Grafton Group plc Annual Report and Accounts 2022
Building
progress
together
Annual Report and Accounts 2022
Welcome
1
Grafton Group plc Annual Report and Accounts 2022
Overview
Contents
In this year’s report
Balanced spread of operations
Across geographic markets and sectors.
More information on pages 46 to 61
Excellent performance
In distribution businesses in Ireland and the Netherlands.
More information on pages 52 to 55
Further progress on our
sustainability agenda
Building a more sustainable future.
More information on pages 76 to 95
Appointment of Eric Born as CEO
With effect from 28 November 2022
More information on page 36 to 37
Overview
At a Glance 2
2022 Highlights 4
Our Top Brands 6
Our Strategic Framework 8
Investment Case 10
Year in Review 12
Our Purpose and Values 14
Our People and Culture 16
Stakeholder Engagement 20
Strategic Report
Chair’s Statement 24
Business Model 28
Our Strategy 30
Chief Executive Officer’s Review 36
Key Performance Indicators 42
Operating Review 46
– Distribution 46
– Retailing 58
– Manufacturing 60
Financial Review 62
Risk Management 66
Sustainability 76
Corporate Governance
Board of Directors and Secretary 98
Directors’ Report on Corporate Governance 100
– Chair’s Introduction 100
– Governance Structure 102
– The Board’s Year 104
Audit and Risk Committee Report 112
Nomination Committee Report 116
Report of the Remuneration Committee
on Directors’ Remuneration 120
– Chair’s Annual Statement 120
– Remuneration Policy Report 125
– Annual Report on Remuneration 133
Report of the Directors 146
Financial Statements
Directors’ Responsibility Statement 152
Independent Auditors’ Report 153
Group Income Statement 160
Group Statement of
Comprehensive Income 161
Group Balance Sheet 162
Group Cash Flow Statement 163
Group Statement of Changes in Equity 164
Notes to the Group Financial Statements 166
Company Balance Sheet 219
Company Statement of Changes in Equity 220
Notes to the Company Financial Statements 221
Supplementary Information
Supplementary Financial Information 232
Grafton Group plc Financial History 237
Corporate Information 238
Financial Calendar 238
Location of Annual General Meeting 238
Glossary of Terms 239
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Grafton Group plc Annual Report and Accounts 2022
Manufacturing:
Number of factories
12
Retailing:
Number of branches
35
Distribution:
Number of branches
316
At a Glance
Locations
Locations
Locations
Brands
Brands
Brands
We are...
...a leading international business operating in the
distribution, retailing and manufacturing sectors
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Grafton Group plc Annual Report and Accounts 2022
Overview
…and continuing to grow
our Group.
UK 41.4%
(2021: 43.4%)
Ireland 37.8%
(2021: 39.5%)
Netherlands 14.6%
(2021: 13.8%)
Finland 6.2%
(2021: 3.3%)
UK 44.0%
(2021: 45.6%)
Ireland 36.6%
(2021: 40.7%)
Netherlands 12.6%
(2021: 10.3%)
Finland 6.8%
(2021: 3.4%)
Group revenue
£2.30bn
(2021: £2.11bn)
Group adjusted operating profit
£285.9m*
(2021: £288.0m)
* After central activity costs of £13.5 million (2021: £13.5 million), including property profit of £25.4 million (2021: 16.7 million) and a non-recurring curtailment gain of £3.7m
(2021: £Nil). Other “Alternative Performance Measures” (‘APMs’) are detailed on pages 232 to 236.
** Before property profit of £25.4 million (2021: £16.7 million) and central activity costs of £13.5 million (2021: £13.5 million). Includes £3.7 million non-recurring curtailment gain
in 2022 in Ireland.
*** Excluding plumbing and heating distribution.
UK
Number of branches & factories
139
(2021: 134)
Revenue
£951.6m
(2021: £915.0m)
Adjusted operating profit**
£107.4m
(2021: £124.9m)
Adjusted operating profit margin
11.3%
(2021: 13.7%)
Market positions
Building materials distribution***
4th
Mortar manufacturing
Staircase manufacturing
1st
IRELAND
Number of branches
89
(2021: 87)
Revenue
£870.0m
(2021: £833.6m)
Adjusted operating profit**
£108.5m
(2021: £119.3m)
Adjusted operating profit margin
12.5%
(2021: 14.3%)
Market positions
Building materials distribution
1st
DIY, home and garden retailing
1st
NETHERLANDS
Number of branches
123
(2021: 117)
Revenue
£3 36.7m
(2021: £290.5m)
Adjusted operating profit**
£37.6m
(2021: £30.5m)
Adjusted operating profit margin
11.2%
(2021: 10.5%)
Market positions
Ironmongery, tools and fixings
distribution market
1st
FINLAND
Number of branches
12
(2021: 11)
Revenue
£143.2m
(2021: £70.8m)
Adjusted operating profit**
£20.3m
(2021: £10.0m)
Adjusted operating profit margin
14.2%
(2021: 14.1%)
Market positions
Distribution of tools and personal
protective equipment (‘PPE’ )
2nd
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Grafton Group plc Annual Report and Accounts 2022
£2.11bn
£2.30bn
2022
2021
£303.2m
£278.8m
2022
2021
19.4%
17.2%
2022
2021
£288.0m
£285.9m
2022
2021
30.5p
33.0p
2022
2021
93.0p
96.6p
2022
2021
12.9%
11.3%
2022
2021
£588.0m
£458.2m
2022
2021
82%
77%
2022
2021
2022 Highlights
Strong results...
...against a less favourable market backdrop
Financial highlights – continuing operations
Revenue
£2.30bn
Cash generation from operations
£278.8m
Adjusted return on capital employed
(i)
17.2%
Adjusted operating profit
(i)
£285.9m
Dividend
33.0p
Adjusted earnings per share – basic
(i)
96.6p
Adjusted operating profit margin
(i) (i i)
11.3%
Net cash (pre-IFRS 16)
£458.2m
Free cash conversion
77%
(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 232 to 236.
(ii) Before property profit.
+9.1% -0.7% -160bps
-8.1% +8.2% -£129.8m
-220bps +3.9% -5.9%
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Grafton Group plc Annual Report and Accounts 2022
£269.2m
£264.3m
2022
2021
12.8%
11.5%
2022
2021
£139.0m
£8.9m
2022
2021
86.4p
89.3p
2022
2021
£249.8m
£251.7m
2022
2021
Overview
Operational highlights
Excellent performance in distribution
businesses in Ireland and the Netherlands
Exceptionally strong performance in Chadwicks with
an operating profit margin of 11.6 per cent while the
Isero ironmongery, tools and fixings business in the
Netherlands reported excellent growth in revenue and
profitability and increased its operating profit margin by 70
basis points to 11.2 per cent.
More information on pages 52 to 55
Good profit contribution from IKH
in Finland in its first full year
IKH, the workwear, personal protective equipment, tools
and spare parts wholesaler acquired in July 2021, made
a good contribution to operating profit in the year and
reported an operating profit margin of 14.2 per cent.
More information on pages 56 and 57
Further progress made on our
sustainability agenda
We have continued to develop the sustainability processes
and systems within our businesses. Our newly appointed
Group Head of Sustainability, Rosie Howells joined the
business in September 2022.
More information on pages 76 to 95
Continued investment in Selco
branch network
Having opened branches in Liverpool, Orpington, Canning
Town and Rochester in 2021, Selco increased the branch
estate to 74 during the year with the opening of branches
in Exeter and Cheltenham during 2022.
More information on pages 47 and 48
Statutory highlights
Statutory operating profit
£ 264.3m
-1.8%
Net cash
£8.9m
-£130.1m
Statutory operating profit margin
11.5%
-130bps
Statutory earnings per share – basic
89.3p
+3.4%
Profit before tax
£251.7m
+0.8%
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Grafton Group plc Annual Report and Accounts 2022
£1.73bn
£1.94bn
2022
2021
Our Top Brands
Distribution
316 distribution branches
(2021: 302)
Chadwicks Group
chadwicks.ie
Chadwicks Group operates from 53
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’s
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 12 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 21 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.
TG Lynes
tglynes.co.uk
TG Lynes is a distributor of materials
and plant for mechanical services,
heating, plumbing and air movement,
operating from a distribution centre in
Enfield, north London.
ISERO
isero.nl
Isero is the leading specialist distributor
of tools, ironmongery and fixings in
the Netherlands. Isero trades from 72
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 74 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 products and
service model is primarily focused
on customers engaged in small
residential RMI projects.
Our top brands
Distribution revenue
£1.94bn
+12.1%
The distribution segment distributes building
materials from 316 branches in the UK, Ireland,
the Netherlands and Finland.
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Grafton Group plc Annual Report and Accounts 2022
£282.8m
£244.0m
2022
2021
£99.6m
£120.6m
2022
2021
Overview
Retailing
35 branches
(2021: 35)
The Group is the largest DIY retailer
in Ireland trading from 35 branches
and online.
Manufacturing
12 factories
(2021: 12)
The manufacturing segment is
comprised of dry mortar and wooden
staircase manufacturing businesses.
Revenue by
sector
£2.30bn
Adjusted operating
profit by sector
£285.9m
Contribution by
sector excluding
central activities
Distribution 80.0%
(2021: 74.8%)
Retailing 10.9%
(2021: 17.1%)
Manufacturing 9.1%
(2021: 8.1%)
Distribution 84.2%
(2021: 81.9%)
Retailing 10.6%
(2021: 13.4%)
Manufacturing 5.2%
(2021: 4.7%)
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.
Retail revenue
£244.0m
-13.7%
Manufacturing revenue
£120 .6m
+21.1%
Including central activities, the total per cent by sector including property profit was:
Distribution 83.7% (2021: 77.0%), Retailing 11.4% (2021: 17.7%), Manufacturing 9.6%
(2021: 8.3%) and Central (4.7%) (2021:(3.0%)).
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Grafton Group plc Annual Report and Accounts 2022
Our Strategic Framework
The foundations
of our success
Our purpose
We understand how important it is to have the right foundations in order to build a successful
and sustainable business that respects people and the planet. Our purpose is the driving
force behind our ambitions and our passion for progress.
That is why our purpose is Building Progress Together.
Our strategy
Our overall strategy is to be a leading international distributor of building materials and related activities.
This is supported by our five pillars:
Our core values
Our core values help ensure that everything we do as a business is aligned with what we stand
for as a Group.
Excellence
in service
Strong
financial
base
Ethics and
integrity
Organic
growth and
acquisitions
A supportive
organisational
structure and
management
Value our
people
Be brilliant
for our
customers
Ambitious Entrepreneurial
and empowering
Sustainable,
trustworthy
and responsible
Read more on pages 14 and 15
Read more on pages 30 to 35
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Grafton Group plc Annual Report and Accounts 2022
Overview
Our business model
Our business model is core to our strategy and enables us to create value
for all our stakeholders.
Our stakeholders
The support and engagement of our stakeholders is critical to our business.
Our sustainability pillars
The aim of our sustainable strategy is Building a Sustainable Future. This is supported
by our five key focus areas:
Planet
Reducing, reusing,
and recycling across
our operations.
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 businesses.
Community
Making a positive
contribution to
the communities
and customers
we serve.
Ethics
Ensuring every
part of our
business operates
with integrity.
Colleagues
Our colleagues are
key to everything we
do and our success
is closely aligned to
their contribution and
commitment.
Customers
Our customers rely
on us to provide
a wide range of
essential products
and services.
Shareholders
We create value for
our shareholders in
a sustainable and
responsible way.
Suppliers
Building strong,
long term
relationships
with our suppliers
is key to our
success.
Communities and
the environment
We are aware of our
role in society and
the contribution we
can make to the
communities we
work in and the part
we play in effective
management of the
wider environment.
Read more on pages 20 and 21
Read more on pages 28 and 29
Read more on pages 76 to 95
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Grafton Group plc Annual Report and Accounts 2022
Investment Case
Why invest
in Grafton?
Great
businesses
Our businesses continue to focus on
delivering operational excellence and
innovative solutions to support our
customer focused approach.
High calibre
management
Our strategy is executed by high
calibre management teams with
relevant skills, experience and a
track record of acquiring and
integrating businesses.
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 16 to 19 and 83 to 86.
Strong market
positions
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.
Strong financial
base
We are financially robust with a
strong balance sheet, strong cash
performance and an investment
grade credit rating:
Net cash before IFRS 16 leases
£458.2m
(2021: £588.0m)
Free cash conversion
77%
(2021: 82%)
Group adjusted EPS
96.6p
(2021: 93.0p)
Dividends returned to shareholders
since 2017 and share buybacks in 2022
£410m
Sustainable,
trustworthy
and 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.
Emissions reduction
in 2022 per £ million of
revenue
11%
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Grafton Group plc Annual Report and Accounts 2022
0
£2.60bn
£2.67bn
£1.68bn
£2.11bn
£2.30bn
2022
2021
2020
2019
2018
2017
0
63.7p
62.8p
50.3p
93.0p
96.6p
2022
2021
2020
2019
2018
2017
0
£187.6m
£204.8m
£170.6m
£288.0m
£285.9m
2022
2021
2020
2019
2018
2017
Overview
A growing portfolio of winning businesses
supported by a strong financial base
Federated
structure
We operate a decentralised
organisational structure with
autonomous local management
supported by management oversight
and tight controls at Group level.
Number of colleagues
at Grafton at the year end
>9,000
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.
Number of acquisitions
in 2022
3
Acquisition
expertise
Our ambition is to grow whilst
maintaining a disciplined approach
to capital allocation.
Key stats
Revenue
£2.30bn
Adjusted operating profit
(i)
£285.9m
Adjusted earnings per share – basic
(i)
96.6p
(i) 2018 is presented on a pre-IFRS 16 basis.
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Grafton Group plc Annual Report and Accounts 2022
Year in Review
Story of our year
January February June
Excellent performance in distribution businesses in Ireland and the Netherlands,
good contribution from acquisition in the Nordics, continued focus on sustainability
and appointment of new Chief Executive Officer.
Acquisition of Regts
The Group completed the
acquisition of Regts B.V. (‘Regts’)
in Friesland in January 2022,
further expanding Isero’s coverage
into the Northeast region of the
Netherlands.
Netherlands branch estate
increased to
123
Acquisition of
Woodfloor Warehouse
and Sitetech in Ireland
MacBlair acquired Woodfloor
Warehouse, a leading in-store and
online timber flooring distributor
with branches in Bangor, Belfast
and Warrington in February 2022.
Chadwicks acquired Sitetech,
a distributor of specialist
construction accessories in Ireland
where the business trades from
two locations in Dublin and Cork.
MacBlair branch network
21
Chadwicks branch network
53
Good profit contribution
from IKH in Finland
IKH, the workwear, personal
protective equipment, tools
and spare parts wholesaler
acquired in July 2021, made a good
contribution to operating profit in
the year since acquisition.
IKH operating profit margin for 2022
14.2%
For more, see page 55 For more, see pages 50 and 53 For more, see pages 56 and 57
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Grafton Group plc Annual Report and Accounts 2022
Overview
August September November
Announced strong first
half performance
in distribution
businesses in Ireland
and the Netherlands
Chadwicks, the market leader in the
distribution of building materials in
Ireland, produced an exceptionally
strong performance in a market
that returned to more normalised
trading conditions, while the
Netherlands ironmongery, tools and
fixings business reported excellent
growth in first half revenue and
profitability.
Appointment of
Eric Born as CEO
Following an extensive search
process led by the Board’s
Nomination Committee with the
support of an executive search
firm, the Group announced the
appointment of Mr. Eric Born as
Chief Executive Officer. Mr. Born
joined the Board and the Group as
CEO on 28 November 2022.
Appointment of Head
of Sustainability
In another step towards delivering
on our sustainability goals, the
Group announced the appointment
of Rosie Howells to the newly
created role as Group Head of
Sustainability in September.
Rosie has almost thirteen years’
experience in sustainability
roles and her experience will
be invaluable to Grafton as we
continue to develop and implement
our long-term sustainability
strategy.
For more, see pages 52 to 55 For more, see pages 76 to 95 For more, see pages 36 and 37
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Grafton Group plc Annual Report and Accounts 2022
Our Purpose and Values
Building progress
together
…to enable a sustainable future that respects people
and the planet for all our stakeholders.
A shared passion for progress is at the
heart of everything we do at Grafton.
From our constant focus on
innovating for our customers, to our
deep commitment to developing our
people and keeping everyone safe;
from the entrepreneurial spirit that
powers our growth to the strategic
approach that delivers strong value
for our shareholders; progress in all its
forms makes us what we are.
This ambitious outlook and passion
for progress guides our strategy and
how we build our wider relationships.
It’s who we are. That’s why our
purpose is Building Progress
Together.
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.
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.
Our purpose is underpinned by four key pillars
15
Grafton Group plc Annual Report and Accounts 2022
15
Grafton Group plc Annual Report and Accounts 2022
Overview
Our core values
Our five core values support our purpose and help ensure that everything we do as a business
is aligned with what we stand for as a Group.
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.
16
Grafton Group plc Annual Report and Accounts 2022
Our People and Culture
Our sustainable,
engaged culture
Our corporate culture defines who we are and how we do business.
Country colleague committees
Colleague committees made up of colleagues from each of our businesses in Ireland, the UK and the Netherlands
provide the opportunity for our people to engage with Non-Executive Directors and for their views to be heard at
management and Board level. A colleague committee was also established during the year in Finland.
The Board has nominated three individual Non-Executive Directors: Paul Hampden Smith, Rosheen McGuckian
and Vincent Crowley to attend Country Colleague forums with colleagues from the UK, Ireland and the Netherlands
respectively. The Country Committees cover a range of topics including:
• Management and leadership
How colleagues feel about and communicate with their
direct manager/line manager.
• Group and Company leadership
Colleagues’ views about the leadership of the business,
strategy and values.
• Pride in the Company
The level of engagement that colleagues have with their
job and the Company.
• Trust
The extent to which colleagues trust the Company.
• Personal growth
Training, personal development and prospects for
career growth.
Corporate social responsibility
The extent to which the Company has a positive impact
on society and the environment.
• Wellbeing
How the Company supports colleague well-being.
• Diversity
The way the Company encourages diversity and
inclusion and supports minority groups.
• Strategic direction and key business issues
How colleagues feel about the Group’s strategic
direction and priorities and executive remuneration.
Paul Hampden Smith Rosheen McGuckian Vincent Crowley
17
Grafton Group plc Annual Report and Accounts 2022
Overview
Training and development
Colleague engagement
surveys
Annual engagement surveys are
carried out in all businesses which
allow colleagues to provide feedback
to management. Action plans to
address key issues arising from the
surveys are developed and monitored.
Based on its survey results during
the year, Selco were proud to finish
17th on the ‘big companies’ list as
part of the ‘Best Companies’ awards.
Woodie’s were recognised as a Great
Place to Work both in Ireland and in
Europe, and as a ‘Best workplace for
Women”. IKH participated in the Great
Place to Work survey for the first
time and exceeded the threshold for
recognition as a Great Place to Work
in Finland.
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.
• Selco offers numerous career development
opportunities to its colleagues, with several hundred
benefitting from apprenticeship programmes, including
the introduction of a Driver Academy to offer employees
the chance to retrain as HGV drivers.
• Chadwicks were delighted to see the return of its
12-month Sales Academy course and it also relaunched
its Leadership Development Programme where 23
colleagues will complete a range of leadership modules
over the next 18 months in a programme run by the
Irish Management Institute.
• Woodie’s continued its eXcellerate Leadership
Development programme and Conscious Inclusion
training for people leaders. It also introduced a new
design consultant training programme while its
Apprenticeship in Retail programme continued into its
third year.
• The Isero business in the Netherlands runs an in-
house academy to train apprentice customer service
representatives.
• CPI Mortars continued to support the career
development of its central finance team, operational
managers and sales team with a focus on a
Management Development Programme and Insights.
• Leyland ran its Fast Track Managers training
programme which supports colleagues to move up to a
leadership role in the business.
• The IKH business in Finland continued its 18-month
management development programme during the
year and also offers the opportunity for warehouse
colleagues to complete a degree in service logistics.
• During 2022, senior leaders and our top talent took part
in two key programmes, Wavelength Inspire and the
Change Catalyst leadership programme. These guided
programmes used the latest technology to connect
colleagues to a global network of inspirational leaders.
The courses were designed to inspire our colleagues
to think and lead differently, whilst also giving them the
opportunity to network with leaders from across other
sectors and within Grafton.
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Grafton Group plc Annual Report and Accounts 2022
C o l l e a g u e N e w s l e t t e r
GRAFTON TOGETHER
Leyland’s first pride event and to
say they went all out is an
understatement! They celebrated
Pride all month long with party
bags (the cake & skittles didn’t last
very long) and pronoun badges.
They shared some insightful stories
from colleagues and tips on how to
be a great ally to the LGBTQ+
Community!
For Pride this year, we were joined by Mohsin Zaidi, an
award-winning author, commentator and lawyer.
An advocate for LGBT rights, BAME representation and
social mobility, Mohsin sits on the board of Stonewall
and is listed by The Financial Times as a top future LGBT
leader.
Click here to watch the session.
Many colleagues joined together to take part in their biggest
event ‘London Pride 2022’ at Trafalgar Square filled with face
painting, photo booths using LeylandSDM props and
competitions to add to the fun!
Thank you to everyone who worked hard, displayed high levels of
energy, and really showed support throughout the month of Pride
celebrations!!
Our People and Culture continued
Internal communication
Internal communication platforms across a number of
businesses are used to facilitate effective sharing of
information and updates. The ‘Grafton Together’ online
magazine is distributed on a monthly basis to share
information on colleague activity from around the Group.
The anonymous and independently run SpeakUp reporting
line also allows colleagues to report any concerns on a
confidential basis.
19
Grafton Group plc Annual Report and Accounts 2022
Overview
Benefits and rewards
Colleague support Colleague recognition
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. In the UK and
Ireland 97.5 per cent of our colleagues were paid at least
one per cent above the national minimum wage. Our other
businesses operate in countries that have industry level
agreements.
Colleagues in the UK and Ireland have access to online
benefits platforms and they receive a Colleague Discount
Card which provides generous discounts when they
shop with Group businesses. The Group also operates
a number of colleague share schemes that enable
eligible colleagues to share in the success of the overall
Group. During the year we also ran a number of pensions
awareness events to enable colleagues to be informed of
their pension rights and entitlements.
Supporting colleagues and doing as much as possible at
a very challenging time was a top priority for the Group.
Amongst the support given across the Group, Selco
provided 96 per cent of its 3,000 colleagues with a cost
of living support payment of £750 each spread over five
months from November 2022 to March 2023 at a total
cost of £2.5 million.
A number of our Group businesses introduced supports
during the year to help with the increased cost of living.
These included additional payments direct to colleagues,
‘early pay’ and flexible pay facilities so that colleagues can
access accrued salary before scheduled pay date, and
availability of free breakfast with locally sourced products.
Read more about our People on pages 16 to 19 and 83 to 86
The Group has colleague recognition programmes in
place across a number of businesses.
During 2022, Leyland SDM introduced service awards with
colleagues receiving tokens of appreciation for reaching
service milestones.
Woodie’s held its fifth annual ‘Woscars’ ceremony to
recognise colleagues and teams from across the 35
stores and the support office.
CPI Mortars introduced a ‘Colleagues Choice Awards’
initiative during the year, asking colleagues to nominate a
worthy fellow colleague for going the extra mile.
Chadwicks launched its inaugural Chadwicks Appreciation
and Recognition Awards (CARAs) which celebrate and
recognise colleague excellence across the business.
20
Grafton Group plc Annual Report and Accounts 2022
Stakeholder Engagement
Engaging with
our stakeholders
Our key stakeholders and their material issues
Colleagues
• A strong sense of purpose and a company that lives by its values
• A diverse and inclusive work environment, where their overall safety, health and
wellbeing is valued
• Flexible working arrangements where appropriate to business requirements
• Creating a culture where people can thrive, with opportunities for training,
development and progression
We have an open and collaborative management structure and engage
regularly with our colleagues. Engagement methods include colleague
engagement surveys, CEO town hall meetings, Company presentations,
Group and business unit intranet sites, newsletters and wellness
programmes. Colleague engagement is measured in all our businesses
and we have established colleague forums chaired by a number of Non-
Executive Directors to gather the views of our workforce.
Customers
• Availability of a wide range of products and services at competitive prices
and on time
• A safe and efficient on-site experience at convenient branch locations
• Online capability and ease of access to products
• Providing responsibly sourced and more sustainable options to customers
Our businesses engage closely with their 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 via SpeakUp, contact details
for which are available on the Group’s website.
Shareholders
• Financial performance and growth that maximises shareholder returns in a
responsible way
• A clearly communicated strategy and business model
• Appropriate and considered decision making that is in the long-term interests
of the Group
Through our Annual General Meeting (“AGM”), ongoing investor
relations activity and shareholder consultation process, we maintain
an open dialogue with our shareholders and ensure 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.
Suppliers
• An efficient route to market for their products
• Communication and engagement
• Feedback on market demand and customer reaction
• Long term collaboration to build strong, lasting relationships
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 focus include innovation, product development, health
and safety and compliance with our ethical standards.
Communities and
the environment
• Supporting local and national causes
• Operating our business in a way that respects the environment and biodiversity
• Making a positive contribution to the communities where we operate
• Building a successful and sustainable business that respects people and planet
We engage with the local community through local activity at branch
level, volunteering, charitable donations and providing employment
and work experience opportunities. We also liaise with various
industry bodies to enhance the positive impact we have on the
communities in which we operate.
21
Grafton Group plc Annual Report and Accounts 2022
21
OverviewOverview
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
on pages 102 and 103 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 groups.
Details of the Group’s key
stakeholders and examples of how
we engage with each of them are set
out below.
How we engage Activity in 2022
Colleagues
• A strong sense of purpose and a company that lives by its values
• A diverse and inclusive work environment, where their overall safety, health and
wellbeing is valued
• Flexible working arrangements where appropriate to business requirements
• Creating a culture where people can thrive, with opportunities for training,
development and progression
We have an open and collaborative management structure and engage
regularly with our colleagues. Engagement methods include colleague
engagement surveys, CEO town hall meetings, Company presentations,
Group and business unit intranet sites, newsletters and wellness
programmes. Colleague engagement is measured in all our businesses
and we have established colleague forums chaired by a number of Non-
Executive Directors to gather the views of our workforce.
Customers
• Availability of a wide range of products and services at competitive prices
and on time
• A safe and efficient on-site experience at convenient branch locations
• Online capability and ease of access to products
• Providing responsibly sourced and more sustainable options to customers
Our businesses engage closely with their 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 via SpeakUp, contact details
for which are available on the Group’s website.
Shareholders
• Financial performance and growth that maximises shareholder returns in a
responsible way
• A clearly communicated strategy and business model
• Appropriate and considered decision making that is in the long-term interests
of the Group
Through our Annual General Meeting (“AGM”), ongoing investor
relations activity and shareholder consultation process, we maintain
an open dialogue with our shareholders and ensure 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.
Suppliers
• An efficient route to market for their products
• Communication and engagement
• Feedback on market demand and customer reaction
• Long term collaboration to build strong, lasting relationships
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 focus include innovation, product development, health
and safety and compliance with our ethical standards.
Communities and
the environment
• Supporting local and national causes
• Operating our business in a way that respects the environment and biodiversity
• Making a positive contribution to the communities where we operate
• Building a successful and sustainable business that respects people and planet
We engage with the local community through local activity at branch
level, volunteering, charitable donations and providing employment
and work experience opportunities. We also liaise with various
industry bodies to enhance the positive impact we have on the
communities in which we operate.
Non-Executive Directors attended meetings of the National Colleague
Forums with colleagues from the UK, Ireland and the Netherlands
to hear the views of colleagues. A new colleague forum was also
established in Finland.
Colleague engagement surveys across each of our businesses
provided the opportunity for colleagues to provide feedback.
Internal communications platforms facilitated information sharing
between colleagues and teams.
Our businesses carried out customer satisfaction surveys and
reviewed feedback received from customers to ensure that our
customer expectations are met.
We also invested in our online trading capability and made
improvements across our branch network to continually improve the
quality of our service proposition.
Our AGM in 2022 was held as a hybrid meeting whereby
shareholders could either attend in person or view the proceedings
and ask questions via a webcast facility.
We carried out consultations with investors on key issues and
executive management regularly engage with investors following
results announcements and at other times throughout the year.
The commercial teams in each of our business units managed the
direct relationships with suppliers through day-to-day contact as well
as review meetings.
Our ongoing supply chain risk management process, which is managed
at Group level, provided an additional layer of engagement with suppliers
to better understand their operation’s sustainability credentials under a
board range of dimensions, policies and procedures.
Many of our businesses have established community engagement
programmes which were developed during the year, while others
have developed their programmes in 2022 .
During 2022 we have also worked to formalise the data capture
and reporting of the community engagement activity in our Group
businesses.
22
Grafton Group plc Annual Report and Accounts 2022
Building a better
future
Building on our strong market positions
Our objective is to continue to invest and build on
our strong market positions in existing markets and
to optimise operational leverage in these markets.
For more see pages 24 to 27
Strategic report
Chair’s Statement 24
Business Model 28
Our Strategy 30
Chief Executive Officer’s Review 36
Key Performance Indicators 42
Operating Review 46
– Distribution 46
– Retailing 58
– Manufacturing 60
Financial Review 62
Risk Management 66
Sustainability 76
Revenue by geography
UK 41.4%
Ireland 37.8%
Netherlands 14.6%
Finland 6.2%
23
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
24
Grafton Group plc Annual Report and Accounts 2022
24
Chair’s Statement
Building on our strong
market positions
Dear Shareholder,
2022 was another strong year for Grafton despite
the macro-economic headwinds that we
encountered in some of our markets.
We remained focused on our portfolio of high
quality, high returning businesses delivering a
good outcome for the year and benefited from
the geographic spread of our operations which
has created a more diversified and resilient
earnings base.
Our distribution businesses in Ireland and
the Netherlands performed strongly growing
profits organically and through acquisitions.
Profitability was down in the UK distribution
business as households reduced discretionary
spending on residential RMI projects in
response to the decline in real disposable
incomes. The IKH distribution business in
Finland acquired in July 2021 had a good
first full year under Grafton ownership
and performed in line with pre-acquisition
expectations despite more challenging market
conditions. Profitability was lower in the DIY,
Home and Garden retail business in Ireland
as exceptional pandemic related gains made
in the prior year reversed as anticipated.
The mortars and staircase manufacturing
businesses in the UK performed strongly.
We continued to upgrade our branch networks
and improve the customer and colleague
experience. We also invested in IT systems and
in the platforms that support on-line trading.
These results were made possible by the
leadership teams in our individual businesses
and by the exceptional commitment of
colleagues in our branches, stores, distribution
centres and offices. I sincerely thank them
for supporting each other, our customers and
business partners.
25
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Results review
The Group delivered a strong financial
performance for the year, with revenue up by
9.1 per cent to £2.30 billion (2021: £2.11 billion).
Adjusted earnings per share increased by 3.9
per cent to 96.6p (2021: 93.0p).
The Group’s adjusted operating profit margin
before property profit was 11.3 per cent
(2021: 12.9 per cent) and now benefits from
structurally higher margin businesses in
all segments following the divestment in
recent years of the lower margin distribution
businesses.
Cash flow and balance sheet
The Group ended the year in a very strong
financial position with net cash, before IFRS16
lease liabilities, of £458.2 million (31 December
2022: £588.0 million). Cash flow from
operations was £278.8 million and the Group
returned £208.9 million to shareholders through
share buybacks and dividend payments.
The Group’s very strong balance sheet was
underpinned by shareholders’ equity of £1.75
billion. The return on capital employed was 17.2
per cent (2021: 19.4 per cent).
Dividend
In line with our progressive dividend policy, the
Board is recommending a final dividend for
2022 of 23.75p per ordinary share. An interim
dividend of 9.25p per share was paid on
7 October 2022. The total dividend for the year
is 33.0p per share, an increase of 8.2 per cent
on dividends of 30.5p paid for 2021.
The total dividend for 2022 of 33.0p is 2.9
times (2021: 3.0 times) covered by adjusted
earnings per share of 96.6p and is in line with
guidance for cover of between two and three
times. This reflects the Group’s very strong
balance sheet, profitability and cashflow from
operations for the year.
The Group’s cash outflow on dividends paid
during the year was £73.9 million. A liability
has not been recognised at 31 December 2022
for the final dividend as there was no payment
obligation at the year end.
The final dividend will be paid on 11 May 2023
to shareholders on the Register of Members
at the close of business on 14 April 2023, the
record date. The ex-dividend date is 13 April
2023. The final dividend is subject to approval
by shareholders at the Annual General Meeting
to be held on 4 May 2023.
Allocation of capital
Acquisitions have been an important part of
the Grafton growth story supporting entry
into new markets and diversifying its earnings
base as well as increasing its presence in
existing markets. The Group has a long
history of identifying, acquiring and integrating
businesses and a skilled and experienced
acquisition team to complete transactions.
Following receipt of the proceeds from the
disposal of our traditional merchanting
business in Great Britain in December 2021,
we recognise that our balance sheet is very
strongly positioned with pre IFRS 16 net
cash of £458.2 million at the year end. In the
medium term we are targeting to return to a
more appropriate level of financial leverage
rather than holding net cash. We have
demonstrated over many years a disciplined
approach to capital allocation and our priority
remains on deploying surplus capital into
generating acquisitive growth providing it
makes good strategic and financial sense. In
2022, the decline in valuations in the public
equity markets was not matched by a similar
decline in vendor expectations for businesses
in private ownership and, consequently, our
acquisition activity was limited to three bolt-on
transactions costing £46.0m. We continue
to actively evaluate acquisition opportunities
in our preferred geographies and market
segments that meet the Group’s target rates of
return over the medium term.
Adjusted operating profit margin before
property profit
11.3%
Adjusted earnings per share
96.6p
Our two key strategic
levers for outperformance
over the coming years are
improved purchasing and
increased deployment
of capital on acquisitions
in existing and new
geographies.”
26
Grafton Group plc Annual Report and Accounts 2022
With the decline in public equity valuations
seen in 2022, the Board felt that relative to
other opportunities our own equity represented
an attractive investment rather than simply
a return of capital and, as noted above, it
initiated a share buyback programme. The size
and timing of the programme was appropriate
for the delivery of value for shareholders whilst
at the same time leaving plenty of scope
for acquisition opportunities. This buyback
programme, together with our progressive
dividend policy, saw £208.9 million returned to
shareholders during the year. The Board will
continue to keep the allocation of capital under
review including share buybacks.
Strategy
Our objective is to continue to invest and build
on our strong market positions in existing
markets and to optimise operational leverage
in these markets. We also want to allocate
capital to build a high margin, high return
and less capital intensive business and to
acquire new growth platforms in differentiated
segments of the building materials distribution
market in preferred geographies. Our two
key strategic levers for outperformance over
the coming years are improved purchasing
and increased deployment of capital on
acquisitions in existing and new geographies.
We made further progress during 2022
implementing our strategy and advancing
our strategic priorities. Development of our
market leading distribution and DIY, Home
and Garden businesses in Ireland is mainly
driven by organic growth complemented
by bolt-on acquisitions. We acquired the
Sitetech specialist construction accessories
business in February 2022 and also invested in
upgrading a number of Chadwicks branches.
Our Selco Builders Warehouse business now
accounts for almost three quarters of our
UK distribution activities and we increased
the estate to 74. The MacBlair business
in Northern Ireland acquired Woodfloor
Warehouse, a leading on-line and in store
distributor of timber flooring. The TG Lynes
and Leyland SDM specialist distributors
developed organically in the London market.
The Netherlands business grew organically
and also extended coverage into the Northeast
region with the acquisition of the five-branch
Regts B.V. business in Friesland.
IKH, the Finnish workwear, PPE, tools and
spare parts wholesalers acquired in 2021,
provided a new growth platform for Grafton in
the Nordic region and performed in line with
expectations.
StairBox, the staircase manufacturing
business, expanded its capacity and secured
the future of its operations in Stoke-on-Trent.
Board composition
Grafton has a strong Board of Directors and
management team 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.
At the end of June 2022, Mr. Gavin Slark
informed the Board of his intention to step
down as Chief Executive Officer (“CEO”) at
the end of the year after almost 12 years
in the role. Mr. Slark provided exceptional
leadership during his period as CEO and made
a significant contribution to the growth and
development of Grafton. Gavin left Grafton
with our sincere thanks and best wishes for
the future.
The Group initiated a search for a new CEO
in early July 2022 with the support of an
international search firm and was very pleased
to appoint Mr. Eric Born as CEO with effect
from 28 November 2022. This appointment
followed an extensive international search led
by the Board’s Nomination Committee. Details
of the selection process are set out more fully
in the Report of the Nomination Committee on
page 117.
Mr. Born brings a wealth of international
business experience to the role having served
for five years as Chief Executive of Swissport
International AG, the leading global aviation
services provider, and for a similar period as
Chief Executive of Wincanton plc, a major
provider of supply chain solutions in the UK
and Ireland. He was formerly President, West &
South Europe of Gategroup, the largest global
airline catering provider, and in the decade
prior to that he held a variety of senior roles in
the retail sector in Switzerland and the UK. He
also served as Non-Executive Director of Serco
Group plc, which specialises in the delivery of
essential public services, and John Menzies
plc, a leading distribution and aviation services
business.
Mr. Born is a very experienced CEO and
business leader with a proven track record
of creating shareholder value in publicly
listed and private equity owned national and
international businesses of scale. The Board
is confident that in Eric it has a CEO with the
skills and experience to help Grafton grow and
prosper in the years ahead and to develop and
implement its strategy.
As referred to in last year’s statement, we
were delighted to welcome Ms. Avis Darzins
to the Board as Non- Executive Director of
the Company with effect from 1 February
2022. Her extensive business knowledge
and experience, gained over several decades,
complements that of other Directors and
will be of great benefit to the Board over the
coming years.
The Board is committed to promoting diversity
and supports the recommendations of the
FTSE Women Leaders Review on gender
diversity and the Parker Review on ethnic
diversity. Female representation on the Board
is currently 38 per cent and the Board will
continue to prioritise diversity when making
future appointments as part of the ongoing
process of Board refreshment and renewal.
The Board meets the Parker Review target of
having at least one director from an ethnically
diverse background.
Board evaluation
An internal Board evaluation was conducted
during the year and followed an external
evaluation in 2021. 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 findings and observations
from this internal review will help to inform and
shape the Board’s 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 and 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 operating well at
national level in the UK, Ireland and the
Netherlands. A Colleague Committee was
established during the year in Finland. The
purpose of the meetings is to provide Non-
Executive Directors with an opportunity to hear
the views of colleagues on a range of issues so
that these can be considered by the Board and
inform its decisions.
Our commitment to our culture and values
helps to differentiate us from our competitors.
Our colleagues across the Group play a key
role in the development of a strong and healthy
culture in Grafton.
Chair’s Statement continued
27
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
that we have identified for the Group and its
businesses: Customer and Product; People;
Planet; Communities; and Ethics.
While we have made good progress during
the year through a range of initiatives linked
to these goals, we recognise that this is an
ongoing process and we are very proud of
the continuing commitment that all of our
businesses have shown to sustainability and
of the progress that we have made against the
strategy we set out in 2021.
Annual general meeting
In line with the Group’s policy, all Directors
will retire and seek election/re-election at the
2023 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 AGM.
Looking ahead
While mindful of the challenges faced in the
short term, our businesses look to the future
from a position of strength. Grafton has
developed a track record in recent years of
showing resilience and emerging stronger in
challenging times. Our financial position leaves
us well placed to invest in the future and to
respond to opportunities that emerge and to
deliver for all our stakeholders.
Michael Roney
Chair
1 March 2023
Sustainability strategy
Sustainability remained a central part of the
Group Board agenda during 2022 and we
remain committed to building a sustainable
business for all of our stakeholders. We
were delighted to welcome Rosie Howells
to the business during the year as our first
Group Head of Sustainability to work with
our businesses to drive continued progress
against our sustainability goals.
We have today published our second
Sustainability Report which is available on our
website and which sets out our progress and
achievements since our first Sustainability
Report was published in November 2021. It
also outlines progress against the targets that
we have set in order to achieve each element
of our strategy and our plans for the future.
The objective of this strategy is to build a more
sustainable future for everyone with a focus
on the five key areas of focus and activity
28
Grafton Group plc Annual Report and Accounts 2022
Business Model
Creating value
Our desire to progress remains as powerful today as it always has been.
Our purpose:
Building Progress
Together
is at the heart of
everything we do and our
people are the key to our
success as a Group.
By developing a strong culture
with our five core values at
the centre, we ensure that our
desire to progress remains as
powerful today as it always
has been.
The continued success
of the Group is based on:
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 more 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.
Our core
operations:
Distribution
Read more on pages 46 to 57
Retailing
Read more on pages 58 and 59
Manufacturing
Read more on pages 60 and 61
How we add valueWhat we rely onDriven by
29
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Our key
strengths:
• Leading market positions and brands in each
of the countries where we operate.
• 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.
• A geographically diversified network of
363 branches and factories with opportunities
for further growth through acquisition and
organic development.
• A portfolio of highly cash generative and
profitable businesses.
• Sound financial metrics based on excellent
cash generation, a strong balance sheet
and the financial resources to fund ongoing
development activity.
• Skills and experience in acquiring and
integrating businesses.
Value created for shareholders
Our shareholders
Maximising shareholder
returns in a responsible
and sustainable way.
33.0p
dividend
per share
Our customers
Being brilliant for our
customers by continuing
to meet their needs,
innovatively, safely
and efficiently.
363
branches and factories
across our operations
Our people
Being a welcoming,
inclusive place to work
and retaining a loyal and
motivated workforce.
>9,000
colleagues at the year
end
Our suppliers
Working with our
suppliers to drive
sustainability and
innovation.
>98%
% of building timber in
Selco certified FSC or PEFC
Our communities
Engaging with our
local communities and
supporting local and
national causes.
>£1m
raised for charities
30
Grafton Group plc Annual Report and Accounts 2022
Our Strategy
Our strategy
Our overall strategy is to be a leading international distributor of building materials
and related activities. This strategy is supported by our five strategy pillars.
Our five
strategy
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31
Grafton Group plc Annual Report and Accounts 2022
31
2
12
2022
2021
Strategic Report
Case study
Excellence in service
Chadwicks new retail website
In November 2022 Chadwicks launched
its new retail website Chadwicks.ie. This
announcement forms part of a multi-million
euro investment across the business, which
began in 2018 and includes the ongoing
digital transformation and nationwide branch
upgrade programme to deliver an unrivalled
customer experience.
The new transactional website offers over
10,000 products to trade and retail customers
with delivery and collection options from 37
locations nationwide, increasing customer
engagement and providing flexibility and
convenience.
For more information see pages 52 and 53
Excellence
in service
What it means
• 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.
Progress in 2022
• Significant investment in Selco online
offering including launch of new app to
enable customers to purchase materials
more easily;
• Upgrades across the Group’s branch
network including Isero, Chadwicks and
Selco stores;
• ECO Centres opened in 10 Chadwicks
Group branches supplying a range of energy
efficient products and bringing the total
number opened to 12;
• New partner stores in Finland increase
geographic coverage of IKH.
Targets for 2023
Group businesses will continue to pursue
opportunities to enhance our customers’
experience through store upgrades,
investment in our digital offering and
optimisation of our product offering
Links to risks
• Competition;
• Colleagues;
• IT systems and infrastructure;
• Cyber security & data protection;
• Supply chain;
• Internal controls & fraud;
• Sustainability & climate change;
• Pandemic risk
Links to KPIs
ECO Centres in Chadwicks Branches
12
32
Grafton Group plc Annual Report and Accounts 2022
£2.11bn
£2.30bn
2022
2021
Our Strategy continued
Case study
Strong financial base
Revenue from continuing
operations
Group revenue from continuing operations,
increased by 9.1 per cent to £2.3 billion from
£2.1 billion in the prior year.
The Group continued to benefit from the
geographic diversity of its markets with
over half of revenue derived in Ireland, the
Netherlands and Finland.
For more information see pages 62 to 65
Strong
financial base
What it means
• 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.
Progress in 2022
• Group revenue from continuing operations
increased by 9.1 per cent to £2.3 billion and
by 9.5 per cent in constant currency;
• Operating profit in continuing operations
decreased by 0.7 per cent to £285.9 million;
• The adjusted operating profit margin
decreased by 120 basis points to 12.4 per
cent and decreased by 160 basis points to
11.3 per cent excluding property profit;
• Return on Capital Employed decreased by
220 basis points to 17.2 per cent;
• Net Cash (before IFRS 16 leases) of £458.2
million at year end;
• The dividend for the year increased by 8.2
per cent in line with the Group’s progressive
dividend policy;
• Share buyback programmes launched
during the year in line with the Group’s
disciplined approach to capital allocation
and supported by its strong balance sheet.
Targets for 2023
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. Medium term targets include
operating margin of 10% and ROCE of 13%.
Links to risks
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new
businesses;
• Supply chain;
• Internal controls & fraud;
• Sustainability;
• Pandemic risk.
Links to KPIs
Revenue
£2.30bn
33
Grafton Group plc Annual Report and Accounts 2022
33
86%
92%
2022
2021
Strategic Report
Case study
Ethics and integrity
SpeakUp whistleblowing
process
The Group has an established whistleblowing
process (SpeakUp) which allows colleagues
to report concerns confidentially to an
independent party with safeguards in place to
ensure cases are investigated fully and prevent
retaliation to reporters. Awareness of the
process is established via colleague training,
business communications and posters in
each site. A link to the reporting website is also
included on the Group and individual business
unit websites.
For more information see pages 88 and 89
Ethics and
integrity
What it means
• Conducting business to a high standard of
integrity for the benefit of all stakeholders
and in a responsible way.
• 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.
Progress in 2022
• SpeakUp reporting line allows colleagues to
report any concerns on a confidential basis;
• Group lost days (severity rate) reduced by 21
per cent as compared with 2021;
• Implementation of a third party supplier
classification and risk assessment system;
• Completion rate for mandatory compliance
training across all Group colleagues at
31 December 2022 was 92 per cent.
• The Group has focused on implementation
of key cyber security controls including
network segregation and monitoring of
access to detect unusual activity.
Targets for 2023
We will maintain high ethical standards for
the benefit of all stakeholders and continue to
focus on health and safety as a key priority.
Links to risks
• Colleagues;
• Health & safety;
• Sustainability;
• Internal controls & fraud;
• Pandemic risk.
Links to KPIs
Colleagues compliant with business
conduct & ethics training
92%
“If you ever see something in your interaction with any
member of the Grafton Group that could be deemed
unsafe, unethical or unscrupulous, please SpeakUp!
We take concerns given in good faith very seriously
and will not tolerate retaliation of any kind to anyone
who reports such instances.”
Eric Born
Grafton Group CEO
34
Grafton Group plc Annual Report and Accounts 2022
£19.0m
£22.1m
2022
2021
Our Strategy continued
Organic growth
and acquisitions
What it means
Deploying mature acquisition and integration
skills to increase market coverage and move
into new territories where opportunities exist
to achieve good returns on capital invested,
achieving and maintaining leading market
positions in national and regional markets,
adding value to familiar business models
operating in unconsolidated markets, and
focusing on organic growth strategy in
established businesses
Progress in 2022
• New Selco branches opened in Exeter and
Cheltenham;
• The acquisition of Regts B.V. further
strengthened the market position of Isero in
the Netherlands North East region;
• The acquisition in February of Woodfloor
Warehouse provides additional timber
flooring expertise to the MacBlair business;
• The development of a second Stairbox site
significantly increases its manufacturing
capability;
• Specialist Sitetech business acquired
in February 2022 provides access to
complementary products and expertise.
Targets for 2023
Growth by acquisition in new and existing
geographic markets continues to be a high
strategic priority, and the Group will continue
to pursue its organic growth strategy in its
established businesses.
Links to risks
• Macro-economic conditions;
• Competition;
• Acquisition and integration of new
businesses
Case study
Organic growth and acquisitions
StairBox new site
StairBox developed and opened a second site
during 2022 which includes a new assembly
facility, showroom and trade counter located in
close proximity to their original factory.
This expansion doubles its manufacturing
capacity, providing additional capacity in
response to the exceptional growth in volumes
in recent years and secures the future
development of the business at its current
location in Stoke-on-Trent.
It is also a step along in the business’
sustainability journey thanks to the new site’s
excellent sustainability credentials.
For more information see pages 60 and 61
Capital expenditure on development
initiatives
£22.1m
Links to KPIs
35
Grafton Group plc Annual Report and Accounts 2022
30%
29%
2022
2021
Strategic Report
Female workforce percentage
29%
Case study
Supportive organisational structure and management
Chadwicks Management
Development Programme &
Sales Academy Graduation
Chadwicks Group launched its Leadership
Development Programme in October 2022.
The programme will run until March 2024
and will enable participants to gain the
competencies, capabilities and leadership
mindsets essential for our future leaders in
an ever changing retail, trade and working
environment.
Meanwhile participants of the previous
Management Development Programme and
Sales Academy graduated in December.
For more information see pages 16 and 17
Supportive organisational
structure and management
What it means
Focus on colleague engagement across the
Group through clear communication, training
and development opportunities and support
for colleague wellbeing.
A decentralised structure confers significant
autonomy on high calibre local management
teams within a tight Group control
environment.
Progress in 2022
• Management and colleague development
programmes in place across the Group’s
businesses;
• Annual engagement surveys carried out
in all business units with action plans
developed to address key issues arising
• Internal communication platforms such
as Workvivo and Yoobic enable effective
sharing of information and updates;
• Local and national colleague Forums
provided opportunities for colleague views
to be heard at Board level.
Targets for 2023
The Group will continue to focus on the
engagement and development of colleagues
and management teams, to equip colleagues
with key training and leadership skills and to
promote a supported and engaged workforce.
Links to risks
• 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.
Links to KPIs
36
Grafton Group plc Annual Report and Accounts 2022
Chief Executive Officer’s review
The Board is confident that in Eric Born it
has a CEO with the skills and experience
to help Grafton grow and prosper in
the years ahead and to develop and
implement its strategy.”
Michael Roney
Chair of Grafton Group plc
Eric Born
Chief Executive Officer
Appointed CEO on
28 November 2022
Experienced CEO and
business leader
in international and national
organisations of scale across
multiple industries
Proven track record of creating
shareholder value in publicly
listed and private equity-owned
businesses
Deep experience in the retail,
logistics and aviation services
sectors
Former Chief Executive of leading global
aviation services provider Swissport
International AG for over five years
Previously Chief Executive of Wincanton
plc, leading provider of supply chain
solutions in the UK and Ireland, for 5 years
Former President, West & South Europe of
global airline catering provider Gategroup
Over a decade of senior roles in the retail
sector in Switzerland and the UK
Previously Non-Executive Director
of Serco Group plc
Previously Non-Executive Director
of John Menzies plc
Bachelor in Business Administration from
the University of Applied Science in Zurich
Master in Business Administration from
Simon Business School at the University
of Rochester, New York
37
Grafton Group plc Annual Report and Accounts 2022
37
Grafton Group plc Annual Report and Accounts 2022
Strategic ReportStrategic Report
Q&A
What attracted you to Grafton?
Grafton is a very interesting Group with a federated
structure made up of good businesses in interesting
markets with strong underlying growth in the medium
term. I was attracted to its portfolio of quality, high
returning businesses with good market positions that
provide an excellent platform for future growth.
What are your initial impressions of the
Company?
Since joining the Group on 28th November 2022, I have
had the opportunity to visit the operating businesses in
each of the countries where we operate, as well as the
Group offices in Dublin and Birmingham. I have been
very impressed with the enthusiasm and commitment of
our colleagues and the efficiency with which each of the
businesses are run.
Your view on the culture
at Grafton Group plc
The culture at Grafton is reflected very well in the Group’s
purpose of “Building Progress Together” – there is a great
sense of shared passion for progress and a commitment
to doing the best job we can for our customers, our
shareholders and all of our stakeholders. Our people
are key to this and there is a great sense of pride within
Grafton where people are engaged and empowered to
make a positive impact in their role within the Group.
Where do you think Grafton’s core
strengths lie?
• People and culture – very engaged and high calibre
management teams and colleagues, with a strong
entrepreneurial spirit.
• Strong balance sheet, providing optionality and future
growth potential.
• Excellent market positions of each operating business,
geographic diversity and mainly scaleable businesses.
• Our focus on customer service and providing the best
possible experience for our customers across each of
our trading businesses.
What are your priorities for the
coming year?
I will be focused on making sure that each operating
company within the Group executes against the strategy
that it has in place so that we continue to deliver value
for all of our stakeholders, while also building out the
roadmap for future development of the Group over the
coming years in a sustainable way.
What do you enjoy doing when you’re
not at work?
I enjoy sport, in particular skiing, judo and going for the
odd run. I also enjoy good food and wine, and spending
time with my family and friends.
38
Grafton Group plc Annual Report and Accounts 2022
38
Chief Executive Officer’s review continued
Well positioned to
invest in future growth
In my first set of results as Chief Executive, I am
pleased to report a strong performance by the
Group which is ahead of market expectations. This is
a great achievement by my new colleagues across
the business and is testament to their dedication and
professionalism. It has also confirmed the qualities of
the business which attracted me to join Grafton.
Grafton had a successful year and is reporting
a strong financial result ahead of market
expectations. Despite macro-economic
challenges in its markets, the Group continued
to perform well with operating profit close
to last year’s record result against a less
favourable market backdrop.
Trading returned to more normal levels
following the exceptional rise in spending on
the home during the pandemic and supply
chain pressures eased considerably. Building
materials prices rose sharply for the second
successive year as the market absorbed
increases in the cost of producing energy
intensive products. Certain product categories
including timber and steel experienced price
deflation following a period of soaring prices
caused by a spike in global demand.
Across all geographies, volumes were
generally down in residential repair,
maintenance and improvement (“RMI”)
markets as households reduced discretionary
spending on the home under pressure from
declines in real disposable incomes and rising
interest rates. Activity in RMI markets was
also affected by the increased cost of building
materials and rising labour costs which
reduced affordability.
We remained focused on delivering a strong
performance and these results show the
strength of our businesses, brands and market
positions. In particular, they demonstrate the
benefits of the Group’s spread of operations
across multiple geographic markets and
sectors that has helped to create a more
diversified and resilient earnings base.
Distribution
Ireland
Chadwicks, the market leader in the
distribution of building materials in Ireland and
the Group’s most profitable business, delivered
a very strong performance. Revenue growth
reflects both building materials price inflation
and the impact of acquisitions. Operating profit
grew strongly supported by an operating profit
margin of 11.4 per cent.
39
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Importantly, with a very
strong balance sheet,
Grafton is well positioned
to invest in future growth
opportunities. We look
forward with confidence
to another year of
progress at Grafton.”
Demand was underpinned by residential
RMI spending, the construction of scheme
and one-off houses and non-residential
construction projects.
The specialist Sitetech business acquired
in February 2022, a leader in the adjacent
construction accessories new build market,
made an excellent contribution to profit.
UK
Volumes in the UK RMI market were down
compared to the prior year when there was a
record level of spending on the home during
the pandemic and lower spending in other
areas of the economy. During 2022 households
under pressure from increased energy and food
prices quickly reduced discretionary spending
on smaller value home improvements as the
economy weakened and consumer sentiment
declined. Revenue in the like-for-like business
ended the year only marginally lower as a
decline in volumes was largely offset by double
digit materials price inflation.
Operating profit was down when benchmarked
against a strong prior year result and the
operating margin of 9.8 per cent reflected
gross margin pressure in a competitive market
and the operational gearing impact of lower
volumes. Selco, which accounted for almost
three quarters of UK distribution revenue,
continued to invest in its business and branch
network increasing it to 74.
The Netherlands
Isero, the market leading specialist
ironmongery, tools and fixings business,
achieved excellent results for the year, in
broadly favourable markets. A strong underlying
performance was complemented by a good
contribution from acquisitions and benefits
realised from implementing performance
improvement measures. The operating profit
margin increased by 70 basis points to 11.2
per cent. Market coverage expanded into
the Northeast of the Netherlands with the
acquisition in January of the five branch Regts
business in Friesland which made a very good
contribution to profit and increased the overall
branch network to 123.
Finland
IKH, the workwear, personal protective
equipment, tools and spare parts wholesaler
acquired in July 2021, had a good first full
year under Grafton ownership delivering an
operating profit contribution that was in line
with pre-acquisition expectations despite more
challenging market conditions. Revenue in the
early months of the year was down, on the pre-
acquisition comparative period, due to lower
demand for a number of weather sensitive
product categories and weaker consumer
sentiment following the invasion of Ukraine
but recovered in the second half and ended the
year strongly. The operating profit margin for
the year was 14.2 per cent.
Retailing
Woodie’s, the market leading DIY, Home
and Garden business in Ireland successfully
navigated a unique set of trading conditions
in 2022 as exceptional pandemic related
spending in the prior year unwound and there
was also pressure on volumes from the decline
in real disposable incomes and a sharp drop
in consumer confidence. Operating profit
normalised to a level that was 43.9 per cent
higher than the pre-pandemic result for 2019.
The operating profit margin for 2022 was 13.3
per cent.
Manufacturing
CPI EuroMix, the market leader in the
manufacture of mortar in Great Britain,
reported growth in revenue and a good
increase in operating profit. Volumes were
softer in the final months of the year as activity
in the new housing market moderated and
were marginally down for the year.
StairBox, the market leading manufacturer of
bespoke staircases primarily for the secondary
housing market, experienced record demand
from trade customers across Great Britain and
increased revenue and profitability.
The operating profit margin in the
manufacturing segment was 22.7 per cent.
Operating profit margin
11.3%
Adjusted return on capital employed
17.2%
40
Grafton Group plc Annual Report and Accounts 2022
Cash flow
The Group’s cashflow from operations was
£278.8 million of which £208.9 million was
returned to shareholders in dividend payments
and share buybacks (excluding the buyback on
LTIP awards).
Investment in capital expenditure and
acquisitions amounted to £103.8 million.
The Group had net cash (before IFRS 16 lease
liabilities) of £458.2 million at the year end, a
decline of £129.8 million from £588.0 million at
31 December 2021. Net cash including IFRS 16
lease liabilities was £8.9 million (31 December
2021: £139.0 million).
Property
The Group recognised property profits of
£25.4 million (2021: £16.7 million) in the year.
A significant proportion of this profit arose
from a small number of freehold properties
that were retained following the sale in 2021 of
the traditional merchanting business in Great
Britain. Disposal of three of these properties
generated cash proceeds of £26.2 million and
realised a profit of £19.9 million. In addition, a
fair value gain of £5.0 million was recognised
on the remeasurement of a number of
investment properties to fair value under
International Financial Reporting Standards as
adopted by the European Union (“IFRS”).
Share buyback
In line with the Group’s disciplined approach
to capital allocation and supported by its
strong financial position, 12.28 million ordinary
shares in the Company were repurchased on
the London Stock Exchange for cancellation
between 9 May 2022 and 12 September
2022 at a total cost of £100 million, excluding
transaction costs, and an average price
of £8.14 per share. This represented 5.1
per cent of the issued share capital of the
Company (excluding treasury shares) when
the programme commenced. A second
share buyback programme for a maximum
consideration of up to £100 million, subject to
the limitations of the shareholders authority
granted at the AGM of the Company in April
2022, was launched on 10 November 2022.
Between 10 November 2022 and 31 December
2022, 4.4 million shares were repurchased for
cancellation at a total cost of £35.0 million,
excluding transaction costs. Since the year
end and up to and including 28 February 2023,
the number of shares repurchased in the
second buyback programme increased by
3.0 million shares at a total cost of £27.5 million.
Implementing our
sustainability strategy
Sustainability remained a key priority on the
Grafton Board Agenda during the year. Rosie
Howells joined the business in September
as the new Group Head of Sustainability to
support implementation of the sustainability
strategy and to work with the Group’s
businesses to drive continuing progress
against key sustainability objectives. We have
today published our second Sustainability
Report which sets out in more detail our
strategy and achievements in 2022.
The strategy, Building a More Sustainable
Future, is structured on five priority areas:
Planet, Customer & Product, People,
Community and Ethics. While there is still
much to do, the businesses demonstrated
strong progress during 2022.
Planet
• Achieved an 11 per cent reduction in Scope1
and 2 CO
2
e per £ million of revenue. This
was equivalent to a 3 per cent reduction in
absolute emissions.
• Achieved a reduction of 17 per cent in
operational waste relative to revenue on the
prior year with 97 per cent diversion from
landfill.
• Progressed Scope 3 carbon assessment
which will also be a priority in 2023.
Customer & Product
• Rental, refurbishment and recycling offerings
are available in a number of businesses.
• Responsible timber sourcing is an important
area of focus for our distributor businesses
and over 98 per cent of Selco’s building
timber was FSC or PEFC certified.
People
• Our Diversity and inclusion working group
continued to support our businesses to
encourage an inclusive culture that promotes
diversity. Over 90 per cent of our colleagues
in the UK and Ireland completed the voluntary
diversity information questionnaire and 77 per
cent answered allquestions.
• Woodie’s is the first retailer to be accredited
as a gold investor in Diversity by the Irish
Centre for Diversity following a three year
partnership. It recently achieved gender
balance and is now also reflective of
national demographics on ethnicity, age and
LGBTQI+ status.
• Our belief that ‘there is nothing we do that is
so urgent we cannot do it safely’ drove our
health and safety programme across our
business and resulted in a reduction in the
lost time incident frequency rate by 8 per
cent and a reduction in the severity rate by
21 per cent.
Chief Executive Officer’s review continued
41
Grafton Group plc Annual Report and Accounts 2022
41
Strategic Report
We still face many of the
external challenges that
we faced in 2022, but I am
encouraged by the quality
of the Group’s portfolio of
higher margin businesses
that are sensibly positioned
with both market leading
brands and geographic
diversity. We now have
more than half of our
revenues coming from
outside the UK in
Ireland, Finland and
the Netherlands.”
Community
• Grafton invested over £1.0 million in
communities through cash, volunteering
and in-kind products and services including
a donation of over £250,000 to the Red
Cross to support the Ukraine appeal.
Ethics
• A strong focus was placed on ethical
business training programmes and there
was 92 per cent compliance with the
business conduct and ethics programme.
• The Group’s businesses continued to
embed a supply chain management
system in partnership with an expert risk
managementcompany.
Grafton’s sustainability agenda is based
on focusing on those areas that are most
material to the business and deliver tangible
results and outcomes that will make a real
difference to its stakeholders. The Group’s
sustainability programme informs both longer
term strategic investment decisions and day to
day operational decisions and recognises the
positive connection between sustainability and
financial performance.
Colleagues
The Board would like to express its
appreciation to colleagues across the
Group for their exceptional support and
commitment to customers and to each other.
Their hard work, skill, and dedication were
essential to achieving a strong outturn in
challengingmarkets.
Outlook
The Group’s portfolio of higher margin
businesses is well positioned to withstand
short-term market conditions that may impact
demand in the year ahead. Grafton has an
excellent position with both market leading
brands and geographic diversity as more than
half of revenues are now coming from outside
the UK in Ireland, Finland and the Netherlands.
Importantly, with a very strong balance sheet
and net cash before IFRS 16 leases, the Group
is extremely well placed to invest in future
growth opportunities.
The fall in real disposable incomes will
continue to weigh on activity in the RMI market
and project affordability will be impacted by
higher materials and labour costs. Interest
rate increases are expected to lead to a
cooling of demand in new housing markets as
affordability reduces. These common themes
are likely to impact demand to varying degrees
in individual markets.
Despite these headwinds, we expect some
important factors to help mitigate some of the
adverse effects on household spending and
the current economic outlook appears brighter
than many feared in the second half of last
year. Strong labour markets with low levels of
unemployment and declining energy prices
and inflation should have a positive impact on
consumer spending.
In the UK, housing RMI activity is expected
to remain weak as discretionary spending
remains under pressure. House building is also
likely to slow as house builders respond to the
cooling market by reducing starts in response
to lower demand.
In Ireland, the economy has proven resilient
and is forecast to grow at a more moderate
pace which should support a good level
of consumer spending in the RMI and
DIY markets. House completions are
expected to be held back by the decline in
commencements and concerns about the
viability of new developments.
In the Netherlands, growth and volumes are
expected to be subdued with the housing
market likely to remain softer due to higher
mortgage rates.
In Finland, IKH’s exposure to a range of end
use markets is expected to help shield it
from some of the effects of a mild economic
downturn and anticipated fall in house building,
following a period of strong growth.
Notwithstanding the current economic
conditions, the strength of Grafton’s
businesses, its geographic diversity and
balance sheet leaves it well placed to continue
to execute its strategy and to respond to
opportunities that emerge. The Group’s
objective is to outperform in its chosen
markets through the cycle. We will allocate
organic development capital appropriately to
ensure that the Group’s brands can continue
to support their customers and strengthen
their existing market positions. In addition, we
aim to further enhance our business portfolio
in selective geographies to support earnings
progress and deliver sustainable returns for
our shareholders.
Eric Born
Chief Executive Officer
1 March 2023
42
Grafton Group plc Annual Report and Accounts 2022
£2.60bn
£2.67bn
£1.68bn
£2.11bn
£2.30bn
2022
2021
2020
2019
2018
7.0%
7.4%
10.2%
12.9%
11.3%
2022
2021
2020
2019
2018
7.2%
7.7%
10.2%
13.6%
12.4%
2022
2021
2020
2019
2018
14.7%
10.8%
11.9%
19.4%
17.2%
2022
2021
2020
2019
2018
Key Performance Indicators
Financial KPIs
The key performance indicators (‘KPIs’) below are used to
track performance and increase value for shareholders
£2.30bn
Revenue
Group revenue for the year is a measure
of overallgrowth.
Strategic links
Our progress in 2022
Revenue from continuing operations increased by
9.1 per cent to £2.30 billion, an increase of 9.5 per
cent in constant currency.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk
11.3%
Adjusted operating
profit margin before
property profit*
Adjusted operating profit before property profit as
a percentage of revenue provides a good measure
of performance.
Strategic links
Our progress in 2022
The term ‘adjusted’ means before amortisation
ofintangible assets arising on acquisitions,
exceptional items and acquisition related items.
The adjusted pre-property operating margin decreased
by 160bps to 11.3 per cent from the record operating
margin of 12.9 per cent in 2021 due to slightly lower
operating profit on revenue that was up by 9.1 per cent.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk
12.4%
Adjusted operating
profit margin*
Adjusted operating profit as a percentage
of revenue.
Strategic links
Our progress in 2022
The adjusted operating profit margin is down 120
bps to 12.4 per cent.
Risks
• Macro-economic conditions
• Competition
• Pandemic Risk
17.2%
Adjusted 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 debt/
(cash) at each period end) times 100.
Strategic links
Our progress in 2022
ROCE decreased by 220 basis points primarily due
to an increase in average capital employed.
Risks
• Macro-economic conditions
• Competition
* 2018 is presented on a pre-IFRS16 basis.
43
Grafton Group plc Annual Report and Accounts 2022
£187.6m
£204.8m
£170.6m
£288.0m
£285.9m
2022
2021
2020
2019
2018
£157.4m
£224.6m
£304.1m
£237.0m
£221.4m
2022
2021
2020
2019
2018
-£53.1m
£7.8m
£181.9m
£588.0m
£458.2m
2022
2021
2020
2019
2018
63.7p
62.8p
50.3p
93.0p
96.6p
2022
2021
2020
2019
2018
Strategic Report
£285.9m
Adjusted operating
profit*
Profit before intangible asset amortisation on
acquisitions, exceptional items, acquisition
related items, net finance expense and income
taxexpense.
Strategic links
Our progress in 2022
Adjusted operating profit, including property profit,
decreased by0.7 per cent to £285.9m.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk
£221.4m
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
Our progress in 2022
Free cash flow decreased by £15.6 million
to £221.4 million.
Risks
• Macro-economic conditions
• Competition
£458.2m
Net cash/(debt) –
before IFRS 16 leases
Total cash and cash equivalents less interest-
bearingloans and borrowings and derivative
financialinstruments but before lease liabilities.
Strategic links
Our progress in 2022
Very strong cash position with net cash, before
lease liabilities, of £458.2 million, a decrease of
£129.8 million from net cash of £588.0 million at
the end of 2021. The movement in the year relates
primarily to the share buyback programmes.
Risks
• Macro-economic conditions
• Competition
• Acquisition & integration
96.6p
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
Our progress in 2022
Adjusted earnings per share from continuing
operations was up 3.9 per cent on prior year and
benefitted from the impact of the share buyback.
Risks
• Macro-economic conditions
• Competition
• Pandemic risk
For more information on risk management
see pages 66 to 67
For more information on alternative measures
see pages 232 to 236
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
44
Grafton Group plc Annual Report and Accounts 2022
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
0.90
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 2022
In 2022 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 lost time injury
frequency rate, a measure of the number of lost
time injuries per 100,000 hours worked, reduced
by 8 per cent from the 2021 level and the
corresponding Group Lost Time Severity Rate
reduced by 25 per cent.
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 2022
We have made significant progress in the
collection of voluntary diversity information, with
90 per cent of colleagues in the UK and Ireland
completing the voluntary diversity information
questionnaire. Collecting this information helps us
as a Group to understand how we can improve and
better meet the needs of our colleagues.
Inclusion Networks have been active in the UK and
Ireland to provide opportunities for colleagues to
participate in our Diversity and Inclusion agenda.
A number of our businesses achieved recognition
as diverse employers and a Great Place to Work
and we will be continuing to build on this good
work by providing training and support to our
colleagues and management to encourage
allyship and continuing to review our websites and
recruitment practices to attract a more diverse
workforce.
Unfortunately the percentage of colleagues in the
Group that are female has dropped slightly from
30 per cent in 2021 to 29 per cent, primarily due to
tight labour markets in all our geographies which
have made it increasingly challenging to select
from a wider pool of diverse talent when recruiting
new colleagues. This is a target for improvement
in the coming years.
Environmental
Reducing our carbon footprint
CO2e emissions (tonnes per £’m of
revenue)
21.7
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 2022
We exceeded our CO
2
e emissions reduction
target of 2 per cent for Scope 1 & 2 emissions
per £ million of revenue, achieving an 11 per cent
reduction. Absolute emissions reduced by three
per cent from 2021 on a like for like basis.
We have implemented a more robust data
management system for our Scope 1 and 2
emissions. We have also made strong progress
collecting data for our Scope 3 emissions
calculations which is a top priority for 2023.
Selco and CPI Mortars have committed to
investment in five forests as part of a forestry
programme in the UK. It is predicted that these
forests will sequester 34,000 tonnes of carbon
over their lifetime.
Customer and product
Managing our supply chain and
providing our customers with
sustainable and high quality products
Our aim
Our aim is to collaborate with our suppliers to secure
the consistent supply of products for our customers
and to ensure that the principles of our sourcing
standards are met. We are also focused on providing
responsibly sourced and more sustainable options
to our customers and increasing circular economy
opportunities.
Strategic links
Our progress in 2022
During 2022 we implemented technology to
improve our third party risk management and
compliance procedures, enabling a Group-wide
process for screening and information collection
to be implemented. This covers a range of ethical,
financial and quality areas to confirm compliance
with our policies and relevant regulatory
standards.
A number of Group businesses offer rental and
hire services for a range of products while our
Netherlands business have been conducting a
pilot on circularity to reclaim, restore and refurbish
sanitaryware products.
0
1.04
1.01
0.96
0.98
0.90
2022
2021
2020
2019
2018
2017
0
32.4
31.4
25.5
24.5
21.7
2022
2021
2020
2019
2018
2017
45
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Health and safety
Keeping our people safe
Lost time injury frequency rate
0.90
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 2022
In 2022 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 lost time injury
frequency rate, a measure of the number of lost
time injuries per 100,000 hours worked, reduced
by 8 per cent from the 2021 level and the
corresponding Group Lost Time Severity Rate
reduced by 25 per cent.
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 2022
We have made significant progress in the
collection of voluntary diversity information, with
90 per cent of colleagues in the UK and Ireland
completing the voluntary diversity information
questionnaire. Collecting this information helps us
as a Group to understand how we can improve and
better meet the needs of our colleagues.
Inclusion Networks have been active in the UK and
Ireland to provide opportunities for colleagues to
participate in our Diversity and Inclusion agenda.
A number of our businesses achieved recognition
as diverse employers and a Great Place to Work
and we will be continuing to build on this good
work by providing training and support to our
colleagues and management to encourage
allyship and continuing to review our websites and
recruitment practices to attract a more diverse
workforce.
Unfortunately the percentage of colleagues in the
Group that are female has dropped slightly from
30 per cent in 2021 to 29 per cent, primarily due to
tight labour markets in all our geographies which
have made it increasingly challenging to select
from a wider pool of diverse talent when recruiting
new colleagues. This is a target for improvement
in the coming years.
Environmental
Reducing our carbon footprint
CO2e emissions (tonnes per £’m of
revenue)
21.7
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 2022
We exceeded our CO
2
e emissions reduction
target of 2 per cent for Scope 1 & 2 emissions
per £ million of revenue, achieving an 11 per cent
reduction. Absolute emissions reduced by three
per cent from 2021 on a like for like basis.
We have implemented a more robust data
management system for our Scope 1 and 2
emissions. We have also made strong progress
collecting data for our Scope 3 emissions
calculations which is a top priority for 2023.
Selco and CPI Mortars have committed to
investment in five forests as part of a forestry
programme in the UK. It is predicted that these
forests will sequester 34,000 tonnes of carbon
over their lifetime.
Customer and product
Managing our supply chain and
providing our customers with
sustainable and high quality products
Our aim
Our aim is to collaborate with our suppliers to secure
the consistent supply of products for our customers
and to ensure that the principles of our sourcing
standards are met. We are also focused on providing
responsibly sourced and more sustainable options
to our customers and increasing circular economy
opportunities.
Strategic links
Our progress in 2022
During 2022 we implemented technology to
improve our third party risk management and
compliance procedures, enabling a Group-wide
process for screening and information collection
to be implemented. This covers a range of ethical,
financial and quality areas to confirm compliance
with our policies and relevant regulatory
standards.
A number of Group businesses offer rental and
hire services for a range of products while our
Netherlands business have been conducting a
pilot on circularity to reclaim, restore and refurbish
sanitaryware products.
0
1.04
1.01
0.96
0.98
0.90
2022
2021
2020
2019
2018
2017
0
32.4
31.4
25.5
24.5
21.7
2022
2021
2020
2019
2018
2017
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
46
Grafton Group plc Annual Report and Accounts 2022
Operating review
Distribution segment
2022
£’m
2021
£’m** Change*
Revenue 1,936.8 1,727.6 12.1%
Adjusted operating profit before property profit 210.3 209.8 0.2%
Adjusted operating profit margin before property profit 10.9% 12.1% (120bps)
Adjusted operating profit 235.6 221.8 6.3%
Adjusted operating profit margin 12.2% 12.8% (60bps)
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
** The 2021 results for the distribution segment do not include the traditional merchanting business in Great Britain that was
divested in 2021 and classified as discontinued operations.
The Distribution businesses in the UK, Ireland, the
Netherlands and Finland contributed 84.2 per cent of
Group revenue (2021: 81.9 per cent).
UK Distribution generated 36.5 per cent (2021: 39.0 per
cent) of Group revenue, Irish Distribution 26.9 per cent
(2021: 25. 8 per cent), Netherlands Distribution 14.6 per
cent (2021: 13.8 per cent) and Finland Distribution 6.2
per cent (2021: 3.3 per cent).
Proportion of Group
revenue
84.2%
Proportion of Group adjusted
operating profit
***
83.7%
*** Including a £3.7 million non-recurring
curtailment gain in Irish Distribution
in 2022.
47
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Revenue growth of 2.0 per cent comprises
a decline of 2.0 per cent in the like-for-like
business and growth of 4.0 per cent from
acquisitions and new branch openings.
Average daily like-for-like revenue declined by
1.2 per cent.
New Selco and Leyland SDM branches
contributed revenue of £15.9 million and
the acquisitions in Northern Ireland of the P.
McDermott & Sons branch in Omagh, acquired
in 2021, and Woodfloor Warehouse, acquired in
2022, contributed incremental revenue in the
year of £17.4 million.
Gross margin was down by 200 basis points
reflecting a normalisation of trading as the
businesses reverted to a more traditional trade
and retail mix as well as the impact of non-
recurring inflation related stock gains realised
in the prior year, a more competitive trading
environment with greater product availability
(compared to supply chain pressures in 2021
that resulted in a shortage of core building
materials) and investment by Selco in pricing in
a competitive market.
Adjusted operating profit before property
profit declined to £81.8 million (2021: £102.5
million) and the adjusted operating profit
margin, before property profit of 9.8 per cent,
was 270 basis points lower than in 2021 due
to the small decline in like-for-like revenue,
normalisation of the gross margin and
increased operatingcosts.
Selco Builders Warehouse
Revenue declined by a net 1.7 per cent
comprising growth of 2.2 per cent from new
branches (which are treated as part of like-
for-like operations on the first anniversary of
opening) and a decline of 3.9 per cent in the
like-for-like branch network.
Revenue trends in 2022 developed against
the backdrop of a pandemic related surge in
activity and record trading levels in the first
half of the prior year. Trading normalised in
the second half of 2021 as the high level of
demand for building materials and supply chain
pressures gradually eased.
Significant price increases continued to
come through from suppliers as they passed
on higher energy, commodity and raw
materialsprices.
Average daily like-for-like revenue declined
by 1.4 per cent in the first half following the
exceptional growth in the first half of the prior
year. Building materials’ cost price inflation
averaged circa 17.0 per cent year-on-year in
the first half. The decline in first half volumes
was circa 18.4 per cent. Average daily like-
for-like revenue declined by 4.9 per cent in
the second half. Building materials price
inflation eased to 7.0 per cent and the decline
in volumes moderated to 11.9 per cent in the
second half. Average daily like-for-like revenue
for the year was down by 3.1 per cent and
volumes fell by 15.1 per cent.
Housing RMI volumes fell sharply as the
economy weakened, inflation climbed to
the highest rate for 40 years, consumer
confidence remained weak and interest rates
rose. Households were also forced to change
their spending patterns as they struggled to
adapt to soaring energy costs in the face of
reduced real disposable incomes and they cut
back on discretionary spending. Selco’s trade
2022
£’m
2021**
£’m Change*
Revenue 838.6 821.9 2.0%
Adjusted operating profit before property profit 81.8 102.5 (20.2%)
Adjusted operating profit margin before property profit 9.8% 12.5% (270bps)
Adjusted operating profit 106.2 113.0 (6.0%)
Adjusted operating profit margin 12.7% 13.7% (100bps)
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
** The 2021 results for the UK distribution business do not include the traditional merchanting business in Great Britain that was divested in 2021
and classified as discontinued operations.
Following the divestment of the traditional merchanting business in
Great Britain in 2021, the Group’s distribution business in the UK now
comprises Selco, Leyland SDM, MacBlair and TG Lynes.
UK distribution
Key brands
Proportion of Group adjusted
operating profit
37.2%
48
Grafton Group plc Annual Report and Accounts 2022
Operating review continued
customers are primarily engaged on small
residential RMI projects and volumes were
also affected by the very sharp increase in
the cost of building materials for the second
successive year that reduced affordability and
discretionary spending on the home.
Demand was also affected by a post-pandemic
shift away from spending on improving
indoor and outdoor living space, that drove
the rise in RMI activity in 2021, to spending
on recreational, travel and leisure activities.
Households were less inclined to spend
on their homes with house price growth
significantly moderating and interest rates
rising. Non-essential RMI spending on the
home was the part of the Selco market that
was most exposed to cutbacks on spending as
homeowners opted to defer expenditure until
visibility on the prospects for the economy and
for their personal finances improved. Branches
in London and the South East performed more
strongly than those in the regions.
Gross margin was down by 200 basis points
on the prior year, which had benefitted from
a more favourable customer and product
mix and inventory gains during a period of
rising prices and supply chain pressures.
Selco invested in price on core products in a
more competitive market that struggled to
immediately absorb the combined effect of
high building materials price inflation being
passed on to customers and falling volumes.
Overall costs were very tightly controlled
notwithstanding inflationary pressure on
payroll costs in a very tight labour market
and increased rents on a number of branch
properties that were subject to five yearly
reviews.
Operating profit was down on the record result
achieved in the prior year due to the sharp
decline in volumes, that were partly offset by
inflation, and contraction in the gross margin
in a very competitive market.
The branches that were opened in 2021 in
Canning Town and Rochester substantially
outperformed plan. Selco’s long-established
presence in the South West, where it trades
from two branches in Bristol, was extended
with the opening of a branch in Exeter in April
and one in Cheltenham in December that
increased the estate to 74 branches. A new
branch in Peterborough will open in April 2023.
Given the weaker growth outlook for the UK
economy and the difficulties experienced by
developers in funding new projects we have
reassessed Selco’s plans for the rollout of its
new stores which had targeted an increase in
the estate to 100 by 2026. Our current plans
envisage a store estate of approximately 80-90
stores over the medium term.
Selco provides a flexible omni-channel
offering to trade customers who can enjoy the
benefits of a wide range of products in stock,
excellent customer service and competitive
trade pricing. Stores are at the heart of the
omni-channel experience and serve as a
competitive advantage for how the majority
of our customers want to shop today. Selco
is engaged in an ongoing store upgrade
programme that delivers a better experience
for customers and colleagues and ensures
that the overall estate is maintained to a good
standard. During the year it completed major
upgrades to the Kingsbury, Cardiff and Baguley
stores and mini upgrades to nine other stores.
Selco made a significant investment in recent
years upgrading its online platform and
website and continued its digital journey with
the recent launch of a new App that provides
further flexibility, improved functionality and
new features that enable customers to more
easily purchase building materials. Digital sales
accounted for 5.1 per cent of revenue and
approximately 80 per cent of on-line orders
were fulfilled through deliveries from branches
and delivery hubs.
Preparatory work was completed on upgrading
the Microsoft Dynamics 365 finance and
operations ERP system to a version that
incorporates the latest technology. The
upgrade was successfully tested and
trialled in three branches before the year
end and deployment in the Corporate Office
and remainder of the branch network has
commenced.
Selco implemented a range of initiatives
in recent years to enhance the colleague
experience and work environment for its 3,000
colleagues and was recognised as one of the
best places to work in the UK and ranked in
17th position in the large company category
by colleagues who participated in the Best
Companies engagement survey.
An initiative to offset Selco’s carbon footprint
was launched with the planting of more than
100,000 trees near Jedburgh in the Scottish
Borders in 2021 and as part of Selco’s ongoing
commitment to create a sustainable business
it joined with the landowner and a key timber
supplier in the planting of 160,000 trees on
60 hectares of land located near Llandrindod
Wells in Wales. In another move to reduce
carbon emissions, the process to transition
the entire fleet of over 300 forklift trucks (as
they come up for replacement over the coming
years) commenced with the purchase of 28
electrically powered forklift trucks.
A new gas management system to optimise
energy usage and reduce carbon emissions
was implemented across the branch estate.
Selco is also exploring energy generation
opportunities across the estate and completed
a successful trial of solar panels on the roof
of the Barking branch. In addition, seven
Compressed Natural Gas (CNG) vehicles are
currently in operation with plans to introduce
a further three in the new delivery hub in
Birmingham. All delivery vehicles in the two
delivery hubs are now fuelled by lower carbon
emission HVO rather than diesel.
49
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Case study
HVO and CNG vehicles
Hydrotreated Vegetable Oil (HVO) provides
significant reduction in carbon emissions
and Compressed Natural Gas (CNG)
minimises particulates released into the
atmosphere, which is a significant issue in
inner metropolitan city areas where the
Group operates. TG Lynes has now introduced
HVO vehicles to its fleet with two of its 18
tonne lorries converted to run on HVO and
the business has installed a 10,000 litre tank
for easy on-site refuelling. Selco has also
introduced HVO and has purchased over
130,000 litres in 2022. Selco currently has
seven CNG vehicles in operation, with plans to
introduce a further three.
For more information on our sustainability
strategy see pages 76 to 95
50
Grafton Group plc Annual Report and Accounts 2022
50
Grafton Group plc Annual Report and Accounts 2022
Operating review continued
Leyland SDM
Footfall in Leyland SDM, London’s largest
specialist decorators’ and DIY business,
started to gradually recover in the early
months of the year as visitors and workers
began to return to the city. These groups
are key drivers of RMI activity in the leisure
and office sectors. Average daily like-for-like
revenue grew by 2.0 per cent in the first half
and picked up as the year developed exceeding
10.0 per cent in the fourth quarter driven by
inflation and a return to volume growth.
Revenue in the Clapham Junction, Dulwich and
Bayswater stores that were opened last year
was in line with plan.
A decline in the gross margin and
increased costs contributed to a decline in
operatingprofit.
MacBlair
The MacBlair distribution business in Northern
Ireland operated at a more normalised level
of activity following a record result in the
prior year that benefitted from exceptional
pandemic related spending on housing RMI.
Building materials’ price inflation offset a
decline in volumes and average daily like-for-
like revenue was flat for the year. Transactions
with retail customers declined from the
exceptional level in the prior year which saw
record spending by households on home
and garden improvement and maintenance
projects. The decline in RMI revenue was
offset by an increase in house building, a
market that was subdued in the early months
of the prior year before gradually recovering.
Self-build customers, developers of small
housing schemes and timber frame house
manufacturers generated good growth
inrevenue.
There was a decline in the gross margin in
the like-for-like business because of the fall
in higher margin collected transactions with
retail customers and an increase in the volume
of core building materials delivered to house
builders’ sites.
The branch in Omagh acquired in December
2021 was integrated into the MacBlair branch
network and procurement arrangements were
aligned. In February 2022, MacBlair acquired
Woodfloor Warehouse, a leading on-line
distributor of timber flooring in Great Britain,
Northern Ireland and the Republic of Ireland.
It also operates branches in Bangor, Belfast
and Warrington. Revenue was down on the
pre-acquisition level because of a decline
in on-line revenue transactions with retail
customers in Great Britain, in a weaker
RMI market, that accounts for a significant
proportion ofactivity.
Operating profit was down on the prior
year including contributions from the
two acquisitions and a high single digit
operating profit margin was reported for the
enlargedbusiness.
TG Lynes
TG Lynes, a leading distributor of commercial
pipes and fittings principally in London,
performed very strongly in what was a record
year for the business with excellent growth in
revenue and operating profit. Operating profit
saw a continuation of a trend of strong growth
since the business was acquired by Grafton
in2015.
TG Lynes continued to improve its
market position, increasing volumes with
subcontractors to the national housebuilders.
Volumes were also higher from the post
pandemic recovery in the upgrading of schools
and hospitals. Investment also increased in
the hotel, leisure, retail and office sub-sectors
of the market. New build projects with long
lead times account for two-thirds of revenue
and were not immediately impacted by the
downturn in the economy.
Voice picking technology was successfully
trialled in the warehouse in Enfield and
will go live in the first quarter of this year.
It will provide an optimal path for picking
orders, reducing errors and increasing
warehouseefficiency.
The installation of solar panels in the prior year
reduced the carbon footprint by generating
the equivalent of two thirds of the electricity
required to operate the business and lowered
demand for energy from the national grid.
51
Grafton Group plc Annual Report and Accounts 2022
51
Grafton Group plc Annual Report and Accounts 2022
Strategic ReportStrategic Report
Case study
Colleague Engagement
Our businesses have been focused on
colleague engagement with a number of
businesses receiving recognition during
the year based on the results of annual
engagement surveys. Selco were proud to
finish 17th on the ‘big companies’ list as part
of the ‘Best Companies’ awards.
Woodie’s was recognised as a Great Place
to Work for the seventh consecutive year.
It was ranked 11th in Ireland’s and 41st in
Europe’s Best Workplaces benchmarked
against the largest international and
domesticemployers.
IKH participated in the Great Place to Work
colleague engagement survey for the first time
and exceeded the threshold for recognition as
a Great Place to Work in Finland.
For more information see pages 16 to 19
52
Grafton Group plc Annual Report and Accounts 2022
2022
£’m
2021
£’m Change*
Constant
Currency
Change*
Revenue 618.3 544.3 13.6% 14.4%
Adjusted operating profit before property profit 70.5 66.8 5.5% 5.7%
Adjusted operating profit margin before property profit 11.4% 12.3% (90bps) –
Adjusted operating profit 71.5 68.2 4.7% 0.6%
Adjusted operating profit margin 11.6% 12.5% (90bps) –
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
The Irish distribution segment trades from 53 branches,
principally under the Chadwicks brand.
Irish distribution
Key brands
Proportion of Group adjusted
operating profit
**
26.3%
** Including a £3.7 million non-recurring
curtailment gain in 2022.
Chadwicks’ distribution business in Ireland
produced a very strong performance for
the year as trading returned to more normal
levels following the pandemic. Revenue
growth was driven by building materials’ price
inflation and a significant contribution from
acquisitions. Volumes declined in the second
half as increased costs of materials and labour
alongside subdued demand led construction
businesses to scale back activity.
Supply chain pressures eased in line with
activity levels, but the rate of inflation remained
elevated for core building materials including
insulation, plasterboard, cement and plastic
products driven by higher raw materials and
energy prices. A fall in steel and timber prices,
partly reversed prior year increases due to the
post pandemic spike in demand internationally.
Building materials cost price inflation averaged
14.7 per cent for the year.
Average daily like-for-like revenue growth
of 41.9 per cent in the first quarter was very
strong even adjusting for weaker trading in the
first quarter of the prior year when branches
remained open albeit at a time when much of
the construction sector was not operating due
to pandemic related restrictions. The rate of
average daily like-for-like growth eased in the
second quarter to 4.3 per cent against a very
strong prior year performance that benefitted
from the rapid recovery in activity and pent-up
demand following the lifting of restrictions.
Overall growth in average daily like-for-like
revenue was 19.5 per cent in the first half. Very
strong activity in the first half gave way to a
slowdown in second half trading with average
daily like-for-like growth easing to 2.1 per cent
and averaging 10.3 per cent for the year.
Volumes of core building materials recovered
from reduced levels caused by the closure of
house building sites in the first quarter of the
prior year. Demand for hardware products,
landscaping materials and paint were lower
following exceptional demand from retail
customers undertaking housing RMI projects
during the pandemic.
The gross margin was down on the prior
year due to changes in the mix of revenue
including a lower proportion of revenue from
RMI transactions with retail customers and an
increase in the proportion of revenue delivered
to trade customers. There was also a time lag
in the recovery of materials price increases
due to competitive pressure in the market.
Operating review continued
53
Grafton Group plc Annual Report and Accounts 2022
Strategic ReportStrategic Report
The sharp fall in steel and timber prices
reduced margins on inventory, partly reversing
the gains made in the prior year when prices
were rising sharply.
Housing transaction volumes are estimated
to have increased by circa six per cent in 2022
to 63,000 representing almost three per cent
of the housing stock in a market that was
very illiquid by international standards. New
house completions contributed to growth
in transactions increasing to an estimated
29,900 units, up from 20,400 in 2021 when
output was reduced by Covid-19 restrictions.
There was a major increase in apartment
completions which rose by 79 per cent to
account for half of total completions. Growth
in housing scheme units was 42 per cent and
the number of one-off house completions
increased by 17 per cent, both of which are
significant markets for Chadwicks.
The number of housing units on which
construction commenced slowed during
the year with the decline in apartment
construction impacted by the increase in
construction costs, planning constraints and
securing project finance. The availability of
land and construction capacity contributed
to a fall in the commencement of housing
schemes and increased costs also weighed
on the construction of one-off houses that are
typically constructed in non-urban areas.
The Proline Architectural Hardware (“Proline”)
business acquired in February 2021
outperformed plan and produced an excellent
result for its first full year under Chadwicks
ownership that was complemented by
introducing a range of Proline products in
28Chadwicks branches.
The Sitetech construction accessories
business acquired at the end of February
2022, traded well ahead of expectations, and
made an excellent profit contribution in the
ten months post acquisition, in addition to
providing Chadwicks with a strong presence
in a complementary segment of a market
where Sitetech is the market leader. Sitetech
collaborated with Chadwicks and provided
access to complementary products and the
expertise and colleague training required to
generate incremental revenue.
Chadwicks completed major upgrades to
its Bray, Coolock and Kilkenny branches
that facilitated the introduction of a number
of new product ranges. ECO Centres were
opened in 10 branches that supply a range
of energy efficient products including
insulation, airtightness, ventilation systems,
heat pumps and controls, solar energy and
water-saving products. This initiative takes a
sustainability first approach to creating better
buildings and helps support the grant-aided
retrofit programme in Ireland that targets
energy upgrades to a quarter of the national
housingstock.
Chadwicks new transactional website offers
over 10,000 products to trade and retail
customers with delivery and collection options
from 37 locations nationwide. The new
website has increased customer engagement
and provided the flexibility and convenience
to trade on-line combined with the knowledge
and expertise they receive dealing with their
local Chadwicks branch.
Chadwicks digital strategy has created
greater mobility for colleagues so they
can operate digitally throughout branches
while delivering greater flexibility in how
they engage with customers. The rollout
of a delivery transport system has created
efficiencies from improving transport planning,
route optimisation, customer service and
communications.
54
Grafton Group plc Annual Report and Accounts 2022
Isero produced excellent results for the year,
in broadly favourable markets, that included
a good contribution from acquisitions
and benefits realised from implementing
performance improvement measures.
The business has steadily grown in recent
years to become the clear market leader in
the ironmongery, tools and fixings distribution
market in the Netherlands. It has acquired 82
branches and opened seven in the period since
Grafton acquired Isero in late 2015 and now
trades from 123 branches.
Year-on-year revenue trends were not
impacted by the pandemic as the business
was treated as an essential distributor
and remained open throughout 2021. First
half volumes were flat and with inflation
contributing growth of 7.5 per cent in average
daily like-for-like revenue. Second half average
daily like-for-like revenue growth of 10.4 per
cent included a small increase in volumes.
2022
£’m
2021
£’m Change*
Constant
Currency
Change*
Revenue 336.7 290.5 15.9% 16.8%
Adjusted operating profit 37.6 30.5 23.2% 24.3%
Adjusted operating profit margin 11.2% 10.5% +70bps –
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
The Netherlands distribution segment trades from 123 branches under
the Isero and Polvo brands.
Netherlands distribution
Key brands
Proportion of Group adjusted
operating profit
13.1%
Revenue increased from key account
customers engaged on large commercial
construction projects, including apartment
building and the maintenance of public sector
housing. Isero also improved its market
position in the supply of hinges and locks to
timber factories where its end-to-end service
proposition is a differentiator. Transaction
numbers with smaller customers engaged
in housing RMI projects were lower. This
segment of the market performed strongly
last year as households increased spending
on home improvement projects during the
pandemic. Revenue also increased from
value added solutions that use technology
to efficiently replenish inventory levels in
containers located on the sites of customers
engaged on large construction projects and
in the vans used by Housing Corporations for
maintenance services.
There was a strong advance in operating
profit from growth in like-for-like revenue
and a higher gross margin that reflected
inflation related inventory gains and improved
procurement arrangements. These growth
components helped deliver an improvement
in the operating profit margin of 70 basis
points. Payroll costs also increased in a tight
labourmarket.
The number of transactions in existing homes
dropped for the second successive year as
affordability, that was already stretched by
average house prices increasing by almost a
third since early 2020, deteriorated further. The
new housing market was also under pressure
as forward sales declined and the number of
building permits issued continued to fall.
Operating review continued
55
Grafton Group plc Annual Report and Accounts 2022
55
Strategic Report
Organic revenue growth was complemented
by a significant contribution from acquisitions
that increased overall constant currency
revenue by 16.8 per cent. The five branch
Regts B.V. (“Regts”) business in Friesland
acquired in January 2022 extended Isero’s
coverage into the Northeast region of the
Netherlands and outperformed plan. Good
progress was made harmonising its portfolio
of products and aligning procurement
arrangements.
The two branches in Rotterdam that we
relocated last year to higher profile locations
and the new branch in Lelystad, a growth city
in the centre of the Netherlands, performed
well. The new branch that was opened in
Zaandam, just north of Amsterdam, also got
off to a strong start. The branch in Gouda was
relocated and five branches were upgraded
including three of the four Govers branches
acquired in April 2021. Further automation
measures were implemented in the
Waddinxveen distribution centre to improve
handling efficiency.
Isero continued to implement solutions to
reduce carbon emissions focusing on the
installation of LED light fittings in several
branches as part of an ongoing upgrade
programme and, with the cooperation of
landlords, solar panels and heat pumps were
installed in six branches. A new circular model
was trialled to extend the lifetime of colleague
and customer PPE and certain other products
through repair and reuse.
56
Grafton Group plc Annual Report and Accounts 2022
2022
£’m
2021
£’m Change*
Constant
Currency
Change*
Revenue 143.2 70.8 102.2% 101.7%
Adjusted operating profit 20.3 10.0 104.2% 103.7%
Adjusted operating profit margin 14.2% 14.1% +10bps –
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
The Finland distribution segment trades through a network
of independent partner stores and 12 owned branches.
Finland distribution
Key brands
Proportion of Group adjusted
operating profit
7.1%
IKH, one of Finland’s largest workwear and
personal protective equipment (“PPE”), tools
and spare parts wholesalers, operates in an
attractive segment of the technical trades’
distribution market in Finland. It was acquired
by Grafton on 1 July 2021 and performed in
line with expectations in its first full year as
part of the Group.
First half revenue was down on the pre-
acquisition level in the prior year as milder than
normal weather conditions in the early months
of the year reduced demand for a number of
seasonally sensitive product categories and
trading was also affected by the sharp drop in
consumer confidence following the invasion
of Ukraine by Russia which shares a long land
border with Finland. Trading improved in May
and June following the slow start to the year.
Average daily like-for-like revenue increased
by 5.4 per cent in the second half as a
recovery in demand that developed in the third
quarter gained further impetus in the final
months of the year supported by generally
resilientactivity.
Operating review continued
57
Grafton Group plc Annual Report and Accounts 2022
57
Strategic Report
IKH products are distributed through a network
of independently operated IKH partner stores,
the strategic cornerstone of the model, third
party distributors and owned stores operated
from complementary locations. These three
routes to market provide a balanced channel
exposure and are good touchpoints to support
customers operating in the construction,
renovation, industrial, agricultural and
spares end markets. These channels were
strengthened with the appointment of new
partners in Joensuu, Finland’s 12th largest city,
and in the towns of Raahe and Jamsa. The
three new partners will enable IKH to increase
geographic coverage of the market in the
central region of Finland. Exports to Estonia
increased and IKH’s partner in the country will
open a new store in Tallinn in March 2023.
The new IKH store in Hämeenlinna, a city
located 100 kilometres north of Helsinki, that
opened at the end of 2021 started to build
market share. In November, IKH opened its
12th own store in Rovaniemi, the capital city of
Lapland in Northern Finland.
The new housing market has been strong in
recent years in response to good demand
from consumers and investors. There was
a record number of housing starts in 2021
and construction work continued on these
projects and house building had a good year
with a significant increase in investment. The
number of building permits issued for new
homes dropped considerably as mortgage
rates and construction costs increased and
the housing market started to return to more
normal levels of activity. Residential RMI
activity was underpinned by good demand for
building services renovations and increased
energy related projects in apartment buildings
and single housing units. The weakening
economy, higher costs, lower yields and
uncertainty slowed new non-residential
constructionprojects.
IKH participated in the Great Place to Work
colleague engagement survey for the first time
and exceeded the threshold for recognition as
a Great Place to Work in Finland.
58
Grafton Group plc Annual Report and Accounts 2022
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.
2022
£’m
2021
£’m Change*
Constant
Currency
Change*
Revenue 244.0 282.8 (13.7%) (13.0%)
Operating profit 32.6 50.9 (35.9%) (35.5%)
Operating profit margin 13.3% 18.0% (470bps ) –
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
Key brands
Proportion of Group
revenue
10.6%
Proportion of Group adjusted
operating profit
11.4%
59
Grafton Group plc Annual Report and Accounts 2022
59
Strategic Report
Revenue in Woodie’s DIY, Home and Garden
business in Ireland normalised, as expected,
following exceptional pandemic related
constant currency growth of 19.4 per cent
in 2021 when Woodie’s was treated as an
essential retailer and continued to trade during
the early months of the year while the country
was in lockdown. The normalisation of trading
was concentrated over the first half which saw
revenue decline by 22.8 per cent.
Revenue trends were broadly stable in the
second half despite weak consumer sentiment
as cost-of-living pressures caused households
to increase spending on essentials including
energy and to cut back on discretionary
spending. Consumers also continued to spend
more on leisure activities and experiences and
less on other areas, including DIY, home and
garden, that boomed during the pandemic.
Woodie’s had to navigate a unique set of
trading conditions in 2022 as exceptional
spending in the prior year unwound and real
disposable incomes declined as inflation
reached its highest level in almost four
decades. The business was resilient and as
market leader Woodie’s was well placed to
leverage its competitive advantage to support
customers engaged in a broad range of DIY,
home and garden projects.
A significant proportion of the revenue gains
made in the prior year were maintained
and there has been a step change in the
performance of Woodie’s since 2019. Revenue
increased by 18.7 per cent from £205.5 million
in 2019 and operating profit by 43.9 per cent
from £22.6 million. This is a better gauge of
Woodie’s performance and of the progress
made from a clear and consistent focus on
colleagues, customers and products.
Woodie’s provides on-line and in-store
channels for its customers while differentiating
the service and experience of shopping in its
stores. On-line was 3.4 per cent of revenue
(2021: 2.9 per cent). The Woodie’s website is
also used as a powerful opportunity to engage
with customers and enable them to locate and
research products that they purchase in-store.
Woodie’s has a strong presence on several
social media platforms that are becoming
the primary channels to communicate with
customers and increase brand visibility.
Woodie’s was recognised as A Great Place
to Work for the seventh consecutive year.
It was ranked 11th in Ireland’s and 41st in
Europe’s Best Workplaces benchmarked
against the largest international and domestic
employers. Putting people first has been
central to Woodie’s success in recent years
and it continued to measure and improve
colleague engagement against a range of
metrics. Woodie’s became the first retailer and
the eighth organisation to ever achieve a Gold
Investors in Diversity accreditation from the
Irish Centre for Diversity
The number of transactions declined by
12.2 per cent and the combined net effect of
investment in pricing in certain categories,
changes in the average basket value from
customers purchasing fewer higher value
seasonal products and inflation reduced
revenue by 0.8 per cent. Revenue declined
across all categories except gardening which
performed very strongly.
Gross margin trends that developed in the first
half of the year continued through the second
half with changes in product mix, increased
promotional activity, particularly for seasonal
ranges, and higher shipping and freight costs
contributing to a decline.
There was upward pressure on energy and
property costs, but the overall cost base was
tightly controlled and was down on the prior
year as some of the additional capacity put
in place to support exceptional customer
demand in 2021 was withdrawn.
Energy usage declined by 14 per cent
following the upgrade of store lighting, the
implementation of new digital controls
and a colleague education programme on
energyefficiency.
Woodie’s continued its engagement with
communities in Ireland raising over €400,000
for four charities through its annual Heroes
campaign that has raised almost €3.0 million
over the past eight years.
60
Grafton Group plc Annual Report and Accounts 2022
60
Grafton Group plc Annual Report and Accounts 2022
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.
Operating review continued
2022
£’m
2021
£’m Change*
Constant
Currency
Change*
Revenue 120.6 99.6 21.1% 21.2%
Operating profit 27.4 24.0 13.9% 13.9%
Operating profit margin 22.7% 24.1% (140bps) –
* Change represents the movement between 2022 v 2021 and is based on unrounded numbers.
Proportion of Group
revenue
5.2%
Proportion of Group adjusted
operating profit
9.6%
Key brands
61
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Our manufacturing strategy
is based on maintaining
leadership positions in
the mortar and staircase
manufacturing markets
in Great Britain.
The CPI EuroMix business that mainly supplies
mortars to national, regional and local house
builders and plastering contractors from ten
plants in Great Britain performed strongly with
revenue growth of 22.3 per cent driven by a
surge in the price of raw materials and other
input costs. Volumes for the year were very
marginally down as low single digit growth
in silo mortar, that accounted for 90 per cent
of output, was offset by a decline in the sale
of bagged mortar products supplied to the
residential RMI market.
Silo mortar volumes recovered strongly in the
first quarter with double digit growth on the
prior year when house building was disrupted
by the pandemic. Second quarter silo mortar
volumes were marginally lower against a very
strong comparator that benefitted from an
increase in house building as restrictions were
lifted. First half volumes in a few plants were
also impacted by supply chain disruption from
shortages of cement, sand and limestone
and scheduled works to replace or upgrade
production equipment.
Overall, second half silo mortar volumes were
flat as third quarter growth was offset by a
decline in the fourth quarter. House building
slowed in the final months of the year as
house builders began to scale back activity
in response to a drop in weekly sales rates, a
rise in cancellations and lower forward sales.
Demand for new houses was affected by
interest rate rises.
Demand was well down for ready-to-use
bagged mortars and concrete supplied to
the housing RMI market compared to the
exceptional pandemic related demand in
the prior year. Destocking by customers and
increased pressure on discretionary spending
on the home by end customers as the year
progressed also weighed on volumes.
There was a good advance in operating profit
on the prior year following the recovery of
materials price inflation in the second half and
the operating margin was maintained at 20.0
per cent.
CPI EuroMix is at an advanced stage in
planning for the implementation later this year
of a new ERP system that will support all areas
of the business, increase visibility of its daily
operations and provide real-time information
and increased functionality that should allow
it to better support the needs of all of its
stakeholders.
The number of locations using lower carbon
cement was increased to seven plants from
three in 2021 and we continued to engage
with a partner on even lower carbon cement
alternatives that are in the very early stages of
research and development. Solar panels were
installed at four locations to reduce energy
demand from the national grid. A trial was
conducted at one plant on fuelling vehicles with
HVO (Hydrotreated Vegetable Oils) instead of
fossil fuels. The business is also engaged on
an ongoing research project with its vehicle
manufacturer concerning electric powered
tractor units used to refill silos on customers
sites with dry mortar materials. Carbon
emissions from mortar delivery vehicles were
offset through the planting and maintenance
of 30 hectares of woodland with 80,000 trees
in Dumfries, Scotland which is accredited and
registered under the Carbon Code.
StairBox, the market leading manufacturer of
bespoke staircases primarily for the secondary
housing market, reported revenue growth of
18.9 per cent to £31.3 million (2021: £26.3
million). The increase in revenue was sustained
by volume growth of 7.4 per cent and raw
materials price increases. Despite the decline in
activity in the residential RMI market, StairBox
experienced record demand from trade
customers across Great Britain. Operating
profit increased by 9.2 per cent to £9.8 million
(2021: £9.0 million), an operating margin of 31.3
per cent (2021: 34.2 per cent).
StairBox continued to develop its state-of-
the-art staircase manufacturing technology
including a major update to its factory
management software that improved the
efficiency of the manufacturing and assembly
processes. The StairBuilder on-line stairs
designer software was updated to include
further design features that were well received
by customers. These developments helped
StairBox to continue to win a very high level of
customer trust and confidence in the quality of
its bespoke staircases and service.
StairBox successfully relocated its assembly
operations to a nearby leased property that
provides additional capacity for the overall
operation following exceptional growth in
volumes in recent years and secures the
future of its manufacturing capability in
Stoke-on-Trent.
62
Grafton Group plc Annual Report and Accounts 2022
62
Financial Review
Building on a resilient
financial performance
Group revenue from continuing
operations increased by 9.1 per cent to
£2.30 billion from £2.11 billion in 2021.
Revenue
Group revenue from continuing operations
increased by 9.1 per cent to £2.30 billion from
£2.11 billion in 2021.
Revenue in the like-for-like business increased
by 2.4 per cent (£48.3 million) on the prior year.
The acquisition of IKH in Finland in July
2021 and a number of bolt-on transactions
in Ireland, the UK and the Netherlands,
contributed revenue of £134.4 million. New
Selco and Leyland SDM branches in the
UK, one new branch in the Netherlands and
two new branches in Finland contributed an
additional £17.8 million of revenue in the year.
Currency translation reduced revenue by £7.9
million and the closure of a single branch in
Ireland on expiry of a lease reduced revenue by
£1.1 million.
£2.60bn
£2.67bn
£1.68bn
£2.11bn
£2.30bn
2022
2021
2020
2019
2018
Adjusted operating profit
Adjusted operating profit from continuing
operations of £285.9 million was down
marginally from £288.0 million last year. This
included a non-recurring pension scheme
curtailment gain of £3.7 million.
Adjusted operating profit before property profit
and before the pension scheme curtailment
gains was £256.8 million, down by 5.3 per
cent from last year’s record result of £271.2
million. The adjusted operating profit margin
before property profit and the pension scheme
gain declined by 170 basis points to 11.2 per
cent. Including the pension scheme gain, the
adjusted operating margin declined by 160
basis points to 11.3 per cent.
7.0%
7.4%
10.2%
12.9%
11.3%
2022
2021
2020
2019
2018
63
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Net finance income and
expense
The net finance expense declined to £12.6
million (2021: £19.4 million). This charge
includes an interest charge of £14.9 million
(2021: £14.6 million) on lease liabilities
recognised under IFRS 16.
Interest income on cash deposits amounted to
£8.7 million (2021: £0.2 million). The Group had
cash deposits of £467.0 million at the year-end
that were denominated in sterling. Returns
on these deposits increased as the year
developed to reflect the eight occasions that
the Bank of England raised rates from 0.25 per
cent at the start of the year to 3.5 per cent at
the year end.
Interest payable on bank borrowings
denominated in euros and US Private
Placement Senior Unsecured Notes fell to
£5.6 million (2021: £6.2 million). The decline
was due to lower average debt and a lower
interest rate payable on part of the bank debt
borrowed under the ECB’s Targeted Longer-
Term Refinancing Operations. This was partly
offset by a higher interest rate payable on
the remainder of the bank debt following four
increases by the European Central Bank in its
key interest rate from zero per cent to 2.5 per
cent in the second half of the year.
The net finance expense included a foreign
exchange translation loss of £0.7 million
which compares to a gain of £1.7 million in the
prioryear.
Taxation
The income tax expense of £43.1 million (2021:
£43.0 million) is equivalent to an effective
tax rate of 17.1 per cent of profit before tax
(2021: 17.2 per cent). This is a blended rate of
corporation tax on profits in the four countries
where the Group operates.
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.
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.”
The tax rate is expected to increase to 20.1 per
cent in 2023 and in the medium term, based
on expectations of the balance of profitability
across the Group and tax rates, is anticipated
to increase to a little over 22 per cent.
Cashflow
Cash generated from operations for the year
was £278.8 million (2021: £303.2 million).
There was an investment of £71.3 million into
working capital. The increase in stock was
a reflection of both inflation and our trading
strategy to increase product availability for
customers during the year at a time of rising
prices. Similarly, the increase in trade debtors
reflects inflation as well as an increasing
proportion of trade customers relative to cash
customers as activity normalised during 2022.
Interest paid amounted to £21.9 million (2021:
£20.5 million) which included IFRS 16 lease
interest of £14.9 million (2021: £14.6 million).
Taxation paid was £39.5 million (2021: £43.7
million). Cashflow from operations after
interest and taxation payments was £217.3
million (2021: £239.0 million).
There was a cash outflow of £46.0 million
on completion of the Sitetech acquisition in
Ireland, the Woodfloor Warehouse acquisition
in Northern Ireland and the Regts acquisition
in the Netherlands. The outlay on capital
expenditure and computer software was £57.8
million (2021: £44.4 million).
The cash outflow on the dividend payment
(£73.9 million) and buyback of shares (£135.0
million) amounted to £208.9 million (2021:
£84.9 million).
Capital expenditure and
investment in intangible assets
Grafton continued to maintain tight control
over capital expenditure which amounted to
£55.3 million (2021: £43.6 million). Expenditure
of £2.5 million (2021: £0.8 million) was incurred
on computer software that is classified as
intangible assets.
Revenue
£2.30bn
(2021: £2.11bn)
Adjusted operating profit
£285.9m
(2021: £288.0m)
Net cash (pre IFRS 16 leases)
£458.2m
(2021: £588.0m)
64
Grafton Group plc Annual Report and Accounts 2022
Asset replacement capital expenditure of
£33.2 million (2021: £24.6 million) compares
to the depreciation charge on property,
plant and equipment of £34.2 million (2021:
£38.3 million). This related principally to the
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.
Development capital expenditure of £22.1
million (2021: £19.0 million) was incurred on
a range of initiatives that provide a platform
for future growth including new branches in
Selco, Isero and IKH; upgrades to Chadwicks
and Isero branches; as well as investment in
IThardware.
The proceeds from the disposal of property,
plant and equipment increased to £28.5 million
(2021: £22.2 million). The disposal of three
freehold properties retained following the
sale of the traditional merchanting business
in Great Britain generated cash proceeds
of £26.2 million and realised a profit of
£19.9million.
Pensions
The IAS 19 defined benefit pension schemes
had a net deficit of £10.5 million at the year
end, down by £1.0 million on the net deficit of
£11.5 million on 31 December 2021.
Changes to financial assumptions reduced
scheme liabilities by £98.1 million reflecting
the net impact of a gain from the increase in
discount rates and a loss from the increase
in inflation expectations. Changes in
demographic assumptions increased scheme
liabilities by £2.9 million and experience
variations increased liabilities by £2.4 million.
The net impact was a reduction in the liabilities
of the schemes by £92.8 million.
The increase in discount rates used to
discount scheme liabilities moved in line with
increases in corporate bond rates. The rate
used to discount UK liabilities increased by 290
basis points to 4.8 per cent and the rate used
to discount Irish liabilities increased by 255
basis points to 3.7 per cent. These movements
reduced scheme liabilities by £108.0 million.
Inflation rates increased, particularly in relation
to the Irish schemes, over the past year and
this impacted the value of liabilities as future
benefit payments from the pension plans are
directly or indirectly linked to future inflation.
This was particularly 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 at the date members retire with inflation
increasing liabilities only up to that date.
There was a loss on plan assets of £97.8
million due to the fall in the values of liability
driven investments, bonds and equities
that was almost matched by the reduction
inliabilities.
Asset experience losses in the UK scheme
were greater than the reduction in liabilities
and this was the main contributor to the
scheme deficit increasing from £0.7 million
to £14.2 million. In Ireland, asset experience
losses were materially less than gains from the
reduction in liabilities resulting in a significant
improvement in the financial position of the
schemes. There was also a once-off gain of
£3.7 million (before costs) from closing one of
the schemes to future accrual. These factors
mainly contributed to the schemes in Ireland
moving from a deficit of £9.9 million to a
surplus of £4.6 million.
There was a scheme deficit of £0.8 million
(31 December 2021: £0.8 million) related to the
Netherlands business.
Following divestment of the traditional
distribution business in Great Britain, 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 in place.
Net cash
Net cash (including IFRS 16 lease obligations)
at 31 December 2022 was £8.9 million which
compares to £139.0 million at 31 December
2021. The proceeds on the sale of the
Traditional Merchanting Business in Great
Britain for an enterprise value of £520.0 million
were received on 31 December 2021.
The Group’s net cash position, before
recognising IFRS 16 lease liabilities, was
£458.2 million, down from £588.0 million at
31 December 2021.
The Group’s policy is to maintain its
investment grade credit rating while investing
in organic developments and acquisition
opportunities. The Group has a progressive
dividend policy with an objective of
maintaining dividend cover at between two
and three times earnings.
-£53.1m
£7.8m
£181.9m
£588.0m
£458.2m
2022
2021
2020
2019
2018
Financial Review continued
65
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
A one-year facility for £86.0 million put in place
in December 2021 and facilitated by one of the
Group’s relationship banks under the ECB’s
Targeted Longer-Term Refinancing Operations
was repaid in December 2022. 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 2022 was 5.2 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.
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
£13.2 million (2021: £13.0 million) and the
finance (interest) expense by £14.9 million
(2021: £14.6 million) in the period. Profit before
tax was reduced by £1.7 million (2021: reduced
by £1.6 million) and profit after tax reduced
by £1.3 million (2021: reduced by £1.4 million)
because of IFRS 16.
The right-of-use asset in the balance sheet
at 31 December 2022 was £420.1 million
(31 December 2021: £421.3 million) and lease
liabilities were £449.3 million (31 December
2021: £449.0 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.
Shareholders’ equity
The Group’s balance sheet strengthened
further in the year with shareholders’ equity
up by £26.0 million to £1.75 billion. Profit
after tax increased shareholders’ equity
by £208.6 million and there was a gain of
£30.7 million on translation of euro
denominated net assets to sterling.
Shareholders’ equity was reduced for a
remeasurement loss (net of tax) of £2.5 million
on pension schemes, for dividends paid of
£73.9 million and by £143.0 million for the
buyback of shares. Other changes increased
equity by £6.0 million.
Return on capital employed
Return on Capital Employed in continuing
operations declined by 220 basis points to
17.2 per cent (2021: 19.4 per cent) including
leasedassets.
14.7%
10.8%
11.9%
19.4%
17.2%
2022
2021
2020
2019
2018
Principal risks and
uncertainties
The primary risks and uncertainties affecting
the Group are set out on pages 70 to 75 of
thisreport.
Liquidity
Grafton ended 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 £934.6 million
at 31 December 2022 (31 December 2021:
£1,235.4 million). As shown in the analysis
of liquidity on page 46, accessible cash
amounted to £707.7 million (31 December
2021: £840.7 million) and there were undrawn
revolving bank facilities of £226.9 million
(31 December 2021: £394.7 million).
The Group had bilateral loan facilities of
£340.7 million at the year end (31 December
2021: £433.7 million) with four relationship
banks and debt obligations of £141.9 million
(31 December 2021: £134.4 million) from the
issue of unsecured senior notes in the US
Private Placement market.
In August 2022, the Group completed a
refinancing of its bilateral loan facilities that
were due to expire in March 2023. These
revolving loan facilities for £340.7 million
were agreed with four established relationship
banks for a term of five years to August 2027.
The arrangements include two one-year
extension options exercisable at the discretion
of Grafton and the four banks. These new
facilities provide certainty of finance over a
longer period on improved terms and replaced
facilities of £380.7 million. This is sustainability
linked debt funding and includes an incentive
connected to the achievement of carbon
emissions, workforce diversity and community
support targets that are fully aligned to the
Group’s sustainability strategy.
66
Grafton Group plc Annual Report and Accounts 2022
Risk Management
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.
Risk management framework
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.
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 from the External Auditors, including any
reporting on internal control.
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
• 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.
67
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Grafton’s risk
management process
Risk management is a key factor in
the successful delivery of the Group’s
strategicobjectives.
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
financialtargets.
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 (‘CRR’).
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.
Risk appetite
‘Risk appetite’ describes the amount of risk
we are willing to tolerate, accept or seek. The
Group has set out its risk appetite for each risk
on the Corporate Risk Register, including key
risk indicators and tolerance levels.
We have a higher appetite for risks that
present us with a clear opportunity for
reward, for example around acquisitions. We
actively seek out those risks that provide the
greatest opportunities, whilst balancing with
appropriate mitigating actions.
We have a low appetite for risks that only have
negative consequences, particularly when they
can impact our colleagues, values, or business
model. For example health and safety and cyber
security. We aim to eliminate these risks, as
much as possible, with our mitigation efforts.
The Board regularly reviews their risk appetite
for the Group’s principal risks, and uses this
when considering risk mitigation strategies.
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. 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:
sustainability and the impact of climate change
on business operations; information security
and cyber risk; people risk and issues around
retention, recruitment and diversity; and third-
party 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,
their root causes and key risk indicators, and
the actions and controls in place and required
to manage each to an acceptable level of risk
consistent with the Group’s risk appetite. The
Principal risks facing the Group are set out in
detail on pages 70 to 75. All updates to the CRR
are reported to the Audit and RiskCommittee.
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 2022:
Competition risk has increased in severity
reflecting the increase in competitive
pressures across the markets Grafton
operates in, particularly the UK RMI market.
Pandemic risk has been reduced with
businesses demonstrating their ability to adapt.
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. Competition
7. IT Systems Implementation
8. Health and Safety
9. Sustainability and Climate Change
10. Internal Controls and Fraud
11. Pandemic Risk
Likelihood
Probable 4
Possible 3
Unlikely 2
Rare 1
1 2 3 4
Minor Moderate Major Severe
Impact
11
56
1
3
2
7
10
9
8
4
68
Grafton Group plc Annual Report and Accounts 2022
68
Grafton Group plc Annual Report and Accounts 2022
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;
• Review by senior management and the
Audit and Risk Committee of Internal Audit
Report findings, recommendations and
follow up actions; and
• Second line compliance functions which
focus on specific key risk areas including
branch operations, health and safety,
information security and financial reporting
controls. These generally report into
business unit management with their
processes subject to assurance by Group
Internal Audit.
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. The last external effectiveness review
was conducted in 2021 by a team from Grant
Thornton. 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
have been progressed in 2022 including the
selection of an audit and risk system, for
implementation in 2023, which will improve
efficiency and data analysis capability.
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.
69
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Viability Statement
The Directors have assessed the viability of the
Group over a three-year period to 31 December
2025, 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 66 to 75. 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 2025.
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 2025 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 and a cyber security
denial of service attack on the business
which might restrict trading and the operation
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 funding covenant was
unavoidable.
The downside scenarios applied to the
strategic plan are summarised in the
chartsbelow.
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, and
it assumes that the Group’s existing surplus
cash at 31 December 2022 of £0.45 billion is
either invested in acquisitive growth and/or
returned to shareholders, but the Group would
still remain in a net cash position, before lease
liabilities, and have adequate liquidity.
Whilst 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 £8.9 million
at the end of 2022 (net cash position of
£458.2 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.
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
Cyber Security and Data Protection
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
Assumed that Group’s surplus cash
at 31 December 2022 of £0.45 billion
is either invested in acquisitive
growth and/or returned to
shareholders
Pandemic Risk
Cyber Security and Data Protection
Inability to trade for four months
during 2024 across all regions
without any mitigating income.
Operating loss in 2024, with a 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 2025 and
2026. Note that the Group would
remain in a net cash position before
lease liabilities and could use surplus
cash to repay bank facilities to avoid
breach of interest cover covenants.
70
Grafton Group plc Annual Report and Accounts 2022
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.
Macro-economic
conditions in the UK,
Ireland, the Netherlands
and Finland
Risk movement
Strategic links
Cyber security and
data protection
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.
Within this risk we also recognize the impact of geo-
political events on those domestic markets. In 2022
the war in Ukraine depressed consumer spending
in Finland particularly in the first half of the year, as
well as impacting more generally on resource and
product inflation.
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.
The strategic actions taken by the Group in 2021
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
Group’s businesses 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 were equally well
positioned to respond to an increase in the new
house build markets.
Branches 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 of
changes in business model which may reduce revenue
and profit, for example modern construction methods,
and monitors these closely so businesses react
accordingly.
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 anti malware 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 to test these controls. The Group has put
in place a Security Incident Management Plan and
each business has their own cyber incident response
and backup plans which are regularly rehearsed.
Following a review of the Group’s cyber security
maturity by third party specialists in 2021, a
programme of initiatives was commenced in 2022 to
further reduce cyber risk. This has been overseen by
the Group’s Information Security Steering Committee
through the monitoring of quarterly assessments by IT
teams which have been verified by Group Internal Audit.
During 2023 a second review of the cyber security
maturity will be conducted to confirm the progress
made and identify any further steps that need to be
taken to improve the Group’s ability to both prevent
and reduce the impact of any attack occurring.
A Group-wide programme to implement 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. This includes ensuring that all
new businesses acquired by the Group meet the
same group Data Protection standards. The Group
continues to evaluate and invest in new technology
to maintain and improve its Data Protection
management processes and controls.
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
69.
Risk Management continued
71
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Acquisition and
integration of new
businesses
Risk movement
Strategic links
Supply chain
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, 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.
The Group continues to 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 includes immediate
actions to ensure that newly acquired businesses
meet the Group’s standards in areas such as cyber
security, health and safety, and financial reporting,
as well as a wider programme of actions to bring
acquisitions in line with the Group’s governance
framework. 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,
completed by management and assured by Group
Internal Audit, with the sharing of any lessons learnt
identified by those reviews.
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. Over the past few
years the Group’s businesses, similar to the rest of
the sector, have faced challenges in securing the
supply of certain products due to global supply
chain issues. Whilst these pressures have eased
slightly during 2022, the war in Ukraine has impacted
supplies of certain products across the sector as well
as driving up product costs.
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 the past few
years have been effectively managed by business
unit procurement teams working closely with key
suppliers.
The Group has implemented technology to improve
its third-party risk management and compliance
procedures. This has enabled a Group-wide process
for screening and obtaining information from key
suppliers to be implemented in 2022. This covers
a range of ethical, financial and quality areas to
confirm compliance with Grafton policies and
relevant regulatory standards. The technology and
processes will be further extended and embedded
in 2023.
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
payment 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 by Group
Internal Audit.
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
72
Grafton Group plc Annual Report and Accounts 2022
Competition in
distribution, retailing and
manufacturing markets
Risk movement
Strategic links
Colleagues – retention,
recruitment, succession,
diversity and wellbeing
Risk movement
Strategic links
Risk description
Grafton faces volume and price competition in its
markets. The Group competes with distributors
of building materials and retailers of varying sizes
and faces competition from existing general and
specialist distributors including the national builders’
merchanting chains in the UK together with retailers,
regional distributors 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. During 2022, the rise in general inflation
and reduced consumer demand, particularly in the
UK RMI market, has increased these competitive
pressures and raised this risk.
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 Isero 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. Businesses
also monitor customer satisfaction across their
branches using metrics such as Net Promoter Score,
and take corrective action when necessary.
The Group has established and continues to
develop an online sales capability to respond to
changing customer requirements. During 2022 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, and marketing teams have also
invested in technology to improve their effectiveness.
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.
Risk description
The Group had over 9,000 colleagues at the year end
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. During the year the Group has been
focused on effectively managing CEO succession for
the Group and in several 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 recognises the continuing high level of
risk regarding colleagues as a result of general price
inflation, very tight 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
with action plans implemented in those businesses
with high colleague turnover. 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 in all businesses 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.
Risk Management continued
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Grafton Group plc Annual Report and Accounts 2022
Strategic Report
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
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.
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
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 currently has programmes ongoing to replace
and upgrade legacy systems in Selco and CPI
Mortars. In addition during 2023 it will commence
a project to implement a new ERP system for its
Netherlands business. 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, including third parties where
necessary, 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.
For each significant systems project, regular
progress reports are made to the Board. In addition,
Group Internal Audit perform an initial review of the
programme governance and management, and then
continue to provide ongoing assurance through
attendance at steering committee meetings. Best
practices and any lessons learnt from completed
projects are shared around the Group.
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Grafton Group plc Annual Report and Accounts 2022
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 2023. Where instances of
attempted fraud occur within the Group, lessons
learnt are identified and shared across businesses.
Risk Management continued
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. The
strategy has been rolled out to each business unit
who have developed programmes and activities with
targets, aligned with the overall Group goals which
are monitored and reported on.
During 2022 Grafton appointed a new Group Head of
Sustainability to lead and co-ordinate activity across
the Group’s businesses. They will also extend the
engagement with external stakeholders and further
collaborate with third parties, including sector groups
and suppliers, on sustainability matters.
In addition, during 2022 Group Internal Audit,
supported by third party sustainability specialists,
conducted a review of Group’s sustainability strategy,
including benchmarking against peer organisations.
The output of this review and its recommendations
will assist the new Group Head of Sustainability
with their roadmap to further develop the Group’s
approach to sustainability.
The Group continues to monitor its exposure to
climate change risks and take steps to improve
its resilience. In 2022, this involved an exercise to
formally assess the risks and opportunities of climate
change at individual business units as part of the
Task Force on Climate-related Financial Disclosures
(TCFD) requirements. In addition, the Group undertook
an exercise, with the assistance of specialists from
Marsh, to model the potential impact of increasing
physical threats from climate change on its portfolio
of properties. This exercise identified those properties
which were at a higher risk of damage and operational
interruption as a result of rising temperatures and
increased adverse weather events, typically due to
flooding. This has allowed the Group to prioritise
actions to improve flood defences and mitigation for
those 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 2023.
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Strategic Report
Pandemic risk
Risk movement
Strategic links
Risk description
The Group is exposed to the impact of Covid-19 or
similar viruses in the countries where it operates
and also in countries where some of its suppliers
are based. It recognises that the risk in this area has
reduced during the year as cases of Covid-19 have
continued to fall, but has maintained the risk on its
register as the virus remains prevalent in certain
countries across the world.
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
pandemics 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 three 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. 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.
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
76
Grafton Group plc Annual Report and Accounts 2022
Building a more
sustainable future
Sustainability
Sustainability has remained a central part of the
Group Board agenda as well as a key topic of
conversation with the Senior Leadership Team.
2022 saw the easing of Covid restrictions across
our Group markets and the conflict in Ukraine.
The resulting energy crisis, high inflation levels
and cost of living crisis are likely to continue to
dominate 2023.
Grafton has managed to navigate these changes
and challenges because of our strong balance
sheet, diverse business portfolio and careful
approach to risk management. Against this
backdrop we are proud of the commitment that
all of our businesses have shown to sustainability
and the progress made against the strategy we
set out in 2021.
The Group was pleased to announce the
recruitment of our new Head of Sustainability
who joined in September and will work with all
business units to drive progress against our
sustainability strategy.
EY have carried out a review of our sustainability
strategy and completed a limited assurance
engagement on three key targets: carbon, gender
diversity and community.
Our assessment of climate change risks has
also been an important piece of work that has
involved all of our business units.
Whilst rising energy costs are proving a
challenge, we will continue to invest in renewable
energy generation, building on the work already
carried out across a number of our locations.
We also want to work in partnership with our
suppliers to support the changes the industry
needs to make.
An important priority for the coming year is
to complete our Scope 3 baseline and look to
set our targets across our value chain which
will require us to strengthen our Scope 1 and
2 targets as well as set our Scope 3 targets.
In addition to developing our transition plan
for achieving those targets, we will also be
focusing on improving our data collection
and working with our key suppliers to identify
collaboration opportunities. In addition to
this we will continue our focus on energy
management and alternative fuelled vehicle
trials.
We have published a standalone sustainability
report for 2022 which is available on our website
graftonplc.com and provides further detail on
activity during the year and progress against our
sustainability goals.
77
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Planet
Tackling climate change
and waste
• Climate change
• Waste
• Plastics and packaging
Customer and
product
Providing responsibly
sourced and more
sustainable options to
customers
• Product sustainability
• Circular economy
• Raw material sourcing
People
Creating the culture for people
to thrive inside and outside
our business
• Health, safety and wellbeing
• Diversity, inclusion and equity
• Training & development
• Sustainable living and working
Community
Making a positive contribution
to the communities
and customers we serve
• Volunteering and fundraising
• Contributing to the local
community
Ethics
Operating with integrity
• Strong governance
• Ethical business practices
• Supply chain management
and procurement
Building
a more
sustainable
future
Our strategy
Our sustainability strategy is based around five priority areas and it addresses the
material Environmental, Social and Governance (ESG) issues that are relevant to our
business.
Our strategy aligns with the 8 Sustainable Development Goals that we can have
the biggest impact on:
Below is a summary of our strategy:
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Grafton Group plc Annual Report and Accounts 2022
Sustainability continued
Community investment
Over £1 million invested in communities including over
£250,000 donated to the Red Cross to support the
Ukraine Appeal.
Customer engagement on sustainability
Chadwicks have ECO Centres in twelve branches, training colleagues to help
customers understand how they can save energy in the home.
Forests
Selco and CPI Mortars have invested in
forests that will capture around 34,000
tonnes* of carbon over their lifetime.
Health and Safety
The Group Lost Time Injury Frequency Rate reduced by
8 per cent from the 2021 levels and the corresponding
Group Lost Time Injury Severity Rate reduced by 21 per
cent against the same time period.
Circular business opportunities
Rental, refurbishment and recycling offers
available in Chadwicks, Isero, TG Lynes,
and IKH.
People Awards
Woodie’s recognised as a Great Place to
Work and a Best workplace for Women.
Selco was 17th in the Best Big Companies
awards.
Renewable Energy
Over 660 MWh generated from solar PV on our branches, distribution centres
and other premises.
2022 highlights
Climate Change Risk
Physical climate change risk
assessments carried out across our
property portfolio in partnership with
Marsh.
Carbon
11 per cent reduction in Scope 1 and 2
CO
2
e per £ million of revenue and 3 per
cent absolute reduction in CO
2
e vs 2021.
Energy Management
80 branches in UK and Ireland have
remote energy management systems to
control gas usage, seven also remotely
manage electricity usage.
* Includes 5 forests from 2021, 2022 and January 2023.
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Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Planet
Tackling climate change and managing waste
Why it’s important
The climate crisis is one of the most important
issues facing society and we are already
seeing the impacts of rising carbon emissions
around the world, from flooding events,
to more regular and severe wildfires, to rising
sea levels.
It is estimated that buildings account for
40 per cent of the energy usage across the EU
and the construction sector accounts for over
10 per cent of global carbon emissions.
As a result, all players in this sector have
a responsibility to take action to reduce
emissions.
Reduction in carbon emissions
Annual 2 per cent reduction per £million revenue using 2021
as the baseline year
Our goals
2%
Scope 3 emissions
Calculate Scope 3 emissions and set Science Based
Targets across our value chain
2024
Reduction in operational waste
15% reduction in total operational waste tonnage
per £million of revenue using 2021 as the baseline year
2025
Our progress
Climate change and
energy management
In 2022 we implemented a more robust carbon
data reporting and management system
for our Scope 1 and 2 carbon emissions.
Absolute emissions reduced by three per cent
from 2021 on a like for like basis. We also
achieved an 11 per cent reduction in Scope 1
and 2 CO
2
e relative to revenue vs 2021 and we
engaged EY to carry out external assurance on
this target. The assurance statement can be
found in our 2022 Sustainability Report on the
Group website.
Waste, plastic
and packaging
Across the Group we have achieved a 9 per
cent reduction in the total waste tonnage and
a 17 per cent reduction relative to revenue. We
work with waste management companies to
monitor our waste, manage it responsibly and
look for opportunities to reduce our waste. Our
teams have been looking for opportunities to
replace plastic wrap that we use to distribute
products with recycled alternatives as well as
looking to remove it altogether where possible
and safe to do so.
* 2021 data points have been recalculated following the availability of more accurate data for the year.
Scope 2 GHG emissions
(tonnes CO
2
e)
Scope 1 GHG emissions
(tonnes CO
2
e)
24.5
21.7
2022
2021
54%
58%
2022
2021
38,490
37,216
2022
2021
*
93%
97%
2022
2021
51,611
49,973
2022
2021
*
39%
38%
2022
2021
13,121
12,758
2022
2021
*
Emissions per £m revenue
(tonnes CO
2
e)
Total GHG emissions
(tonnes CO
2
e)
Total recycling rate Total recovery rate
Waste diversion from landfill
Alignment with SDGs
7.3
6.1
2022
2021
Total waste £m revenue (tonnes)
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Grafton Group plc Annual Report and Accounts 2022
Sustainability continued
Biodiversity
Biodiversity is an important and complex
issue. As a Group we can impact biodiversity in
our own operations, through our supply chains
and in the use of our products.
We have various initiatives in place
across the Group that are designed to
address biodiversity as well as other
environmental issues. Our timber sourcing
programme is promoting responsibly
sourced timber including FSC and PEFC
as well as a commitment to work with our
aggregate suppliers to ensure that 100
per cent of extraction sites are returned to
sustainableuse.
StairBox has been working with local schools
to recycle waste timber from their operations
into bug hotels to promote biodiversity at a
local level, and these spaces have also been
introduced in a number of Chadwicks’ new or
refurbished stores.
Our strategy in action
Solar
We are investing in solar power to secure supply
of renewable energy across our branches.
Our Chadwicks business has installed panels
on 12 of its branches. Selco Barking has
completed a renovation project including
the installation of 220 solar PV panels.
TG Lynes are utilising almost 70 per cent of
the total PV supply. Isero use heatpumps
in combination with solar panels and have
adapted and added five buildings in this way
in 2022.
Alternative Fuelled Vehicles
In 2022 Selco trialled an electric commercial
dropside van for the first time at its delivery
hub in Birmingham. In addition 28 electrically
powered counterbalance forklift trucks
were added to Selco’s fleet replacing diesel
models. StairBox has three electric forklifts in
operation. CPI has also invested in a lithium
electric forklift.
For more information please
see our Sustainability Report
Energy Management
Woodie’s have been working with an external
energy management adviser since 2020 to
better manage energy in its stores. Sub-
metering, LED upgrades and remote heating
controls combined with live energy usage
alerts and regular reports have helped each
store focus on the most impactful areas of
usage. This system has helped Woodie’s
Limerick use 33 per cent less electricity when
compared to two years ago. During 2022 Selco
also completed the roll-out of remote heating
controls to all locations to ensure gas usage is
monitored and managed effectively.
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Strategic Report
Customer
and product
Providing responsibly sourced and more sustainable
options to our customers
Alignment with SDGs
Why it’s important
As distribution and retail is such a big part of
our business, we know that our biggest area
of impact is through the supply chains and
manufacture of the products that we sell.
We sell to sole traders, small companies,
large construction companies and house
builders, the public and private sector and to
retail customers and DIY enthusiasts. In the
current economic climate, value for money is
incredibly important but this should not come
at the expense of quality, responsible sourcing
credentials and traceability.
Our goals
Pilot circular business opportunities
Product sustainability and circular economy
2025
Promote products with sustainability
attributes to customers
2030
Raw material traceability
• Establish a Group natural resources policy
• 100 per cent of building timber products
(by value) are responsibly sourced
as outlined in the Group Timber
Sourcing Policy*
• Working with our suppliers to CPI
Mortars to ensure that 100 per cent of
extraction sites are restored
2025
* The Grafton Group Timber Policy defines responsible sourcing as products that are FSC or PEFC certified. Building Timber products include but are not limited to our major product
categories including: Rough Timber, Planed Timber, Sheet Materials, Decking, Worktops, Mouldings, Cut Boards, Panel Boards, Cladding, Doors, Flooring
Product sustainability and circular economy
We have developed a draft structure to identify
products across our different business units
that have sustainability attributes. These
attributes include responsibly sourced raw
materials, low impact manufacture, reduction
in fossil fuel consumption in use and more.
However, we plan to carry out further
consultation internally and externally to
determine how to apply these to our portfolio
to ensure that we have a robust due diligence
process and are confident that we are clear
on the scopes and thresholds to apply. Our
Scope 3 carbon emissions analysis involves a
detailed assessment of the products we offer
and this will help us to focus our activity on
those categories that are most material to the
business.
Our mortar manufacturing business, CPI
Mortars, has carried out and published an
Environmental Product Declaration (EPD)
assessing the environmental impact of
mortars produced which is published on its
website.
In addition, in 2022 we carried out a review
of circular business opportunities across the
Group. We hope to analyse this area in more
detail and understand if they can be scaled up,
replicated across other Group businesses or
whether the learnings can be applied to new
customer offerings.
Our progress
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Raw material traceability
Gaining greater traceability of our priority
raw materials is an important focus for our
businesses.
CPI Mortars has strong traceability of the
sand, cement and additives used to make its
mortars. It has long-standing relationships
with its UK-based suppliers and works closely
with them to ensure the extraction sites have
restoration plans in place.
Timber is an important raw material for a
number of our businesses. It is a key product
category for Selco, MacBlair and Chadwicks
and is the essential raw material for StairBox.
The Group Timber Sourcing Policy outlines
the legal requirements, responsible sourcing
guidelines and due diligence guidelines for all
our businesses.
Through our supplier due diligence and risk
management system businesses can track
the FSC and PEFC accreditations of the large
timber suppliers they use, and they build on
this with due diligence and chain of custody
programmes to trace the timber from forest
to sale. The StairBox system incorporates
QR codes to trace timber through the steps
of production.
Selco has an extensive chain of custody
programme in place for FSC and PEFC
across their branches which requires an
annual auditing programme. It is also a
member of Timber Development UK through
which it reports annual progress against the
UK Timber Regulations.
Chadwicks also have FSC and PEFC
programmes in place for its native rough
timber and OSB sheets.
Sustainability continued
• Isero have introduced a recycling
programme with partner Gaia Circular,
whereby workwear and PPE are collected
and made into new products or recycled.
The sorting process also provides social
employment for disadvantaged people in
local areas.
• Chadwicks has developed dedicated
‘ECO Centres’ in twelve of its branches.
These help colleagues to demonstrate
to customers how they can make their
homes more energy efficient. The team
has collated a range of products that
Chadwicks sell showcasing insulation,
windows, membranes and tapes to prevent
drafts, energy efficient heating and cooling
solutions.
• Chadwicks, TG Lynes and IKH offer rental
and hire services for a range of products
across their portfolio including plant
equipment, power tools and tractor parts.
• To help customers reduce energy
consumption, MacBlair published energy
saving advice in partnership with the Energy
Savings Trust as part of its autumn/winter
promotional campaign.
For more information please see
our Sustainability Report
Our strategy in action
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Strategic Report
People
Creating the culture for people to thrive inside
and outside our business
Alignment with SDGs
Why it’s important
Our People are central to our success as a
business, they ensure we can get the right
products and services to our customers at
the right price, at the right time and with
the right level of support. We want to attract,
nurture, and keep great people and that is
why the people pillar of our sustainability
strategy is so important.
We are committed to offering a place of work
where our people feel safe, and their wellbeing
is looked after. We work hard to embed a
culture that fosters diversity and inclusivity
so our people can be themselves at work.
We offer training and help our people to grow
and develop with us and we support our
people through a strong benefits package
and help them to live more sustainable lives
at work and at home.
Our goals
Diversity, inclusion and equity
• Top 100 in the FTSE 250 for Board
Diversity
• Year on year increase in number of
females in our business
2030
Training and development
• Reporting on hours of training and
development across our businesses
2022
Sustainable living and working
• 100 per cent of colleagues receive at
least 1 per cent above the minimum
wage
2023
Health and safety
• 25 per cent reduction in total working
days lost as a result of an injury at work
versus a 2018 baseline
2025
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Sustainability continued
Our progress
Health, safety and wellbeing
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
Grouplevel.
We believe there is nothing we do that is so
urgent that we cannot do it safely.
This belief is central to how we lead and
integrate health, safety and wellbeing
practices and initiatives 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 at
work by challenging anything they feel is
contrary to our over-arching belief and raising
any concerns. This is achieved through a
combination of day-to-day management, focus
groups, team meetings, committee meetings
and through the Group Risk Committee.
We deeply regret having to report that one of
our colleagues was involved in a fatal road
traffic accident earlier in 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 continue to use in-vehicle telemetry to
monitor driving behaviours and implement
targeted driver training programmes.
Alongside existing vehicle active safety
systems, we are also investigating the use
of Artificial Intelligence to both assist drivers
and to improve reporting on safe driving
behaviours.
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. Each business
is subject to regular health and safety audits
including branch compliance checks by
internal teams in the businesses and reviews
by Group Internal Audit.
2022 was a year of consolidation with each
business focusing on its strategy for safety,
health and wellbeing improvement after
the global disruption caused by the Covid
pandemic. The activity in each business
varied across the distribution, retailing and
manufacturing sectors. The key priorities in
all businesses were centred around keeping
pedestrians safe from moving vehicles, the
safe handling and storage of products and
ensuring safe customer deliveries.
All Group businesses have a wellness
programme in place with initiatives running
throughout the year to support colleagues to
be healthier and more content both at work
and at home. All Group colleagues have access
to a confidential professional advice service to
provide assistance with any personal issues or
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 post Covid-19 and
the changing ways colleagues live and work,
flexible working policies and practices have
been implemented where appropriate to
business needs.
• Selco accelerated the roll out of its Safer
Handling programme specifically tailored
to providing hands-on training in branches
and the dynamic assessment of all product
handling operations.
• Chadwicks continued its focus on vehicle
movements in branches with safety
observations of forklift truck movements
contributing to a significant reduction in
the number of incidents. Recording the
observations and any resulting actions on
the Notify Safety Management System
helped to focus attention and track all
improvements.
• Woodie’s introduced pallet cages into its
central distribution warehouse to improve
load security, reduce handling and slip/trip
injuries and to also significantly reduce the
use of plastic packaging materials.
For more information
please see our Sustainability
Report on the Group’s website
www.graftonplc.com.
Our strategy in
action
The Group Lost Time Injury Frequency Rate reduced by 8 per cent from the 2021 level and
the corresponding Group Lost Time Severity Rate reduced by 21 per cent.
Group lost time – injury frequency rate
Year Lost time injuries per 100,000 hours worked % Change
2022 0.90 reduced by 8%
2021 0.98 increased by 2%
2020 0.96
Group lost days – severity rate
Year Days Lost per 2,000 hours worked % Change
2022 0.19 reduced by 21%
2021 0.24 reduced by 25%
2020 0.32
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Strategic Report
Diversity groups, challenges of recruitment, employer brand
We believe that having a diverse workforce
brings not only diversity of thought, but it
also drives innovation. Ensuring that Grafton
is a truly diverse and inclusive business is a
top priority for the leadership. In recent years
we have developed a Diversity & Inclusion
(‘D&I’) agenda that promotes diversity in the
broadest sense.
Inclusion Networks have been established
in the UK and Ireland to provide opportunities
for colleagues to participate in our Diversity
and Inclusion agenda.
The Group has made significant progress
on how it monitors and reports diversity
information. We are pleased to report that
90 per cent of our colleagues in the UK and
Ireland have completed the voluntary diversity
information questionnaire and 77 per cent
have answered all the questions.
Our Diversity agenda is built around
representing four key areas:
ABLE
disability and mental wellbeing
PRIDE
gender and sexual orientation
BALANCE
gender equality and working families
REACH
ethnicity
Unfortunately the percentage of our female
colleagues dropped slightly since 2021 from
30 per cent to 29 per cent. This is primarily
because the tight labour markets across all our
geographies made it increasingly challenging
to select from a wider pool of diverse talent
when recruiting new colleagues.
In 2023, our businesses will be working with
colleagues to encourage allyship to support
others in under-represented groups. We will
build on the good work carried out in 2022 in
achieving recognition as a diverse employer
and a great place to work. We also plan to
review our careers websites to encourage
more diverse candidates and support more
robust applicant tracking.
Diversity, inclusion and equity
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Sustainability continued
Diversity data
Group businesses held a range of initiatives
in support of Pride in June 2022. Colleagues
were joined by guest speaker Mohsin Zaidi,
the award-winning author, commentator and
lawyer and advocate for LGBTQI+ rights, BAME
representation and social mobility for a very
interesting online session.
Woodie’s is the first retailer and one of only
eight organisations in Ireland to be accredited
as a Gold Investor in Diversity by the Irish
Centre for Diversity in recognition of its
embedding of Equality, Diversity and Inclusion
across the organisation. The business has
recently achieved gender balance and is now
also reflective of national demographics on in
Ireland ethnicity, age and LGBTQI+ status. The
results have also been reflected in the Great
Place to Work survey with colleague ratings on
D&I performance growing from 74 per cent in
2014 to 93 per cent in 2022.
Gender pay
Monitoring pay rates 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
genders and we work hard to support career
development and progression for female
colleagues.
In 2022 Woodie’s and Chadwicks reported
their gender pay statistics and published them
on their websites. This is in addition to the
established reporting at Selco and Leyland
SDM. The Group also reports gender diversity
data under the FTSE Women Leaders Review.
Recruitment
As part of our Diversity and Inclusion strategy,
businesses across the Group have been
reviewing their recruitment processes and
refreshing their employer brands.
Manager refresher training on inclusive
recruitment has been a particular focus as
well as auditing our recruitment processes and
adverts for gender bias.
Female 29%
Male 71%
Female 23%
Male 77%
Under 21 5%
21-30 20%
31-40 24%
41-50 23%
51-60 20%
Over 60 8%
Part time 22%
Full time 78%
Gender breakdown: Group Gender breakdown:
Senior Management
Work PatternsAge Breakdown
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Strategic Report
Alignment with SDGs
Community
Making a positive contribution to the
communities and customers we serve
Why it’s important
Our colleagues care deeply about supporting
community programmes in the communities
where we operate, through volunteering,
fundraising and donating. We are very proud
of the impact that we have had throughout
2022. This ongoing support will be important
as many people face continuing cost of living
increases in 2023.
Community investment and fundraising will be
equivalent to at least one per cent of profit.
Our goals
2025
Our businesses contribute to their local
communities which is an important part of
the way they do business. Over the past year
we have worked to formalise the data capture
and reporting of these programmes. Our
contribution to communities can be broken
down into:
Volunteering
In 2022 our colleagues have carried out
individual volunteering programmes as
well as team volunteering days.
Monetary donations
Our businesses donate to local and national
charitable organisations and good causes
and engage their colleagues and customers
in selecting the organisations that mean the
most to them.
Donations of materials
and goods
Our businesses also support good causes
through the donation of materials including
paint for renovation projects or pay for
services such as marketing and advertising.
These programmes are managed at local
branch level and they have a really positive
impact.
Colleague and customer
fundraising
Our colleagues and customers love to get
involved in fundraising. Across our group
of businesses our colleagues have cycled,
climbed, baked and run raffles all in the name
of good causes.
Our progress
Our businesses support their local communities in a variety of ways:
• The Woodie’s Heroes flagship programme
which has been running for eight years,
raised over £400,000 in 2022 through
customer and colleague fundraising.
• Chadwicks provided support to the third
TV series of DIY SOS: The Big Build Ireland.
As the sole building materials supplier to
the show, Chadwicks helped facilitate the
refurbishment of eight properties, donating
the equivalent of £200,000 in products and
thousands of volunteer hours.
• In March 2022 the Group made a donation
of £250,000 to support the response of
the Red Cross movement to the Ukraine
crisis. Donations were made to the national
societies across all the countries that the
Group operates in to help provide food,
water, medicine, warm clothing, and shelter
to those whose lives have been torn apart by
the conflict.
• Leyland SDM supported the Happy Feet
public art project with the Portobello Market
event. More than 500 people put their best
foot forward to create a giant 20-metre
piece of public art in London.
For more information
please see our Sustainability
Report on the Group’s website
www.graftonplc.com.
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Sustainability continued
Ethics
Operating with integrity
Why it’s important
To deliver our business and sustainability goals we need to underpin our strategy with robust
governance processes, strong policies and procedures, effective training and awareness,
responsible sourcing and responsive risk management.
Strong governance
Group CEO and CFO
Responsible for implementing the Group
strategy and directing all aspects of the
sustainability agenda including climate
change relatedissues.
Business Unit Management
Responsible for the delivery of the Group
sustainability strategy in their businesses
and engaging with colleagues on
sustainability.
Head of Sustainability/
Sustainability Working Group
Responsible for developing, progressing
and implementing the Group
sustainability agenda. Led by the Group
Head of Sustainability with members
including the Deputy Company Secretary,
Group SHEQ Director, Group HR Director,
Group Internal Audit and Business Risk
Director and the Group Head of Property.
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.
Group Risk Committee
Monitors and reports on the Group’s
riskmanagement process for key
business risks.
Sustainability continued
Alignment with SDGs
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.
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Ethical business practices
The Group has a Code of Business Conduct
and Ethics which reflects our responsibility
to uphold high standards of ethics and
integrity. 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 is also
available to colleagues in each business in the
local language.
We continued our focus on policy awareness
with the commitment to review and update
policy documents at least every two years.
We have also developed a number of short
awareness videos which accompany the
policies and help colleagues understanding of
the key requirements.
SpeakUp
Colleagues are encouraged to report any
concerns they have to their line manager
including anything of a business ethical nature.
In addition, the Group has an established
whistleblowing process (SpeakUp) which
allows colleagues to report concerns
confidentially to an independent party with
safeguards in place to ensure cases are
investigated fully and prevent retaliation
toreporters.
Risk management
The Group has an established risk
management process, which is closely aligned
with its overall strategic development, to
ensure effective and timely identification,
reporting and management of risk events that
could materially impact the achievement of
strategic objectives and financial targets.
Read more on risk management on pages 66
to 75
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.
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.
Supply chain management
and procurement
In 2022 we rolled out our supply chain
management system in partnership with an
expert risk management company, sending
out questionnaires to all our large suppliers
requesting due diligence information
covering countries of operation, manufacture,
sustainability policies, procedures and
standards. An important piece of work
carried out in 2022 has been the mapping
of the goods for resale supply chains. The
assessment of large suppliers is a key part
of the due diligence process. This data is
based on reported supplier locations and
manufacturing locations.
Human rights and modern
slavery
We are committed to conducting our
activities in a way that values and respects
human rights. Our supply chain management
procurement process, described above, is
an important part of our human rights and
modern slavery programme to promote strong
labour standards through our value chain. The
Group’s Modern Slavery Statement is available
on our 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 our businesses or
supplychains.
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Task Force on Climate-related Financial Disclosures (TCFD)
Sustainability continued
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
climate risks and opportunities since 2014,
measuring and tracking. In recent years,
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 setting Science Based Targets across
Scope 1-3 by the end of 2024, this will include
setting out our transition plan to achieve
thosetargets.
The Group is evolving its climate change and
risk management approaches to align with
the recommendations of the 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 was a specific Group Sustainability
and Climate Change Risk Register. During
2022 this Group level assessment has been
further enhanced by completing focused
assessments across all business units, so
that each business now has its own Climate
Change Risk and Opportunity Register with
specific mitigation actions.
During 2022 we completed an exercise to
model the potential impact of physical climate
change risks to properties across the Group.
Further details are provided below. This did not
result in any adjustment to property fair values.
Grafton disclosure against
the recommendations of the
TCFD progress.
In line with Listing Rule 9.8.6, the table below
summarises the consistency of disclosures
made last year and in the current year within
the TCFD framework and how we will build on
these next year:
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. P √
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario. P √
Risk management – Disclose how the organisation identifies, assesses, and manages climate-related risks.
a) Describe the organisation’s processes for identifying and assessing climate-related risks. P √ √
b) Describe the organisation’s processes for managing climate-related risks. P √ √
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. P √
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the
related risks. * P P P
c) Describe the targets used by the organisation to manage climate-related risks and opportunities and
performance against targets. * P P √
Key:
√ = Fully complied with TCFD requirements
P = Partial compliance with TCFD requirement (aiming for full compliance in 2023/ future years)
* Scope 1&2 already disclosed, expected to disclose Scope 3 emissions from 2024.
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Strategic Report
We have also considered the TCFD
supplementary guidance for the Materials
and Buildings sector and the relevance of
that to Grafton Group businesses. In line with
that we have performed work to assess the
risks related to the increasing frequency of
and severity of acute weather events (details
below). To further comply with this guidance
we will be taking steps to quantify the
opportunities for products that improve energy
efficiency and reduce waste, and to develop
the range of relevant metrics we report.
Governance
The governance of climate-related risks
and opportunities is integrated into our
overall risk management structures, with
the Board having ultimate accountability for
managing sustainability and climate change
risk and response within the Group, as set
on page 88. Whilst the Group uses the same
overall governance processes to manage
climate change risk as it does for financial
management, the procedures, controls and
reporting for climate and sustainability are
still developing and are not currently at the
same detailed level or frequency as financial
reporting processes.
The Board, including executive management,
monitors progress on climate-related goals
through discussion and reports presented
at Board meetings. At its meeting in June
2022 the Board held an in-depth session on
sustainability and climate change and received
an update on the progress of actions to meet
the targets set in 2021. In the previous year,
the Board received training on climate change
including ‘net-zero’, science-based targets and
Scope 3 emissions. An update on the progress
of sustainability and climate change related
activities is also included periodically in Board
reports. The Board meeting in January 2023
included a further detailed discussion and
update on sustainability and climate changes
actions from the Group Head of Sustainability.
The Audit and Risk Committee (ARC), a sub-
committee of the Board, is responsible for
overseeing and monitoring the Group’s risk
management systems and the steps taken
to mitigate key risks, including sustainability
and climate change. At each of the four
ARC meetings held every year the members
receive an update of significant changes in
the risk profile and progress in risk mitigation
activities. In addition, the ARC meeting
held every January is dedicated to risk
management and includes a deep dive review
of individual risks.
Climate risks and opportunities are assessed
and reviewed by our Group Risk Committee
(GRC). The committee is chaired by the
CFO with representatives from all relevant
Group functions, including the Group Head of
Sustainability, and significant businesses. It
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 is led by the
Group’s new Head of Sustainability, who joined
Grafton in September 2022, and includes
functional heads with expertise in property,
people, environment and ethics. The Working
Group is responsible for developing the Group
sustainability strategy, including targets and
actions, to respond to the identified climate
risks and opportunities and align with the
relevant UN SDGs.
The Group Sustainability Strategy and
climate programme is being implemented by
individual business units. The CEOs of those
businesses are responsible for implementing
and managing their sustainability and climate
change programmes which are consistent
with the Group’s overall strategy. Each
business has formed its own sustainability
committee or working group to monitor and
manage its sustainability actions. The Working
Group and the Group Head of Sustainability
(since her appointment) had regular meetings
to discuss progress and share good practice
with the business teams. In addition, a
number of cross-business network forums
have been established which discuss specific
sustainability topics including property, people
and transport.
The Group has implemented an online tool
which enables businesses to record and
monitor their progress against the targets and
actions set through the Group sustainability
strategy, This tool will record Scope 1 and
Scope 2 emissions.
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 strategy within two
years of the date of acquisition. The Group’s
capital expenditure approval process includes
a requirement for the climate change and
sustainability impact of investments to be
documented, and forms part of the investment
decision. Annual budget presentations, made
by the leadership teams of each business
include a section requiring the business
management to set out the progress they’ve
made against their sustainability targets and
objectives, and plans for the coming year.
Strategy
Our assessment of climate risks and
opportunities considers a range of scenarios
which were identified based on the guidance
published by TCFD, the International Panel on
Climate Change (IPCC):
1. Rapid de-carbonisation – Government
led move to a low carbon economy in the
next 10 years with global temperature rises
limited to at or below 1.5°C (Representative
Concentration Pathway) (RCP 1.9-2.6)
2. Moderate de-carbonisation – Business
led/ Government supported transition to a
lower carbon economy over next 5-15 years.
Global temperature rises limited to around
2°C (RCP 3.4-4.5)
3. Limited climate action – Little or no
concerted effort to reduce carbon
emissions resulting in global temperature
rises in excess of 4°C (RCP 6-8.5)
The scenarios stated above are 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. These time horizons have been set
having taken into account the Group’s typical
planning approach (annual budget and five
year plan), and non current assets (majority
of properties are on a short leasehold (i.e.
< 15 years). The assessment which was
carried out at Group level in 2021 and for
individual businesses in 2022, involves senior
management representing relevant functions
and operational areas. Having identified and
scored risks, using a defined set of criteria,
the assessments also identify the actions that
need to be taken to mitigate the climate risks
and take advantage of opportunities.
Based on these scenarios the most material
risks and opportunities to the Group as set
out in the Group Sustainability and Climate
Change Risk Register are set out in the tables
on the following pages, together with the
principal current actions to address each
risk/opportunity and target measures. Many
of the risks and opportunities are linked and
therefore have the same or similar actions and
measures. The risks and opportunities apply
across Grafton’s geographies and sectors.
92
Grafton Group plc Annual Report and Accounts 2022
Sustainability continued
Risks
Climate
change
scenario Timeframe Current controls and mitigating actions Target Actions and Measures
The potential impact of rising
energy on our business
operations and supply chain
Strategic links
1 & 2 Short term Energy efficiency is a priority for all businesses. A
number of business units have introduced energy
management systems
The impact on sustainability of capex proposals is part
of the assessment process
Examples of energy efficiency investments include LED
across the Group’s property network
Energy suppliers moved to 100 per cent renewable
where possible
Sites being moved to renewable energy sources (Solar
panels, heat pumps), and incorporating these into new
build properties where possible
Target to reduce Scope 1&2 Emissions
(intensity ratio) by 2 per cent per annum
Commitment to set Science Based
Targets for Scope 1, 2 and 3 by 2024
Active management of energy use with
the support of more refined energy
management systems
Tracking (from 2023) electricity
generation of solar installations and the
percentage of electricity consumption at
branch level.
Increased stakeholder concern
due to lack of action on climate
change leads to a reduction
in capital availability, loss
of customers and impacts
recruitment and retention of
colleagues
Strategic links
1 & 2 Short term Group Sustainability Strategy established and rolled out
to businesses
Group Head of Sustainability hired in 2022
BUs have established their sustainability teams &
programmes
Communication of progress and sustainability
achievement to colleagues
Annual Sustainability Report
Annual CDP submission (rated C in 2022)
Engagement with stakeholders around
climate change.
Clearly communicate progress and
strategy.
Climate Change Targets form part of
Group banking arrangements
Element of Executive Director
performance bonuses linked to reducing
Scope 1 and 2 carbon emissions.
Changes in legislation or
regulation resulting in higher
operating and compliance costs,
e.g., limits in emissions
Strategic links
1 & 2 Medium-
Long term
Moving sites to renewable energy sources (Solar
panels, heat pumps), and incorporating into new build
properties where possible
Charging points installed at Group properties
Electric cars on the company car lists
Trial and expand use of alternative fuelled delivery
vehicles and forklift trucks (electric, CNG, HVO)
The impact of proposed investments and capex on
sustainability forms part of the due diligence and
assessment criteria
Target to reduce Scope 1&2 Emissions
(intensity ratio) by 2 per cent per annum
Commitment to set Science Based
Targets for Scope 1, 2 and 3 by 2024
Introducing EV chargers into new sites,
promoting alternative fuelled cars and
testing alternative goods vehicles.
Reduction in operational waste by 15%
(2025 v 2021)
25 per cent reduction in packaging film for
deliveries and storage (2025 vs 2021)
Impact of increasing severity
and frequency of adverse
weather events including flood
damage and heat waves on
Group properties and operations
result in loss of revenue due
to closure, higher repair and
maintenance costs
Strategic links
2 & 3 Short-
Long term
Properties are geographically dispersed
Mitigation actions to minimise impact of flooding at
high/very high-risk properties prioritised based on
climate threat modelling
Drainage maintenance programme in place for all
businesses
Insurance in place to cover immediate repair and loss of
business costs for all properties
Climate Change risks considered as part of acquisition
due diligence
Monitoring legislation and implementing data collection
requirements
Completion of flood mitigation actions
for at-risk properties, including flood
emergency response plans
All businesses to establish hot weather
working protocols
Monitoring of temperatures in branches
with improvements to ventilation and air
conditioning where necessary
Climate change and increasing
severity and frequency of
adverse weather impacts our
supply chain and the availability
of products
Strategic links
2 & 3 Medium-
Long term
Experience of managing product shortages and
allocations
Monitor market and increase stock holding / bulk
buying where there are concerns about products
Sole suppliers in key categories have been identified
with alternatives / contingency plans
Ongoing review of suppliers and products.
Identification of countries / suppliers
which are most likely to be affected by
climate change
Changes in legislation or
regulation impacting our existing
product range. This may result in
reduced demand, lower revenue
and profit
Strategic links
1 & 2 Medium-
Long term
Regular meetings with suppliers to understand product
changes
The Group and businesses keep themselves informed
about changes in legislation and regulation. Lead
time on legislative changes mean that phasing out
old product and introduction of new product can be
carefully managed
Vendor Managed Inventory and unsold stock return
arrangements with suppliers reduces exposure to risk
Active management of cost prices, monitoring any
changes and anticipating increases and decreases
Group focus on providing customers with more choice
and selling more sustainable products
Provide customers with more choice and
sell more products with sustainability
attributes and clearly communicate
benefits in a balanced way
Ongoing communication and co-
ordination with suppliers, customers
and standard-setters regarding product
development
93
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
Opportunities
Climate
change
scenario Timeframe Current projects and actions Target actions and measures
The growing market for energy-
efficient, sustainable products
and services in a low carbon
economy
Strategic links
1 & 2 Short-
Medium
term
Monitoring of new products and new building
regulations
Engagement with customers to understand needs and
wants
ECO Centres established in branches (Chadwicks), with
training given to colleagues
Regular meetings with suppliers to understand product
changes and developments
Environmental Product Declarations (EPDs) completed
by the CPI Mortars business
To develop a clear understanding of the
sustainability criteria of the products
we sell and increase awareness of and
volume of products that have a ‘more
sustainable’ criteria
We have commenced a process to assess
circular economy opportunities across our
business units
Improvements to our operations
and buildings with more
efficient energy use and through
reduction, reuse and recycling of
consumables
Strategic links
1 & 2 Short-
Medium
term
Energy efficiency a priority for all businesses. A number
of business units have introduced energy management
systems
The impact on sustainability forms part of the
assessment criteria for capex proposals
Examples of energy efficiency investments include
upgraded lighting to LED across property network
Energy suppliers moved to 100 per cent renewable
where possible
Moving sites to renewable energy sources (solar
panels, heat pumps), and incorporating into new build
properties where possible
Target to reduce Scope 1&2 Emissions
(intensity ratio) by 2 per cent per annum
Commitment to set Science Based
Targets for Scope 1, 2 and 3 by 2024
Target to reduce operational waste by 15
per cent (by 2025 vs 2021)
Target to reduce 25 per cent packaging
film for deliveries and storage by 25 per
cent (by2025vs2021)
Increased competitive
advantage through resilience
planning around property,
infrastructure and supplychain
Strategic links
2 & 3 Medium-
Long term
Detailed physical risk assessment carried out across all
Group properties
Prioritisation of flood mitigation actions at branches
identified as at high or very high risk
Hot weather working protocols established for relevant
sites
Sole suppliers in key categories have been identified
with alternatives / contingency plans
Complete flood mitigation actions for at
risk branches
Monitor summer temperatures in
branches and upgrade ventilation and air
conditioning as required
Using supply chain risk management
programme (introduced in 2021), analyse
supply chain to identify exposure to
geographical regions at risk from climate
change
Progress on sustainability
activities gives the business a
competitive advantage which
enables it to win more business
and recruit/retain toptalent
Strategic links
1 & 2 Short-
Medium
term
Activity to reduce scope 1 & 2 emissions
Commitment from management and colleagues on
sustainability strategy
Continued engagement with suppliers, customers,
colleagues and other stakeholders
Target to reduce Scope 1&2 Emissions
(intensity ratio) by 2 per cent per annum
Commitment to set Science Based
Targets for Scope 1, 2 and 3 by 2024
Publish a standalone Sustainability report
in 2023 demonstrating commitment to
transparency and progress
Strategic links
Excellence
in service
Strong
financial base
Ethics
and integrity
Organic growth
and acquisitions
A supportive organisational
structure and management
94
Grafton Group plc Annual Report and Accounts 2022
Sustainability continued
Further details of our sustainability strategy
and the wider actions we are taking are
outlined in our 2022 Sustainability Report
which is available on the Group website.
As part of last year’s TCFD disclosure, in
relation to risks and opportunities arising
from the move to more sustainable products
we committed to establishing, by the end
of 2022, a product rating system based on
sustainability credentials. During the year we
have discussed this with our suppliers and
other trade organisations and concluded that
for any such scheme to be successful it would
require co-ordination across the sector. As
we continue to work on this our focus instead
has been on providing customers with more
choice of sustainable products and ensuring
we do not make false claims regarding the
sustainable credentials of the products we sell.
Impact on strategy & planning
Climate change has impacted on the Group’s
strategic planning in several ways. The
Group’s sustainability strategy has focused
the business on taking steps to reduce their
carbon emissions whilst also growing activity.
This has involved projects to improve the
energy efficiency of buildings including LED
lighting and solar panel installations, and
efforts to reduce vehicle emissions including
switching company cars to hybrid and electric
vehicles and trials of alternative-fuelled
commercial vehicles (e.g., CNG, HVO).
The Group’s sustainability strategy recognises
increasing investor interest and scrutiny
of how companies are tackling climate
change. The Group will update its materiality
assessment for sustainability during 2023
which will include taking account of external
stakeholder views.
Sustainability and climate change forms
part of the evaluation criteria for business
investment, including evaluating climate
change threats to the locations of any
proposed acquisitions, consideration of
leasehold length for any properties, and
assessing the impact of capex on the Group’s
sustainability strategy.
Climate-related issues and potential impacts
on business performance and assets are
considered as part of the Group’s one and five
year planning processes and performance
monitoring.
The Group is also conscious of the impact of
climate change on the product and services
it offers. Businesses maintain dialogue
with suppliers and customers to ensure
their product offerings follow technical
developments and changes in market
demand. Chadwicks Eco-centres are a good
example of how a business has brought
together a collection of energy saving building
methods and products in branches to help
inform customers of the sustainable options
available. There is also training available for
our colleagues on these products so that they
can advise customers effectively.
CPI Mortars have been working with suppliers
and other third parties on the development
and trial of lower carbon cement products
for use in its mortars. Business management
are proactive with suppliers and standard
setters in monitoring demand for cement
and alternative products, and potential future
changes in product standards.
Resilience
The Group has some inherent resilience
to the impact of climate change given its
geographical and market spread, but has
taken steps to improve its resilience to
physical climate change risks to its properties.
During 2022 an exercise was conducted, with
the support of consultants from Marsh, to
model the climate change impact on its 424
properties across its four countries. The model
used current asset location data overlaid
by historical and future climate data under
two scenarios: RCP2.6 (i.e. consistent with
a rapid de-carbonisation scenario) and RCP
8.5 (consistent with a limited climate action
scenario). The exercise identified 44 sites
currently at a high or very high risk of flooding
which increases to 48 sites under an RCP
2.6 scenario in 2050, and 49 sites under an
RCP8.5 scenario. This has enabled us to focus
actions on those at-risk properties including
establishing flood emergency response plans,
building alterations to minimise flood damage
and protect stock, as well as existing drainage
maintenance schemes.
Work is in progress continuing into 2023 to
gain more transparency of the Group’s supply
chain through its third-party risk management
and compliance process to understand better
the Group’s exposure to suppliers in different
parts of the work which may be impacted by
climate change.
The Group’s strategy recognises the need
for a transition to low carbon economy in
the countries in which it operates and in
establishing its sustainability strategy aims
to enhance its resilience to those transitional
risks. Further work is planned to quantify the
transitional risks and establish metrics to
monitor Grafton’s exposure to them.
Impact on financial statements
Management have considered the current
and potential impact of climate change on
the financial statements. Costs associated
with projects to improve energy efficiency and
reduce carbon emissions have been absorbed
within operating expenses and capital
expenditure and have not been material during
the year. There has been no material impact
on the net realisable value of inventory or the
carrying value of fixed assets in this year’s
financial statements as a result of climate
change. This included consideration of the
results of the exercise to model the impact
of physical risks on the Group’s properties
which showed a relatively small increase in
the potential costs and losses from climate
change, principally as a result of flooding, which
may be mitigated through implementing flood
resilience measures (see risk sectionbelow).
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 businesses. Each
business maintains their 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 GRC who manage the Corporate Risk
Register (CRR) of all material risks to the
Group – see Principal Risks on pages 70 to 75.
Sustainability and climate change is a specific
risk on the CRR, and the impacts of climate
change are also considered when addressing
other risks, for example macroeconomics and
supply chain.
For all our risks, including our climate-related
risks, we assess the recurring or one-off
impact using 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 impact’.
In 2021 we completed a Group level
assessment of climate-change related risk and
opportunities using the same impact criteria
as we use for our overall risk management
process, but with a much longer timescale
for likelihood. We would typically assess the
likelihood of business risk materialising in
the next three years whereas we monitor the
likelihood of risks relating to climate change
risks over the short, (1-3 years), medium (3-10
years) and long-term (over 10 years).
In 2022 the climate change risk assessment
was extended to include individual business
units. These assessments used a similar
approach to the Group assessment, involving
BU senior management from a range of
relevant functions (e.g. finance, procurement,
property, operations), using the same likelihood
and impact criteria as the Group assessment
but with different numerical impact thresholds
to reflect their size and materiality to the
Group. Whilst the business unit assessments
did not identify any significant new climate
95
Grafton Group plc Annual Report and Accounts 2022
Strategic Report
change risks or opportunities to the Group it
did help to prioritise certain risks and actions
in the individual businesses.
Decisions on how to manage risks (e.g.
whether to mitigate, transfer, accept or
control), including those related to climate
change, are taken by management either
at Group or business unit level. Actions to
manage climate related risks are overseen
by the Group Risk Committee through Group
and 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 76 to 95 for
examples.
Grafton maintains 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.
As referred to above, an action taken to
manage climate risk during 2022 included
the exercise to model physical threats to the
Group’s current properties under two climate
change scenarios. This risk was prioritised
for modelling as, in previous years, the Group
has experienced disruption at a small number
of its sites due to flooding, and it was felt that
the exercise would directly help to prioritise
mitigating action for at risk sites. The results of
this work are summarised in the graph above.
The modelling exercise identified that risks to
the Group’s properties were exclusively from
flooding, either from surface water, riverine
or costal inundation, with other threats (soil
movement, extreme wind, wild-fire and freeze
thaw) having little to no impact. Extreme
heat instances, whilst not expected to cause
physical damage to properties, was identified
as a risk to cause some operational disruption
at 250 sites by 2050 under RCP2.6 and 386
sites under RCP8.5. As well as the flood
mitigation actions being taken, businesses will
be establishing hot weather working protocols
for relevant sites.
The financial impact of physical climate
change on the Group’s properties was also
assessed taking into account implications
from both property damage and business
interruption, which together were used to
calculate a reinstatement value for each
property. The modelling highlights that for
present day, the estimated cost of damage
from physical climate risk represents 0.58
per cent of our total property portfolio re-
instatement value, with financial impacts
projected to remain relatively stable under a
RCP2.6 scenario, and rising to around 0.62 per
cent under RCP8.5 by 2050. Importantly, many
of these financial risks may be mitigated by the
introduction of a number of physical climate
resilience initiatives at high-risk sites, including
developing emergency flood response plans
and implementing on-site flood resilience
measures.
Metrics and targets
As part of our sustainability strategy, we have
defined actions to help us manage climate
related risks and achieve our sustainability
goals, which align with two of our five focus
areas: Customer and Product; and Planet.
Very high 31
High 13
Medium 19
Low 231
Very low 130
Number of Grafton sites by climate risk rating:
2022
Very high 34
High 14
Medium 16
Low 229
Very low 131
2050 – RCP2.6
Very high 34
High 15
Medium 16
Low 230
Very low 129
2050 – RCP 8.5
Risk level Description
Very high Widespread damage/disruption. Significant cost implications
High Notable damage, with potentially high cost implications
Medium Possible damage which may have minor cost implications
Low Superficial damage, minor cost implications
Very low Low damage with low cost implications
These include increasing the awareness of
and volume of products that have a ‘more
sustainable’ criteria; reducing operational
waste, reducing Scope 1 & 2 carbon emissions,
measuring Scope 3 emissions and then
setting science-based targets to reduce scope
1, 2 and 3. The project to measure the Group’s
Scope 3 emissions is in progress. We have
committed to complete this and set a science-
based target for reduction by the end of 2024.
As part of setting this target, the Group will
develop a transition plan setting out how the
target will be achieved, how progress will be
monitored and the estimated financial impact
of implementation. This will include developing
a broader range of metrics consistent with
the TCFD guidance, including more granular
metrics and targets for the constituent
elements of Scope 1 & 2 emissions to help
drive improvement in these areas.
The principal metric currently used by the
Group to monitor the progress on actions
to address climate change risks is Scope 1
& 2 emissions per £m of revenue. As part of
new banking facilities arranged during 2022,
the Group tied its margin payments on those
facilities to three ESG metrics, such that the
Group will receive a discount if those targets
are met each year. One of these targets is an
annual 2 per cent reduction in the intensity
ratio of Scope 1 & 2 emissions up to 2027,
from a 2021 baseline. During 2022 the Group
achieved an 11 per cent reduction in its
intensity ratio. This has been subject to limited
assurance by an external party. Absolute
emissions reduced by three per cent from
2021 on a like for like basis. See Sustainability
section on pages 76 to 95.
Scope 1&2 emissions are calculated in
accordance with the GHG protocol as part of
our planned SBTi submission.
96
Grafton Group plc Annual Report and Accounts 2022
Corporate
Governance
97
Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Governing our business
Board of Directors and Secretary 98
Directors’ Report on Corporate Governance 100
– Chair’s Introduction 100
– Governance Structure 102
– The Board’s Year 104
Audit and Risk Committee Report 112
Nomination Committee Report 116
Report of the Remuneration Committee
on Directors’ Remuneration 120
– Chair’s Annual Statement 120
– Remuneration Policy Report 125
– Annual Report on Remuneration 133
Report of the Directors 146
Percentage of women on Board
38%
Board Diversity
The composition of the Board has evolved
considerably over recent years and
the Nomination Committee has taken
an active role in improving the gender
balance and ethnic diversity of the Board.
For more see pages 116 to 119
98
Grafton Group plc Annual Report and Accounts 2022
Board of Directors and Secretary
Board of Directors
Michael J. Roney
(USA)
MBA
Eric Born
(CH)
BA, MBA
David Arnold
(UK)
BSc, FCMA, FCT
Paul Hampden Smith
(UK)
FCA
Susan Murray
(UK)
Vincent Crowley
(IRL)
BA, FCA
Dr Rosheen McGuckian
(IRL)
BSc, MA, PhD
Avis Darzins
(UK)
Charles Rinn
(IRL)
MBA, FCCA
Non-Executive Chair Chief Executive Officer Chief Financial Officer Senior Independent
Director
Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Group Financial
Controller & Secretary
Career Career Career Career Career Career Career Career
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.
Eric Born joined the Group and
the Board as Chief Executive
Officer on 28 November 2022.
Mr. Born was previously
Chief Executive Officer of
Swissport International AG,
the leading global aviation
services provider, and Chief
Executive of Wincanton plc, a
leading provider of supply chain
solutions. He was formerly
President, West & South Europe
of Gategroup, the global airline
catering provider, and prior
to that he held a variety of
senior roles in the retail sector
in Switzerland and the UK.
Mr. Born previously served
as Non-Executive Director
of Serco Group plc and John
Menzies plc.
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 and Chair of Bellway
plc. He was also formerly
Non-Executive Director of
Pendragon plc, Redrow plc,
DX Services plc and Clipper
Logistics plc.
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.
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.
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Non-Executive Chair of Next
plc, the FTSE 100 listed UK
retailer; Non-Executive Director
of Brown-Forman Corporation,
the US based spirits business.
None Non-Executive Director of Crest
Nicholson Holdings plc, the
leading residential housebuilder
operating in the Southern half
of England and the Midlands.
None 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.
Chair of Davy Stockbrokers,
Ireland’s leading provider of
wealth management and
capital markets services.
Non-Executive Director of
C&C Group plc; 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,
an international engineering
and construction company.
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.
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
6.8 years 0.3 years 9.5 years 7.5 years 6.4 years 6.4 years 3.2 years 1.1 Years
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Nomination Committee (Chair) Finance Committee (Chair) Finance Committee Audit and Risk Committee
(Chair), Nomination Committee
Remuneration Committee
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
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Finance Committee
99
Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Michael J. Roney
(USA)
MBA
Eric Born
(CH)
BA, MBA
David Arnold
(UK)
BSc, FCMA, FCT
Paul Hampden Smith
(UK)
FCA
Susan Murray
(UK)
Vincent Crowley
(IRL)
BA, FCA
Dr Rosheen McGuckian
(IRL)
BSc, MA, PhD
Avis Darzins
(UK)
Charles Rinn
(IRL)
MBA, FCCA
Non-Executive Chair Chief Executive Officer Chief Financial Officer Senior Independent
Director
Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Group Financial
Controller & Secretary
Career Career Career Career Career Career Career Career
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.
Eric Born joined the Group and
the Board as Chief Executive
Officer on 28 November 2022.
Mr. Born was previously
Chief Executive Officer of
Swissport International AG,
the leading global aviation
services provider, and Chief
Executive of Wincanton plc, a
leading provider of supply chain
solutions. He was formerly
President, West & South Europe
of Gategroup, the global airline
catering provider, and prior
to that he held a variety of
senior roles in the retail sector
in Switzerland and the UK.
Mr. Born previously served
as Non-Executive Director
of Serco Group plc and John
Menzies plc.
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 and Chair of Bellway
plc. He was also formerly
Non-Executive Director of
Pendragon plc, Redrow plc,
DX Services plc and Clipper
Logistics plc.
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.
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.
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Current External
Appointments
Non-Executive Chair of Next
plc, the FTSE 100 listed UK
retailer; Non-Executive Director
of Brown-Forman Corporation,
the US based spirits business.
None Non-Executive Director of Crest
Nicholson Holdings plc, the
leading residential housebuilder
operating in the Southern half
of England and the Midlands.
None 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.
Chair of Davy Stockbrokers,
Ireland’s leading provider of
wealth management and
capital markets services.
Non-Executive Director of
C&C Group plc; 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,
an international engineering
and construction company.
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.
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
Board Length of Service
as at 1 March 2023
6.8 years 0.3 years 9.5 years 7.5 years 6.4 years 6.4 years 3.2 years 1.1 Years
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Committee
Membership
Nomination Committee (Chair) Finance Committee (Chair) Finance Committee Audit and Risk Committee
(Chair), Nomination Committee
Remuneration Committee
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
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Finance Committee
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Grafton Group plc Annual Report and Accounts 2022
100
Governing
for success
Board composition
We were delighted to welcome Ms. Avis
Darzins to the Board in February 2022.
Following a search led by the Nomination
Committee, we were very pleased to welcome
Mr. Eric Born as Chief Executive Officer and
to the Board. We are confident in his skills and
ability to lead the Group through its next stage
of growth and development.
Sustainability
Environmental and climate issues have again
been a focus of the Board’s agenda in 2022.
We are embedding governance in this area
and were delighted to appoint Rosie Howells
as Group Head of Sustainability in 2022. While
there is still much to do on sustainability, we
feel well positioned to take on this challenge
and we are very supportive of the Group’s
ambitions in this area. Our 2022 Sustainability
Report has been published on the Group’s
website www.graftonplc.com.
Board evaluation
The Board carried out an internal evaluation
during the year, following an external
evaluation that was carried out during 2021.
The key findings of the evaluation are set out
in further detail in the Nomination Committee
Report on pages 116 to 119.
AGM
We were delighted to be able to welcome
shareholders to our in-person AGM in 2022
following the holding of the 2020 and 2021
AGMs as closed meetings due to Covid-19
restrictions. We would like to thank all our
shareholders who voted via proxy or via poll at
the AGM and who put forward questions to our
AGM in 2022. We view the AGM as a critical
point of engagement with our shareholders
and we strive to ensure that your voting
support remains at high levels.
We look forward to welcoming investors to our
2023AGM.
Michael Roney
Chair
I would like to open this report by highlighting some
of the areas of governance which have had the most
impact on us as a Board and as a business. We hope
it demonstrates to you how the governance structures
within Grafton contribute to the long-term sustainable
success of the Group and how the Board has carried
out its duties throughout the year.
Chair’s Introduction
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Board gender diversity
Male: 5
Female: 3
Executive: 2
Non-executive: 6
UK: 4
Ireland: 2
US: 1
Swiss: 1
Independent: 5
Non-independent
(Executive): 2
Chair: 1
White: 7
Other ethnicity: 1
1-2 years: 1
3-4 years: 1
6-7 years: 3
7-8 years: 1
Board Independence
Non-Executive Directors
length of service
Executive/Non-Executive
Directors
Board nationality
Board ethnicity
Governance at a glance
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 sufficient to
enable the Board and its
Committees to operate
effectively.”
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Grafton Group plc Annual Report and Accounts 2022
Our governance
structure
Governance Structure
Grafton Group plc Board of Directors
The Board is collectively responsible for the oversight and success of the Group’s business. The Board’s
responsibilities include:
Key responsibilities
• Creating long term sustainable value for shareholders by providing leadership and taking account of
the needs of all stakeholder groups;
• 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.
CEO and Group Management
The CEO, supported by Group and Business Unit
management teams, is responsible for the day-
to-day running of the business, delivering the
Group strategy and monitoring the operational and
financial performance of the Group.
Board Committees
The Board has established the following
Committees, each of which plays a vital role in
helping the Board to ensure that high standards of
corporate governance are maintained.
The Group’s organisational structure is established and overseen by the
Board and designed to enable us to operate to the highest standard of
corporate governance and facilitate effective decision making.
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Audit and Risk Committee
Read more about the work of the Audit and Risk Committee on pages 112 to 115.
Key responsibilities
• Monitoring the integrity of the Group’s financial statements and announcements relating to the Group’s
performance;
• Overseeing and reviewing the effectiveness of the Group’s internal control and risk management
systems in place and the steps taken to mitigate the Group’s risks;
• Monitoring the effectiveness of the external audit process and overseeing the relationship between the
Group and the External Auditor; and
• Monitoring and reviewing the scope, resourcing, findings and effectiveness of the Group’s Internal Audit
function.
Nomination Committee
Read more about the work of the Nomination Committee on pages 116 to 119.
Key responsibilities
• 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;
• Identifying, and making recommendations to the Board candidates for appointment as Directors;
• Considering the re-appointment of Non-Executive Directors at the conclusion of their specified term
of office;
• Annual review of succession plans for senior executives across the Group; and
• Identifying and nominating for approval by the Board of candidates for appointment as Directors.
Remuneration Committee
Read more about the work of the Remuneration Committee on pages 120 to 145.
Key responsibilities
• Determining the policy for executive Director remuneration and for setting remuneration for the Chair,
executive Directors and senior management;
• Reviewing workforce remuneration and related policies and the alignment of incentives and rewards
with culture; and
• Reviewing the ongoing appropriateness and relevance of the remuneration policy.
Finance Committee
Read more about the work of the Finance Committee on page 106.
Key responsibilities
• Considering the financing requirements of the Group, amendments to the terms of existing bank
facilities, approval of leases for assets other than property up to a specified level and litigation matters.
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Grafton Group plc Annual Report and Accounts 2022
104
Grafton Group plc Annual Report and Accounts 2022
Board highlights
at a glance
The Board’s Year
The Board balances its agenda to ensure it covers all performance,
operations, strategic and governance matters.
January March May
February April
June
Review of risk
management
framework and risk
register
Launched 2022
Sharesave for UK
colleagues
Commencement of
first share buyback
programme
2021 FY results and
proposed dividend for
approval at AGM
Avis Darzins joins
the Board
Announced plans to
launch share buyback
programme subject to
shareholder approval
Resumption of
in-person AGMs
Board Strategy meeting
and site visit to IKH in
Finland
Update from NEDs on
National Colleague
Forums
Update on
opportunities in
circular economy
and decarbonisation
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Grafton Group plc Annual Report and Accounts 2022
105
Corporate Governance
July NovemberSeptember
August
December
Gavin Slark to step
down as CEO
Launch of second
share buyback
programme
Eric Born joins the
Group and the Board
as CEO
Completion of first
share buyback
programme
Interim results
investor roadshow
Half year results
Agreed new structure
for operation of
Colleague Forum
meetings
Board evaluation
review
The typical board agenda includes:
General matters
Minutes, matters arising and
reports from the Chairs of the
Board Committees. Governance,
legal and regulatory matters.
Performance and
operations
Updates on trading, financial
performance and operations,
along with updates from key group
functions such as Health and Safety,
HR, Internal Audit and Risk, IR and
Sustainability.
Corporate development
strategy
Allocation of capital for organic
growth and acquisitions. Strategic
development of Group. Acquisition
and growth opportunities in new and
existing markets.
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Directors’ Report on 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 meetings
The Board met on eight occasions during 2022, and the attendance of individual directors at each meeting is set out in the table on page 109.
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. Eric Born, 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. Eric Born, 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 8 to 9 and 30 to 35.
Objectives and controls
The Group’s strategic objectives are set out on pages 30 to 33 and a summary of performance against the Group’s KPIs is at pages 42 to 45.
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 66 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 20 to 21 and further information on engagement with colleagues
is set out in our People and Culture report on pages 16 to 19.
Colleague engagement
Colleague engagement feedback was shared amongst Non-Executive Directors who attended meetings of the National Colleague Forums with
colleagues from the UK, Ireland and the Netherlands. A colleague committee was established in Finland 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.
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 28 and 29. The Risk Management Report on pages 66 to 75 contains an overview of the principal
and emerging risks facing the Group and a description of how they are managed.
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
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. Colleague Forums held during the year 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. The Group also issued Trading Updates in
January, April, July and November of 2022.
Live audio conference calls for analysts and investors hosted by the CEO and CFO were held via webcast on 24 February 2022 and 25 August 2022
following the announcement of the Final Results for 2021 and the Interim results for 2022 respectively. Pre-recorded presentations for the Final
Results for 2021 and the Interim results for 2022 are available to view or download at https://graftonplc.com.
Significant or noteworthy acquisitions are announced to the market. The Group website 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 primarily 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 and he had a number of meetings and calls with major shareholders during the year.
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 2022 shareholders were given
the opportunity to attend the AGM either in person or remotely and could raise questions during the meeting or 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 Company Secretary, Deputy Company Secretary and Assistant Company Secretary held a governance roadshow for a
number of major shareholders prior to the 2022 AGM.
The Notice of the AGM, which specifies the time, date, place and the business to be transacted, is sent to shareholders at least 21 days before the
meeting. The AGM is normally attended by all Directors. All resolutions at the 2023 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 14clear 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.
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.
Shareholders have the right to attend, speak, ask questions and vote at general meetings. 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.
2023 AGM
The 2023 AGM will be held at the Irish Management Institute (IMI) Sandyford Rd, Dublin, D16 X8C3, Ireland at 10.30am on 4 May 2023.
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Grafton Group plc Annual Report and Accounts 2022
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 experience. It considers investor guidance on
this area as part of the annual review of the time commitments of each Director. The Chair and all Non-Executive Directors except one had a 100
per cent attendance record at all Board and Committee Meetings held during the year. One Director was unable to attend one Board Meeting during
the year due to illness. They also demonstrated high levels of availability and responsiveness where discussions were 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 appointment of Mr. Vincent Crowley as Chair of Davy
Stockbrokers.
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 have been considered in Board discussions and decision-making.
While section 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 20 and 21.
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.
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 109, 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.
Directors’ Report on Corporate Governance continued
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
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.
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 8 8 – – – – 8 8
E. Born 1 1 – – – – – –
G. Slark 8 8 – – – – – –
D. Arnold 8 8 – – – – – –
P. Hampden Smith 8 8 4 4 6 6 8 8
S. Murray 8 8 4 4 6 6 8 8
V. Crowley 8 8 4 4 6 6 8 8
R. McGuckian 8 8 4 4 6 6 8 8
A. Darzins 6 5 2 2 3 2 2 2
Ms. Avis Darzins was appointed to the Board with effect from 1 February 2022. Mr. Eric Born was appointed to the Board with effect from
28 November 2022.
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Directors’ Report on Corporate Governance continued
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.
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 116 to 119.
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 2022, following the resignation of Gavin
Slark, the Board was made up of eight members comprising the Non-Executive Chair, two Executive Directors and five independent Non-Executive
Directors.
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 Chair’s Statement on pages 24 to 27 and in the
programme of work undertaken by the Nomination Committee in its report on pages 116 to 119.
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 internal evaluation was conducted during the year, an external evaluation having been carried out by Trusted Advisors Partnership (‘TAP’) in
2021. The evaluation involved each Director 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. The key findings of the evaluation are set out in the Nomination Committee Report on page 118.
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 116 to 119.
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Corporate Governance
Director election/re-election
In accordance with the provisions of the Code, the Board has decided that all Directors should retire at the 2023 Annual General Meeting (‘AGM’)
and offer themselves for election/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 116 to 119.
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.
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 leading to
the appointment of Avis Darzins in February 2022. In 2022 the Board engaged Russell Reynolds to assist with the search for a new CEO leading to
the appointment of Eric Born in November 2022.
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 152.
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 66 to 75.
Audit and Risk Committee
The Board has established an Audit and Risk Committee which is comprised of five 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 112 to 115. 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 112 to 115.
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 113.
Going concern assessment
The Group’s net cash position, before recognising lease liabilities, decreased to £458.2 million at 31 December 2022 from £588.0 million at
31 December 2021. Net cash including lease obligations was £8.9 million at 31 December 2022 (2021: £139.0 million). The reduction in net cash
largely reflects the Group’s share buy-back programmes with total shares purchased of £143.0 million to 31 December 2022, including £7.6 million
relating to the May 2022 LTIP vesting.
The Group had liquidity of £934.6 million at 31 December 2022 (31 December 2021: £1,235.4 million) of which £707.7 million (31 December 2021:
£840.7 million) was held in accessible cash and £226.9 million (31 December 2021: £394.7 million) in undrawn revolving bank facilities.
No refinancing of debt is due until August 2027.
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 70
to 75, 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 five independent Non-Executive Directors. Details of the Committee’s key
responsibilities and a description of its work during 2022 are contained in the Report of the Remuneration Committee on Directors’ Remuneration
on pages 133 to 145.
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Grafton Group plc Annual Report and Accounts 2022
112
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.
Paul Hampden Smith
Chair of the Audit and Risk Committee
1 March 2023
Membership Length of service*
P. Hampden Smith (Chair) 7.5 years
V. Crowley 6.1 years
S. Murray 5.2 years
R. McGuckian 2.8 years
A. Darzins 0.5 years
* Committee service of 1 March 2023.
Dear Shareholder,
I am pleased to present
the report of the Audit and Risk
Committee for the year ended
31 December 2022.
Audit and Risk Committee Report
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Corporate Governance
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 98 and 99 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 109.
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 Chair 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 2022
A summary of the key activities of the Committee during the year is set out below:
Financial reporting The Committee reviewed the 2021 Final Results Announcement, the 2021 Annual Report and the 2022 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 2021 Final Results Announcement, the
2021 Annual Report and the 2022 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 reports of PwC following their audit and interim review 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 115.
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 66 to
75. 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 70 to 75 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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Grafton Group plc Annual Report and Accounts 2022
Internal audit The Group Internal Audit and Business Risk Director reports to the Chief Financial Officer and also has direct access
to the Chair of the Audit and Risk Committee and its members. 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 2023. An internal review of the effectiveness of the Internal Audit function was carried out
during the year and the results of this review were presented to the Committee in February 2023. The findings of the
review were very positive and a number of operational and strategic recommendations made will be acted upon.
External auditor The Committee reviewed the External Auditors’ plan for the 2022 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 did not impair the
Auditors’ judgement or independence.
Non-audit services The External Auditor is permitted to undertake non-audit services that do not conflict with auditor independence,
provided the provision of the services does not impair the Auditors’ objectivity or conflict with their role as Auditor and
subject to having the required skills and competence to provide the services.
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 External Auditors. The
Committee approved the provision of non-audit services by the Auditor during the year with associated fees amounting
to £19,000 (2021: £Nil), as disclosed in Note 3, and do not believe these services to have compromised the Auditors’
independence or judgement.
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.
Audit and Risk Committee Report continued
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Estimates and judgments
The Committee reviewed in detail the following areas of significant judgment, complexity and estimation in connection with the Financial
Statements for 2022. 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 154 to 159. 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 group of CGUs based on the
Group’s pre-tax weighted average cost of capital adjusted to reflect issues associated with each group of CGUs
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 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 higher than the
net asset value.
The Finland Distribution CGU’s recoverable amount has more limited headroom over its carrying amount. This was
expected as it is a recent addition to the Group and, in view of the short period since it was acquired in July 2021, there
has been limited opportunity to increase the recoverable amount. Therefore, it is more sensitive to possible changes in
key assumptions.
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
materiality of rebate arrangements, the use of manual inputs, and the estimation involved in determining the year end
receivable amounts. 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 2022 with reference to
agreements with individual suppliers and reports of purchases made from suppliers. The Committee also considered
the value of rebates received after the year end relating to 2022.
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 across the Group.
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
1 March 2023
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Grafton Group plc Annual Report and Accounts 2022
116
Nomination Committee Report
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; and
• Annual review of succession plans for senior executives
across the Group.
Diversity
• Ensuring diversity policy is linked to Group strategy; and
• Reviewing the gender balance of those in senior
management positions and their direct reports.
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.
Michael J. Roney
Chair of the Nomination Committee
1 March 2023
Membership Length of service*
M.J. Roney (Chair) 6.8 years
P. Hampden Smith 7.5 years
S. Murray 6.0 years
V. Crowley 6.0 years
R. McGuckian 2.8 years
A. Darzins 0.5 years
* Committee service as of 1 March 2023.
Dear Shareholder,
I am pleased to present
the report of the Nomination
Committee for the year ended
31 December 2022.
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Activities of the Committee
during 2022
Introduction
The primary area of focus by the Committee
during 2022 was on the search for a new
CEO. The Committee also recommended the
appointment of an additional Non-Executive
Director. The Committee considered the
composition and diversity of the Board and
succession planning at Board and senior
management level and it continued to seek to
balance the need to refresh the Board while
maintaining a team of knowledgeable and
experienced Non-Executive Directors.
Recruitment of CEO
When Mr. Gavin Slark advised the Board of his
intention to step down as CEO, the Committee
appointed Russell Reynolds, the international
search and recruitment firm, to support the
Committee with the search for a new CEO.
Russell Reynolds was not engaged by the
Company for any other purpose during 2022.
A candidate specification and profile were
developed to ensure potential candidates
would have the required balance of skills,
experience, personal qualities and leadership
skills considered important to the role. A
longlist of potential candidates was drawn up
from a range of backgrounds and considered
by the Nomination Committee.
Selected candidates were shortlisted
for interview by a sub-committee of the
Nomination Committee comprising myself as
Chair of the Board and Nomination Committee,
Mr. Paul Hampden Smith, Senior Independent
Director and Mrs. Susan Murray, Chair of the
Remuneration Committee. Finalist candidates
were interviewed by the Nomination
Committee which comprises all Non-Executive
Directors and the Chair of the Board. In
addition to vetting candidates against the role
specification, psychometric assessments
were conducted, and candidates were also
vetted based on their interest in the role and
their strategic vision for the Group. Extensive
candidate due diligence was also conducted
as part of the process. At the conclusion of
the process, the Committee recommended
Mr. Eric Born to the Board for appointment as
CEO.
We are delighted to have appointed Mr. Born
to this position. He is an experienced business
leader with a track record of growth, delivering
performance and managing stakeholders. He
appreciates the heritage, culture and values of
Grafton and shares the Board’s ambitions to
continue the successful development of the
Group over the coming years for the benefit of
all stakeholders.
A detailed induction plan was created for
Mr. Born who joined the Group as CEO on
28 November 2022. In the weeks that followed
he met with the management teams across
our businesses and with colleagues when he
visited branches, stores and manufacturing
facilities in the four countries where we
operate. He also met with the external auditor,
brokers and advisors to the Company. Mr. Born
received financial briefings on the Group and
read relevant Board and Board Committee
Papers.
Appointment of Non-Executive
Director
As noted in last year’s report, during 2021
the Committee considered the structure,
size, diversity and composition of the Board
and its Committees. It also considered the
balance of skills, experience and expertise of
Non-Executive Directors 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 we were delighted to
appoint Ms. Avis Darzins as Non-Executive
Director with effect from 1 February 2022.
The Committee 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 personal 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
Non-Executive Directors on the Board at
31 December 2022 was as follows:
Length of service
Number of Non-
Executive Directors
0-1 years 1
2-3 years 1
6-7 years 3
7-8 years 1
The Committee reviewed the time required to
fulfil Board Chair, Senior Independent Director,
Committee Chair and Non-Executive Director
roles 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 and the appointment of
Mr. Eric Born as CEO and a Director with
effect from 28 November 2022 as already
noted. Ms. Darzins was appointed to the Audit
and Risk, Remuneration and Nomination
Committees with effect from 24 August 2022.
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 2023 AGM having considered
the performance, ability and continued
contribution to the Board of each director.
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Grafton Group plc Annual Report and Accounts 2022
Nomination Committee Report continued
Board effectiveness and evaluation
Assessing the effectiveness and commitment
of individual Directors was based on meetings
between each of the Non-Executive Directors
and the Chair.
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 2022 evaluation was carried out
internally using a questionnaire which was
completed by each of the Directors.
The key findings of the internal evaluation were
that:
• The Board is confident that it is working to
a clear and commonly understood purpose
and collective vision;
• The Board was satisfied that good progress
has been made on sustainability while
noting that continued focus was required in
this area;
• The performance of each of the Audit
and Risk, Remuneration and Nomination
Committees were rated highly and are
working well with effective Chairs; and
• The Board operates cohesively and
combines being supportive of management
with constructive challenge.
The Board will use the feedback and
observations from the internal review 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 Group,
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. The review during
2022 was against the backdrop of Mr. Gavin
Slark advising the Board that he was stepping
down from the role at the end of the year and
the Board initiating a search process for his
successor.
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 an appropriate balance of
gender and ethnicity on the Board. On the
recommendation of the Committee, the Board
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. A number of
internal candidates were appointed to fill
senior roles in Group businesses following
the conduct of searches by independent
recruitment firms that included external
candidates.
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 Group 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. This process led to
the appointment of Ms. Avis Darzins as a Non-
Executive Director.
The Committee has a long-standing
commitment to prioritise diversity and
supports the recommendations of both the
FTSE Women Leaders Review on gender
diversity and the Parker Review on ethnic
diversity. The Committee agreed that the
search should prioritise gender and ethnic
diversity and it agreed the skills, experience
and preferred attributes for the appointee.
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A thorough international search of potential
candidates was undertaken by Heidrick
& Struggles who presented longlists of
candidates with a broad range of skills,
experience and backgrounds. The Committee
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.
The Company Secretary assisted the Chair
with the preparation of a comprehensive
induction programme that provided a good
overview of the Group and involved site visits
and meetings with management in the Group’s
businesses.
Equality, Diversity and Inclusion
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.
I am pleased to confirm that three of our eight
directors are female (38%) and the Board
is mindful of the target set out by the FTSE
Women Leaders Review of having a minimum
of 40% of Board positions held by women by
2025. I am also pleased to confirm that the
Board’s objective to have at least one Director
from an ethnically diverse background as
defined by the Parker Review is currently
met. 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 seeks where possible to
prioritise the appointment of females to
leadership positions and is committed
to increasing representation of females
in senior leadership positions across the
Group. Grafton 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 future growth and
development. 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. The nine-year term of
Mr. Paul Hampden Smith, Senior Independent
Director and Chair of the Audit and Risk
Committee ends in 2024 and the Committee
will initiate a search for his successor over the
coming months.
Michael J. Roney
Chair of the Nomination Committee
1 March 2023
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120
Susan Murray
Chair of the Remuneration Committee
1 March 2023
Membership Length of service*
S. Murray (Chair) 6.1 years
P. Hampden Smith 7.2 years
V. Crowley 2.8 years
R. McGuckian 2.8 years
A. Darzins 0.5 years
* Committee membership as of 1 March 2023.
Dear Shareholder,
I am pleased to present
my report as Chair of the
Remuneration Committee for the
year ended 31 December 2022.
Remuneration Report
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.
The Committee was appreciative of the high level of
shareholder approval for the 2021 Annual Report on
Remuneration which was supported by 89.45 per cent of
shares lodged by proxy ahead of the 2022 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 2022. In line with regulatory
requirements, a renewed policy will be put to shareholders
at the forthcoming AGM of the Company and further
details of changes proposed to the current policy are set
on the following pages along with details of how the new
policy will be implemented in 2023.
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.
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Performance for 2022
Our first half performance saw a significant normalisation of activity levels following exceptional pandemic related spikes in trading in the first half
of 2021. Adjusted operating profit for the year of £285.9 million (2021: £288.0 million) demonstrated the benefit of the Group’s balanced spread of
operations across geographic markets and sectors.
Grafton ended the year in a very strong financial position with net cash, before IFRS 16 leases of £458.2 million. The Group returned £208.9 million
to shareholders through share buybacks and dividends.
Remuneration for 2022
Base Salary
The Committee approved a salary increase of 3.1 per cent with effect from 1 January 2022 for the former 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 and the increases awarded reflected the typical level of salary increase for the wider workforce based
on salary reviews completed in 2022.
Annual bonus scheme
The annual bonus for 2022 was based on two financial performance targets being operating profit (70 per cent) and return on capital employed
(30 per cent). No award was payable to the former Chief Executive Officer as noted below. The maximum bonus opportunity for the Chief Financial
Officer was 125 per cent of basic salary and the amount payable was 48.5 per cent of basic salary. The Committee considered that this outcome
was appropriate in the context of the performance of the Group for the year. The appointment of the new Chief Executive Officer took effect on
28 November 2022 and he did not participate in the annual bonus scheme for 2022.
Vesting of LTIP awards made in 2020
The LTIP Awards that were planned to be made in April 2020 were deferred until September of that year due to the Covid-19 pandemic. As disclosed
in the 2019 Annual Report on Remuneration, it was intended that in line with normal practice 50 per cent of the 2020 LTIP award would be based
on TSR performance versus the FTSE 250 excluding investment trusts and 50 per cent on the adjusted EPS performance over the three-year
period to 31 December 2022.
In view of the difficulty setting appropriate, stretching and fair EPS targets for 2022 due to the uncertainty in the Group’s markets caused by the
Covid 19 pandemic, the Committee determined following consultation with major shareholders that it was not appropriate for the 2020 LTIP award
to Executive Directors to be based on EPS performance and agreed that 100 per cent of the award would be based on TSR performance versus
the FTSE 250 excluding investment trusts. The Committee believed that basing 100 per cent of the award on TSR was a clear and transparent
approach to ensure that the vesting outcome was fully aligned with the shareholder experience.
25 per cent of the 2020 LTIP award will vest for median performance with 100 per cent vesting for upper quintile performance. The TSR
performance measured over the three-year period from 1 January 2020 to 31 December 2022 will result in the vesting in September 2023 of 47.8
per cent of the award granted to the Chief Financial Officer. The award made to the former Chief Executive Officer lapsed on giving notice to the
Company that he was stepping down from the role.
The Committee agreed that the vesting outcome was reflective of the underlying financial performance of the business and was appropriate in the
context of the experience of shareholders and other stakeholders.
Overview of remuneration for 2022
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 2022. Vesting of the LTIP award reflected the share price performance of Grafton relative to the
FTSE 250 excluding investment trusts. No discretion has been exercised in relation to incentive outcomes.
The Remuneration Committee was satisfied with the balance of short and long-term elements of remuneration for the year.
Termination arrangements with former Chief Executive Officer
Mr. Gavin Slark the former Chief Executive Officer advised the Board on 1 July 2022 that he was stepping down from his role on
31 December2022.
Mr. Slark was paid salary, benefits and a pension allowance for the duration of his notice period. He has no entitlement to a bonus for 2022 as he
will not be employed by the Company on the payment date which is at the end of March 2023. All outstanding awards under the LTIP lapsed on
Mr. Slark giving notice to the Company that he was stepping down from his role in accordance with the rules of the scheme.
The two-year holding period for 24,666 shares that vested under the LTIP expires on 6 May 2023 and for 68,495 shares expires on 3 May 2024.
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Remuneration package for new Chief Executive Officer
The base salary of Mr. Eric Born, our new Chief Executive Officer, has been set at £740,000 per annum. Pension is aligned with the rate available to
the wider workforce which was 3.1 per cent for the period from 28 November 2022, the date of appointment, to 31 December 2022 and 9.0 per cent
from 1 January 2023 as explained in the section below on Pension. The maximum annual bonus is 150 per cent of base salary and the maximum
LTIP award is 200 per cent of base salary which are in line with incentive opportunities for the former CEO. No buy-out of an in-flight award was
required. Mr. Born received an LTIP award over 37,251 shares on 29 November 2022. This award is subject to the same performance conditions
that applied to the award granted to the former Chief Executive Officer in April 2022. The Committee determined that it was appropriate to award
Mr. Born a reduced LTIP award of 50 per cent of base salary on joining (based on the same share price used to determine the awards in April) to
ensure that he was incentivised to drive the delivery of long-term performance.
Mr. Born is a very experienced CEO with a proven track record of creating shareholder value in publicly listed and private equity owned national and
international businesses of scale. This appointment followed an extensive international search and the Board is very confident that he has the skills
and experience to lead the growth and development of Grafton over the coming years. We believe that Mr. Born has the capacity to make a material
difference to the business in the interest of shareholders and other stakeholders.
His base salary is higher than the base salary for the former CEO whose appointment to the role dated back to 2011 and salaries moved upwards
during the intervening period while increases to his base salary were very modest between 2011 and 2022 and had arguably fallen behind market
norms for the period. Mr. Slark’s salary increased by 13.5% from £554,840 in 2011 to £629,756 in 2022. The Committee believes that the salary
agreed with Mr. Born was appropriate to enable Grafton to recruit and retain an individual of his experience, talent and quality. This appointment
was made against the backdrop of a competitive marketplace that has a finite pool of high calibre individuals operating at CEO level with
experience of running large international businesses. The increase in the base salary was essential to successfully concluding the search process
leading to the appointment of a very highly regarded candidate who had alternative opportunities. The Grafton Remuneration Committee has a
track record of acting in a conservative and prudent way in arriving at decisions on the remuneration arrangements of Executive Directors and I
believe that the Committee operated to the same high standard on this occasion. The Committee carefully considered and negotiated the total
remuneration package with Mr. Born including the salary level and is comfortable that this outcome is appropriate compared to other companies of
similar size and complexity.
Proposed remuneration policy changes in 2023
The current Remuneration Policy was approved at the 2020 AGM and, although not required under Company Law in Ireland, will be subject to
a non-binding shareholder resolution at the 2023 AGM which is consistent with regulations in the UK. The new policy will apply for a three-year
period and provide a framework for setting the remuneration of executive and non-executive directors and the Group’s senior management.
We have undertaken a thorough review of our current approach to Directors’ remuneration to ensure that pay continues to support strategy and the
delivery of long-term sustainable returns for our shareholders.
Having considered in detail the approach to our current Policy, the Committee is satisfied that the current structure of the Policy remains
appropriate for Grafton. We believe that the combination of the annual bonus and a performance based long term incentive plan (“LTIP”) continues
to effectively support the delivery of the Group’s strategy, whilst appropriately rewarding executive directors and aligning pay with our culture and
the interests of shareholders and other stakeholders.
We comply with best practice features across the current remuneration framework. We operate deferral on our annual bonus; and the LTIP
has a three-year performance period and a two-year holding period following vesting. The current Policy also includes in-employment and
post-employment minimum shareholding guidelines. As previously outlined, pension levels of incumbent directors were aligned with the wider
workforce as of 31 December 2022. During the year we concluded a benchmarking review to ensure that our pension offering for the wider
workforce in the UK was fair and competitive with the sector and the marketplace. This resulted in an increase in the contribution rate available to
UK colleagues in line with current market trends and to align contribution rates available with those offered by other companies in our sector. The
rate of pension contribution available to the majority of the workforce from 1 January 2023 was 9.0% of base salary and the rate of contribution for
Executive Directors has been aligned to that rate.
We do not propose any substantial changes to the Policy but do propose to simplify and strengthen the structure of our annual bonus deferral
provisions.
At present, executive directors are required to apply 30 per cent of any annual bonus earned to purchase shares in Grafton until the minimum
shareholding guideline of 200 per cent of base salary is met. In addition, should the bonus earned in any year have exceeded 120 per cent of base
salary for the former CEO or 100 per cent for the CFO, then any amount earned above these levels was required to be deferred into shares for three
years.
Under the new Policy we propose to simplify and strengthen the current approach by requiring an executive director to apply 30 per cent of any
annual bonus earned after statutory deductions for the purchase of shares in the Group. These shares would be required to be held for two years.
Remuneration Report continued
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Implementation of policy in 2023
A further change that I wish to highlight is the introduction of Environment, Social and Governance (ESG) measures to the annual bonus. Given the
strong progress Grafton has made on implementing its sustainability strategy and the continued evolution of market practice, it is proposed that
Gender Diversity and Carbon Reduction targets are added to the annual bonus performance measures. The gender diversity target will be based on
increasing the number of female colleagues as a proportion of the Group’s workforce by one per cent compared to the outcome for 2022. Grafton has
been managing its Scope 1 and 2 GHG emissions annually since 2014 and the carbon emissions target will be based on a reduction of 2.5 per cent
in emissions per £ million of revenue at constant prices in 2023 against the outcome for 2022. Both of these targets are incorporated in the Group’s
sustainability linked debt funding facilities that were refinanced in August 2022. These new targets will carry a weighting of five per cent each.
The weighting of the Operating Profit and ROCE targets will be reduced by five per cent each to 65 per cent and 25 per cent respectively.
Progression of our ESG priorities is an integral part of our long-term strategy and the inclusion of ESG metrics within our reward structures will
support our sustainability strategy. These ESG performance measures are aligned with the sustainability strategy and are specific and measurable.
Salary
The Committee approved a salary increase of 4.4 per cent with effect from 1 January 2023 for the Chief Financial Officer which reflects the
average level of salary increase for the wider workforce implemented during 2022. The salary of the Chief Executive Officer is not due for review
until 1 January 2024.
Bonus opportunity
For 2023 the maximum annual bonus for the CEO will be 150 per cent of salary and 125 per cent of base salary for the CFO.
As noted above, Gender Diversity and Carbon Reduction targets are new performance measures in the 2023 bonus scheme. These new targets
carry a weighting of five per cent each. These targets are material to the business, proportionate, appropriately stretching and linked to the Group’s
strategy. The weighting of the Operating Profit and ROCE targets will be reduced by five per cent each to 65 per cent and 25 per cent respectively.
Pension
As outlined above, during the year we concluded a benchmarking review to ensure that our pension offering for the wider workforce in the UK
was fair and competitive within the sector and the marketplace. This resulted in an increase in the contribution rate available to UK colleagues in
line with current market trends and to align contribution rates available with those offered by other companies in our sector. The rate of pension
contribution available to the majority of the workforce from 1 January 2023 is 9.0 per cent of base salary and the rate of contribution for Executive
Directors will be aligned to that rate.
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 2022. 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 2025 Adjusted EPS target for the 2023 LTIP award, the Committee considered the challenging macro economic environment, the
position of the Group in the current construction cycle, a lower level of operating profit budgeted for 2023 and Brokers’ forecasts for 2023, 2024
and 2025. The Committee has set a target range for 2025 Adjusted EPS of 89.7p to 101.6p. This gives a threshold target of 89.7p and a maximum
target of 101.6p. The Committee believes that this range is appropriately stretching compared against the Adjusted EPS performance for 2022 of
81.2p which, in line with prior years, excludes property profit, the non-recurring pension credit and is also adjusted for a forecast increase in the
rate of corporation tax to 22.4 per cent in 2025. As noted in the Financial Review on page 63, this increased rate of corporation tax is based on
expectations of the balance of profitability across the Group and related tax rates in each of the countries where we operate. The target Adjusted
EPS range for 2025 is equivalent to annual compound growth of 3.4 per cent to 7.8 per cent applied to the revised 2022 base year Adjusted EPS
of81.2p.
For the purpose of the LTIP award, the Adjusted EPS for 2025 will be calculated based on the number of shares in issue at the end of 2022 such
that management will not benefit from any share buybacks during the period.
The Committee also 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.
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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 with colleagues from the UK, Ireland and the Netherlands. These forums,
made up of colleagues from each of our businesses, provide the opportunity for our people to engage with Non-Executive Directors and to have
their views heard at management and Board level. A Colleague Committee was established during the year in Finland.
Colleague support
Grafton was very aware of the presssures on the household budgets of colleagues as a consequence of cost of living increases and put a range
of additional support packages in place across the Group. Supporting colleagues and doing as much as possible at a very challenging time was
a top priority in unprecedented circumstances. Colleague support across the Group included Selco providing 96 per cent of its 3,000 colleagues
with a cost of living support payment of £750 each spread over five months from November 2022 to March 2023 at a total cost of £2.5 million.
These measures and the very high national rankings received by the Group’s businesses in Great Place to Work and Best Companies colleague
engagement surveys demonstrate our commitment to be leading employers in the four countries where we operate.
Shareholder engagement
The Committee is committed to ongoing dialogue with shareholders and institutional investor bodies on remuneration matters and it welcomes
feedback as it helps to inform its decisions. The Committee takes an active interest in voting on Annual General Meeting resolutions and is pleased
with the high level of support received historically for its Annual Reports on Remuneration and for the three-yearly renewal of the Remuneration
Policy.
The Committee has actively engaged with major shareholders and institutional investor bodies concerning the proposed changes to the
Remuneration Policy. I believe that the proposed policy is 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
1 March 2023
Remuneration Report continued
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Remuneration Policy Report
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), the Companies (Miscellaneous Reporting)
Regulations 2018 (the 2018 regulations), the Companies (Directors’ Remuneration Policy and Directors’
Remuneration Report) Regulations 2019 (the 2019 regulations) 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.
This policy will take effect from the 2023 AGM and is intended to apply until the 2026 AGM and cover the financial years 2023, 2024 and 2025.
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 support the delivery of the strategy and encourage enhanced
sustainable long term performance;
• Ensure that the overall package for each director is linked to the short and longer term strategic objectives of the Group as well as being aligned
with the Company purpose and values; 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 through high levels of executive share ownership both during and post employment.
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 track record of
the individuals concerned and remuneration practices elsewhere in the Group.
Summary of decision-making process and changes to policy
The previous Policy is considered to be fit for purpose and therefore no material changes are proposed. However, the Policy has been updated
to reflect recent developments in best practice. In determining the new Remuneration Policy, the Committee followed a robust process which
included discussions on the content of the Policy at Remuneration Committee meetings during the year and liaising as necessary with other
board committees. The Committee considered the input from management and its independent advisers, as well as considering best practice,
shareholder guidance from major shareholders and any potential conflict of interest issues. The main change from the previous policy was on
bonus deferral as set out below and on the following pages.
• At present, executive directors are required to apply 30 per cent of any annual bonus earned to purchase shares in Grafton until the minimum
shareholding guideline of 200 per cent of base salary is met. In addition, should the bonus earned in any year exceed 120 per cent of base salary
for the CEO or 100 per cent for the CFO, then any amount earned above these levels was required to be deferred into shares for three years.
Under the new Policy we have simplified and strengthened the current approach by requiring an executive director to apply 30 per cent of any
annual bonus earned after statutory deductions for the purchase of shares in the Group. These shares would be required to be held for two
years.
• Other relatively minor changes have been made to the wording of the Policy to support its operation and to increase clarity.
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. We also consulted with our largest shareholders and a number of the shareholder advisor
bodies prior to finalising proposed changes to the current Remuneration Policy. Feedback received during meetings with major shareholders
was also considered as part of the review. Given the limited changes being put forward and the strengthening of existing remuneration elements,
shareholders who responded were supportive of the changes.
When any significant changes are proposed to the Remuneration Policy in the future, the Remuneration Committee Chair will look to consult with
major shareholders in advance and aim to offer a meeting to discuss proposed changes. The Remuneration Committee will actively engage with
shareholders and give serious consideration to their views including any feedback received prior to and during the Annual General Meeting.
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 and in the Chair’s Annual Statement.
How the views of employees are taken into account
The Remuneration Committee is provided with an overview of workforce remuneration each year and this was taken into consideration in deciding
the pay of Executive Directors and Senior Management.
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Although the Committee does not directly consult with employees on Directors’ remuneration, the Committee does take into consideration
the pay and employment conditions of all employees when setting the policy for Directors’ remuneration. Salary increases are normally in-line with
the general increase for the broader employee population and from the end of 2022, pension contributions for Executive Directors were aligned to
the level available for the majority of the workforce. The Committee is also mindful of any changes to the pay and benefit conditions for employees
more generally when considering the policy for Directors’ pay. When determining incentive outcomes for Directors, including if discretion should be
applied, the committee will also consider workforce pay and broader incentive outcomes.
Finally, 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 an opportunity for our people to engage with Non-Executive Directors and for their views,
including any on remuneration, to be heard at management and Board level.
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 clearly set out the terms under which they can be operated including appropriate limits in terms
of quantum, measures used and discretions which could be applied if appropriate. The outcomes of variable elements are dependent on the
achievement of performance measures that are disclosed each year in the Remuneration Report.
The Policy updates the previous Policy with minimal structural changes and is therefore already embedded into the business and well understood
by participants and shareholders alike.
Additionally, when consulting with major shareholders on executive remuneration, the Committee aims for full transparency surrounding its
proposals and the rationale for making any changes.
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. Where changes have been made, this aims to bring
simplification to the current arrangements and make the overall approach as clear as possible. For example, we are simplifying our approach to
deferral in the annual bonus scheme. We also explain our approach to pay clearly and simply within the Annual Report each year.
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 and its holding period, deferral under the annual bonus and in and
post-employment shareholding guidelines;
• Ensuring there is sufficient flexibility to adjust bonus payments and LTIP awards through malus and clawback provisions; and
• Providing the Committee with discretion to override formulaic outcomes that may not accurately reflect the underlying performance of the
Group or the shareholder experience.
Predictability
Shareholders are given full information on the potential values which could be earned under the bonus and LTIP plans through Annual Reports
on Directors Remuneration and by immediately publishing details of new LTIP awards on the RNS. The graphical illustrations provided in the Policy
shows performance and pay outcomes for a number of remuneration scenarios for 2023. Performance is also reviewed during the year by the
Committee to ensure that it has an understanding of the possible outcomes based on current information.
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. Bonus payouts and the vesting of long-term incentive awards
depend on challenging targets being met and the Committee also has discretion to override formulaic outcomes that may not accurately reflect
the underlying performance of the Group or the shareholder experience.
Alignment to culture
The Group’s culture encourages high performance and sustainable growth while recognising that Grafton operates in sectors that are cyclical and
the committee regularly reviews bonus and incentive schemes to ensure consistency with the Group’s purpose, values and strategy.
Long-term sustainable success is important to the Board and the strengthening of deferral arrangements, the long-term nature to our plans and
shareholding requirements ensure remuneration arrangements are tied to this aim. Similarly, implementing our ESG strategy is a priority and its
inclusion within reward structures will further support implementation.
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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Corporate Governance
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 normally
reviewed annually in January and any
changes are normally made effective from
1 January (but may in exceptional
circumstances be reviewed and increased
at other times).
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;
• A significant change in the size and/or
scope of the business;
• Development of an individual within the
role; and
• Where there has been a significant
change in market practice.
Not applicable
Benefits
Provide market
competitive benefits
Benefits may include company car, mobile
telephone, life assurance, private medical
cover and permanent health insurance.
The Committee may introduce other
benefits if it is considered appropriate to do
so. These would normally be on broadly
similar terms to those introduced for the
wider workforce.
Any reasonable business-related expenses
may be reimbursed, including tax thereon.
Where an Executive Director is required to
relocate to perform their role, appropriate
one-off or ongoing expatriate benefits may
be provided (e.g. housing, schooling etc).
The value of other benefits is based on the
cost to the company and is not pre-
determined.
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 or a
combination of both.
Pension contributions for Executive
Directors will be aligned to the level available
for the majority of the wider workforce
(which is currently 9.0 per cent of base
salary).
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 based on performance against
the targets.
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 earned after
statutory deductions for the purchase of
shares in the Group which normally must be
held for a two year period.
Clawback applies as set out in the notes to
the policy table below.
The maximum award under the annual
bonus plan is 150 per cent of basic salary
with the maximum award typically at this
level for the CEO and at 125 per cent of
salary for the CFO.
The Committee may, in its discretion, adjust
annual bonus payments, if it considers that
the outcome does not reflect the underlying
financial or non-financial performance of
the participant or the Group over the
relevant period, or that such payout level is
not appropriate in the context of
circumstances that were unexpected or
unforeseen when the targets were set.
When making this judgement the
Committee may take into account such
factors as it considers relevant.
The majority of the bonus will be based on
the achievement of appropriate financial
measures but may also include an element
for non-financial measures including
personal performance, ESG and strategic
measures.
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.
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
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 normally over three financial
years and the Executive Director remaining
employed in the Group.
There is normally 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 in
the notes to the table.
The maximum value of awards which may
be granted in respect of any financial year is
200 per cent of salary.
Awards for the CEO are normally at this level
and at 175 per cent of salary for the CFO.
The Committee may, in its discretion, adjust
the LTIP vesting outcome, if it considers
that the outcome does not reflect the
underlying financial or non-financial
performance of the participant or the Group
over the relevant period, or that such payout
level is not appropriate in the context of
circumstances that were unexpected or
unforeseen when the targets were set.
When making this judgement the
Committee may take into account such
factors as the Committee considers
relevant.
LTIP awards vest subject to the
achievement of challenging performance
targets normally 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 different financial and
non-financial metrics (not limited to EPS
and TSR) for each award taking account of
the medium to long term strategic
objectives of the Group.
Normally, 25 per cent of a metric will vest if
the lower target in the range is achieved.
Where the outcome 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.
The vesting of shares is also subject to the
Committee being satisfied that the overall
financial results have been satisfactory in
the circumstances over the performance
period.
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 in line with the limits for other
employees which are set by the UK tax
authorities. Currently this limit is £500 per
month for the SAYE scheme.
Not applicable
Remuneration Policy Report continued
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Corporate Governance
Element, purpose and
link to strategy
Operation
Maximum
opportunity/limit
Performance
targets/comments
Share ownership guidelines
To increase the
alignment of interests
between Executive
Directors and
shareholders
Executive Directors are expected to build
and maintain a holding of Company shares
equal to at least 200 per cent of base salary.
Executive Directors are expected to retain
half of any shares that vest under the LTIP
after taking into account any shares sold to
pay tax and other statutory obligations, until
a shareholding of at least 200 per cent of
base salary is reached.
LTIP awards made that are subject to the
two year holding period will be deemed to be
part of an executive directors’ shareholding.
The two-year holding period will continue to
apply after a Director has stepped down
from the Board.
Executive Directors will normally be
expected to maintain a minimum
shareholding of 200 per cent of salary (or
actual shareholding if lower) for the
two-years after stepping down from the
Board. The Committee retains discretion to
waive this guideline in exceptional
circumstances if it is not considered to be
appropriate.
Not applicable 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 Chair is currently paid a
single inclusive fee for the role.
The Board (but excluding the Non-Executive
Directors) sets the level of remuneration of
all Non-Executive Directors within an
aggregate limit approved from time to time
by shareholders.
The policy is to pay Non-Executive Directors
a basic fee for membership of the Board and
additional fees for serving as Chair of Audit
& Risk and Remuneration Committees to
recognise the additional responsibilities and
time commitment of these roles.
Additional fees may be paid to reflect
additional Board or Committee
responsibilities or time commitments as
appropriate.
The level of fees paid to the Chair of the
Board and all Non-Executive Directors
recognises the time commitment and
responsibilities of the role.
The Chair and 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.
The Chair and Non-Executive Directors do
not participate in any pension or incentive
plans.
Additional benefits may be introduced if
considered appropriate.
Details of the outcome of the most recent
fee review are provided in the Annual Report
on Remuneration.
Not applicable
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Clawback and malus
Annual bonus
The Bonus scheme is subject to clawback for six years from the date of payment 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 vesting) 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;
• 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 within 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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Corporate Governance
Legacy arrangements
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions
available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above, where the terms of
the payment were agreed (i) before the Policy set out above came into effect, provided that the terms of the payment were consistent with the
shareholder-approved Directors’ Remuneration Policy in force at the time they were agreed; or (ii) at a time when the relevant individual was not a
Director of the Company (or other persons to whom the Policy set out above applies) and, in the opinion of the Committee, the payment was not in
consideration for the individual becoming a Director of the Company. For these purposes, “payments” include the Committee satisfying awards of
variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” no later than at the time the award is granted.
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 and the pension is aligned with that offered to the majority of the wider workforce.
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 it 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 normally 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 provision of one-off or ongoing expatriate benefits (e.g. housing, schooling etc.) to facilitate recruitment and
ensure that 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 normally 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 or other contractual terms (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 would
generally be on a “like-for-like” basis unless this is considered by the Committee not to be practical or appropriate.
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 service to the date of cessation of employment. Such bonus would normally be
subject to the same performance conditions as the normal bonus and payable at the normal time;
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• The Committee also retains the discretion to meet any reasonable legal fees or outplacement costs or cost of a similar nature 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.
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:
• Eric Born– basic salary together with pension and benefits due for any unexpired period.
• 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
normally vest on the normal vesting date subject to the satisfaction of performance conditions and, unless the Committee determines, otherwise
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, unless the
Committee determines otherwise, 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 2023 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)
18%
34%
43% 35%
26%
32% 27%
100% 40% 25% 20%
Maximum plus 50%
Share Price Growth
MaximumIn line with
expectation
Minimum
£850
£2,145
£3,440
£4,180
17%
33%
42% 35%
24%
30% 25%
100% 43% 28% 23%
Maximum plus 50%
Share Price Growth
MaximumIn line with
expectation
Minimum
£520
£1,195
£1,871
£2,265
Fixed Annual Bonus Long Term Share Awards Share Price Growth
Chart labels show proportion of the total package comprised of each element.
Assumptions
Minimum = fixed pay only (2023 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.
Remuneration Policy Report continued
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Corporate Governance
Annual Report on Remuneration
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, Dr. Rosheen McGuckian and
Ms. Avis Darzins 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 2022 by invitation and participated in discussions. During the year the
Committee consulted with the former and current CEOs who were 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 who attended meetings of the Committee, Ms. Paula Harvey, Group
HR Director who is also Secretary of the Committee and Ms. Rebecca McAleavey, Assistant Company Secretary. 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 £72,550. Fees were
charged on a time and material basis. Deloitte were appointed by the Committee following a competitive tender process.
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 the Remuneration Policy for 2022 and on other remuneration matters including the new Remuneration Policy,
ESG performance measures, termination arrangements with the former Chief Executive Officer and the remuneration package of the new Chief
Executive Officer.
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.
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Activity during the year
January 2022
• Considered a draft of the 2021 Report of the Remuneration Committee on Directors’ Remuneration;
• Shareholder consultation on annual bonus scheme opportunity;
• Annual review of performance of Committee and outcome of Committee Effectiveness Review.
February 2022
• Considered and approved the Report of the Remuneration Committee on Directors’ Remuneration;
• Determined annual bonus payments for 2021;
• Determined the extent of vesting of the LTIP awards made in 2019;
• Considered feedback from shareholder consultation on 2022 annual bonus scheme opportunity;
• Agreed the quantum of 2022 LTIP awards to be granted to Executive Directors and the Company Secretary;
• Agreed the performance conditions for the 2022 LTIP awards including the EPS range;
• Considered and agreed the TSR comparator Group for the 2022 LTIP award;
• Reviewed the CEO Pay Ratio with the wider workforce.
April 2022
• Approved vesting of LTIP awards granted in 2019;
• 2022 SAYE grant of awards;
• Update on shareholder voting and feedback on AGM resolution on Annual Report on Remuneration.
August 2022
• Termination arrangements for former Chief Executive Officer;
• Good leaver status for LTIP awards to below Board level executives.
October 2022
• Considered an update from Deloitte on latest executive remuneration trends and corporate governance developments;
• Considered shareholder and proxy advisor feedback received on the 2021 Report of the Remuneration Committee on Directors’ Remuneration;
• Draft contract of employment for new CEO;
• Remuneration policy review and consideration of ESG measures;
• Considered whether any remuneration benchmarking was required and if remuneration policy remains appropriate;
• Reviewed share allocation and dilution limits;
• Reviewed the Committee Terms of Reference.
November 2022
• Considered level of potential Bonus Awards for 2022;
• Considered level of potential vesting of 2019 LTIP Awards in 2022;
• Considered an update on pay across the Group’s workforce;
• Determine 2023 salary increases for Chief Financial Officer and Company Secretary;
• 2023 Bonus Scheme structure, measures and financial targets;
• Approved issue of LTIP award to new Chief Executive Officer;
• Initial consideration of 2023 LTIP Awards;
• Reviewed Executive Directors’ shareholdings against Policy;
• Review of pension contributions available to the majority of the workforce;
• Shareholder consultation on proposed changes to Remuneration Policy.
Annual Report on Remuneration continued
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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 2022 and the prior year.
Salary/Fees (a) Bonus (b) Pension (c) Other benefits (d)
Long term incentive
plan (e)
Total
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Executive Directors
G. Slark (i) 630 611 – 733 128 128 32 32 – 1,372 790 2,876
E. Born (ii) 70 – – – 2 – 4 – – – 76 –
D. Arnold 431 418 209 418 86 84 29 28 352 822 1,107 1,770
1,131 1,029 209 1,151 216 212 65 60 352 2,194 1,973 4,646
Non-Executive Directors
M. J. Roney 239 231 – – – – – – – – 239 231
P. Hampden Smith 72 61 – – – – – – – – 72 61
S. Murray 72 61 – – – – – – – – 72 61
V. Crowley 62 61 – – – – – – – – 62 61
R. McGuckian 62 61 – – – – – – – – 62 61
A. Darzins (iii) 57 – – – – – – – – – 57 –
564 475 – – – – – – – – 564 475
Total Remuneration 1,695 1,504 209 1,151 216 212 65 60 352 2,194 2,537 5,121
The following table sets out the total remuneration for Executive Directors split between fixed and variable pay for the year ending 31 December
2022 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
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Executive Directors
G. Slark 790 771 – 2,105 790 2,876
E. Born 76 – – – 76 –
D. Arnold 546 530 561 1,240 1,107 1,770
1,412 1,301 561 3,345 1,973 4,646
(i) Mr. G. Slark stepped down from the Board on 31 December 2022
(ii) Mr. E. Born was appointed Chief Executive Officer and joined the Board on 28 November 2022
(iii) Ms. A. Darzins was appointed to the board on 1 February 2022
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
£379,000 (2021: £1,248,000).
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 Euros. 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 3.1 per
cent to €72,603 would apply with effect from 1 January 2022. The sterling equivalent amounts to £61,913 on the basis of the average exchange
rate for the year of 85.28 pence. It was further agreed that with effect from 1 January 2022 additional fees of €11,594 (sterling equivalent of
£9,887) would be paid to each of the Chairs of the Audit and Risk Committee and the Remuneration Committee.
(b) This is the amount of bonus earned in respect of the financial year. The amount payable in respect of 2022 will be paid at the end of March
2023. Mr. G. Slark’s right to a bonus was forfeited on leaving the Group on 31 December 2022. Mr Born joined the Group on 28 November 2022
and did not participate in the bonus scheme.
(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 2022, this is the value of LTIP awards that will vest in September 2023. The vesting of these awards was
subject to a TSR performance condition over the period from 1 January 2020 to 31 December 2022. The value of the awards that will vest is
based on the average share price of £7.47 for the three months to 31 December 2022. This represents a decrease of £0.0975 or 1.3 per cent
from the share price of £7.3725 at the date of grant. No discretion was applied as a result of this decrease. For the year ended 31 December
2021, this is the value of LTIP awards that vested in May 2022 which has been updated from that disclosed last year to reflect the share price of
£9.705 on the date of vesting. The amounts disclosed in the 2021 report were £1,772,000 in respect of G. Slark and £1,062,000 in respect of D.
Arnold.
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Fixed pay in 2022
Salary and fees
Having taken account of both external market developments and internal Group considerations, the Committee agreed in December 2021 that
the basic salary of the Chief Executive Officer and the Chief Financial Officer would increase by 3.1 per cent from 1 January 2022 in line with the
wider workforce
Salary/Fees
2022
£’000
2021
£’000 Change
G. Slark 630 611 3.1%
D. Arnold 431 418 3.1%
Non-Executive Directors’ fees were increased by 3.1 per cent with effect from 1 January 2022 to £61,913 per annum (based on an exchange rate
of Stg85.28 pence to 1 Euro) (constant currency (€72,603). It was further agreed that with effect from 1 January 2022 additional fees of €11,594
(sterling equivalent of £9,887) would be paid to each of the Chairs of the Audit and Risk Committee and the Remuneration Committee. The fee paid
to Mr. Roney, Non- Executive Chair, was increased by 3.1 per cent to £238,553 with effect from 1 January 2022.
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 2022
Taxable
Benefits
£’000
Total 2021
Taxable
Benefits
£’000
G. Slark 9 23 32 32
E. Born 1 3 4 –
D. Arnold 6 23 29 28
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 cash allowance paid through the payroll in lieu of pension benefit.
2022
Base
Salary
% of
salary
2022
Pension
Contribution
2021
Pension
Contribution
G. Slark 630 20.3% 128 128
E. Born 70 3.1% 2 –
D. Arnold 431 20.0% 86 84
Mr. Slark’s pension benefit comprised a payment made to a defined contribution scheme and a taxable cash 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 have been aligned to the level available for
the majority of the wider workforce at that time which was 9.0 per cent.
Pay for performance
Annual bonus
The maximum bonus opportunity for Mr. Slark and Mr. Arnold was 150 per cent and 125 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 105% 45% 150%
D. Arnold 87.5% 37.5% 125%
Annual Report on Remuneration continued
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Corporate Governance
Financial targets were set at the beginning of the year by reference to the Group’s budget for 2022. The actual targets and performance against
those targets are set out in the table below for 2022:
Threshold
(0% Payable)
Budget
(50% Payable)
Stretch
(100% Payable) Actual
% of
Maximum
Payable
Operating profit (£’000)* 232,237 251,067 269,897 249,805 46.65
Return on capital employed** 19.1% 20.7% 22.2% 19.7% 20.48
* Pre IFRS16 adjusted constant currency operating profit, before property profit, from continuing operations.
** Based on capital employed in budget/monthly management accounts.
The award for each financial measure was based on a sliding scale from 92.5 per cent to 107.5 per cent of the Group’s budget for 2022. No bonus
was payable if performance was below a minimum threshold of 92.5 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 107.5 per cent of budget.
The Committee considered the extent to which these targets were achieved and agreed a payment of 48.5 per cent of salary for Mr. Arnold out of
a maximum bonus opportunity of 125 per cent of salary. Mr. G. Slark’s right to a bonus was forfeited on leaving the Group on 31 December 2022.
Mr. Born was not entitled to a bonus for 2022. 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 2022
The performance conditions for LTIP awards made to Executive Directors in September 2020 were based on relative TSR versus a comparator
group consisting of the constituents of the London Stock Exchange’s FTSE 250 Index excluding investment trusts.
In view of the difficulty setting appropriate, stretching and fair EPS targets for 2022 due to the uncertainty in the Group’s markets caused by the
Covid 19 pandemic, the Committee determined following consultation with major shareholders that it was not appropriate for the 2020 LTIP award
to Executive Directors to be based on EPS performance and agreed that the award would be 100 per cent based on TSR performance versus
the FTSE 250 excluding investment trusts. The Committee believed that basing 100 per cent of the award on TSR was a clear and transparent
approach to ensure that the vesting outcome was fully aligned with the shareholder experience. Additionally, The Committee consulted with
major shareholders in advance of agreeing this change and was pleased with the level of support received. The Committee agreed that the
vesting outcome was reflective of the underlying financial performance of the business and was appropriate in the context of the experience of
shareholders and other stakeholders.
The relevant targets and results for the year were as follows:
100% TSR relative to a peer group
Performance ranking
required
% of element
vesting
Below threshold Below median 0%
Threshold Median 25%
Between threshold and stretch Median-80th percentile 25%-100%
Stretch or above Above 80th percentile 100%
Actual achieved Median-80th percentile 47.8 %
The TSR performance measured over the three-year period from 1 January 2020 to 31 December 2022 will result in the vesting in September 2023
of 47.8 per cent of the award granted to the Chief Financial Officer. The award made to the former Chief Executive Officer lapsed on giving notice to
the Company that he was stepping down from the role.
The following is a summary of the awards that will vest under the scheme in 2023:
Director
Total number of
shares granted
Percentage of
award vesting
(%)
Number of
shares vesting
Value of shares
vesting (£)
1
G. Slark 164,714 0% – –
D. Arnold 98,709 47.8% 47,182 352,450
1 As these awards do not vest until after 10 September 2023 a deemed share price is used to calculate the value of shares vesting. This is taken as the three-month average to
31 December 2022 being £7.47.
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Grafton Group plc Annual Report and Accounts 2022
LTIP awards granted during the year ended 31 December 2022
The following awards were made during the year ended 31 December 2022:
Date of grant
Number of
nil cost units
% Of
base salary
Share price at
grant date
Value of award
at grant date
E. Born 29 November 2022 37, 251 50* £9.9325* £369,996
G. Slark 1 April 2022 126,807 200 £9.9325 £1,259,511
D. Arnold 1 April 2022 75,992 175 £9.9325 £754,791
The award granted to the former Chief Executive Officer lapsed on him giving notice to the Company that he was stepping down from the role.
* The Committee determined that it was appropriate to award Mr. Born a reduced LTIP award of 50 per cent of base salary on joining (based on the same share price used to
determine the awards in April) to ensure that he was incentivised to drive the delivery of long-term performance.
The 2022 awards to Mr. Born 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 101.7p 0%
Threshold Median 25% 101.7p 25%
Between threshold and stretch Median-80th percentile 25%-100% 101.7-116.4p 25%-100%
Stretch or above Above 80th percentile 100% Above 116.4p 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.
The former Chief Executive Officer was a Non-Executive Director of Galliford Try Holdings plc during the year and was permitted to retain his fee for
the role which amounted to £44,600 in 2022. 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 £61,800 in 2022.
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.
Annual Report on Remuneration continued
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Corporate Governance
Application of remuneration policy in 2023
Salaries
The Remuneration Policy for 2023 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 4.4 per cent with effect from 1 January 2023 for the Chief Financial Officer which reflects the typical
level of salary increase for the wider workforce. The salary of the Chief Executive Officer is not due for review until 1 January 2024.
The following salaries will apply from 1 January 2023:
2023
Base
salary
2022
Base
salary % Increase
E. Born £740,000 £740,000 –
D. Arnold £450,288 £431,310 4.4%
Chair and Non-Executive Directors’ fees
A benchmark review of fees payable to Non-Executive Directors and the Chair was undertaken during 2021 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 reflected
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 2022 see page 135. Fees payable to Non-Executive Directors and the Chair for 2023 will remain in line with 2022.
Pension and benefits
Mr. Born and Mr. Arnold will receive taxable pension contributions/ cash allowance in lieu of pension of 9.0 per cent of salary with effect from
1 January 2023 which have been aligned to the level available for the majority of the wider workforce.
Annual bonus
As set out in the 2021 Committee Report, the maximum annual bonus opportunity is 150 per cent of salary for the Chief Executive Officer and 125
per cent for the Chief Financial Officer.
Given the strong progress Grafton has made implementing its sustainability strategy and the continued evolution of market practice, Gender Diversity
and Carbon Reduction targets are added under the new policy to the annual bonus performance measures. These new targets will carry a weighting
of five per cent each. The gender diversity target will be based on increasing the number of female colleagues as a proportion of the Group’s workforce
by one per cent compared to the outcome for 2022. Grafton has been managing its Scope 1 and 2 GHG emissions annually since 2014 and the carbon
emissions target will be based on a reduction of 2.5 per cent in emissions per £ million of revenue at constant prices in 2023 against the outcome for
2022. The weighting of the Operating Profit and ROCE targets are reduced by five per cent each to 65 per cent and 25 per cent respectively.
65 per cent of the annual bonus is based on Operating profit, 25 per cent on Return on capital employed and five per cent each for gender diversity
and carbon emissions targets. The measures and weightings for 2023 are as follows:
CEO bonus based on
% of salary
2023
% of salary
2022
Operating profit 97.50% 105.00%
Return on capital employed 37.50% 45.00%
Gender Diversity 7.50% –
Carbon Emissions 7.50% –
150.00% 150.00%
CFO bonus based on
% of salary
2023
% of salary
2022
Operating profit 81.25% 87.50%
Return on capital employed 31.25% 37.50%
Gender Diversity 6.25% –
Carbon Emissions 6.25% –
125.00% 125.00%
The operating profit and return on capital employed targets are commercially sensitive and will be disclosed in the 2023 Annual Report.
Under the new Policy we propose to simplify and strengthen the current approach by requiring an Executive Director to apply 30 per cent of any
annual bonus earned after statutory deductions for the purchase of shares in the Group. These shares would be required to be held for two years.
Clawback provisions operate as set out in the Remuneration Policy on page 130.
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Grafton Group plc Annual Report and Accounts 2022
Long term incentives
Awards to be made in 2023 will be at the same level as 2022 being 200 per cent of salary for the CEO and 175 per cent of salary for the CFO.
Vesting of the 2023 award will be based on relative TSR (50 per cent) and on EPS (50 per cent) performance conditions in line with the prior 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 89.7p 0%
Threshold Median 25% 89.7p 25%
Between threshold and stretch Median-80th percentile 25%-100% 89.7p-101.6p 25%-100%
Above 80th percentile Above 80th percentile 100% 101.6p 100%
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 2025 Adjusted EPS target for the 2023 LTIP award, the Committee considered the challenging macro economic environment, the
position of the Group in the current construction cycle, a lower level of operating profit budgeted for 2023 and Brokers’ forecasts for 2023, 2024
and 2025. The Committee has set a target range for 2025 Adjusted EPS of 89.7p to 101.6p. This gives a threshold target of 89.7p and a maximum
target of 101.6p. The Committee believes that this range is appropriately stretching compared against the Adjusted EPS performance for 2022 of
81.2p which, in line with prior years, excludes property profit, the non-recurring pension credit and is also adjusted for a forecast increase in the
rate of corporation tax to 22.4 per cent in 2025. As noted in the Financial Review on page 63, this increased rate of corporation tax is based on
expectations of the balance of profitability across the Group and related tax rates in each of the countries where we operate. The target Adjusted
EPS range for 2025 is equivalent to annual compound growth of 3.4 per cent to 7.8 per cent applied to the revised 2022 base year Adjusted EPS
of81.2p.
For the purpose of the LTIP award, the Adjusted EPS for 2025 will be calculated based on the number of shares in issue at the end of 2022 such
that management will not benefit from any share buybacks during the period.
The Committee also 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.
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.
Annual Report on Remuneration continued
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Corporate Governance
Relative importance of spend on pay
The following table sets out the percentage change in dividends and overall spend on employee pay in the 2022 financial year compared with the
prior year.
2022
£’000
2021
£’000
Percentage
change
Dividends payable 73,585* 73,050 0.7%
Employee remuneration costs** 337,204 317,056 6.4%
* Based on shares in issue as at 24 February 2023
** From continuing operations
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. Change is calculated using unrounded pay figures in local currency. Mr. Eric
Born and Ms. Avis Darzins were appointed to the Board during the year.
Salaries or fees (% change) Benefits (% change) Bonus (% change)
2021 to 2022 2020 to 2021* 2021 to 2022 2020 to 2021 2021 to 2022** 2020 to 2021***
E. Born n/a n/a n/a n/a n/a n/a
G. Slark 3.1% 5.1% 0.1% (23.3%) (100%) 100.0%
D. Arnold 3.1% 5.1% 3.2% (32.4%) (50%) 100.0%
M. Roney 3.1% 5.3% – – – –
P. Hampden Smith**** 19.6% 5.3% – – – –
S. Murray**** 19.6% 5.3% – – – –
V. Crowley 3.1% 5.3% – – – –
R. McGuckian 3.1% 5.3% – – – –
A. Darzins n/a n/a – – – –
Average employee
Salary, Benefits and Bonus (£)***** 4.0% 10.4%
* 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.
** Mr. G. Slark’s right to a bonus was forfeited on leaving the Group on 31 December 2022.
*** The CEO and CFO requested that the annual bonus plan be suspended for 2020 and therefore no bonus was payable.
**** 2022 includes additional fees of €11,594 for the Chairs of the Audit and Risk Committee and the Remuneration Committee.
***** Based on average number of persons employed during the year, from continuing operations. The increase in constant currency was 4.5 per cent.
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Grafton Group plc Annual Report and Accounts 2022
CEO pay ratio to the workforce
The table below shows the ratio of the CEO’s total remuneration for 2022 and the lower, median and upper quartile full-time equivalent
remuneration of the Group’s UK employees. The pay ratios for 2021, 2020 and 2019 are also shown for comparison. Grafton 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.
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 2022. The total number of UK colleagues included in the 2022 pay ratio analysis
was 4,248. The analysis included colleagues employed as of 31 December 2022.
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 4 4:1
2021 Option A 138:1* 120:1* 90:1*
2022 Option A 35:1 31:1 26:1
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
2022 Option A £22,402 £21,031 £25,389 £23,381 £30,855 £28,14 8
The pro-rated single figure for both CEO’s of £790,792 includes all remuneration (salary, pension and benefits). No bonus or LTIP was applicable for
2022 as Gavin Slark stepped down from the Board on 31 December 2022 and Eric Born joined the Group on 28 November 2022.
Details of colleague bonus payments in respect of 2022 is based on bonuses paid in 2022. 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 2022.
The Committee considers the median pay ratio consistent with the Group’s wider policies on employee pay, reward and progression. For example,
the Committee reviewed workforce remuneration including base pay, benefits and incentives which was taken into consideration when deciding
the pay of Executive Directors and Senior Management. Changes in total remuneration for the CEO are largely as a result of the volatile nature of
their variable pay.
* The pay ratio reported for 2021 has been re-calculated to reflect the value of the CEO LTIP award that vested in May 2022. As outlined above, when we reported the 2021 ratio,
full details of colleague bonuses in respect of 2021 were not available and therefore colleague bonus pay data was based on bonuses paid in 2021, some of which relate to
performance in respect of 2020. The ratio for 2021 has also been updated to be based on colleague bonuses paid in respect of 2021 such that it is on a like for like basis to the
CEO’s single figure calculation.
Annual Report on Remuneration continued
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
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 2012 to 31 December 2022.
Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021
0
100
200
300
400
500
Dec 2022
Grafton Group plc FTSE250 Index
Source: Thomson Reuters
This graph shows the value, by 31 December 2022, of £100 invested in Grafton Group plc on 31 December 2012, 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.
The table below shows the total remuneration figure for the position of CEO over the ten years to 2022.
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
CEO single total figure of remuneration (£’000) 1,524 3,080 2,255 1,692 1,689 2,211 1,852 1,322 2,876 791*
Annual bonus payout relative to maximum 49% 98% 53% 60% 100% 93% 19% 0% 100% n/a
LTIP vesting 45% 100% 87% 50% 26% 72% 95% 30% 100% n/a
* This is the pro-rated single figure of remuneration for the role of CEO. No bonus or LTIP was applicable in 2022.
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Grafton Group plc Annual Report and Accounts 2022
Statement of shareholder voting
The 2021 Annual Report on Remuneration received the following votes from shareholders at the 2022 AGM:
Total number
of votes % of votes cast
For 133,268,042 89.45
Against 15,725,702 10.55
Total 14 8,993,74 4 100
The number of votes withheld for the Annual Report on Remuneration was 1,975.
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
2022
Grafton Units*
31 December
2021
Grafton Units
Unvested
LTIP
awards**
Unvested
SAYE
options***
E. Born – – 37,251 –
G. Slark 214,308 295,813 – –
D. Arnold 190,430 149,383 235,684 2,691
M. J. Roney 45,826 33,824 – –
P. Hampden Smith 32,990 32,990 – –
V. Crowley 8,000 8,000 – –
S. Murray 1,500 1,500 – –
R. McGuckian 3,455 1,332 – –
A. Darzins 2,406 – – –
Secretary
C. Rinn 486,598 460,307 73,807 –
* At 31 December 2022 a Grafton Unit consists of one Ordinary Share of €0.05 in Grafton Group plc.
** Vesting of these awards is subject to performance conditions and includes awards granted in 2020, 2021 and 2022.
*** Option to buy shares at the agreed price within six months of the end of the three year period 1 December 2023 (1,557 units) and 1 June 2025 (1,134 units).
The closing price of a Grafton Unit on 31 December 2022 was 788.6p (31 December 2021: 1,233.0p) and the price range during the year was
between 630.6p and 1255.0p (2021: 859.50p and 1412.0p).There have been no changes in the interests of the Directors and Secretary between
31 December 2022 and the date of this report.
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. Born took up the position of CEO on 28 November 2022 was not required to hold any shares at the year-end. Mr. Slark held shares at the
year-end valued at 2.7 times his salary. Mr. Arnold held shares at the year-end valued at 3.5 times his salary. This is based on the closing price of a
Grafton Unit on 31 December 2022 of 788.6p.
2019 LTIP awards over 141,336 Grafton Units vested in May 2022 in favour of Mr. Slark who instructed the Company to immediately sell 72,841 of
these Grafton Units to meet tax liabilities and brokers commission and he retained the remainder being 68,495 Grafton Units. 2019 LTIP awards
over 84,699 Grafton Units vested in May 2022 in favour of Mr. Arnold who instructed the Company to immediately sell 43,652 of these Grafton
Units to meet tax liabilities and brokers commission and he retained the remainder being 41,047 Grafton Units.
Annual Report on Remuneration continued
145
Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
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 01-Jan-22 Granted Lapsed
Shares
Received 31-Dec-22
EPS
Condition
TSR
Condition
Performance
Period Vesting Date**
E. Born
29 Nov
2022 £8.059 – 37,251 – – 37,251 18,625 18,626
1 Jan 2022-
31 Dec 24 29 Nov 2025
– 37,251 – – 37,251 18,625 18,626
G. Slark
12 April
2019 £8.48 141,336 – – (141,336)* – – –
1 Jan 2019-
31 Dec 2021 12 April 2022
10 Sept
2020 £7.37 164,714 – (164,714) – – – –
1 Jan 2020-
31 Dec 2022 10 Sept 2023
17 May
2021 £12.005 101,761 – (101,761) – – – –
1 Jan 2021-
31 Dec 2023 17 May 2024
1 April
2022 £9.9325 – 126,807 (126,807) – – – –
1 Jan 2022-
31 Dec 2024 1 April 2025
407,811 126,807 (393,282) (141,336) – – –
D. Arnold
12 April
2019 £8.48 84,699 – – (84,699)* – – –
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
1 April
2022 £9.9325 – 75,992 – – 75,992 37,996 37,996
1 Jan 2022-
31 Dec 2024 1 April 2025
244,391 75,992 – (84,699) 235,684 68,488 167,196
C. Rinn
12 April
2019 £8.48 26,291 – – (26,291)* – – –
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
1 April
2022 £9.9325 – 22,462 – – 22,462 11,231 11,231
1 Jan 2022-
31 Dec 2024 1 April 2025
77,636 22,462 – (26,291) 73,807 20,687 53,120
* The market price at the date of vesting was £9.705.
** 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
1 March 2023
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Grafton Group plc Annual Report and Accounts 2022
The Directors present their report to the shareholders together with the audited financial statements for the year ended 31 December 2022.
Group results
Group revenue from continuing operations increased by 9.1 per cent to £2.30 billion from £2.11 billion in 2021. Statutory operating profit was
£264.3 million (2021: £269.2 million). Adjusted operating profit from continuing operations of £285.9 million was down marginally from £288.0
million last year. This included a non-recurring pension scheme curtailment gain of £3.7 million.
The net finance expense declined to £12.6 million (2021: £19.4 million). This charge includes an interest charge of £14.9 million (2021: £14.6 million)
on lease liabilities recognised under IFRS 16.
The income tax expense of £43.1 million (2021: £43.0 million) is equivalent to an effective tax rate of 17.1 per cent of profit before tax (2021: 17.2 per
cent).
Basic earnings per share from continuing operations was 89.3 pence (2021: 86.4 pence). Adjusted earnings per share from continuing operations
was 96.6 pence (2021: 93.0 pence).
The Group and Company financial statements for the year ended 31 December 2022 are set out in detail on pages 160 to 228.
Dividends
A final dividend for 2021 of 22.0p per ordinary share in Grafton Group plc was paid on 5 May 2022 to shareholders on the register of members at
the close of business on 8 April 2022.
An interim dividend for 2022 of 9.25p per ordinary share in Grafton Group plc was paid on 7 October 2022 to shareholders on the register of
members at the close of business on 9 September 2022.
A final dividend for 2022 of 23.75p per ordinary share in Grafton Group plc is proposed for approval by shareholders at the AGM on 4 May 2023 and,
if approved, will be paid on 11 May 2023 to shareholders on the register of members at the close of business on 14 April 2023. The ex-dividend date
is 13 April 2023.
Review of the business
Shareholders are referred to the Chair’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 2022, the outlook for 2023 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 70 to 75 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 2022 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 2023 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 6.00pm 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.
Report of the Directors
147
Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
Annual General Meeting (‘AGM’)
The AGM of the Company will be held at the Irish Management Institute (IMI) Sandyford Rd, Dublin, D16 X8C3, Ireland at 10.30am on Thursday
4 May 2023. The Notice of Meeting for the 2023 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 2022 together with the reports of the Directors and
the Auditors.
Final dividend
Shareholders are being asked to declare a final dividend of 23.75p per Ordinary Share for the year ended 31 December 2022 payable on 11 May
2023 to the holders of Ordinary Shares on the register of members at close of business on 14 April 2023.
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
The Board is proposing to submit the Chair’s Annual Statement, and the Annual Report on Remuneration of the Remuneration Committee, as set
out on pages 120 to 124 and 133 to 145, to a non-binding advisory vote.
2023 Remuneration Policy
In line with best practice, the Board is proposing to submit a new Remuneration Policy which is set out on pages 125 to 132 to a non-binding
advisory vote. It is the Company’s intention that this policy will apply until the 2026 AGM unless the Remuneration Committee seeks approval from
shareholders to adopt a new policy at an earlier date.
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 one third 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 representing five per cent of the nominal value of the issued ordinary share
capital of the Company as at the date of the Notice of Annual General Meeting.
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 2022 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.
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Grafton Group plc Annual Report and Accounts 2022
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.
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 2024 or 15 months after the
passing of these resolutions.
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 2022 and 24 February 2023:
31 December 2022 24 February 2023
Name Holding % Holding %
Mr. Michael Chadwick* 21,926,409 9.81 21,926,409 9.93
Investec Asset Management Limited 19,046,178 8.53 19,046,178 8.62
Blackrock, Inc. 18,335,460 8.21 18,335,460 8.30
abdrn plc 11,244,122 5.03 11,221,384 5.08
Dimensional Fund Advisors LP 9,513,966 4.26 9,513,966 4.31
Aviva plc 7,202,072 3.22 6,579,852 2.98
Norges Bank 7,138,076 3.20 7,13 8,076 3.23
GLG Partners LP 7,133,50 9 3.19 10,549,332 4.78
JPMorgan Asset Management Holdings Inc. 6,869,964 3.08 6,869,964 3.11
Allianz Global Investors Gmbh 6,630,885 2.97 6,630,885 3.00
* 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 24 February 2023 or at 31 December 2022 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 100 to 111 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
Report of the Directors continued
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance
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.
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 70 to 75 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 79 and 80
Social & Employee Matters Sustainability 83 to 86
Our People and Culture 16 to 19
Stakeholder Engagement 20 and 21
Note 11 to the Group Financial Statements 182
Note 6 to the Group Financial Statements 179 to 180
Diversity Sustainability 85 and 86
Nomination Committee Report 116 to 119
Human Rights Sustainability 89
Anti-bribery & Corruption Sustainability 89
Audit and Risk Committee Report 114
Business Model Business Model 28 and 29
Non-Financial KPIs Key Performance Indicators 44 and 45
Sustainability 76 to 95
Principal Risks Risk Management 70 to 75
Financial Instruments Note 21 to the Group Financial Statements 197 to 203
Subsidiaries
The Group’s principal operating subsidiary undertakings are set out on page 227.
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 2022 that would require adjustment to or disclosure in this report, save as
disclosed in Note 34 on page 218.
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.
Eric Born David Arnold
Director Director
1 March 2023 1 March 2023
Grafton Group plc Annual Report and Accounts 2022
150
Financial
Statements
151
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
Financial statements
Directors’ Responsibility Statement 152
Independent Auditors’ Report 153
Group Income Statement 160
Group Comprehensive Income Statement 161
Group Balance Sheet 162
Group Cash Flow Statement 163
Group Statement of Changes in Equity 164
Notes to the Group Financial Statements 166
Company Balance Sheet 219
Company Statement of Changes in Equity 220
Notes to the Company Financial Statements 221
Dividend per share growth
8.2%
Adjusted return on capital employed
17.2%
Strong financial result
Grafton had a successful year and is reporting
a strong financial result ahead of market
expectations. Despite macro-economic
challenges in its markets, the Group continued
to perform well with operating profit close
to last year’s record result against a less
favourable market backdrop.
For more see pages 152 to 228
152
Grafton Group plc Annual Report and Accounts 2022
Directors’ responsibility statement
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 for each financial year. Under that law, the Directors have
prepared the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union
(“IFRS”) 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 shall 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 of 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 whether the Group financial statements have been prepared in accordance 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 that are sufficient to:
• correctly record and explain the transaction of the Group and Company;
• enable, at any time, the assets, liabilities, and financial position and profit or loss of the Group and Company to be determined with reasonable
accuracy; and
• enable the Directors to ensure that the financial statements comply with the provisions of the Companies Act 2014 and enable those financial
statements to be audited.
The Directors 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 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 98 and 99 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 Irish law), as applied in accordance with
the provisions of the Companies Act 2014, give a true and fair view of the assets, liabilities, and financial position of the Group and Company at
31 December 2022 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 70 to 75; and
• the Annual Report and Accounts 2022, 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
Eric Born David Arnold
Director Director
1 March 2023
153
Grafton Group plc Annual Report and Accounts 2022
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 2022 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 2022 (the “Annual Report”), which comprise:
• the Group Balance Sheet as at 31 December 2022;
• the Company Balance Sheet as at 31 December 2022;
• 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
Key audit
matters
Audit scope
Overall materiality
• £10.5 million (2021: £9.8 million) – Group financial statements
• Equates to c. 5% of profit before tax and property profit (2021: c. 4% of profit before tax)
• €8.1 million (2021: €7.1 million) – Company financial statements
• Equates to c. 0.4% of total assets (2021: c. 0.3% of total assets).
Performance materiality
• £7.9 million (2021: £7.3 million) – Group financial statements.
• €6.1 million (2021: €5.3 million) – Company financial statements.
Audit scope
• We conducted an audit of the complete financial information of 11 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 85% of the Group’s profit before tax 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
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Grafton Group plc Annual Report and Accounts 2022
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 note 1, Summary of significant accounting policies, note 12,
Goodwill and note 32, Accounting Estimates and Judgements.
As at 31 December 2022 Goodwill amounted to £635.8 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 Board approved budget for 2023 and management
forecasts for the following years from 2024 to 2027 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 the revenue growth rate and operating margin assumptions
in the years 2023 to 2027, 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.
As set out in note 12, management determined there to be no
impairments during the year.
We determined valuation of goodwill to be a key audit matter due to
the significance of this asset, which accounts for 21% of total assets
of the Group at 31 December 2022, and as the Directors’ assessment
of the recoverable amount of goodwill involves complex and
subjective judgements.
We agreed the underlying cash flow forecast models for each of the
groups of CGUs to the Board approved budget and management
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 historically.
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 2023 to 2027.
We compared the revenue growth rates to external economic
forecasts and considered them to be within reasonable ranges. We
assessed the appropriateness of forecast operating margins through
comparison to actual historic margins achieved and considering
current market conditions.
We assessed the appropriateness of the Group’s forecast long term
growth rates used to calculate terminal values by comparing them to
independent sources.
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.
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.
Based on the results of these procedures we are satisfied that no
impairment charge was required.
We assessed the appropriateness of the related disclosures within the
financial statements.
Independent auditors’ report to the members
of Grafton Group plc continued
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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 note 1, Summary of Significant Accounting Policies, note 17a,
Trade and Other Receivables and note 32, Accounting Estimates and
Judgements.
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. 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 2022 involves both the use of estimates and manual
inputs and is material to the performance and financial position of
the Group.
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. For a sample of suppliers, we independently
obtained external confirmation of rebate income and rebates
due at 31 December 2022. Where responses were not received,
we performed alternative procedures including obtaining rebate
agreements and re-computing rebate income and rebate receivables.
We considered the actual results of the collection of rebates during
the year, including those relating to the prior year, and after the year
end, comparing the amount collected to the related estimated rebates
receivable balance.
We concluded that the amounts recognised were reasonable.
We assessed the appropriateness of the related disclosures within the
financial statements.
Valuation of inventory
Refer to note 1, Summary of significant accounting policies, note 16,
Inventories and note 32, Accounting Estimates and Judgements.
Inventory, net of provisions at 31 December 2022 amounted to
£399.6 million. The inventory provision at 31 December 2022 was
£47.2 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
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 and the nature, ageing and level
of inventory held at year end. We also obtained an understanding from
management of plans to liquidate slower moving inventory and we
considered the appropriateness of provisions made.
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.
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 2 reporting components as significant, which in our view required an audit of their
complete financial information due to their size and financial significance to the Group. A further 9 reporting components had an audit of their
complete financial information based on our risk assessment, the materiality of the reporting component or statutory audit requirements.
The Group audit team performed analytical procedures at a Group level to assess the risks of material misstatement within the remaining 4
components.
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Grafton Group plc Annual Report and Accounts 2022
The components subject to an audit of their full financial information and Group functions accounted for in excess of 90% of the Group’s revenue,
in excess of 85% of the Group’s profit before tax and in excess of 90% of the Group’s 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 7 components, 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 components 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.
The Group audit team attended all 11 of the component audit closing meetings with local management by video conference or in person. 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.
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. Management considers that the impact of climate change does not give rise
to a material financial statement impact. 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
£10.5 million (2021: £9.8 million). €8.1 million (2021: €7.1 million).
How we determined it
Equates to c. 5% of profit before tax and
property profit (2021: c. 4% of profit before tax)
Equates to c. 0.4% (2021: c. 0.3%) 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 Given the property profit is
not related to the ongoing trading activities
we have excluded this in determining the
benchmark.
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 use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and
extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance
materiality was 75% of overall materiality, amounting to £7.9 million (Group audit) and €6.1 million (Company audit).
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £525,000 (Group audit) (2021:
£487,500) and €405,000 (Company audit) (2021: €355,000) 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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Grafton Group plc Annual Report and Accounts 2022
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 forecast 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.
Reporting on other information
The other information comprises all of the information in the Annual Report and Accounts 2022 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) and the Companies Act 2014
require us to also report certain opinions and matters as described below.
• 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 2022 is
consistent with the financial statements and has been prepared in accordance with the applicable legal requirements.
• 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).
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Grafton Group plc Annual Report and Accounts 2022
Corporate Governance Statement
The Listing Rules and ISAs (Ireland) require us to review the directors’ statements in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code (the “Code”)
specified for our review. Our additional responsibilities with respect to the Corporate Governance Statement as other information are described in
the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement
is materially consistent with the financial statements and our knowledge obtained during the audit and we have nothing material to add or draw
attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the Group’s and Company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers and why the
period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an audit and only
consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with
the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements
and our knowledge and understanding of the Group and Company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance with the
Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibility Statement, 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to health and safety, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2014
and relevant tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements
Independent auditors’ report to the members
of Grafton Group plc continued
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Grafton Group plc Annual Report and Accounts 2022
Financial Statements
(including the risk of override of controls) and determined that the principal risks were related to inappropriate journals that adjust revenue and
management bias in significant accounting estimates and judgements. Audit procedures performed by the engagement team included:
• Enquiring of senior management (Group and operating entities), directors, members of the Audit and Risk Committee and Internal Audit of their
assessment of the potential fraud risk and their assessment of controls and any incidences of fraud during the year;
• Evaluating the Group’s programme and controls designed to address fraud risk;
• Considering remuneration incentive schemes and performance targets for directors and senior management in our assessment of fraud risk;
• Using analytical procedures to identify any unusual or unexpected relationships;
• Assessing whether the judgements made in making key accounting estimates are indicative of a potential bias;
• Identifying journal entries to test based on risk criteria including manual journals posted to adjust revenue, for all components subject to an audit
of their full financial information, and tested the identified entries;
• Considered the results of reporting from component teams relating to compliance with applicable laws and regulations and procedures
performed to address assessed fraud risk;
• Incorporating unpredictability into our audit procedures; and
• Maintaining an appropriate level of professional scepticism throughout the audit process.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target
particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the 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
1 March 2023
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Grafton Group plc Annual Report and Accounts 2022
Group Income Statement
For the year ended 31 December 2022
Notes
2022
£’000
2021
£’000
Revenue 2 2 , 3 0 1, 4 8 2 2, 1 09, 909
Operating costs 3 (2,062 ,597 ) (1 ,857 ,487 )
Property profits 4 2 5, 3 81
Operating profit 264 ,26 6 2 6 9 ,16 2
Finance expense 7 (2 1, 2 7 3 ) (2 1, 2 6 9 )
Finance income 7 8 ,690 1, 9 0 4
Profit before tax 2 5 1, 6 8 3 2 49 ,7 97
Income tax charge 9 (43, 065 ) (42 ,9 5 2 )
Profit after tax for the financial year from continuing operations 2 0 8 , 6 18 206 ,8 4 5
Profit after tax from discontinued operations 27 – 1 34,422
Profit after tax for the financial year 2 0 8 , 6 18 3 41, 2 6 7
Profit attributable to:
Owners of the Parent 2 0 8 , 618 3 4 1, 2 6 7
Profit attributable to:
Continuing operations 2 0 8 , 6 18 206 ,8 4 5
Discontinued operations – 1 34,4 22
Earnings per ordinary share (continuing operations) – basic 11 89. 34 p 8 6.4 4 p
Earnings per ordinary share (continuing operations) – diluted 11 8 9 .18 p 8 6 . 2 7 p
Earnings per ordinary share (discontinued operations) – basic 11 – 56. 1 7 p
Earnings per ordinary share (discontinued operations) – diluted 11 – 56.06 p
Earnings per ordinary share (total) – basic 11 89. 34 p 14 2 . 6 1 p
Earnings per ordinary share (total) – diluted 11 8 9 .1 8 p 1 42.33 p
On behalf of the Board
Eric Born David Arnold
Director Director
1 March 2023
161
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
Notes
2022
£’000
2021
£’000
Profit after tax for the financial year 2 0 8 , 6 18 3 41, 2 6 7
Other comprehensive income
Items that are or may be reclassified subsequently to the income statement
Currency translation effects:
– on foreign currency net investments 3 0 , 74 1 (2 5 ,16 8 )
Fair value movement on cash flow hedges:
– Effective portion of changes in fair value of cash flow hedges (2 9 ) 57
Items that will not be reclassified to the income statement
Remeasurement (loss)/gain on Group defined benefit pension schemes 30 (5,040 ) 14 , 8 8 6
Deferred tax on Group defined benefit pension schemes 25 2,55 8 (3 , 2 12 )
(2 ,4 82 ) 11 , 6 74
Total other comprehensive income/(expense) 28,230 (13 , 4 3 7 )
Total comprehensive income for the financial year 236,8 48 327,830
Total comprehensive income attributable to:
Owners of the Parent 236,8 48 327,830
Total comprehensive income for the financial year 236,8 48 327,830
On behalf of the Board
Eric Born David Arnold
Director Director
1 March 2023
Group Statement of Comprehensive Income
For the year ended 31 December 2022
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Grafton Group plc Annual Report and Accounts 2022
Group Balance Sheet
As at 31 December 2022
Notes
2022
£’000
2021
£’000
ASSETS
Non-current assets
Goodwill 12 6 3 5 ,7 51 5 9 9 , 8 10
Intangible assets 15 15 3 , 7 12 14 4 , 3 2 7
Property, plant and equipment 13(a) 354,402 3 19 , 2 9 5
Right – of – use asset 13(b) 4 2 0 , 115 421,25 4
Investment properties 13(d) 26,0 84 26, 527
Deferred tax assets 25 8,06 3 8 ,7 9 3
Lease receivable 17(b) 453 8 81
Retirement benefit assets 30 4,584 3,596
Other financial assets 14 12 9 12 6
Total non-current assets 1, 6 0 3 , 2 9 3 1, 5 2 4 , 6 0 9
Current assets
Properties held for sale 13(c) 4, 364 6 ,12 5
Inventories 16 3 99, 56 5 3 4 4 ,17 2
Trade and other receivables 17(a) 2 6 7, 6 9 4 23 3,4 86
Finance lease receivable 17(b) 19 6 2 12
Cash and cash equivalents 20 7 11 , 7 2 1 84 4,663
Total current assets 1 ,383 ,540 1, 4 2 8 , 6 5 8
Total assets 2 ,986 ,8 33 2,95 3, 267
EQUITY
Equity share capital 18 7, 8 7 0 8 ,5 70
Share premium account 18 2 2 1, 9 7 5 2 19 , 4 4 7
Capital redemption reserve 19 1, 3 8 9 643
Revaluation reserve 19 12 , 3 7 5 12 , 5 19
Shares to be issued reserve 19 8 ,6 47 11, 8 3 7
Cash flow hedge reserve 19 (37 ) (8 )
Foreign currency translation reserve 19 87, 49 2 5 6 ,75 1
Retained earnings 1, 4 11,0 5 3 1, 4 13 ,7 3 7
Treasury shares held 18 (5 ,18 5 ) (3 , 8 9 7 )
Total equity attributable to owners of the Parent 1, 74 5 , 5 7 9 1, 7 19 , 5 9 9
LIABILITIES
Non-current liabilities
Interest – bearing loans and borrowings 20 253, 502 172,601
Lease liabilities 20 3 8 9 ,19 8 3 96 ,070
Provisions 23 15 ,18 9 14 , 8 6 2
Retirement benefit obligations 30 1 5,068 1 5,067
Deferred tax liabilities 25 6 1 , 0 11 56,4 02
Total non-current liabilities 73 3,96 8 655,002
Current liabilities
Interest – bearing loans and borrowings 20 – 8 4,030
Lease liabilities 20 6 0 ,10 5 52 ,9 24
Derivative financial instruments 22 29 8
Trade and other payables 24 420,65 3 4 1 9 ,111
Current income tax liabilities 20,595 1 5,956
Provisions 23 5,90 4 6,6 37
Total current liabilities 5 0 7, 2 8 6 578, 666
Total liabilities 1, 2 41, 2 5 4 1, 2 3 3 , 6 6 8
Total equity and liabilities 2,98 6, 83 3 2,953 ,267
On behalf of the Board
Eric Born David Arnold
Director Director
1 March 2023
163
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Financial Statements
Group Cash Flow Statement
For the year ended 31 December 2022
Notes
2022
£’000
2021
£’000
Profit before taxation from continuing operations 2 5 1, 6 8 3 2 49 ,7 97
Profit before taxation from discontinued operations 27 – 14 3 , 8 4 6
Profit before taxation (including discontinued operations) 2 5 1, 6 8 3 393,6 43
Finance income 7 (8 ,6 9 0 ) (1, 9 0 4 )
Finance expense (continuing and discontinued) 7 2 1, 2 7 3 22,51 2
Operating profit (including discontinued operations) 264 ,26 6 414 , 2 5 1
Depreciation 13(a)(b) 9 4 , 313 9 7, 8 9 4
Amortisation of intangible assets 15 20, 295 17,184
Share – based payments charge 31 4 , 7 19 5, 6 01
Movement in provisions 23 (1, 3 16 ) (1, 9 5 0 )
(Profit)/loss on sale of property, plant and equipment (24 8 ) 52 2
Property profit – continuing operations (20 , 3 8 3 ) (6 , 8 9 0 )
Property profit – discontinued operations – (39 6 )
Fair value gains recognised as property profits 13(d) (4 ,9 9 8 ) (9, 85 0 )
Asset impairment and fair value losses 13 – 24 8
Profit on sale of Group businesses 27 – (1 25, 1 1 6 )
Gain on derecognition of leases (475 ) (500 )
Contribution to pension schemes in excess of IAS 19 charge 30 (6 ,15 0 ) (2 3 , 6 5 0 )
Increase in working capital 26 (7 1, 2 7 3 ) (6 4 ,12 9 )
Cash generated from operations 2 7 8 ,75 0 303,219
Interest paid (21, 8 7 9 ) (20 , 4 6 4 )
Income taxes paid 9 (3 9, 5 29 ) (4 3,7 2 2 )
Cash flows from operating activities 21 7 ,342 239,033
Investing activities
Inflows
Proceeds from sale of property, plant and equipment 845 2 , 611
Proceeds from sale of properties held for sale 4,238 18 , 8 8 1
Proceeds from sale of investment properties 23,46 3 756
Proceeds from sale of Group businesses (net) 27 – 498, 530
Interest received 8,690 19 3
Outflows
Acquisition of subsidiary undertakings and businesses (net of cash acquired) 27 (45,978 ) (123,309 )
Deferred acquisition consideration paid 26 (4 ,000 ) –
Investment in intangible assets – computer software 15 (2 ,5 2 2 ) (8 27 )
Purchase of property, plant and equipment 13(a) (5 5 , 3 18 ) (4 3 , 6 16 )
(10 7, 8 18 ) (1 6 7, 7 5 2 )
Cash flows from investing activities (7 0, 5 8 2 ) 3 5 3 , 2 19
Financing activities
Inflows
Proceeds from the issue of share capital 2 , 5 74 2 , 9 74
Proceeds from borrowings 141, 7 2 2 96 , 897
Outflows
Repayment of borrowings (15 8 , 9 0 9 ) (15 2 , 0 0 4 )
Dividends paid 10 (73 , 8 6 8 ) (8 4 , 9 2 1 )
Treasury shares purchased 18 (14 2 , 9 81 ) –
Payment of lease liabilities (58,0 78 ) (56 , 0 4 3 )
(4 3 3 , 8 3 6 ) (292,968 )
Cash flows from financing activities (289, 540 ) (19 3 , 0 9 7 )
Net (decrease)/increase in cash and cash equivalents (14 2 , 7 8 0 ) 3 9 9 ,15 5
Cash and cash equivalents at 1 January 84 4,6 63 4 56,028
Effect of exchange rate fluctuations on cash held 9, 83 8 (10 , 5 2 0 )
Cash and cash equivalents at 31 December 7 11 , 7 2 1 84 4,663
Cash and cash equivalents are broken down as follows:
Cash at bank and short – term deposits 7 11, 7 2 1 8 44,663
164
Grafton Group plc Annual Report and Accounts 2022
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 2022
At 1 January 2022 8,570 2 19 , 4 4 7 643
12,519 11,837 (8) 56,751 1,413,737 (3,897) 1,719,599
Profit after tax for the financial year – – – – – – – 208,618 – 208,618
Total other comprehensive income
Remeasurement (loss) on pensions (net of tax) – – –
– – – – (2,482) – (2,482)
Movement in cash flow hedge reserve (net of tax) – – – – – (29) – – – (29)
Currency translation effect on foreign currency net investments – – – – – – 30,741 – – 30,741
Total other comprehensive income – – – – – (29) 30,741 (2,482) – 28,230
Total comprehensive income – – – – – (29) 30,741 206,136 – 236,848
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
– – – – (73,868) – (73,868)
Issue of Grafton Units 46 2,52 8 – – – – – – – 2,574
Purchase of treasury shares (Note 18) – – – – – – – – (142,981) (142,981)
Cancellation of treasury shares (74 6 ) – 74 6 – – – – (141,693) 141,693 –
Share – based payments charge – – – – 4,719 – – – – 4,719
Tax on share – based payments – – – – (1,312) – – – – (1,312)
Transfer from shares to be issued reserve – – – – (6,597) – – 6,597 – –
Transfer from revaluation reserve – – – (144) – – – 144 – –
(7 0 0 ) 2,52 8 74 6 (144) (3,190) – – (208,820) (1,288) (210,868)
At 31 December 2022 7, 8 7 0 2 2 1, 9 7 5 1, 3 8 9 12,375 8,647 (37) 87,492 1,411,053 (5,185) 1,745,579
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 2 16 , 4 9 6 621
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 loss 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 ,951 – – – – – – – 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 , 5 70 2 19 , 4 4 7 643 12,519 11, 837 (8) 56,751 1,413,737 (3,897) 1,719,599
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 2022
At 1 January 2022 8,570 219,447 643
Profit after tax for the financial year – – – – – – – 2 0 8 , 6 18 – 2 0 8 , 6 18
Total other comprehensive income
Remeasurement (loss) on pensions (net of tax) – – –
Movement in cash flow hedge reserve (net of tax) – – – – – (2 9 ) – – – (2 9 )
Currency translation effect on foreign currency net investments – – – – – – 3 0 , 74 1 – – 3 0 , 74 1
Total other comprehensive income – – – – – (2 9 ) 3 0 , 74 1 (2 , 4 82 ) – 28, 230
Total comprehensive income – – – – – (2 9 ) 3 0 , 74 1 2 0 6 ,13 6 – 236,84 8
Transactions with owners of the Parent recognised directly in equity
Dividends paid (Note 10) – – –
Issue of Grafton Units 46 2,528 – – – – – – – 2 , 5 74
Purchase of treasury shares (Note 18) – – – – – – – – (14 2 , 9 8 1 ) (14 2 , 9 8 1 )
Cancellation of treasury shares (746) – 746 – – – – (141, 6 9 3 ) 14 1, 6 9 3 –
Share – based payments charge – – – – 4 ,7 19 – – – – 4 , 7 19
Tax on share – based payments – – – – (1 , 3 12 ) – – – – (1, 3 12 )
Transfer from shares to be issued reserve – – – – (6, 5 9 7 ) – – 6 ,597 – –
Transfer from revaluation reserve – – – (14 4 ) – – – 14 4 – –
(700) 2,528 746 (14 4 ) (3 ,19 0 ) – – (208,820 ) (1, 2 8 8 ) (2 10 , 8 6 8 )
At 31 December 2022 7,870 221,975 1,389 12 , 3 7 5 8 ,6 47 (37 ) 8 7, 4 9 2 1, 411, 0 5 3 (5 ,1 8 5 ) 1, 74 5 , 5 7 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 2021
At 1 January 2021 8,569 216,496 621
Profit after tax for the financial year – – – – – – – 3 41, 2 6 7 – 3 41, 2 6 7
Total other comprehensive income
Remeasurement loss 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 ,16 8 )
Total other comprehensive income – – – – – 57 (2 5 ,1 6 8 ) 11, 6 74 – (13 , 4 3 7 )
Total comprehensive income – – – – – 57 (2 5 ,1 6 8 ) 3 5 2 , 9 41 – 327 ,830
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, 0 9 2 – – – – 1, 0 9 2
Transfer from shares to be issued reserve – – – – (1, 5 7 0 ) – – 1, 5 7 0 – –
Transfer from revaluation reserve – – – (2 14 ) – – – 214 – –
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, 4 13 ,7 3 7 (3, 8 9 7 ) 1, 7 19 , 5 9 9
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167
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Financial Statements
168
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Notes to the Group Financial Statements continued
169
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Financial Statements
170
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Notes to the Group Financial Statements continued
171
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Financial Statements
172
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Notes to the Group Financial Statements continued
173
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Financial Statements
174
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Notes to the Group Financial Statements continued
175
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Financial Statements
176
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Notes to the Group Financial Statements continued
177
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Financial Statements
178
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Notes to the Group Financial Statements continued
179
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Financial Statements
180
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Notes to the Group Financial Statements continued
181
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Financial Statements
182
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Notes to the Group Financial Statements continued
183
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Financial Statements
184
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Notes to the Group Financial Statements continued
185
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Financial Statements
186
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Notes to the Group Financial Statements continued
187
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Financial Statements
188
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Notes to the Group Financial Statements continued
189
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Financial Statements
190
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Notes to the Group Financial Statements continued
191
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Financial Statements
192
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Notes to the Group Financial Statements continued
193
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Financial Statements
194
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Notes to the Group Financial Statements continued
195
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
196
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Notes to the Group Financial Statements continued
197
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Financial Statements
198
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Notes to the Group Financial Statements continued
199
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Financial Statements
200
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Notes to the Group Financial Statements continued
201
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Financial Statements
202
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Notes to the Group Financial Statements continued
203
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Financial Statements
204
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Notes to the Group Financial Statements continued
205
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Financial Statements
206
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Notes to the Group Financial Statements continued
207
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Financial Statements
208
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Notes to the Group Financial Statements continued
209
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
210
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Notes to the Group Financial Statements continued
211
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Financial Statements
212
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Notes to the Group Financial Statements continued
213
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
214
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Notes to the Group Financial Statements continued
215
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
216
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Notes to the Group Financial Statements continued
217
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Financial Statements
218
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219
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Financial Statements
Notes
2022
€’000
2021
€’000
Fixed assets
Intangible assets 4(a) 169 243
Tangible assets 4(a) 31 57
Right-of-use asset 4(b) 1,743 420
Financial assets 5 1,048,006 937,067
Total fixed assets 1,049,949 937,787
Current assets
Debtors (including €2.0m (2021:€Nil) due after more than one year) 6 977,308 1,229,886
Cash at bank and in hand 10,286 5,992
Total current assets 987,594 1,235,878
Creditors: amounts falling due within one year 7 (949,427) (882,323)
Net current assets 38,167 353,555
Total assets less current liabilities 1,088,116 1,291,342
Creditors: amounts falling due after one year 7 (1,519) (225)
Net assets 1,086,597 1,291,117
Capital and reserves
Called-up share capital 10 11,195 12,003
Share premium account 10 313,786 310,820
Capital redemption reserve 1,848 978
Shares to be issued reserve 10,797 12,869
Profit and loss account 756,175 960,193
Treasury shares held (7,204) (5,746)
Shareholders’ equity 1,086,597 1,291,117
There was a profit after tax of €40.6 million (2021: profit of €100.2 million) attributable to the parent undertaking for the financial year.
On behalf of the Board.
Eric Born David Arnold
Director Director
1 March 2023
Company Balance Sheet
As at 31 December 2022
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Grafton Group plc Annual Report and Accounts 2022
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 2022
At 1 January 2022 12,003 310,820 978 12,869 960,193 (5,746) 1,291,117
Profit after tax for the financial year – – – – 40,576 – 40,576
Total other comprehensive income
Remeasurement loss on pensions (net of tax) – – – – – – –
Total comprehensive income – – – – 40,576 – 40,576
Transactions with owners of the Company recognised
directly in equity
Dividends paid – – – – (86,338) – (86,338)
Issue of Grafton Units 62 2,966 – – – – 3,028
Purchase of treasury shares – – – – – (167,324) (167,324)
Cancellation of treasury shares (870) – 870 – (165,866) 165,866 –
Share based payments charge – – – 5,538 – – 5,538
Transfer from shares to be issued reserve – – – (7,610) 7,610 – –
(808) 2,966 870 (2,072) (244,594) (1,458) (245,096)
At 31 December 2022 11,195 313,786 1,848 10,797 756,175 ( 7,204) 1,086,597
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
Dividends paid – – – – (64,231) – (64,231)
Issue of Grafton Units 26 3,482 – – – – 3,508
Cancellation of ‘A’ Shares (40) – 40 – – – –
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
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Grafton Group plc Annual Report and Accounts 2022
Financial Statements
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 FRS 101, 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 173 of the Consolidated Financial Statements.
IFRS 16 Leases
The accounting policy applicable to IFRS 16 leases is addressed in detail on pages 169 to 171 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.
222
Grafton Group plc Annual Report and Accounts 2022
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:
2022
€’000
2021
€’000
Statutory audit (refer to Note 3 of Group Financial Statements) 81 75
Depreciation (Note 4a) 32 87
Depreciation on right-of-use assets (Note 4b) 188 210
Intangible asset amortisation (Note 4a) 74 61
Directors’ remuneration 3,005 4,856
The interest expense on lease liabilities in the year was €6,000 (2021: €10,000).
The Directors’ remuneration is set out in detail in the Report of the Remuneration Committee on Directors’ Remuneration on pages 120 to 145.
The average number of persons employed by the Company during the year was 22 (2021: 22).
2022
€’000
2021
€’000
The aggregate remuneration costs of employees were:
Wages and salaries 4,606 5,694
Social welfare costs 285 247
Share-based payments charge 1,384 1,807
Defined contribution and pension related costs 567 384
Charged to operating profit 6,842 8,132
Net finance cost on pension scheme obligations – –
Charged to income statement 6,842 8,132
Actuarial loss on pension scheme – –
Total employee benefit cost 6,842 8,132
Notes to the Company Financial Statements continued
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Grafton Group plc Annual Report and Accounts 2022
Financial Statements
4. Tangible, Intangible and Right-of-Use Assets
4. (a) Tangible and Intangible Assets
Plant and
Equipment
2022
€’000
Intangible
Assets
2022
€’000
Company Cost
At 1 January 3,222 550
Additions 6 –
At 31 December 3,228 550
Depreciation
At 1 January 3,165 307
Charge for year 32 74
At 31 December 3,197 381
Net book amount
At 31 December 31 169
At 1 January 57 243
4. (b) Right-of-Use Asset
Right-of-Use
Asset*
€’000
Year ended 31 December 2022
Opening balance at 1 January 2022 420
Additions 1,549
Depreciation charge (188)
Disposals –
Remeasurements (38)
Closing net book amount 1,743
Year ended 31 December 2021
Opening balance at 1 January 2021 433
Additions 197
Depreciation charge (210)
Disposals –
Remeasurements –
Closing net book amount 420
* Theleasetermremainingasat31December2022is3.0years(2021:3.2years).
224
Grafton Group plc Annual Report and Accounts 2022
5. Financial Assets
Other
Investments
€’000
Investments
in subsidiary
undertakings
€’000
Total
€’000
At 1 January 2021
Additions – 400,000 400,000
Capital contribution – share-based payments – 4,706 4,706
At 31 December 2021 14 937,05 3 937,067
Additions* – 107,496 107,496
Disposals – (607) (607)
Capital contribution – share-based payments – 4,050 4,050
At 31 December 2022 14 1,047,992 1,048,006
Other investments represent sundry equity investments at cost less provision for impairment.
* AdditionsintheyearrelatetoinvestmentsinanumberoftheGroup’ssubsidiaryholdingcompanies.
6. Debtors
2022
€’000
2021
€’000
Amounts falling due within one year:
Amounts owed by subsidiary undertakings 973,559 1,227,758
Deferred tax 17 43
Other receivables 1,728 2,085
975,304 1,229,886
2022
€’000
2021
€’000
Amounts falling due after one year:
Other receivables 2,004 –
7. Creditors
2022
€’000
2021
€’000
Amounts falling due within one year:
Accruals 7,175 7,139
Lease liability* 230 200
Amounts owed to subsidiary undertakings 942,022 874,984
949,427 882,323
2022
€’000
2021
€’000
Amounts falling due after one year:
Lease liability* 1,519 225
* TheCompany’sincrementalborrowingrateappliedtotheleaseliabilityasat31December2022was4.9%(2021:2.4%).
The maturity analysis of the lease liability is as follows:
2022
€’000
2021
€’000
Year 1 230 200
Year 2 44 187
Year 3 172 32
Year 4 176 6
Year 5 125 –
Onwards 1,002 –
Notes to the Company Financial Statements continued
225
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
8. Deferred Taxation
Recognised Deferred Tax (Assets) and Liabilities
Assets
2022
€’000
Liabilities
2022
€’000
Net (assets)/
liabilities
2022
€’000
Assets
2021
€’000
Liabilities
2021
€’000
Net (assets)/
liabilities
2021
€’000
Other items (17) – (17) (43) – (43)
Balance
1 Jan 22
€’000
Recognised in
income
€’000
Recognised
in other
comprehensive
income
€’000
Foreign
exchange
retranslation
€’000
Arising on
acquisitions
€’000
Balance
31 Dec 22
€’000
Other items (43) 26 – – – (17)
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)
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 2022 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 2022
Company
scheme
At 31 Dec 2021
Company
scheme
Valuation Method Projected Unit Projected Unit
Rate of increase of pensions in payment – –
Discount rate 3.70% 1.15%
Inflation rate increase 2.60% 2.10%
The Company’s obligations to the scheme at the end of 2022 and 2021 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)
2022
€’000
2021
€’000
2022
€’000
2021
€’000
2022
€’000
2021
€’000
At 1 January 1,221 1,327 (1,221) (1,327) – –
Interest income on plan assets 14 9 – – 14 9
Benefit payments (76) (76) 76 76 – –
Interest cost on scheme liabilities – – (14) (9) (14) (9)
Remeasurement gains/(losses) (220) (39) 220 39 – –
At 31 December 939 1,221 (939) (1,221) – –
Related deferred tax asset (net) – –
Net pension liability – –
No contributions are expected to be paid to the Company’s defined benefit scheme in 2023 (2022: €Nil).
226
Grafton Group plc Annual Report and Accounts 2022
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
2022
Nominal Value
€’000
2021
Nominal Value
€’000
Issued and fully paid:
Ordinary shares
At 1 January 240,071,630 12,003 11,977
Issued under UK SAYE scheme* 414,711 21 22
2011 Long Term Incentive Plan
April 2019 LTIP Awards Nil 796,902 41 4
Share Buyback
Share Buyback – Programme 1 (12,282,711) (614) –
Share Buyback – Programme 2 (4,302,597) (215) –
Share Buyback – LTIP Awards (796,902) (41) –
At 31 December 223,901,033 11,195 12,003
‘A’ ordinary shares
At 1 January – – 40
‘A’ ordinary shares issued in year – – –
Cancellation of ‘A’ ordinary shares – – (40)
At 31 December – – –
Total nominal share capital issued 11,195 12,003
* Refer to Note 31 to the Group Financial Statements which outlines the issue price of the SAYE Schemes.
Share Premium
Company
2022
€’000
2021
€’000
At 1 January 310,820 307,338
Premium on issue of shares under UK SAYE scheme 2,966 3,482
At 31 December 313,786 310,820
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 €8.5 million (2021: €8.4 million) for the year ended 31 December 2022;
• Loans were granted to and by the Company to its subsidiaries; and
• Dividend income in the year of €54.4 million (2021: €80.5 million) was received from Group subsidiary companies.
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.
Notes to the Company Financial Statements continued
227
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
13. Principal Operating Subsidiaries
The principal operating subsidiaries operating in Ireland are:
Name of Company Nature of Business Registered Office
Chadwicks Group Limited Building materials distribution
c/o Grafton Group plc, Heron House, Corrig Road, Sandyford Business
Park, Dublin 18.
Woodie’s DIY Limited DIY, home and garden retailing
c/o Grafton Group plc, Heron House, Corrig Road, Sandyford Business
Park, Dublin 18.
The Company owns 100 per cent of the share capital of its principal operating subsidiary undertakings operating in Ireland.
The principal operating subsidiaries operating in the United Kingdom are:
Name of Company Nature of Business Registered Office
Macnaughton Blair Limited Building materials distribution 10 Falcon Road, Belfast, BT12 6RD, Northern Ireland
Selco Trade Centres Limited Building materials distribution
First Floor, Boundary House, 2 Wythall Green Way, Wythall,
Birmingham, B47 6LW
LSDM Limited Building materials distribution
Ground Floor, Boundary House 2 Wythall Green Way, Wythall,
Birmingham, United Kingdom, B47 6LW
CPI Mortars Limited Mortar manufacturing Oak Green House, 250-256 High Street, Dorking, Surrey, RH4 1QT
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in the UK.
The principal operating subsidiaries in the Netherlands are:
Name of Company Nature of Business Registered Office
Isero B.V.
Ironmongery, tools and fixings
distribution Dirk Verheulweg 3, 2742 JR, Waddinxveen, The Netherlands
Gunters en Meuser B.V.
Ironmongery, tools and fixings
distribution Egelantiersgracht 2-6, 1015 RL Amsterdam, the Netherlands
Polvo B.V.
Ironmongery, tools and fixings
distribution Tradeboulevard 5 a, 4761RL Zevenbergen, the Netherlands
GKL Ventilatie Techniek B.V.
Ironmongery, tools and fixings
distribution Touwbaan 1 H, 2352CZ Leiderdorp
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in the Netherlands.
The principal operating subsidiaries in Finland are:
Name of Company Nature of Business Registered Office
Isojoen Konehalli Oy Technical trades distribution Keskustie 26, 61850 Kauhajoki, Finland
Jokapaikka Oy Technical trades distribution Keskustie 26, 61850 Kauhajoki, Finland
The Company owns 100 per cent of the share capital of its principal subsidiary undertakings operating in Finland.
228
Grafton Group plc Annual Report and Accounts 2022
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 2022 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 2022:
Athina Limited, Atlantic Home and Garden Centre Limited, Beralt Developments 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, Eddie’s Hardware Limited, F&T Buckley (Holdings) Unlimited Company, F & T Buckley
Unlimited Company, Garvey Builders Providers Unlimited Company, 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, Haylen Investments Limited, Heiton Buckley Limited, Heiton Group plc, Heiton McCowen Limited,
House of Woods Unlimited Company, Jarkin Properties Limited, Jarsen Distribution Limited, Lacombe Properties Limited, Leo Wright Holdings
Limited, Market Hardware Unlimited Company, MB Doorplan Limited, MFP Plastics Limited, MFP Sales Limited, Morgan McMahon & Co. Unlimited
Company, Paddy Power (Kilbarry) Unlimited Company, Panelling Centre Limited, Plumbland Limited, Powlett Properties Limited, Resadale
Properties Limited, Sam Hire Holdings Unlimited Company, Stettler Properties Limited, Telford Group Limited, Telfords (Portlaoise) Limited, Tiska
Limited, Titanium Limited, Topez Limited, W&S Timber Components Unlimited Company, 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., GKL Ventilatie Techniek B.V. and Regts 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 €288.3 million at the balance
sheet date. The guarantee is over bank debt of €128.3 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 2022 on 1 March 2023.
Notes to the Company Financial Statements continued
229
Grafton Group plc Annual Report and Accounts 2022
Financial Statements
230
Grafton Group plc Annual Report and Accounts 2022
Supplementary
Information
Grafton Group plc Annual Report and Accounts 2022
230
231
Grafton Group plc Annual Report and Accounts 2022
231
Grafton Group plc Annual Report and Accounts 2022
Supplementary Information
In this section
Supplementary Financial Information 232
Grafton Group plc Financial History
– 2015 to 2022 237
Corporate Information 238
Financial Calendar 238
Location of Annual General Meeting 238
Glossary of Terms 239
232
Grafton Group plc Annual Report and Accounts 2022
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 2021 are available in the 2021 Annual Report.
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, impairment charges related to intangible assets recognised
on acquisition of businesses 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.
Note: The traditional merchanting business in Great Britain is classified as discontinued operations for the year ended 31 December 2021. In the
computation of APMs below for 2021, 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.
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.
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.
Supplementary Financial Information
Not covered by Independent Auditors’ Report
233
Grafton Group plc Annual Report and Accounts 2022
Supplementary Information
Adjusted Operating Profit/EBITA Before Property Profit
2022
£’m
2021
£’m
Revenue 2,301.5 2,109.9
Operating profit 264.3 269.2
Property (profit) (25.4) (16.7)
Other acquisition related items 2.3 4.1
Amortisation of intangible assets arising on acquisitions 19.3 14.7
Adjusted operating profit/EBITA before property profit 260.5 271.2
Adjusted operating profit/EBITA margin before property profit 11.3% 12.9%
Operating Profit/EBIT Margin
2022
£’m
2021
£’m
Revenue 2,301.5 2,109.9
Operating profit 264.3 269.2
Operating profit/EBIT margin 11.5% 12.8%
Adjusted Operating Profit/EBITA & Margin
2022
£’m
2021
£’m
Operating profit 264.3 269.2
Other acquisition related items 2.3 4.1
Amortisation of intangible assets arising on acquisitions 19.3 14.7
Adjusted operating profit/EBITA 285.9 288.0
Adjusted operating profit/EBITA margin 12.4% 13.6%
Adjusted Profit Before Tax
2022
£’m
2021
£’m
Profit before tax 251.7 249.8
Other acquisition related items 2.3 4.1
Amortisation of intangible assets arising on acquisitions 19.3 14.7
Adjusted profit before tax 273.3 268.6
Adjusted Profit After Tax
2022
£’m
2021
£’m
Profit after tax for the financial year 208.6 206.8
Other acquisition related items 2.3 4.1
Tax on other acquisition related items (0.2) (0.1)
Amortisation of intangible assets arising on acquisitions 19.3 14.7
Tax on amortisation of intangible assets arising on acquisitions (4.3) (3.2)
Adjusted profit after tax 225.6 222.4
234
Grafton Group plc Annual Report and Accounts 2022
Supplementary Financial Information continued
Not covered by Independent Auditors’ Report
Reconciliation of Profit to EBITDA – continuing operations
2022
£’m
2021
£’m
Profit after tax for the financial year 208.6 206.8
Other acquisition related items 2.3 4.1
Net finance expense 12.6 19.4
Income tax expense 43.1 43.0
Depreciation 94.3 84.8
Intangible asset amortisation 20.3 15.3
EBITDA 381.2 373.4
Net (Cash)/Debt to EBITDA
2022
£’m
2021
£’m
EBITDA 381.2 373.4
Net (cash) (8.9) (139.0)
Net (cash)/debt to EBITDA – times (0.02) (0.37)
EBITDA Interest Cover
2022
£’m
2021
£’m
EBITDA 381.2 373.4
Net bank/loan note interest including interest on lease liabilities 11.8 20.7
EBITDA interest cover – times 32.2 18.0
EBITDA Interest Cover (excluding interest on lease liabilities)
2022
£’m
2021
£’m
EBITDA 381.2 373.4
Net bank/loan note interest excluding interest on lease liabilities (3.1) 6.1
EBITDA interest cover – times N/A 61.7
Free Cash Flow
2022
£’m
2021
£’m
Cash generated from operations 278.8 303.2
Replacement capital expenditure (33.2) (24.6)
Proceeds on sale of property, plant and equipment 0.8 2.6
Proceeds on sale of properties held for sale/investment properties 27.7 19.6
Interest received 8.7 0.2
Interest paid (21.9) (20.5)
Income taxes paid (39.5) (43.7)
Free cash flow 221.4 237.0
Gearing
2022
£’m
2021
£’m
Total equity attributable to owners of the Parent 1,745.6 1,719.6
Group net (cash) (8.9) (139.0)
Gearing N/A N/A
235
Grafton Group plc Annual Report and Accounts 2022
Supplementary Information
Return on Capital Employed – continuing operations
2022
£’m
2021
£’m
Operating profit 264.3 269.2
Other acquisition related items 2.3 4.1
Amortisation of intangible assets arising on acquisitions 19.3 14.4
Adjusted operating profit 285.9 287.7
Total equity – current period end (from continuing operations) 1,745.6 1,719.6
Net (cash) – current period end (8.9) (139.0)
Capital employed – current period end 1,735.3 1,580.6
Total equity – prior period end (from continuing operations) 1,719.6 1, 4 67.0
Adjustment re disposal of Group businesses – 115.4
Net debt – prior period end (139.0) 355.0
Adjustment re disposal of Group businesses – (545.0)
Capital employed – prior period end 1,580.6 1,392.4
Average capital employed 1,658.6 1,486.5
Return on capital employed 17.2% 19.4%
Capital Turn
2022
£’m
2021
£’m
Revenue 2,301.5 2,109.9
Average capital employed 1,658.6 1,486.5
Capital turn – times 1.4 1.4
Dividend Cover
2022
£’m
2021
£’m
Group adjusted EPS – basic (pence) 96.63 92.95
Group dividend (pence) 33.0 30.50
Group dividend cover – times 2.9 3.0
Free Cash Conversion
2022
£’m
2021
£’m
Free cash flow 221.4 237.0
Adjusted operating profit 285.9 288.0
Free cash conversion 77% 82%
Liquidity
2022
£’m
2021
£’m
Cash and cash equivalents 711.7 844.7
Less: cash held against letter of credit (4.0) (4.0)
Accessible cash 707.7 840.7
Undrawn revolving bank facilities 226.9 394.7
Liquidity 934.6 1,235.4
Net cash – Before IFRS 16 leases
2022
£’m
2021
£’m
Net cash – after IFRS 16 Leases 8.9 139.0
IFRS 16 Lease Liability 449.3 449.0
Net cash – before IFRS 16 Leases 458.2 588.0
236
Grafton Group plc Annual Report and Accounts 2022
Like for like revenue
2022
£’m
2021
£’m
2021/2020 revenue (restated) 2,109.9 1,679.2
Organic growth 47.2 337.8
Organic growth – new branches 17.8 9.0
Total organic growth 65.0 346.8
Acquisitions 1,344 120.9
Foreign exchange (7.8) (37.0)
2022/2021 revenue 2,301.5 2,109.9
Like-for-like movement (organic growth, excluding new branches, as % prior year revenue) 2.2% 20.1%
The Impact of IFRS 16 “leases“ on APM’s
Reconciliation of Profit to EBITDA – pre-IFRS 16 (continuing)
2022
£’m
2021
£’m
Profit after tax for the financial year 208.6 206.8
Loss after tax for the financial year (IFRS 16) 1.3 1.4
Profit after tax for the financial year (pre-IFRS 16) 209.9 208.2
Other acquisition related items 2.3 4.1
Net finance (credit)/expense (2.3) 4.7
Income tax expense 43.4 43.2
Depreciation 34.2 30.3
Intangible asset amortisation 20.3 15.3
EBITDA 307.8 305.8
EBITDA Interest Cover – pre-IFRS 16
2022
£’m
2021
£’m
EBITDA 307.8 305.8
Net bank/loan note interest excluding interest on lease liabilities (3.1) 6.1
EBITDA interest cover – times (99.3) 50.5
Supplementary Financial Information continued
Not covered by Independent Auditors’ Report
237
Grafton Group plc Annual Report and Accounts 2022
Supplementary Information
Grafton Group plc Financial History
– 2015 to 2022*
Group Income Statements
2022
£’m
2021
£’m
2020
£’m
2019
£’m
2018
£’m
2017
£’m
2016
£’m
2015
£’m
Revenue 2,301.5 2,109.9 2,509.1 2,672.3 2,952.7 2,715.8 2 ,507.3 2,212.0
Operating profit 260.5 271.2 190.7 197.9 189.6 160.9 137.1 120.6
Operating margin % 11.3% 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 (21.6) (18.8) (8.9) (7.0) (5.1) (2.8) (2.2) (0.5)
Property profit 25.4 16.7 2.6 6.9 4.9 2.7 4.9 6.7
Finance (expense)/
income (net) (12.6) (19.4) (26.9) (25.1) (6.1) (6.4) (5.9) ( 7.9)
Profit before taxation 251.7 249.8 132.7 172.6 181.3 154.5 114.2 120.3
Taxation (43.1) (43.0) (25.2) (28.7) (30.9) (26.6) (21.1) (23.8)
Profit after taxation 208.6 206.8 107.5 143.9 150.4 127.8 93.1 96.5
Group Balance Sheets
2022
£’m
2021
£’m
2020
£’m
2019
£’m
2018
£’m
2017
£’m
2016
£’m
2015
£’m
Capital employed
Goodwill and intangibles 789.5 744.1 820.0 761.1 726.0 646.1 610.8 554.2
Property, plant and
equipment/ROU Asset 774.5 740.6 999.5 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 0.1
Net current assets** 224.7 142.3 100.3 173.6 161.7 136.3 141.5 149.6
Other net non-current liabilities (52.1) (46.5) (97.9) (61.5) (59.8) (49.4) (52.6) (31.3)
1,736.7 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 1,745.6 1,719.6 1,4 67.0 1,362.7 1,296.5 1,174.6 1,062.1 985.7
Non-controlling interest – – – – – – 3.1 3.4
Net (cash)/debt (8.9) (139.0) 355.0 533.8 53.1 62.9 96.3 113.6
1,736.7 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 (458.2) (588.0) (181.9) (7. 8) 53.1 62.9 96.3 113.6
Acquisitions & investments 46.0 123.3 47.5 92.6 73.8 40.4 11.9 98.6
Purchase of fixed assets/investment in intangible
assets 57.8 43.6 35.2 52.4 73.6 81.4 60.4 51.6
103.8 166.9 82.7 145.0 147.4 121.8 72.3 150.2
Depreciation and intangible amortisation 114.6 115.1 121.4 114.8 49.0 43.5 38.1 33.1
Financial Highlights 2022 2021 2020 2019 2018 2017 2016 2015
Adjusted EPS*** (pence) 96.6 93.0 56.7 62.8 66.0 54.9 47.7 41.2
Dividend/share purchase per share (pence) 33.0 30.5 14.5 19.0 18.0 15.5 13.8 12.5
Cash flow per share (pence)**** 138.4 134.5 96.0 108.8 83.9 72.4 64.0 54.9
Net assets per share (pence) 781.4 717. 8 613.7 573.0 545.3 495.0 449.5 419.0
Underlying EBITDA interest cover (times) 32.2 18.0 11.9 12.1 48.0 48.4 37.9 27.3
Dividend/share purchase cover 2.9 3.0 3.9 3.3 3.7 3.5 3.5 3.3
Net debt to shareholders’ funds (1%) (8%) 24% 39% 4% 5% 9% 12%
ROCE 17.2% 19.4% 10.4% 10.8% 15.0% 13.6% 12.5% 12.2%
* The summary financial information is stated under IFRS. 2019-2022 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 & 2022. 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).
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Grafton Group plc Annual Report and Accounts 2022
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 7117, Dublin 2, Ireland
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
ABN AMRO Bank N.V.
Barclays Bank plc
Stockbrokers Goodbody, Dublin
Numis Securities Limited, London
Auditors PricewaterhouseCoopers
Company Registration Number 8149
Financial Calendar 2022
Final Results for 2022 2 March 2023
Annual General Meeting 2023 4 May 2023
Half-Year Results for 2023 31 August 2023
Final Dividend for 2022
Record date 14 April 2023
Payment date 11 May 2023
Annual General Meeting 2023
The Annual General Meeting of the Company will be held at the Irish Management Institute (IMI), Sandyford Rd, Dublin,
D16 X8C3, Ireland at 10.30am on Thursday 4 May 2023.
Shareholders will also be provided with a facility to raise questions and to view the business of the meeting via webcast.
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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Grafton Group plc Annual Report and Accounts 2022
Supplementary Information
Glossary of Terms
AGM Annual General Meeting
APM Alternative Performance Measure
BAME Black, Asian and Minority Ethnic
BES 6001 Framework Standard for Responsible Sourcing
BRR Business Risk Register
bps Basis Points
CA14 Companies Act 2014
CDP Carbon Disclosure Project
CEO Chief Executive Officer
CFO Chief Financial Officer
CGU Cash Generating Unit
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
ERP Enterprise Resource Planning
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
GHG Greenhouse Gas
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
IFRIC International Financial Reporting Interpretations Committee
240
Grafton Group plc Annual Report and Accounts 2022
IFRS International Financial Reporting Standards
IGBC Irish Green Building Council
IOSH Institution of Occupational Safety and Health
IPCC International Panel on Climate Change
IR Investor Relations
ISAs (Ireland) International Standards on Auditing (Ireland)
KPI Key Performance Indicators
LDI Liability Driven Investment
LGBTQI+ Lesbian, Gay, Bisexual, Transgender, Queer or Questioning, Intersex and more
LSDM Limited Leyland SDM Limited
LTIFR Lost Time Injury Frequency Rate
LTIP Long Term Incentive Plan
OCI Other Comprehensive Income
PEFC Programme for the Endorsement of Forest Certification
PPE Property, Plant & Equipment
QQI Quality and Qualifications Ireland
RCP Representative Concentration Pathway
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
RNS Regulatory News Services
ROCE Return on Capital Employed
ROUA Right Of Use Asset
RPI Retail Price Index
SAYE Save As You Earn
SBTi Science Based Targets initiative
SDGs Sustainable Development Goals
SHEQ Safety, Health, Environment and Quality
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
Glossary of Terms continued
Grafton Group plc Annual Report and Accounts 2022
Grafton Group plc
Heron House, Corrig Road
Sandyford Business Park, Dublin 18
Phone: +353 (0)1 216 0600
Email: email@graftonplc.com
Web: www.graftonplc.com