposal costs include professional fees of £4.9 million, legal fees of £1.0 million, vendor financial, tax & IT due diligence fees of £0.9 million, property related costs of
£0.3 million and £4.8 million of other costs related to the divestment of the business.
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Financial Statements
27. ACQUISITION & DISPOSALS OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
DISPOSAL OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
PROFIT/(LOSS) BEFORE TAXATION FROM DISCONTINUED OPERATIONS
CASH FLOWS FROM DISCONTINUED OPERATIONS
2021
£’000
2020
£’000
Net cash flow from operating activities 36,592 84,427
Net cash flow from investing activities (3,346) 530
Net cash flow from financing activities (4,794) (9,845)
Net cash flow from discontinued operations 28,452 75,112
PROFIT/(LOSS) BEFORE TAXATION FROM DISCONTINUED OPERATIONS
2021
£’000
2020
£’000
Results from discontinued operations 30,675 (839)
Profit on disposal of Group businesses, net of disposal costs 113,171 –
Profit/(loss) before taxation from discontinued operations 143,846 (839)
RESULTS OF DISCONTINUED OPERATIONS
2021
£’000
2020
£’000
Revenue 522,895 829,842
Operating costs (493,873) (808,470)
Operating profit before property profits 29,022 21,372
Property profits 396 2,696
Operating profit pre-exceptional items 29,418 24,068
Exceptional items* 2,500 (22,204)
Operating profit 31,918 1,864
Net finance costs (1,243) (2,703)
Profit/(loss) before tax 30,675 (839)
Income tax (9,424) (1,047)
Profit/(loss) after tax for the financial period 21,251 (1,886)
* Exceptionals items at 31 December 2021 relates to an IAS 19 past service credit booked in 2020 (Note 30). The 2020 costs related to branch and organisational changes which
were implemented in the traditional merchanting business in the second half of 2020 (Note 4).
The overall impact on the Group income statement for 2021 and 2020 is set out below.
IMPACT ON THE GROUP INCOME STATEMENT
For the year ended 31 December 2021
2021
Continuing
£’000
2021
Discontinued
£’000
2021
Total
£’000
Revenue 2,109,909 522,895 2,632,804
Operating costs (1,857,487) (493,873) (2,351,360)
Operating profit before property profits 252,422 29,022 281,444
Property profits 16,740 396 17,136
Operating profit before exceptional items 269,162 29,418 298,580
Exceptional items – 2,500 2,500
Operating profit 269,162 31,918 301,080
Finance expense (21,269) (1,243) (22,512)
Finance income 1,904 – 1,904
Profit before tax 249,797 30,675 280,472
Income tax expense (42,952) (9,424) (52,376)
Profit after tax for the financial period 206,845 21,251 228,096
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NOTES TO THE GROUP FINANCIAL STATEMENTS continued
27. ACQUISITION & DISPOSALS OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
DISPOSAL OF SUBSIDIARY UNDERTAKINGS AND BUSINESSES continued
Impact on the Group Income Statement
For the year ended 31 December 2020
2020
Continuing
£’000
2020
Discontinued
£’000
2020
Total
£’000
Revenue 1,679,247 829,842 2,509,089
Operating costs (1,518,868) (808,470) (2,327,338)
Operating profit before property profits 160,379 21,372 181,751
Property profits (83) 2,696 2,613
Operating profit before exceptional items 160,296 24,068 184,364
Exceptional items (2,481) (22,204) (24,685)
Operating profit 157,815 1,864 159,679
Finance expense (24,936) (2,703) (27, 6 39)
Finance income 698 – 698
Profit before tax 133,577 (839) 132,738
Income tax expense (24,149) (1,047) (25,196)
Profit after tax for the financial period 109,428 (1,886) 107,5 42
28. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH/(DEBT)
2021
£’000
2020
£’000
Net increase in cash and cash equivalents 399,155 98,442
Net movement in derivative financial instruments 57 (72)
Lease liabilities disposed with Group businesses 67,100 –
Bank loans and loan notes acquired with subsidiaries* (55,647) –
Lease liabilities acquired with subsidiaries (24,192) –
Movement in debt and lease financing 84,863 107, 3 29
Change in net debt resulting from cash flows 471,336 205,699
Translation adjustment 22,695 (26,866)
Movement in net debt in the year 494,031 178,833
Net debt at 1 January (355,001) (533,834)
Net cash/(debt) at 31 December 139,030 (355,001)
* Repaid at completion.
Analysis of Net Debt – 2021
Balance
1 Jan 21
£’000
Cashflow
£’000
Acquisition
(Note 27)
£’000
Disposals
(Note 27)
£’000
Non-cash
movements
£’000
Translation
adjustment
£’000
Balance
31 Dec 21
£’000
Cash and cash equivalents 456,028 490,537 12,396 (103,778) – (10,520) 844,663
Interest bearing loans and borrowings:
Non-current liabilities (274,030) 140,087 (55,647) – – 16,989 (172,601)
Current liabilities – (84,980) – – – 950 (84,030)
Total interest-bearing loans and borrowings (274,030) 55,107 (55,647) – – 17,939 (256,631)
Lease liabilities (536,934) 72,165 (24,192) 67,100 (42,409) 15,276 (448,994)
Derivatives – current (65) 57 – – – – (8)
Net cash/(debt) (355,001) 617,866 (67,443) (36,678) (42,409) 22,695 139,030
Analysis of Net Debt – 2020
Balance
1 Jan 20
£’000
Cashflow
£’000
Acquisition
(Note 27)
£’000
Non-cash
movements
£’000
Translation
adjustment
£’000
Balance
31 Dec 20
£’000
Cash and cash equivalents 348,787 86,812 11,630 – 8,799 456,028
Interest bearing loans and borrowings:
Non-current liabilities (339,261) 87, 5 37 – – (22,306) (274,030)
Current liabilities – – – – – –
Total interest-bearing loans and borrowings (339,261) 87,5 37 – – (22,306) (274,030)
Lease liabilities (543,367) 74,634 (8,669) (46,173) (13,359) (536,934)
Derivatives – current 7 (72) – – – (65)
Net debt (533,834) 24 8,911 2,961 (46,173) (26,866) (355,001)
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Financial Statements
29. CAPITAL EXPENDITURE COMMITMENTS
At the year end the following commitments authorised by the Board had not been provided for in the financial statements:
2021
£’000
2020
£’000
Contracted for 8,625 4,927
Not contracted for 76,742 67,701
85,367 72,628
Capital expenditure commitments are analysed by geography in the table below:
2021
£’000
2020
£’000
UK 54,265 51,910
Ireland 20,547 15,785
Netherlands 7,249 4,933
Finland 3,306 –
85,367 72,628
Amounts relating to intangibles included above 2,788 1,334
30. PENSION COMMITMENTS
A number of defined benefit and defined contribution pension schemes are operated by the Group and the assets of the schemes are held in
separate trustee administered funds.
The actuarial reports are not available for public inspection.
IAS 19 – EMPLOYEE BENEFITS
The Group operates three defined benefit schemes in Ireland and one defined benefit scheme in the UK (the “DB Schemes”). One scheme in the UK
was closed in 2020. All schemes are closed to new entrants. The one remaining UK scheme was also closed to future accrual of DB benefits during
2020. The DB Schemes are administered by trusts that are legally separated from the Group. The trustees of the DB Schemes are required by law to
act in the interest of the members of the DB Schemes. The trustees of the DB Schemes are responsible for the investment policy of the schemes.
The Group also provides other long term benefits to qualifying employees in the Netherlands which are unfunded and included in the liabilities shown.
Under the DB Schemes, the employees are entitled to receive an annual payment on attainment of normal retirement age, which in Ireland is 67 or
68 depending on year of birth and in the UK is age 65 for the majority of benefits. The level of benefit payable depends on length of service. It also
depends, in the case of Ireland, on a member’s final pensionable salary near retirement and in the case of the UK, future revaluation from the date
members ceased accruing benefits up to retirement. Salary for pension purposes is integrated with the State Pension. The DB Schemes provide
post retirement pension increases in the UK only and spouse’s death in retirement pensions in both Ireland and the UK. No other post-retirement
benefits are provided to employees.
DEFINED BENEFIT PENSION SCHEMES – PRINCIPAL RISKS
Through its defined benefit pension schemes the Group is exposed to a number of risks the most significant of which are detailed below:
ASSET VOLATILITY
Under IFRS the assets of the Group’s defined benefit pension schemes are reported at fair value. The majority of the schemes’ assets comprise of
equities, bonds and property all of which may fluctuate significantly from one reporting period to the next.
DISCOUNT RATES
The discount rates used in calculating the present value of scheme liabilities are determined by reference to market yields at the balance sheet date
of high quality corporate bonds consistent with the currency and term of the retirement benefit obligations. Changes to the discount rates can have
a very significant impact on the amount of defined benefit scheme liabilities.
SALARY AND PRICE INFLATION
Some of the Group’s pension obligations are salary and inflation linked. Higher salary and price inflation will lead to higher liabilities. The exposure to
inflation risk relates to the granting of inflation linked pension increases in the UK and also to revaluation of deferred benefits in both the UK and Ireland.
LONGEVITY RISK
In the majority of cases the Group’s defined benefit pension schemes provide benefits for life. Increases in life expectancy will therefore give rise
to higher liabilities.
The nature of these risks is not materially different across all schemes with the exception of salary and price inflation risks which differ between
the UK and Ireland.
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30. PENSION COMMITMENTS continued
FINANCIAL ASSUMPTIONS
The financial assumptions used to calculate the retirement benefit liabilities under IAS 19 were as follows:
At
31 Dec 2021
Irish schemes
At
31 Dec 2021
UK schemes
At
31 Dec 2020
Irish schemes
At
31 Dec 2020
UK schemes
Valuation method Projected Unit Projected Unit Projected Unit Projected Unit
Rate of increase in salaries 3.30% 0.00%* 2.25% 0.00%*
Rate of increase of pensions in payment – 3.10% – 2.70%
Discount rate 1.15% 1.90% 0.70% 1.40%
Inflation rate increase 2.10% 2.70%/3.30%** 1.05% 2.00%/2.80%**
* Pensionable salaries are not adjusted for inflation.
** The inflation assumption shown for the UK is based on both the Consumer Price Index (CPI) and the Retail Price Index (RPI).
The future life expectancy at age 65 for males and females (currently aged 55 and 65), inherent in the mortality tables used for the 2021 and 2020
year end IAS 19 disclosures are as follows:
2021 Mortality (years) Ireland UK 2020 Mortality (years) Ireland UK
Future Pensioner aged 65: Male 23.0 21.4 Future Pensioner aged 65: Male 22.9 21.7
Female 25.2 24.1 Female 25.2 24.0
Current Pensioner aged 65: Male 21.8 20.9 Current Pensioner aged 65 Male 21.7 21.1
Female 24.2 23.3 Female 24.1 23.2
SCHEME ASSETS
The assets in these schemes are analysed below:
%
2021
£’000 %
2020
£’000
UK equities 1 3,656 1 3,452
Overseas (non-UK) equities 21 60,574 22 57,066
Government bonds 23 65,218 24 63,952
Corporate bonds 18 50,563 17 45,522
Property 1 4,959 4 10,955
Diversified growth funds 23 64,337 22 5 7,6 4 8
Liability driven investment (“LDI”) 12 33,349 9 23,679
Cash 1 1,049 1 1,330
100 283,705 100 263,604
Actuarial value of liabilities (295,176) (314,188)
Deficit in the schemes (11,471) (50,584)
Represented by:
Retirement benefit assets 3,596 2,099
Retirement benefit obligations (15,067) (52,683)
(11,471) (50,584)
The net pension scheme deficit of £11,471,000 is shown in the Group balance sheet at 31 December 2021 as (i) retirement benefit obligations
(non-current Liabilities) of £15,067,000 of which £14,379,000 relates to the Euro schemes and £688,000 relates to a UK scheme and (ii) retirement
benefit assets (non-current assets) of £3,596,000 relating to another Euro scheme.
The net pension scheme deficit of £50,584,000 is shown in the Group balance sheet at 31 December 2020 as (i) retirement benefit obligations
(non-current Liabilities) of £52,683,000 of which £18,337,000 relates to the Euro schemes and £34,346,000 relates to a UK scheme and (ii)
retirement benefit assets (non-current assets) of £2,099,000 relating to another Euro scheme.
The actual return on plan assets is set out below:
2021
£’000
2020
£’000
Actual return on plan assets 13,753 14,580
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
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Financial Statements
30. PENSION COMMITMENTS continued
SCHEME ASSETS continued
Plan assets are comprised as follows:
2021
Quoted
£’000
2021
Unquoted
£’000
2021
Total
£’000
2020
Quoted
£’000
2020
Unquoted
£’000
2020
Total
£’000
Equity – UK 3,656 – 3,656 3,452 – 3,452
Equity – Other 60,574 – 60,574 57,066 – 57,066
Bonds – Government 65,218 – 65,218 63,952 – 63,952
Bonds – Corporate 50,563 – 50,563 45,522 – 45,522
Property 4,959 – 4,959 10,955 – 10,955
Cash 1,049 – 1,049 1,330 – 1,330
Diversified growth funds 64,337 – 64,337 57,6 48 – 57, 6 4 8
LDI 33,349 – 33,349 23,679 – 23,679
Total 283,705 – 283,705 263,604 – 263,604
SENSITIVITY OF PENSION LIABILITY TO JUDGEMENTAL/ASSUMPTIONS
Assumption Change in Assumptions Impact on Scheme Liabilities
Discount rate Increase by 0.25% Reduce by 4.4%
Rate of salary growth Increase by 0.25% Increase by 0.8%
Rate of inflation* Increase by 0.25% Increase by 2.8%
Life expectancy Increase by 1 year Increase by 3.9%
* Assumed that an increase of 0.25% in the inflation assumption would also give rise to an increase in the salary increase assumption of 0.25%.
The above sensitivity analysis is derived through changing an individual assumption while holding all other assumptions constant.
The following table provides a reconciliation of the scheme assets (at bid value) and the actuarial value of scheme liabilities:
Year Ended 31 December
Assets Liabilities Net asset/(deficit)
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
At 1 January 263,604 249,933 (314,188) (271,116) (50,584) (21,183)
Interest income on plan assets 2,836 3,998 – – 2,836 3,998
Contributions by employer 24,082 4,209 – – 24,082 4,209
Contributions by members 469 598 (469) (598) – –
Benefit payments (9,128) (11,701) 9,128 11,701 – –
Current service cost – – (2,359) (2,443) (2,359) (2,443)
Past service cost – exceptional (Note 4) – – – (5,000) – (5,000)
Past service credit – discontinued (Note 27) – – 2,500 – 2,500 –
Curtailment cost – exceptional (Note 4) – – – (2,463) – (2,463)
Other long term expense – – (191) (81) (191) (81)
Interest cost on scheme liabilities – – (3,219) (4,337) (3,219) (4,337)
Administration costs – exceptional (Note 4) – (556) – – – (556)
Administration costs (382) (305) – – (382) (305)
Remeasurements
Actuarial gain / (loss) arising from
– experience variations – – 1,131 (4,433) 1,131 (4,433)
– financial assumptions – – 1,992 (27,39 4) 1,992 (27, 3 94)
– demographic assumptions – – 846 (534) 846 (534)
Return on plan assets excluding interest income 10,917 10,582 – – 10,917 10,582
Translation adjustment (8,693) 6,846 9,653 ( 7,490) 960 (644)
At 31 December 283,705 263,604 (295,176) (314,188) (11,471) (50,584)
Related deferred tax asset (net) 1,636 8,660
Net pension liability (9,835) (41,924)
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30. PENSION COMMITMENTS continued
EXPENSE RECOGNISED IN INCOME STATEMENT
2021
£’000
2020
£’000
Current service cost 2,359 2,443
Other long term benefit expense 191 81
Administration costs 382 305
Total operating charge 2,932 2,829
Net finance costs on pension scheme obligations 383 339
Total expense recognised in income statement 3,315 3,168
(CREDIT)/EXPENSE RECOGNISED IN EXCEPTIONAL ITEMS – DISCONTINUED
2021
£’000
2020
£’000
Past service (credit)/cost (2,500) 5,000
Curtailment loss – 2,463
Administration costs (non-recurring) – 556
Total (credit)/expense recognised in exceptional items (2,500) 8,019
The Group retained responsibility for the UK defined benefit pension scheme following the divestment of the traditional merchanting business in
Great Britain. This scheme was closed to future accrual at the end of 2020 when alternative arrangements were put in place. This increased the
scheme liabilities by £2.5 million as 89 members who were previously active but not receiving increases to pensionable salary will now receive
deferred revaluations. As part of the closure process, one-off costs of £0.6 million were incurred and a further £5.0 million increase in liability
was recognised in exceptional items. These all related to the traditional merchanting business in Great Britain which was disposed in 2021.
During 2021, this increase in liability was reduced to £2.5 million following an exercise undertaken by the Group to contractually settle a disputed
benefit with impacted members of the scheme. Consequently, a credit of £2.5 million has been recognised in exceptional items of discontinued
operations (Note 27) and a charge of £1.1 million was recognised in the gross profit on disposal of the traditional merchanting business in
Great Britain.
RECOGNISED DIRECTLY IN OTHER COMPREHENSIVE INCOME
2021
£’000
2020
£’000
Remeasurement gain/(loss) on pensions 14,886 (21,779)
Deferred tax on pensions (3,212) 3,709
11,674 (18,070)
ACTUARIAL VALUATIONS – FUNDING REQUIREMENTS
Employees pay contributions equal to a percentage of pensionable salary. The percentage payable varies by scheme. Triennial actuarial valuations
are carried out to determine the group’s contribution rate required under the schemes.
In Ireland, the DB schemes are assessed against the Funding Standard (the statutory minimum funding requirement). As most of the DB schemes
did not satisfy the Funding Standard, funding proposals are in place to address Funding Standard deficits. The funding proposals were agreed
between the Group and the trustees of the relevant schemes and were designed to restore the Funding Standard positions by the end of 2023.
The portion of contributions due for 2022, which relate to deficit funding in the Irish Schemes, is £1.5 million. An annual assessment is carried out
each year to confirm the funding proposals remain on-track to achieve their funding targets. If a funding proposal is certified as being off-track,
higher contributions may be required to fund the deficits. The next triennial valuations for the Irish schemes commenced on 1st January 2022.
In the UK, the DB schemes are subject to the Statutory Funding Objective under the Pensions Act 2004. Valuations of the DB Schemes are carried
out at least once every three years to determine whether or not the Statutory Funding Objectives are met. As part of the process, the Group must
agree with the Trustees of the DB Schemes the contributions to be paid to address any shortfalls against the Statutory Funding Objectives and
contributions to pay for future accrual of benefits. The next valuation is due to be carried out for the UK scheme as at 31 December 2023.
No explicit external contracts have been entered into to provide liability matching such as longevity swaps or annuity purchase. Following a recent
strategy review the scheme’s investments are being more closely aligned to the liabilities by term and nature in order to minimise volatility and
target full funding on the local statutory funding measures.
The contributions expected to be paid to the Group’s defined benefit schemes in 2022 total approximately £4.3 million.
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
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Financial Statements
30. PENSION COMMITMENTS continued
AVERAGE DURATION AND SCHEME COMPOSITION
Ireland UK
2021 2020 2021 2020
Average duration of defined benefit obligation (years) 19.00 19.00 18.00 18.00
ALLOCATION OF TOTAL DEFINED BENEFIT OBLIGATION BY PARTICIPANT
2021 2020
Active plan participants 24% 24%
Deferred plan participants 40% 42%
Retirees 36% 34%
100% 100%
31. SHARE BASED PAYMENTS
The Group’s employee share schemes are equity settled share based payments as defined in IFRS 2 Share Based Payments. The total share based
payments expense for the year charged to the income statement was £5,601,000 (2020: £719,000), analysed as follows:
2021
£’000
2020
£’000
LTIP 4,715 111
UK SAYE Scheme 886 608
5,601 719
Details of the schemes operated by the Group are set out below:
LONG TERM INCENTIVE PLAN (“LTIP”)
A Long Term Incentive Plan (“LTIP”) was introduced in 2011. Details of the plan are set out in the Report of the Remuneration Committee
on Directors’ Remuneration on pages 105 to 127. Awards over 683,694 Grafton Units were granted under the plan on 17 May 2021
(2020: 669,128 on 10 September 2020). A summary of the award granted on 17 May 2021 is set out below:
Grant date
LTIP 2021
17 May 2021
LTIP 2020
10 Sept 2020
Share price at date of award £12.01 £7.37
Exercise price N/A N/A
Number of employees 244 228
Number of share awards 683,694 669,128
Vesting period 3 years 3 years
Expected volatility 50.0% 50.7%
Award life 3 years 3 years
Expected life 3 years 3 years
Risk free rate 0.12% (0.11%)
Expected dividends expressed as dividend yield 2.31% 0.92%
Valuation model – EPS/Service Black Scholes/ Black Scholes/
Valuation model – TSR Monte-Carlo Monte-Carlo
Fair value of share award – Service component – £7.17
Fair value of share award – EPS component £11.20 –
Fair value of share award – TSR component £8.32 £4.43
The expected volatility, referred to above, is based on volatility over the last 3 years. The expected life is equal to the vesting period. The risk free rate
of return is the yield on bonds from the Bank of England for a term consistent with the life of the award at the grant date. The fair values of share
awards granted under the 2011 plan were determined taking account of peer group total share return volatility together with the above assumptions.
The LTIP Award granted in September 2020 is not subject to any performance condition. Vesting will be subject to participants’ continued
employment within the Group at the vesting date, save for certain good leaver exceptions permitted by the rules of the scheme. The number
of Grafton Units which may vest is subject to the discretion of the Remuneration Committee to adjust the vesting outcome if it is not considered
to be reflective of the underlying financial and/or non-financial performance of the business, the performance of the participant over the
performance period or if the outcome is not considered appropriate in the context of the experience of shareholders or other stakeholders.
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31. SHARE BASED PAYMENTS continued
LONG TERM INCENTIVE PLAN (“LTIP”) continued
A reconciliation of all share awards granted under the LTIP is as follows:
2021
Number
2020
Number
Outstanding at 1 January 1,632,706 2,550,579
Granted in year 683,694 669,128
Forfeited# (39,073) (758,674)
Expired unvested (55,348) (14,047)
Exercised (82,675) (814,280)
Outstanding at 31 December 2,139,304 1,632,706
# Share entitlements forfeited by employees who have left the Group and have no further entitlements under the scheme.
At 31 December 2021 and 31 December 2020 none of the LTIPs were exercisable as the conditions for exercise were not fulfilled before
the year-end.
UK SAYE SCHEME
Options over 1,169,931 (2020: 1,843,547) Grafton Units were outstanding at 31 December 2021, pursuant to the existing 2020, 2019 and 2018 three
year saving contracts under the Grafton Group (UK) plc 2011 Approved SAYE Plan at a price of £5.78, £6.33 and £6.58 respectively. These options
are normally exercisable within a period of six months after the third anniversary of the savings contract, being December 2023 for the 2020 SAYE
scheme, December 2022 for the 2019 SAYE scheme and December 2021 for the 2018 SAYE scheme.
The number of Grafton Units issued during the year under the 2017 SAYE scheme was 210,181 (2020: 410,179) and the total consideration received
amounted to £1,394,000 (2020: £2,811,000). Options forfeited in the year were 51,503 (2020: 152,768).
The number of Grafton Units issued during the year under the 2018 SAYE Scheme was 242,068 (2020: 3,069) and the total consideration received
amounted to £1,573,000 (2020: £18,000). Options forfeited in the year were 28,887 (2020: 101,235).
The number of Grafton Units issued during the year under the 2019 SAYE Scheme was 1,139 (2020: 241) and the total consideration received
amounted to £7,000 (2020: £1,000). Options forfeited in the year were 46,182 (2020: 66,340).
The number of Grafton Units issued during the year under the 2020 SAYE Scheme was Nil (2020: Nil) and the total consideration received
amounted to £Nil (2020: £Nil). Options forfeited in the year were 93,656 (2020: 6,908).
A reconciliation of options granted under the 2017 SAYE is as follows:
Number
2021
Option price
£ Number
2020
Option price
£
Outstanding at 1 January 261,684 6.77 824,631 6.77
Granted – – – –
Forfeited (51,503) 6.77 (152,768) 6.77
Exercised (210,181) 6.77 (410,179) 6.77
Outstanding at 31 December – 261,684
A reconciliation of options granted under the 2018 SAYE is as follows:
Number
2021
Option price
£ Number
2020
Option price
£
Outstanding at 1 January 367,219 6.58 471,523 6.58
Granted – – – –
Forfeited (28,887) 6.58 (101,235) 6.58
Exercised (242,068) 6.58 (3,069) 6.58
Outstanding at 31 December 96,264 367, 219
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
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31. SHARE BASED PAYMENTS continued
UK SAYE SCHEME continued
A reconciliation of options granted under the 2019 SAYE is as follows:
Number
2021
Option price
£ Number
2020
Option price
£
Outstanding at 1 January 300,190 6.33 366,771 6.33
Granted – – – –
Forfeited (46,182) 6.33 (66,340) 6.33
Exercised (1,139) 6.33 (241) 6.33
Outstanding at 31 December 252,869 300,190
A reconciliation of options granted under the 2020 SAYE is as follows:
Number
2021
Option price
£ Number
2020
Option price
£
Outstanding at 1 January 914,454 5.78 – –
Granted – – 921,362 5.78
Forfeited (93,656) 5.78 (6,908) 5.78
Exercised – 5.78 – –
Outstanding at 31 December 820,798 914,454
There were no new SAYE grants in 2021.
The weighted average share price for the period was £11.68 (2020: £7.31).
At 31 December 2021 none of the 2021 or the 2020 UK SAYE shares were exercisable. The weighted average remaining life is 1.2 years
(2020: 2.3 years).
32. ACCOUNTING ESTIMATES AND JUDGEMENTS
In the opinion of the Directors, there were no matters of significant judgement exercised in the preparation of the financial statements and the
key sources of estimation uncertainty were as follows:
GOODWILL
The Group has capitalised goodwill of £599.8 million at 31 December 2021 (2020: £704.1 million) as detailed in Note 12. Goodwill is required to be
tested for impairment at least annually or more frequently if changes in circumstances or the occurrence of events indicate potential impairment
exists. The Group uses value-in-use calculations to determine the recoverable amount of cash generating units containing goodwill. Value-in-use
is calculated as the present value of future cash flows. In calculating value-in-use, management estimation is required in forecasting cash flows
of the segments and in selecting an appropriate discount rate and the nominal growth rate in perpetuity. The forecasted cash flows used in the
impairment tests incorporated the impact of Covid-19. In 2021, the Group disposed of a number of businesses which resulted in a write off of
goodwill amounting to £126.3 million based on an allocation of goodwill attaching to the UK Distribution CGU. The allocation has been determined
based on the fair value of the traditional merchanting business relative to the fair value of the portion of the UK Distribution CGU which has
been retained.
RETIREMENT BENEFIT OBLIGATIONS
The Group operates a number of defined benefit retirement plans which are as set out in Note 30. The Group’s total obligation in respect of
defined benefit plans is calculated by independent, qualified actuaries and updated at least annually and totals £295.2 million at 31 December 2021
(2020: £314.2 million). Plan assets at 31 December 2021 amounted to £283.7 million (2020: £263.6 million) giving a net scheme deficit of £11.5
million (2020: £50.6 million). The size of the obligation is sensitive to actuarial assumptions. The key assumptions are the discount rate, the rate
of inflation, life expectancy, pension benefits and rate of salary increases. The sensitivities of the principal assumptions used to measure defined
benefit pension scheme obligations are set out in Note 30.
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32. ACCOUNTING ESTIMATES AND JUDGEMENTS continued
REBATE INCOME
Rebate arrangements with suppliers are a common feature of trading in the distribution industry and the Group has agreements with individual
suppliers related to purchases of goods for resale.
Rebates are accounted for as a deduction from the cost of goods for resale and are recognised in the financial statements based on the amount
that has been earned in respect of each individual supplier up to the balance sheet date. Rebates receivable are determined using established
methodologies and are only recognised in the income statement where there is an agreement in place with an individual supplier, any related
performance conditions have been met and the goods have been sold to a third-party customer.
Rebates receivable from individual suppliers are typically calculated by applying an agreed percentage to the purchase price shown on the supplier
invoice for products purchased for resale. A small proportion of rebates receivable are based on volumes purchased with certain supplier
agreements providing for a stepped increase in rebates if purchases reach predetermined targets within a specified time period.
The majority of rebate arrangements cover a calendar year which coincides with the financial year of the Group and this reduces the requirement to
estimate rebates receivable at the year-end. Where estimation is used in the calculation of rebates receivable it is done on a consistent and prudent
basis, based upon management’s knowledge and experience of the suppliers and historic collection trends.
Rebates are classified in the balance sheet as follows:
INVENTORIES
• The carrying value of inventories at the balance sheet date is reduced to reflect rebates receivable relating to inventory that has not been sold
at the balance sheet date.
TRADE AND OTHER RECEIVABLES
• The amount of rebate receivable at the balance sheet date is classified as other receivables and separately disclosed in Note 17,
Trade and Other Receivables.
TRADE AND OTHER PAYABLES
• Where the Group has the legal right to set-off rebates receivable against amounts owing to individual suppliers, any rebates receivable at
the balance sheet date are netted against amounts payable to these suppliers and the amount, if material, is separately disclosed in Note 24,
Trade and Other Payables.
VALUATION OF INVENTORY
Inventory comprises raw materials, finished goods and goods purchased for resale. Provisions are made against slow moving, obsolete and
damaged inventories for which the net realisable value is estimated to be less than cost. Determining the net realisable value of the wide range of
products held in many locations requires estimation to be applied to determine the likely saleability of products and the potential prices that can
be achieved. In arriving at any provisions for net realisable value, the Directors take into account the age, condition, quality of the products in stock
and recent sales trends. The actual realisable value of inventory may differ from the estimated value on which the provision is based. The Group
held provisions in respect of inventory balances at 31 December 2021 amounting to £41.9 million (2020: £47.9 million).
IFRS 16 “LEASES”
Where the Group has an option to extend or terminate a lease, management uses its judgement to determine whether such an option would be
reasonably certain to be exercised. Management considers all facts and circumstances, including past practice and costs that would be incurred
if an option were to be exercised, to help them determine the lease term. Management have also applied judgements in assessing the discount rate,
which are based on the incremental borrowing rate. Such judgements could impact lease terms and associated lease liabilities. The Group availed
of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition
of a lease in accordance with IAS 17 and the guidance in IFRIC 4 will continue to be applied to those leases entered into or modified before
1 January 2019.
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
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Financial Statements
33. RELATED PARTY TRANSACTIONS
The principal related party transactions that require disclosure under IAS 24: Related Party Disclosures relate to subsidiaries, key management
personnel and post-employment benefit plans.
SUBSIDIARIES
Sales to and purchases from, together with outstanding payables and receivables to and from, subsidiaries are eliminated in the preparation of
the consolidated financial information in accordance with IFRS 10, Consolidated Financial Statements.
KEY MANAGEMENT PERSONNEL
The term key management personnel for 2021 is the Board of Grafton Group plc and the Company Secretary/Group Financial Controller. The cost
of key management personnel is analysed in Note 6 to the Group Financial Statements. The Report of the Remuneration Committee on Directors’
Remuneration on pages 105 to 127 provides detailed disclosure for 2021 and 2020 of salaries, fees, performance-related pay, pension allowance,
other benefits and entitlements to acquire Grafton Units in accordance with the rules of the 1999 Grafton Group Share Scheme and awards
granted under the LTIP.
POST-EMPLOYMENT BENEFIT PLANS
Pension commitments to existing and former employees under defined benefit pension scheme arrangements are disclosed in Note 30 to the
Group Financial Statements.
34. EVENTS AFTER THE BALANCE SHEET DATE
The Group completed three bolt-on acquisitions since the year end. On 11 January 2022, Regts B.V., a distributor of ironmongery, tools and fixings,
with revenue of £23.0 million in 2021 was acquired. Woodfloor Warehouse Limited, a leading in-store and online timber flooring distributor with
revenue of £8.3 million in 2021, was acquired on 14 February 2022. On 28 February 2022, the Group completed the acquisition of Sitetech Building
Products Limited (“Sitetech”). Sitetech is the market leader in the distribution of specialist construction accessories in Ireland where the business
trades from two locations in Dublin and Cork. Revenue was £17.8 million in 2021. Due to the short timeframe between completion of these
transactions and approval of these financial statements, it was not possible to reliably estimate the fair value of assets and liabilities or the goodwill
amount associated with these acquisitions.
The Group is monitoring events related to the war in Ukraine at this time but it is too early to make an assessment of the likely adverse impact on
energy prices or the wider economic implications for the Group’s businesses and markets.
There have been no other material events subsequent to 31 December 2021 that would require adjustment to or disclosure in this report.
35. APPROVAL OF FINANCIAL STATEMENTS
The Board of Directors approved the Group Financial Statements on pages 142 to 199 on 8 March 2022.
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Notes
2021
€’000
2020
€’000
Fixed assets
Intangible assets 4(a) 243 304
Tangible assets 4(a) 57 130
Right-of-use asset 4(b) 420 433
Financial assets 5 937,067 532,361
Total fixed assets 937,787 533,228
Current assets
Debtors (including €Nil (2020: €Nil) due after more than one year) 6 1,229,886 1,453,608
Cash at bank and in hand 5,992 31,667
Total current assets 1,235,878 1,485,275
Creditors: amounts falling due within one year 7 (882,323) (773,092)
Net current assets 353,555 712,183
Total assets less current liabilities 1,291,342 1,245,411
Creditors: amounts falling due after one year 7 (225) (255)
Net assets 1,291,117 1,245,156
Capital and reserves
Called-up share capital 10 12,003 12,017
Share premium account 10 310,820 307, 3 3 8
Capital redemption reserve 978 938
Shares to be issued reserve 12,869 8,180
Profit and loss account 960,193 922,429
Treasury shares held (5,746) (5,746)
Shareholders’ equity 1,291,117 1,245,156
There was a profit after tax of €100.2 million (2020: loss of €24.1 million) attributable to the parent undertaking for the financial year.
On behalf of the Board.
Gavin Slark David Arnold
Director Director
8 March 2022
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2021
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Financial Statements
COMPANY STATEMENT OF CHANGES IN EQUITY
Equity
share
capital
€’000
Share
premium
account
€’000
Capital
redemption
reserve
€’000
Shares
to be
issued
reserve
€’000
Profit and
loss
account
€’000
Treasury
shares
€’000
Total
equity
€’000
Year to 31 December 2021
At 1 January 2021 12,017 307,338 938 8,180 922,429 (5,746) 1,245,156
Profit after tax for the financial year – – – – 100,170 – 100,170
Total other comprehensive income
Remeasurement loss on pensions (net of tax) – – – – – – –
Total comprehensive income – – – – 100,170 – 100,170
Transactions with owners of the Company recognised
directly in equity
Issue of Grafton Units 26 3,482 – – – – 3,508
Cancellation of ‘A’ Shares (40) – 40 – – – –
Dividends paid – – – – (64,231) – (64,231)
Share based payments charge – – – 6,514 – – 6,514
Transfer from shares to be issued reserve – – – (1,825) 1,825 – –
(14) 3,482 40 4,689 (62,406) – (54,209)
At 31 December 2021 12,003 310,820 978 12,869 960,193 (5,746) 1,291,117
Year to 31 December 2020
At 1 January 2020 11,956 304,266 938 14,724 939,150 (5,746) 1,265,288
Loss after tax for the financial year – – – – (24,096) – (24,096)
Total other comprehensive income
Remeasurement loss on pensions (net of tax) – – – – – – –
Total comprehensive income – – – – (24,096) – (24,096)
Transactions with owners of the Company recognised
directly in equity
Issue of Grafton Units 61 3,072 – – – – 3,133
Share based payments charge – – – 831 – – 831
Transfer from shares to be issued reserve – – – ( 7, 375 ) 7,375 – –
61 3,072 – (6,544) 7, 375 – 3,964
At 31 December 2020 12,017 3 07, 3 3 8 938 8,180 922,429 (5,746) 1,245,156
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The financial statements have been prepared on a going concern basis under the historical cost convention in accordance with the Companies
Act 2014 and Generally Accepted Accounting Practice in the Republic of Ireland (Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101)). Note 2 describes the principle accounting policies under FRS101, which have been applied consistently.
In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• Cash Flow Statement and related notes;
• Comparative period reconciliations for tangible fixed assets and intangible assets;
• The option to take tangible and intangible assets at deemed cost;
• Disclosures in respect of transactions with wholly-owned subsidiaries;
• Disclosures in respect of financial risk management;
• Disclosure of key management compensation;
• Certain requirements of IAS 1 Presentation of Financial Statements;
• Disclosures required by IFRS 7 Financial Instrument Disclosures;
• Disclosures required by IFRS 13 Fair Value Measurement;
• Certain disclosures required by IFRS 16 Leases; and
• The effects of new but not yet effective IFRSs.
As the consolidated financial statements of Grafton Group plc include the equivalent disclosures, the Company has also taken the exemptions
under FRS 101 available in respect of the following disclosure:
• IFRS 2 Share Based Payments in respect of group settled share-based payments.
In accordance with Section 304(2) of the Companies Act 2014, the income statement and related notes of the parent undertaking have not been
presented separately in these financial statements.
2. ACCOUNTING POLICIES
KEY ACCOUNTING POLICIES WHICH INVOLVE ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements
where these judgements and estimates have been made include:
FINANCIAL ASSETS
Investments in subsidiaries are stated at cost less any accumulated impairment and are reviewed for impairment if there are any indicators that
the carrying value may not be recoverable.
LOANS RECEIVABLE AND PAYABLE
Intercompany loans receivable and payable are initially recognised at fair value. These are subsequently measured at amortised cost, less any
provision for impairment.
OTHER SIGNIFICANT ACCOUNTING POLICIES
OPERATING INCOME AND EXPENSE
Operating income and expense arises from the Company’s principal activities as a holding company for the Group and are accounted for on an
accruals basis.
FOREIGN CURRENCIES
The functional and presentation currency of the Company is euro. Transactions in foreign currencies are translated at the rates of exchange ruling
at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into euro at the rates of exchange ruling at
the balance sheet date, with a corresponding charge or credit to the profit and loss account.
SHARE ISSUE EXPENSES
Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
SHARE-BASED PAYMENTS
The Company has applied the requirements of Section 8 of FRS 101. The accounting policy applicable to share-based payments is addressed in
detail on page 155 of the Consolidated Financial Statements.
IFRS 16 LEASES
The accounting policy applicable to IFRS 16 leases is addressed in detail on pages 151 to 153 of the Consolidated Financial Statements.
TREASURY SHARES
Own equity instruments (i.e. Ordinary Shares) acquired by the Company are deducted from equity and presented on the face of the Company
Balance Sheet. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s Ordinary Shares.
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Financial Statements
2. ACCOUNTING POLICIES continued
OTHER SIGNIFICANT ACCOUNTING POLICIES continued
DIVIDENDS
Dividends on Ordinary Shares are recognised as a liability in the Company’s Financial Statements in the period in which they are approved by the
shareholders of the Company.
DIVIDEND INCOME
Dividend income is recognised when the right to receive payment is established.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Property, plant and equipment
are depreciated over their useful economic life on a straight line basis in line with Group policy as noted in Note 1 to the Consolidated
Financial Statements.
INTANGIBLE ASSETS (COMPUTER SOFTWARE)
Acquired computer software is stated at cost less any accumulated amortisation and any accumulated impairment losses. Cost comprises
of purchase price and any other directly attributable costs. Computer software is recognised in line with the criteria as outlined in Note 1 to
the Consolidated Financial Statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash balances held for the purpose of meeting short term cash commitments and investments which
are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Bank overdrafts are included
within creditors falling due within one year in the Company Balance Sheet.
3. STATUTORY AND OTHER INFORMATION
The following items have been charged to the company income statement:
2021
€’000
2020
€’000
Statutory audit (refer to Note 3 of Group Financial Statements) 75 75
Depreciation (Note 4a) 87 94
Depreciation on right-of-use assets (Note 4b) 210 149
Intangible asset amortisation (Note 4a) 61 88
Directors’ remuneration 4,856 2,474
The interest expense on lease liabilities in the year was €10,000 (2020: €11,000).
The Directors’ remuneration is set out in detail in the Report of the Remuneration Committee on Directors’ Remuneration on pages 105 to 127.
The average number of persons employed by the Company during the year was 22 (2020: 23).
2021
€’000
2020
€’000
The aggregate remuneration costs of employees were:
Wages and salaries 5,694 3,709
Social welfare costs 247 261
Share-based payments charge 1,807 522
Defined contribution and pension related costs 384 566
Charged to operating profit 8,132 5,058
Net finance cost on pension scheme obligations – –
Charged to income statement 8,132 5,058
Actuarial loss on pension scheme – –
Total employee benefit cost 8,132 5,058
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4. TANGIBLE, INTANGIBLE AND RIGHT-OF-USE ASSETS
4. (A) TANGIBLE AND INTANGIBLE ASSETS
Plant and
Equipment
2021
€’000
Intangible
Assets
2021
€’000
Company Cost
At 1 January 3,208 550
Additions 14 –
At 31 December 3,222 550
Depreciation
At 1 January 3,078 246
Charge for year 87 61
At 31 December 3,165 307
Net book amount
At 31 December 57 243
At 1 January 130 304
4. (B) RIGHT-OF-USE ASSET
Right-of-Use
Asset*
2021
€’000
Company Cost
At 1 January 731
Additions 197
At 31 December 928
Depreciation
At 1 January 298
Charge for year 210
At 31 December 508
Net book amount
At 31 December 420
At 1 January 433
* The lease term remaining as at 31 December 2021 is 3.2 years (2020: 2.9 years).
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
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Financial Statements
5. FINANCIAL ASSETS
Other
Investments
€’000
Investments in
subsidiary
undertakings
€’000
Total
€’000
At 1 January 2020 14 532,038 532,052
Additions – – –
Capital contribution – share-based payments – 309 309
At 31 December 2020 14 532,347 532,361
Additions* – 400,000 400,000
Capital contribution – share-based payments – 4,706 4,706
At 31 December 2021 14 937,053 937,067
Other investments represent sundry equity investments at cost less provision for impairment.
* Additions in the year relate to additional investment into two of the Group’s Irish subsidiary holding companies.
6. DEBTORS
2021
€’000
2020
€’000
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 1, 227,758 1,4 49,311
Deferred tax 43 47
Other receivables 2,085 4,250
1,229,886 1,453,608
7. CREDITORS
2021
€’000
2020
€’000
Amounts falling due within one year:
Accruals 7,139 4,839
Lease liability* 200 149
Amounts owed to subsidiary undertakings 874,984 768,104
882,323 773,092
2021
€’000
2020
€’000
Amounts falling due after one year:
Lease liability* 225 255
* The Company’s incremental borrowing rate applied to the lease liability as at 31 December 2021 was 2.4% (2020: 2.1%).
The maturity analysis of the lease liability is as follows:
2021
€’000
2020
€’000
Year 1 200 149
Year 2 187 152
Year 3 32 103
Year 4 6 –
Year 5 – –
Onwards – –
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8. DEFERRED TAXATION
RECOGNISED DEFERRED TAX (ASSETS) AND LIABILITIES
Assets
2021
€’000
Liabilities
2021
€’000
Net (assets)/
liabilities
2021
€’000
Assets
2020
€’000
Liabilities
2020
€’000
Net (assets)/
liabilities
2020
€’000
Other items (43) – (43) (47) – (47)
Balance
1 Jan 21
€’000
Recognised in
income
€’000
Recognised
in other
comprehensive
income
€’000
Foreign
exchange
retranslation
€’000
Arising on
acquisitions
€’000
Balance
31 Dec 21
€’000
Other items (47) 4 – – – (43)
Balance
1 Jan 20
€’000
Recognised in
income
€’000
Recognised
in other
comprehensive
income
€’000
Foreign
exchange
retranslation
€’000
Arising on
acquisitions
€’000
Balance
31 Dec 20
€’000
Other items (24) (23) – – – (47)
9. PENSION COMMITMENTS
A defined benefit scheme and defined contribution pension schemes are operated by the Company and the assets of the schemes are held in
separate trustee administered funds.
The actuarial reports are not available for public inspection.
IAS 19 – EMPLOYEE BENEFITS
An actuarial valuation was updated to 31 December 2021 by a qualified independent actuary.
FINANCIAL ASSUMPTIONS
The financial assumptions used to calculate the retirement benefit liabilities under IAS 19 were as follows:
At 31 Dec 2021
Company
scheme
At 31 Dec 2020
Company
scheme
Valuation Method Projected Unit Projected Unit
Rate of increase of pensions in payment – –
Discount rate 1.15% 0.70%
Inflation rate increase 2.10% 1.05%
The Company’s obligations to the scheme at the end of 2021 and 2020 were limited to providing a pension to an executive who retired in 2009
on a fixed pension.
Year ended 31 December
Assets Liabilities Net asset/(deficit)
2021
€’000
2020
€’000
2021
€’000
2020
€’000
2021
€’000
2020
€’000
At 1 January 1,327 1,327 (1,327) (1,327) – –
Interest income on plan assets 9 14 – – 9 14
Benefit payments (76) (76) 76 76 – –
Interest cost on scheme liabilities – – (9) (14) (9) (14)
Remeasurement gains/(losses) (39) 62 39 (62) – –
At 31 December 1,221 1,327 (1,221) (1,327) – –
Related deferred tax asset (net) – –
Net pension liability – –
No contributions are expected to be paid to the Company’s defined benefit scheme in 2022 (2021: €Nil).
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
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Financial Statements
10. SHARE CAPITAL AND SHARE PREMIUM
Details of equity share capital and share premium are set out below and in Note 18 to the Group Financial Statements.
Issue Price Number of Shares
2021
Nominal Value
€’000
2020
Nominal Value
€’000
Issued and fully paid:
Ordinary shares
At 1 January 239,535,567 11,977 11,916
Issued under UK SAYE scheme* 453,388 22 20
2011 Long Term Incentive Plan
April 2018 LTIP Awards Nil 82,675 4 –
April 2017 LTIP Awards – 38
May 2017 LTIP Awards – 3
At 31 December 240,071,630 12,003 11,977
‘A’ ordinary shares
At 1 January 4,072,104,639 40 40
‘A’ ordinary shares issued in year 2,353,684 – –
Cancellation of ‘A’ ordinary shares (4,074,458,323) (40) –
At 31 December – – 40
Total nominal share capital issued 12,003 12,017
* Refer to Note 31 to the Group Financial Statements which outlines the issue price of the SAYE Schemes.
SHARE PREMIUM
Company
2021
€’000
2020
€’000
At 1 January 307,338 304,266
Premium on issue of shares under UK SAYE scheme 3,482 3,072
At 31 December 310,820 307, 338
11. SHARE-BASED PAYMENTS
Details of Share-Based Payments are set out in Note 31 of the Group Financial Statements.
12. RELATED PARTY TRANSACTIONS
The principal related party transactions that require disclosure under IAS 24: Related Party Disclosures relate to subsidiaries, key management
personnel and post-employment benefit plans.
SUBSIDIARIES
The consolidated accounts of the Company and its subsidiaries include the following transactions that have been eliminated on consolidation:
• Management charges made by the Company to its subsidiaries of €8.4 million (2020: €6.4 million) for the year ended 31 December 2021;
• Loans were granted to and by the Company to its subsidiaries; and
• Dividend income in the year of €80.5 million (2020: €Nil) was received from Irish Group subsidiary companies as part of a simplification
process of the Group’s Irish structure.
POST-EMPLOYMENT BENEFIT PLANS
Pension commitments to existing and former employees under defined benefit pension scheme arrangements are disclosed in Note 9 to the
Company Financial Statements.
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13. PRINCIPAL OPERATING SUBSIDIARIES
The principal operating subsidiaries operating in Ireland are:
Name of Company Nature of Business
Chadwicks Group Limited Builders merchants
Woodie’s DIY Limited DIY superstores
The Company owns 100 per cent of the ordinary shares, the only class of shares in issue, of its principal operating subsidiary undertakings.
The registered office of principal subsidiary undertakings operating in Ireland is c/o Grafton Group plc, Heron House, Corrig Road, Sandyford
Business Park, Dublin 18.
The principal operating subsidiaries operating in the United Kingdom are:
Name of Company Nature of Business
Macnaughton Blair Limited Builders merchants
Selco Trade Centres Limited Builders merchants
LSDM Limited Builders merchants
CPI Mortars Limited Mortar manufacturers
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in the UK. The registered office of Selco
Trade Centres Limited is First Floor, Boundary House, 2 Wythall Green Way, Wythall, Birmingham, B47 6LW. The registered office of LSDM Limited
is Ground Floor, Boundary House 2 Wythall Green Way, Wythall, Birmingham, United Kingdom, B47 6LW. The registered office of CPI Mortars
Limited is Oak Green House, 250-256 High Street, Dorking, Surrey, RH4 1QT. The registered office of Macnaughton Blair Limited is 10 Falcon Road,
Belfast, BT12 6RD, Northern Ireland.
The principal operating subsidiaries in the Netherlands are:
Name of Company Nature of Business
Isero B.V. Ironmongery, tools and fixings
Gunters en Meuser B.V. Ironmongery, tools and fixings
Polvo B.V. Ironmongery, tools and fixings
GKL Ventilatie Techniek B.V. Ironmongery, tools and fixings
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in the Netherlands.
The registered office of Isero B.V. is Barwoutswaarder 1, 3449 HE Woerden, the Netherlands. The registered office of Gunters en Meuser B.V. is
Egelantiersgracht 2-6, 1015 RL Amsterdam, the Netherlands. The registered office of Polvo B.V. is Tradeboulevard 5 a, 4761RL Zevenbergen, the
Netherlands. The registered office of GKL Ventilatie Techniek B.V. is Touwbaan 1 H, 2352CZ Leiderdorp.
The principal operating subsidiaries in Finland are:
Name of Company Nature of Business
Isojoen Konehalli Oy Technical trades distribution
Jokapaikka Oy Technical trades distribution
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in Finland.
The registered office of Isojoen Konehalli Oy and Jokapaikka Oy is Keskustie 26, 61850 Kauhajoki, Finland.
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
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Financial Statements
14. SECTION 357 GUARANTEES
Each of the following Irish registered subsidiaries of the Company, whose registered office is c/o Grafton Group plc, Heron House, Corrig Road,
Sandyford Business Park, Dublin 18 (company number: 8149) may avail of the exemption from filing its statutory financial statements for the year
ended 31 December 2021 as permitted by section 357 of the Companies Act 2014 and, if any these Irish registered subsidiaries of the Company
elects to avail of this exemption, there will be in force an irrevocable guarantee from the Company in respect of all commitments entered into by
such wholly-owned subsidiary, including amounts shown as liabilities (within the meaning of section 357 (1) (b) of the Companies Act 2014) in
such wholly-owned subsidiary’s statutory financial statements for the year ended 31 December 2021:
Athina Limited, Atlantic Home and Garden Centre Limited, Barretts of Ballinasloe Limited, Beralt Developments Limited, Bluebell Sawmills Limited,
Cardston Properties Limited, Chadwicks Limited, Chadwicks Group Limited, Chadwicks Holdings Limited, Cheshunt Limited, Cork Builders
Providers Limited, CPI Limited, Daly Brothers (North East) Limited, Davies Limited, Deltana Limited, Denningco Limited, Doorplan Ireland Limited,
Drainage Systems Dublin Limited, Dunmore Holdings Limited, Eddie’s Hardware Limited, F&T Buckley (Holdings) Limited, F & T Buckley Limited,
Frank Barrett & Sons Limited, Garvey Builders Providers Limited, Gillespie Building Supplies (Carlow) Limited, Grafton Group European Holdings
Limited, Grafton Group Holdings Limited, Grafton Group Investments Limited, Grafton Group Management Services Limited, Grafton Group
Secretarial Services Limited, Grafton Group Treasury Limited, Grafton Group Finance plc, Heatovent Ireland Limited, Heiton Buckley Limited, Heiton
Group plc, Haylen Investments Limited, Heiton McCowen Limited, Heiton McFerran Limited, House of Woods Limited, J.E.Telford Limited, Jarkin
Properties Limited, Jarsen Distribution Limited, Kenn Truss Limited, Knottingley Limited, Lacombe Properties Limited, Leeway Properties Limited,
Leo Wright Holdings Limited, Market Hardware Limited, MB Doorplan Limited, MFP Plastics Limited, MFP Sales Limited, Mooney & O’Dea Limited,
Morgan McMahon & Co. Limited, Multy Products (Ireland) Limited, Paddy Power (Kilbarry) Limited, Panelling Centre Limited, Payless D.I.Y. Limited,
Perchura Limited, Plumbing Distributors Limited, Plumbland Limited, Pouladuff Developments Limited, Pouladuff Manufacturing Limited, Powlett
Properties Limited, Resadale Properties Limited, Sam Hire Holdings Limited, Sam Hire Limited, Stettler Properties Limited,Telford Group Limited,
Telfords (Athy) Limited, Telfords (Portlaoise) Limited, Timber Frame Limited, Tiska Limited, Titanium Limited, Topez Limited, Tribiani Limited,
Tullamore Hardware Limited, Universal Providers Limited, W&S Timber Components Limited, Weeksbury Limited, Woodies DIY (Irl) Limited and
Woodie’s DIY Limited.
15. OTHER GUARANTEES
The Company has declared and assumes joint and several liability for any obligations arising from the legal acts of Grafton Holding Netherlands BV,
Isero B.V., Gunters en Meuser B.V., Polvo B.V., Polvo Real Estate B.V. and GKL Ventilatie Techniek B.V. in accordance with article 2:403 paragraph (f)
of the Dutch Civil Code and such declarations will be filed at the Dutch commercial register (Kamer van Koophandel) in accordance with article
2:403 paragraph (g).
The Company has given guarantees in respect of the bank borrowings of subsidiary undertakings which amounted to €306.4 million at the balance
sheet date. The guarantee is over bank debt of €146.4 million and US senior notes of €160.0 million. The Company has also guaranteed certain
property lease obligations of subsidiary undertakings.
16. APPROVAL OF FINANCIAL STATEMENTS
The Board of Directors approved the Company Financial Statements in respect of the year ended 31 December 2021 on 8 March 2022.
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Annual Report and Accounts 2021
In this section
Supplementary Financial Information 212
Grafton Group plc Financial History
– 2007 to 2021 221
Corporate Information 223
Financial Calendar 223
Location of Annual General Meeting 223
Glossary of Terms 224
Supplementary
Information
211
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Annual Report and Accounts 2021
Supplementary Information
Grafton Group plc
Annual Report and Accounts 2021
212
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ALTERNATIVE PERFORMANCE MEASURES
Certain financial information set out in this consolidated year end financial statements is not defined under International Financial Reporting
Standards (“IFRS”). These key Alternative Performance Measures (“APMs”) represent additional measures in assessing performance and for
reporting both internally and to shareholders and other external users. The Group believes that the presentation of these APMs provides useful
supplemental information which, when viewed in conjunction with IFRS financial information, provides readers with a more meaningful
understanding of the underlying financial and operating performance of the Group.
None of these APMs should be considered as an alternative to financial measures drawn up in accordance with IFRS.
The key Alternative Performance Measures (“APMs”) of the Group are set out below. As amounts are reflected in £’m some non-material rounding
differences may arise. Numbers that refer to 2020 are available in the 2020 Annual Report, subject to restatement for discontinued operations and
acquisition related items.
The term “Adjusted” means before exceptional items and acquisition related items. These items do not relate to the underlying operating performance
of the business and therefore to enhance comparability between reporting periods and businesses, management do not take these items into
account when assessing the underlying profitability of the Group.
Acquisition related items comprise deferred consideration payments relating to the retention of former owners of businesses acquired, transaction
costs and expenses, professional fees, adjustments to previously estimated earn outs, customer relationships asset impairment charges and
goodwill impairment charges. Customer relationships, technology and brands amortisation, acquisition related items and any associated tax are
considered by management to form part of the total spend on acquisitions or are non-cash items resulting from acquisitions and therefore are also
included as adjusting items. The adjustment of acquisition related items is a change on previous years and thus the 2020 comparative APMs have
been restated to conform to current year presentation.
IFRS 16 “Leases” Impact: The Group has also analysed a number of APM’s between the reported results and the results pre-IFRS 16. The pre and
post impact of IFRS 16 is detailed on pages 216 to 220. Pre-IFRS 16 measures reverse the right-of-use asset, lease liability, depreciation on the right-
of- use asset, interest on lease liabilities and any tax related impact from the reported amounts. The IAS 17 amounts relating to lease charges,
finance lease liabilities, onerous lease provisions and any rent prepayments or accruals are then reinstated.
Note: The traditional merchanting business in Great Britain is now classified as discontinued operations for the year ended 31 December 2021. In
the computation of APMs below the revenue and operating profit of the disposed business are excluded from the Group. Revenue and the operating
result are reflected in the profit/(loss) after tax from discontinued operations. Prior year comparatives have been updated to conform to the current
year presentation.
APM Description
Adjusted Operating Profit/EBITA Profit before amortisation of intangible assets arising on acquisitions, acquisition related items, exceptional
items, net finance expense and income tax expense.
Adjusted Operating Profit/EBITA
Before Property Profit
Profit before profit on the disposal of Group properties, amortisation of intangible assets arising on
acquisitions, acquisition related items, exceptional items, net finance expense and income tax expense.
Adjusted Operating Profit/EBITA
Margin Before Property Profit
Adjusted operating profit/EBITA before property profit as a percentage of revenue.
Adjusted Profit Before Tax Profit before amortisation of intangible assets arising on acquisitions, acquisition related items, exceptional items
and income tax expense.
Adjusted Profit After Tax Profit before amortisation of intangible assets arising on acquisitions, acquisition related items and exceptional
items but after deducting the income tax expense.
Capital Turn Revenue for the previous 12 months divided by average capital employed (where capital employed is the sum
of total equity and net debt at each period end).
Constant Currency Constant currency reporting is used by the Group to eliminate the translational effect of foreign exchange on
the Group’s results. To arrive at the constant currency change, the results for the prior period are retranslated
using the average exchange rates for the current period and compared to the current period reported numbers.
Dividend Cover Group earnings per share divided by the total dividend per share for the Group.
EBITDA Earnings before exceptional items, acquisition related items, net finance expense, income tax expense, depreciation
and intangible assets amortisation. EBITDA (rolling 12 months) is EBITDA for the previous 12 months.
EBITDA Interest Cover EBITDA divided by net bank/loan note interest.
Free Cash Conversion Free cash flow as a percentage of adjusted operating profit.
Free Cash Flow Cash generated from operations less replacement capital expenditure (net of disposal proceeds), less interest
paid (net) and income taxes paid.
Gearing The Group net (cash)/debt divided by the total equity attributable to owners of the Parent times 100, expressed
as a percentage.
SUPPLEMENTARY FINANCIAL INFORMATION
213
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Supplementary Information
APM Description
Like-for-like Revenue Like-for-like revenue is a measure of underlying revenue performance for a selected period. Branches contribute to
like-for-like revenue once they have been trading for more than twelve months. Acquisitions contribute to like-for-like
revenue once they have been part of the Group for more than 12 months. When branches close, or where a business
is disposed of, revenue from the date of closure, for a period of 12 months, is excluded from the prior year result.
Operating Profit/EBIT Margin Profit before net finance expense and income tax expense as a percentage of revenue.
Return On Capital Employed Adjusted operating profit divided by average capital employed (where capital employed is the sum of total
equity and net debt at each period end) times 100.
Adjusted Earnings Per Share A measure of underlying profitability of the Group. Adjusted profit after tax is divided by the weighted average
number of Grafton Units in issue, excluding treasury shares.
ADJUSTED OPERATING PROFIT/EBITA BEFORE PROPERTY PROFIT
2021
£’m
2020
£’m
Revenue 2,109.9 1,679.2
Operating profit 269.2 15 7.8
Property (profit)/loss (16.7) 0.1
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Amortisation of intangible assets arising on acquisitions 14.7 8.9
Adjusted operating profit/EBITA before property profit 271.2 170.7
Adjusted operating profit/EBITA margin before property profit 12.9% 10.2%
OPERATING PROFIT/EBITA MARGIN
2021
£’m
2020
£’m
Revenue 2,109.9 1,679.2
Operating profit 269.2 15 7.8
Operating profit/EBIT margin 12.8% 9.4%
ADJUSTED OPERATING PROFIT/EBITA & MARGIN
2021
£’m
2020
£’m
Operating profit 269.2 15 7.8
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Amortisation of intangible assets arising on acquisitions 14.7 8.9
Adjusted operating profit/EBITA 288.0 170.6
Adjusted operating profit/EBITA margin 13.6% 10.2%
ADJUSTED PROFIT BEFORE TAX
2021
£’m
2020
£’m
Profit before tax 249.8 133.6
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Amortisation of intangible assets arising on acquisitions 14.7 8.9
Adjusted profit before tax 268.6 146.4
ADJUSTED PROFIT AFTER TAX
2021
£’m
2020
£’m
Profit after tax for the financial year 206.8 109.4
Exceptional items – 2.5
Tax on exceptional items – (0.4)
Other acquisition related items 4.1 1.4
Tax on other acquisition related items (0.1) (0.0)
Amortisation of intangible assets arising on acquisitions 14.7 8.9
Tax on amortisation of intangible assets arising on acquisitions (3.2) (2.0)
Adjusted profit after tax 222.4 119.8
214
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Annual Report and Accounts 2021
SUPPLEMENTARY FINANCIAL INFORMATION continued
RECONCILIATION OF PROFIT TO EBITDA – CONTINUING OPERATIONS
2021
£’m
2020
£’m
Profit after tax for the financial year 206.8 109.4
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Net finance expense 19.4 24.2
Income tax expense 43.0 24.1
Depreciation 84.8 79.6
Intangible asset amortisation 15.3 9.4
EBITDA 373.4 250.6
NET (CASH)/DEBT TO EBITDA
2021
£’m
2020
£’m
EBITDA 373.4 250.6
Net (cash)/debt (139.0) 355.0
Net (cash)/debt to EBITDA – times (0.37) 1.42
EBITDA INTEREST COVER
2021
£’m
2020
£’m
EBITDA 373.4 250.6
Net bank/loan note interest including interest on lease liabilities 20.7 23.1
EBITDA interest cover – times 18.0 10.9
EBITDA INTEREST COVER (EXCLUDING INTEREST ON LEASE LIABILITIES)
2021
£’m
2020
£’m
EBITDA 373.4 250.6
Net bank/loan note interest excluding interest on lease liabilities 6.1 7.5
EBITDA interest cover – times 61.7 33.4
FREE CASH FLOW
2021
£’m
2020
£’m
Cash generated from operations 303.2 37 7.7
Replacement capital expenditure (24.6) (20.1)
Proceeds on sale of property, plant and equipment 2.6 0.8
Proceeds on sale of properties held for sale/investment properties 19.6 6.4
Interest received 0.2 0.7
Interest paid (20.5) (27.3)
Income taxes paid (43.7) (3 4.1)
Free cash flow 237.0 304.1
GEARING
2021
£’m
2020
£’m
Total equity attributable to owners of the Parent 1,719.6 1, 4 67.0
Group net (cash)/debt (139.0) 355.0
Gearing (8%) 24%
215
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Annual Report and Accounts 2021
Supplementary Information
RETURN ON CAPITAL EMPLOYED – CONTINUING OPERATIONS
2021
£’m
2020
£’m
Operating profit 269.2 15 7.8
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Amortisation of intangible assets arising on acquisitions 14.4 8.4
Adjusted operating profit 287.7 170.1
Total equity – current period end (from continuing operations) 1,719.6 1, 4 67.0
Adjustment re disposal of Group businesses – 115.4
Net (cash)/debt – current period end (139.0) 355.0
Adjustment re disposal of Group businesses – (545.0)
Capital employed – current period end 1,580.6 1,392.4
Total equity – prior period end (from continuing operations) 1,467.0 1,362.7
Adjustment re disposal of Group businesses 115.4 115.4
Net debt – prior period end 355.0 533.8
Adjustment re disposal of Group businesses (545.0) (545.0)
Capital employed – prior period end 1,392.4 1,466.9
Average capital employed 1,486.5 1,429.6
Return on capital employed 19.4% 11.9%
CAPITAL TURN
2021
£’m
2020
£’m
Revenue 2,109.9 1,679.2
Average capital employed 1,486.5 1,429.6
Capital turn – times 1.4 1.2
DIVIDEND COVER
2021
£’m
2020
£’m
Group adjusted EPS – basic (pence) 92.95 50.26
Group dividend (pence) 30.50 14.50
Group dividend cover – times 3.0 3.5
FREE CASH CONVERSION
2021
£’m
2020
£’m
Free cash flow 237.0 304.1
Adjusted operating profit 288.0 170.6
Free cash conversion 82% 178%
LIQUIDITY
2021
£’m
2020
£’m
Cash and cash equivalents 844.7 456.0
Less: cash held against letter of credit (4.0) (4.0)
Accessible cash 840.7 452.0
Undrawn revolving bank facilities 394.7 359.2
Liquidity 1,235.4 811.2
NET CASH – BEFORE IFRS 16 LEASES
2021
£’m
2020
£’m
Net cash/(debt) – after IFRS 16 Leases 139.0 (355.0)
IFRS 16 Lease Liability 449.0 536.9
Net cash – before IFRS 16 Leases 588.0 181.9
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Annual Report and Accounts 2021
SUPPLEMENTARY FINANCIAL INFORMATION continued
LIKE-FOR-LIKE REVENUE
2021
£’m
2020
£’m
2020/2019 revenue (restated) 1,679.2 1,643.6
Organic growth 337.8 (5 7.8)
Organic growth – new branches 9.0 9.1
Total organic growth 346.8 (48.7)
Acquisitions 120.9 69.8
Foreign exchange (37.0) 14.5
2021/2020 revenue 2,109.9 1,679.2
Like-for-like movement (organic growth, excluding new branches, as % prior year revenue) 20.1% (3.5%)
THE IMPACT OF IFRS 16 “LEASES“ ON APM’S
RECONCILIATION OF PROFIT TO EBITDA – PRE-IFRS 16 (CONTINUING)
2021
£’m
2020
£’m
Profit after tax for the financial year 208.2 112.0
Exceptional items – 2.5
Other acquisition related items 4.1 1.4
Net finance expense 4.7 8.9
Income tax expense 43.2 24.9
Depreciation 30.3 27. 8
Intangible asset amortisation 15.3 9.9
EBITDA 305.8 187.4
EBITDA INTEREST COVER – PRE-IFRS 16
2021
£’m
2020
£’m
EBITDA 305.8 187.4
Net bank/loan note interest excluding interest on lease liabilities 6.1 7.5
EBITDA interest cover – times 50.5 24.9
THE IMPACT OF IFRS 16 “LEASES” ON THE PRIMARY STATEMENTS
The following tables outline the impact of IFRS 16 “Leases” on the Group’s primary statements. Additional tables are also provided to show the
effect on the overall segmental analysis.
OVERALL IMPACT OF IFRS 16 “LEASES” – GROUP INCOME STATEMENT
For the year ended 31 December 2021
2021
pre-IFRS 16
Impact
£’000
2021
IFRS 16
Impact
£’000
2021
Reported
£’000
Revenue 2,109,909 – 2,109,909
Operating costs (1,870,511) 13,024 (1,857,487)
Operating profit before property profits 239,398 13,024 252,422
Property profits 16,740 – 16,740
Operating profit before exceptional items 256,138 13,024 269,162
Exceptional items – – –
Operating profit 256,138 13,024 269,162
Finance expense (6,632) (14,637) (21,269)
Finance income 1,935 (31) 1,904
Profit before tax 251,441 (1,644) 249,797
Income tax expense (43,197) 245 (42,952)
Profit after tax for the financial year from continuing operations 208,244 (1,399) 206,845
Profit after tax from discontinued operations 133,044 1,378 134,422
Profit after tax for the financial year 341,288 (21) 341,267
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Annual Report and Accounts 2021
Supplementary Information
GROUP BALANCE SHEET AS AT 31 DECEMBER 2021
ASSETS
2021
pre-IFRS 16
Impact
£’000
2021
IFRS 16
Impact
£’000
2021
Reported
£’000
Non-current assets
Goodwill 599,810 – 599,810
Intangible assets 144,327 – 144,327
Property, plant and equipment 321,118 (1,823) 319,295
Right-of-use asset – 421,254 421,254
Investment properties 26,527 – 26,527
Deferred tax assets 7,873 920 8,793
Lease receivable – 881 881
Retirement benefit assets 3,596 – 3,596
Other financial assets 126 – 126
Total non-current assets 1,103,377 421,232 1,524,609
Current assets
Properties held for sale 6,125 – 6,125
Inventories 344,172 – 344,172
Trade and other receivables 240,168 (6,682) 233,486
Lease receivable – 212 212
Cash and cash equivalents 844,663 – 844,663
Total current assets 1,435,128 (6,470) 1,428,658
Total assets 2,538,505 414,762 2,953,267
Equity
Equity share capital 8,570 – 8,570
Share premium account 219,447 – 219,447
Capital redemption reserve 643 – 643
Revaluation reserve 12,519 – 12,519
Shares to be issued reserve 11,837 – 11,837
Cash flow hedge reserve (8) – (8)
Foreign currency translation reserve 56,570 181 56,751
Retained earnings (prior years) 1,155,378 (11,445) 1,143,933
Retained earnings (current year) 269,825 (21) 269,804
Treasury shares held (3,897) – (3,897)
Total equity 1,730,884 (11,285) 1,719,599
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 172,601 – 172,601
Lease liabilities – 396,070 396,070
Provisions 21,071 (6,209) 14,862
Retirement benefit obligations 15,067 – 15,067
Deferred tax liabilities 56,402 – 56,402
Total non-current liabilities 265,141 389,861 655,002
Current liabilities
Interest-bearing loans and borrowings 84,030 – 84,030
Lease liabilities – 52,924 52,924
Derivative financial instruments 8 – 8
Trade and other payables 433,068 (13,957) 419,111
Current income tax liabilities 17,676 (1,720) 15,956
Provisions 7,698 (1,061) 6,637
Total current liabilities 542,480 36,186 578,666
Total liabilities 807,621 426,047 1,233,668
Total equity and liabilities 2,538,505 414,762 2,953,267
218
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Annual Report and Accounts 2021
SUPPLEMENTARY FINANCIAL INFORMATION continued
GROUP CASH FLOW STATEMENT
2021
pre-IFRS 16
Impact
£’000
2021
IFRS 16
Impact
£’000
2021
Reported
£’000
Profit before taxation – total operations 394,320 (677) 393,643
Finance income (1,935) 31 (1,904)
Finance expense 6,632 15,880 22,512
Operating profit 399,017 15,234 414,251
Depreciation 38,270 59,624 97,894
Amortisation of intangible assets 17,184 – 17,184
Share-based payments charge 5,601 – 5,601
Movement in provisions (4,298) 2,348 (1,950)
Asset impairment/fair value adjustments (9,602) – (9,602)
Loss on sale of property, plant and equipment 522 – 522
Property profit – total operations (7, 286) – ( 7,286)
Gain on derecognition of leases – (500) (500)
Profit on disposal of Group businesses (121,531) (3,585) (125,116)
Contribution to pension schemes in excess of IAS 19 charge (23,650) – (23,650)
Movement in working capital (61,527) (2,602) (64,129)
Cash generated from operations 232,700 70,519 303,219
Interest paid (4,553) (15,911) (20,464)
Income taxes paid (43,722) – (43,722)
Cash flows from operating activities 184,425 54,608 239,033
Investing activities
Inflows
Proceeds from sale of property, plant and equipment 2,611 – 2,611
Proceeds from sale of properties held for sale & investment properties 19,637 – 19,637
Proceeds from sale of Group businesses (net of cash disposed) 498,530 – 498,530
Interest received 193 – 193
520,971 – 520,971
Outflows
Acquisition of subsidiary undertakings (net of cash acquired) (123,309) – (123,309)
Investment in intangible asset – computer software (827) – (827)
Purchase of property, plant and equipment (43,616) – (43,616)
(167,752) – (167,752)
Cash flows from investing activities 353,219 – 353,219
Financing activities
Inflows
Proceeds from the issue of share capital 2,974 – 2,974
Proceeds from borrowings 96,897 – 96,897
99,871 – 99,871
Outflows
Repayment of borrowings (152,004) – (152,004)
Dividends paid (84,921) – (84,921)
Payment on lease liabilities (1,435) (54,608) (56,043)
(238,360) (54,608) (292,968)
Cash flows from financing activities (138,489) (54,608) (193,097)
Net increase in cash and cash equivalents 399,155 – 399,155
Cash and cash equivalents at 1 January 456,028 – 456,028
Effect of exchange rate fluctuations on cash held (10,520) – (10,520)
Cash and cash equivalents at the end of the year 844,663 – 844,663
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Annual Report and Accounts 2021
Supplementary Information
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH/(DEBT)
2021
pre-IFRS 16
Impact
£’000
2021
IFRS 16
Impact
£’000
2021
Reported
£’000
Net increase in cash and cash equivalents 399,155 – 399,155
Net movement in derivative financial instruments 57 – 57
Debt acquired with subsidiaries (55,647) – (55,647)
Lease liabilities acquired with subsidiaries – (24,192) (24,192)
Lease liabilities disposed – 67,100 67,100
Movement in debt and lease financing 56,542 28,321 84,863
Change in net debt resulting from cash flows 400,107 71,229 471,336
Currency translation adjustment 7,362 15,333 22,695
Movement in net debt in the year 407,469 86,562 494,031
Net cash/(debt) at 1 January 180,555 (535,556) (355,001)
Net cash at end of the year 588,024 (448,994) 139,030
220
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Annual Report and Accounts 2021
SUPPLEMENTARY FINANCIAL INFORMATION
SEGMENTAL ANALYSIS
2021
pre-IFRS 16
Impact
£’000
2021
IFRS 16
Impact
£’000
2021
Reported
£’000
Revenue
UK distribution 821,923 – 821,923
Ireland distribution 544,289 – 544,289
Finland distribution 70,810 – 70,810
Netherlands distribution 290,540 – 290,540
Total distribution 1,727,562 – 1,727,562
Retailing 282,756 – 282,756
Manufacturing 112,436 – 112,436
Less: Inter-segment revenue – manufacturing (12,845) – (12,845)
Total revenue 2,109,909 – 2,109,909
Segmental operating profit before exceptional items, intangible amortisation arising on
acquisitions and other acquisition related items
UK distribution 95,347 7,176 102,523
Ireland distribution 66,434 358 66,792
Finland distribution 9,900 52 9,952
Netherlands distribution 28,997 1,547 30,544
Total distribution 200,678 9,133 209,811
Retailing 47,145 3,713 50,858
Manufacturing 23,896 153 24,049
271,719 12,999 284,718
Reconciliation to consolidated operating profit
Central activities (13,504) 25 (13,479)
258,215 13,024 271,239
Property profits 16,740 – 16,740
Operating profit before exceptional items, intangible amortisation arising on acquisitions
and other acquisition related items 274,955 13,024 287,979
Acquisition related items (4,129) – (4,129)
Amortisation of intangible assets arising on acquisitions (14,688) – (14,688)
Operating profit before exceptional items 256,138 13,024 269,162
Exceptional items – – –
Operating profit 256,138 13,024 269,162
Finance expense (6,632) (14,637) (21,269)
Finance income 1,935 (31) 1,904
Profit before tax 251,441 (1,644) 249,797
Income tax expense (43,197) 245 (42,952)
Profit after tax for the financial year 208,244 (1,399) 206,845
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Supplementary Information
GRAFTON GROUP PLC FINANCIAL HISTORY – 2007 TO 2021*
Group Income Statements
2021
£’m
2020
£’m
2019
£’m
2018
£’m
2017
£’m
2016
£’m
2015
£’m
Revenue 2,109.9 2,509.1 2,672.3 2,952.7 2,715.8 2,5 07.3 2,212.0
Operating profit 271.2 190.7 197.9 189.6 160.9 137.1 120.6
Operating margin % 12.9% 7.6% 7.4% 6.4% 5.9% 5.5% 5.5%
Restructuring (costs)/credit – (24.7) 0.0 (1.9) 0.0 (19.7) 1.4
Intangible amortisation
on acquisitions & acquisition related items (18.8) (8.9) (7.0) (5.1) (2.8) (2.2) (0.5)
Property profit 16.7 2.6 6.9 4.9 2.7 4.9 6.7
Finance (expense)/
income (net) (19.4) (26.9) (25.1) (6.1) (6.4) (5.9) (7.9)
Profit before taxation 249.8 132.7 172.6 181.3 154.5 114.2 120.3
Taxation (43.0) (25.2) (28.7) (30.9) (26.6) (21.1) (23.8)
Profit after taxation 206.8 107.5 143.9 150.4 127.8 93.1 96.5
Group Balance Sheets
2021
£’m
2020
£’m
2019
£’m
2018
£’m
2017
£’m
2016
£’m
2015
£’m
Capital employed
Goodwill and intangibles 744.1 820.0 761.1 726.0 6 4 6.1 610.8 554.2
Property, plant and
equipment/ROU Asset 740.6 999.5 1,023.2 521.6 504.4 461.7 4 30.1
Financial assets 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Net current assets** 142.3 100.3 173.6 161.7 136.3 141.5 149.6
Other net non-current liabilities (46.5) (97.9) (61.5) (59.8) (49.4) (52.6) (31.3)
1,580.6 1,822.0 1,896.5 1,349.6 1, 237.5 1,161.5 1,102.7
Financed as follows:
Shareholders’ equity 1,719.6 1,467.0 1,362.7 1,296.5 1,174.6 1,062.1 985.7
Non-controlling interest – – – – – 3.1 3.4
Net (cash)/debt (139.0) 355.0 533.8 53.1 62.9 96.3 113.6
1,580.6 1,822.0 1,896.5 1,349.6 1, 237.5 1,161.5 1,102.7
Other Information
Net (cash)/debt pre-IFRS 16 (588.0) (181.9) (7.8) 53.1 62.9 96.3 113.6
Acquisitions & investments 123.3 47.5 92.6 73.8 40.4 11.9 98.6
Purchase of fixed assets/investment in intangible assets 43.6 35.2 52.4 73.6 81.4 60.4 51.6
166.9 82.7 145.0 147.4 121.8 72.3 150.2
Depreciation and intangible amortisation 115.1 121.4 114.8 49.0 43.5 38.1 33.1
Financial Highlights 2021 2020 2019 2018 2017 2016 2015
Adjusted EPS*** (pence) 93.0 56.7 62.8 66.0 54.9 47.7 41.2
Dividend/share purchase per share (pence) 30.5 14.5 19.0 18.0 15.5 13.8 12.5
Cash flow per share (pence)# 134.5 96.0 108.8 83.9 72.4 64z.0 54.9
Net assets per share (pence) 717.8 613.7 573.0 545.3 495.0 449.5 419.0
Underlying EBITDA interest cover (times) 18.0 11.9 12 .1 48.0 48.4 37.9 27.3
Dividend/share purchase cover 3.0 3.9 3.3 3.7 3.5 3.5 3.3
Net debt to shareholders’ funds (8%) 24% 39% 4% 5% 9% 12%
ROCE 19.4% 10.4% 10.8% 15.0% 13.6% 12.5% 12.2%
* The summary financial information is stated under IFRS. 2019, 2020 and 2021 are presented as the post-IFRS 16 reported balances.
** Excluding net debt/(cash).
*** Before amortisation of intangible assets arising on acquisitions, exceptional items and acquisition related items in 2021. Before amortisation of intangible assets arising
on acquisitions in 2020 and exceptional items. Before amortisation of intangible assets arising on acquisitions in 2019. Before amortisation of intangible assets arising on
acquisitions and profit/(loss) on disposal of Group businesses in 2018. Before amortisation of intangible assets arising on acquisitions in 2017. Before exceptional items and
amortisation of intangible assets arising on acquisitions in 2016. Before pension credit, asset impairment and amortisation of intangible assets arising on acquisitions in 2015
(restated). Before pension credit and property impairment in 2013 and before restructuring costs and intangible amortisation in 2012 and taxation credits in both years. In
previous years before intangible amortisation, onerous lease provision and impairment, restructuring costs (net), taxation credit in 2010 and investment profit in 2009 and
excluding material property profits in previous years.
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GRAFTON GROUP PLC FINANCIAL HISTORY – 2007 TO 2021*
Group Income Statements
2014
£’m
2013
£’m
2012
‡
£’m
2011
£’m
2010
£’m
2009
£’m
2008
£’m
2007
£’m
Revenue 2,081.7 1,899.8 1,760.8 1,782.5 1,719.4 1,763.8 2,128.5 2,193.3
Operating profit 110.1 7 7.2 59.1 47.5 41.5 21.3 92.7 180.4
Operating margin % 5.3% 4.1% 3.4% 2.7% 2.4% 1.2% 4.4% 8.2%
Restructuring (costs)/credit – 2.8 (21.2) (27. 8) (13.2) (17.0) (13.7) –
Intangible amortisation
on acquisitions & acquisition related items – – – – – – – –
Property profit – – – – – – – 5.0
Finance (expense)/
income (net) (8.9) (12.3) (12.9) (10.8) (6.4) 7.8 (28.0) (24.0)
Profit before taxation 101.2 67.7 25.0 8.9 21.9 12.1 51.0 161.4
Taxation (21.2) (5.6) 6.6 (6.7) 33.0 (0.2) (5.1) (21.0)
Profit after taxation 80.0 62.1 31.6 2.2 54.9 11.9 45.9 140.4
Group Balance Sheets
2014
£’m
2013
£’m
2012
£’m
2011
£’m
2010
£’m
2009
£’m
2008
£’m
2007
£’m
Capital employed
Goodwill and intangibles 485.9 481.0 476.2 474.9 479.7 489.3 516.0 448.7
Property, plant and
equipment/ROU Asset 423.4 413.4 458.3 471.9 489.6 5 37.1 603.2 516.1
Financial assets 0.1 0.1 0.2 0.1 3.4 3.5 0.2 0.6
Net current assets** 112.8 136.5 133.7 121.2 122.2 122.6 193.0 256.9
Other net non-current liabilities (40.6) (23.0) (85.9) (58.4) (22.8) (56.4) (69.9) (35.7)
981.6 1,008.0 982.5 1,009.7 1,072.1 1,096.1 1,242.5 1,186.6
Financed as follows:
Shareholders’ equity 902.3 870.3 813.5 821.0 852.5 809.7 8 27.6 783.0
Non-controlling interest 4.0 4.0 4.1 – – – – –
Net (cash)/debt 75.3 133.7 164.9 188.7 219.6 286.4 414.9 403.6
981.6 1,008.0 982.5 1,009.7 1,072.1 1,096.1 1,242.5 1,186.6
Other Information
Net (cash)/debt pre-IFRS 16 75.3 133.7 164.9 188.7 219.6 286.4 414.9 403.6
Acquisitions & investments 33.1 5.9 17.6 11.1 2.1 6.1 22.4 61.0
Purchase of fixed assets/investment in
intangible assets 46.9 24.7 23.0 30.6 8.2 11.0 62.6 71.7
80.0 30.6 40.6 41.7 10.3 17.1 85.0 132.7
Depreciation and intangible amortisation 32.5 31.5 33.9 37.1 4 0.1 44.7 45.0 40.4
Financial Highlights 2014 2013 2012‡ 2011 2010 2009 2008 2007
Adjusted EPS*** (pence) 34.4 22.3 15.1 13.4 15.9 4.8 25.6 5 7.7
Dividend/share purchase per share (pence) 10.8 8.5 7.0 6.5 6.0 4.5 11.9 15.1
Cash flow per share (pence)# 48.4 39.5 29.9 24.9 44.8 26.6 39.6 74.1
Net assets per share (pence) 3 87.9 374.4 350.6 35 4.1 368.5 351.0 359.5 341.2
Underlying EBITDA interest cover (times) 19.4 11.0 8.6 6.4 10.0 5.6 4.5 8.2
Dividend/share purchase cover 3.2 2.6 2.2 2.1 2.6 1.1 2.1 3.8
Net debt to shareholders’ funds 8% 15% 20% 23% 26% 35% 50% 52%
ROCE 11.1% 7.8% 6.1% 4.6% 3.8% 1.8% 7.6% 16.1%
# Based on profit after tax before depreciation, 2016 exceptional items, 2015 pension credit, 2013 pension credit, intangible amortisation, onerous lease provision,
impairment and excluding material property profits in previous years.
‡ IAS 19 (Revised) ‘Employee Benefits’ has been adopted as required by IFRS from the year ended 31 December 2013.
The comparatives for the year ended 31 December 2012 have been restated.
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Supplementary Information
CORPORATE INFORMATION
Corporate & Registered Office Heron House
Corrig Road
Sandyford Business Park
D18 Y2X6
Phone: +353 (0)1 216 0600
Email: email@graftonplc.com
www.graftonplc.com
Registrars Link Asset Services
Link Registrars Limited
PO Box 1110, Maynooth, Co. Kildare
Phone: +353 (0)1 553 0050
Email: enquiries@linkgroup.ie
www.linkassetservices.com
Solicitors Arthur Cox, Dublin
A&L Goodbody, Dublin
Squire Patton Boggs, London
Allen & Overy, Amsterdam
Bankers Bank of Ireland
HSBC Bank plc
Ulster Bank
Barclays Bank plc
ABN AMRO Bank N.V.
Lloyds Bank plc
Stockbrokers Goodbody, Dublin
Numis Securities Limited,
London
Auditors PricewaterhouseCoopers
Company Registration Number 8149
FINANCIAL CALENDAR 2022
Final Results for 2021 24 February 2022
Annual General Meeting 2022 28 April 2022
Half-Year Results for 2022 25 August 2022
Final Dividend for 2021
Record date 8 April 2022
Payment date 5 May 2022
ANNUAL GENERAL MEETING 2022
The Annual General Meeting of the Company will be held at the Radisson Blu St. Helen’s Hotel, Stillorgan Road, Dublin 4 at 10.30am on Thursday
28 April 2022. Shareholders will also be provided with a facility to view the business of the meeting and ask questions via a webcast facility.
Details of this facility will be outlined in the meeting Circular and will also be available on the Group’s website www.graftonplc.com.
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GLOSSARY OF TERMS
AGM Annual General Meeting
APM Alternative Performance Measure
BES 6001 Framework Standard for Responsible Sourcing
BRR Business Risk Register
bps Basis Points
CA14 Companies Act 2014
CEO Chief Executive Officer
CFO Chief Financial Officer
CGU Cash Generating Unit
CJRS Coronavirus Job Retention Scheme
CO
2
e Carbon Dioxide Equivalent
CPC Construction Products Certification
CPI Consumer Price Index
CRR Corporate Risk Register
CSR Corporate Social Responsibility
DB Schemes Defined Benefit Schemes
EBITA Profit before amortisation of intangible assets arising on acquisitions, acquisition related items,
exceptional items, net finance expense and income tax expense
EBITDA Earnings before exceptional items, acquisition related items, net finance expense,
income tax expense, depreciation and intangible assets amortisation
EGM Extraordinary General Meeting
EMS Environmental Management Services
EPS Earnings per Share
FRS Financial Reporting Standard
FSC Forest Stewardship Council
FVOCI Fair Value through Other Comprehensive Income
FVPL Fair Value through Profit or Loss
GAAP Generally Accepted Accounting Principles
GDPR EU General Data Protection Regulation
Grafton Grafton Group plc
GRC Group Risk Committee
HVO Hydrogenated Vegetable Oil
IAS International Accounting Standards
IAASA Irish Auditing and Accounting Supervisory Authority
IBNR Incurred But Not Reported
IFRS International Financial Reporting Standards
IGBC Irish Green Building Council
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Annual Report and Accounts 2021
Supplementary Information
IOSH Institution of Occupational Safety and Health
IPCC International Panel on Climate Change
ISAs (Ireland) International Standards on Auditing (Ireland)
KPI Key Performance Indicators
LDI Liability Driven Investment
LSDM Limited Leyland SDM Limited
LTIFR Lost Time Injury Frequency Rate
LTIP Long Term Incentive Plan
PEFC Programme for the Endorsement of Forest Certification
PPE Property, Plant & Equipment
QQI Quality and Qualifications Ireland
Record Date The date on which holders of Grafton Units must be on the Company’s Register of Members
at the close of business to be eligible to receive a dividend payment
RMI Repair, Maintenance and Improvement
ROCE Return on Capital Employed
ROUA Right Of Use Asset
RPI Retail Price Index
SAYE Save As You Earn
SDGs Sustainable Development Goals
SKU Stock-Keeping Unit
TCFD Task Force on Climate-related Financial Disclosures
The Code 2018 UK Corporate Governance Code
The Company Grafton Group plc
The Group Grafton Group plc and its subsidiaries
TSR Total Shareholder Return
Unit/Grafton Unit A Grafton Unit, comprising one ordinary share of 5 cents each in Grafton Group plc
VIU Value-In-Use
WEEE Waste Electrical and Electronic Equipment
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NOTES
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NOTES
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NOTES
Grafton Group plc Annual Report 2021
Grafton Group plc
Phone: +353 (0)1 216 0600
Email: email@graftonplc.com
Web: www.graftonplc.com