Shareprice

The Board of Directors confirms that during the year under review, it has acted to promote the long-term success of the Company for the benefit of shareholders, whilst having due regard to the matters set out in section 172(1) (a) to (f) of the Companies Act 2006, being:

• The likely consequences of any decision in the long term.
• The interests of the Company’s employees.
• The need to foster the Company’s business relationships with suppliers, customers and others.
• The impact of the Company’s operations on the community and the environment.
• The desirability of the Company maintaining a reputation for high standards of business conduct.
• The need to act fairly between members of the Company.

S172 case studies

In the three case studies below we show how principal decisions made in FY21 by the Board involved considerable debate and discussion and the balancing of competing interests of key stakeholders.

Payment of a one-off ‘thank you’ bonus to all colleagues

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Investment in new warehouse capacity with a new partner to support the growth of our home delivery business

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Decision to repay UK Government support provided through the Covid-19 crisis

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Related information

More information about s172 reporting and how we keep this high on the Board’s agenda can be found on pages 14 to 17 and pages 103 to 113 of our Annual Report 2021

 

Payment of a one-off ‘thank you’ bonus to all colleagues

In July 2020, the Board agreed to pay a ‘one-off’ thank you Bonus to all colleagues in recognition of their exceptional commitment, resilience and adaptability during the first phase of the Covid-19 crisis in 2020.

Through our colleagues’ efforts we were able to maintain a safe service for our customers, which benefited other stakeholders: shareholders, communities, suppliers and other people and communities further down our supply chain. We knew that many colleagues had suffered financially as a result of Covid-19, and they told us that they valued pay above other benefits. By demonstrating to our colleagues that we had listened to them and appreciated their efforts during this extraordinary year we also aimed to boost morale and increase colleague engagement and retention. We had very positive feedback from colleagues.

Conversely, the cost of this payment reduced our profits in FY20 and impacted profit-related incentives for some of our colleagues as well as diverting funds from other potential investments. At the time of agreeing the bonus we had not yet made the decision to repay funds received in FY20 from the government’s Job Retention Scheme (JRS), although we had already decided not to make any claims in respect of FY21. This posed a potential external reputational risk in terms of payments and timings. The Board decided that the benefits of rewarding the commitment of our colleagues as early as possible outweighed these other concerns. Proving that we were living up to our shared values benefits our reputation and is in the longer-term interests of our shareholders, customers, colleagues and communities.

RISKS TO DUNELM

Short-term impact on profit and shareholder returns; diversion from other investments.

OPPORTUNITIES FOR DUNELM

Enhanced engagement and commitment of colleagues; reputation for adhering to shared values; potential longer-term cost-savings due to increased colleague engagement and retention; long-term benefit to shareholders, customers, colleagues and communities.

KEY STAKEHOLDER TRADE-OFFS

Colleagues v Shareholders.

 

Investment in new warehouse capacity with a new partner to support the growth of our home delivery business

In May 2021, we entered into an agreement with a new partner, GXO, to provide increased capacity for our home delivery fulfilment operations, together with a lease of a new site close to our existing warehouse operation in Stoke.

With existing operations at full capacity, a new operation to support our future growth ambitions is essential. Our new partner’s improved systems and processes will enhance our competitive position and allow us to offer better service to our customers, for example faster delivery, later order cut-offs, and more combined deliveries; the latter will also reduce our environmental impact, as we will need to make fewer deliveries. In making its decision, the Board considered the risk to profit of increasing our fixed cost base (offset by lower variable costs) and of disruption as we transfer to a new partner – potentially impacting shareholders and any colleagues whose pay included performance-related incentives. The investment is significant and funds could have been allocated elsewhere.

The Board noted that although no Dunelm colleagues would be impacted, the permanent employees of the incumbent partner (currently operating at our Stoke site) would transfer to GXO under legislation, and GXO was also likely to engage agency workers. Dunelm will meet its commitments in respect of termination of the contact with the incumbent supplier and there is no impact on product suppliers. The Board decided that the long-term benefits of investing in capacity to meet our growth and improved customer proposition with a proven service provider outweighed the disadvantages.

RISKS TO DUNELM

Short-term impact on profit; increased fixed cost base; diversion from other investments.

OPPORTUNITIES FOR DUNELM

Improved customer proposition; additional capacity for growth of the home delivery business; reduced carbon emissions; long-term benefit to shareholders, customers, suppliers and communities.

KEY STAKEHOLDER TRADE-OFFS

Customers v Shareholders.

 

Decision to repay UK Government support provided through the Covid-19 crisis

The financial and operational performance of the Group was severely impacted by the Covid-19 pandemic in both FY20 and FY21.

In both years we had to close our stores for extended periods and therefore lost sales, profit and market share to stores who were permitted to stay open. Once we were able to re-open our stores, our sales performed strongly owing to investments in our customer proposition, our focus on making our stores, deliveries and workplaces safe for colleagues and customers, our accelerated digital innovation and the dedication of our colleagues. During this time we proved the strength and resilience of our business model.

In making decisions around UK Government Covid support, the Board has carefully considered both the respective interests of all of our stakeholders and a range of other factors, including the strong recovery of the business, the fact that our stores were closed to customers for a third of the financial year and the competitive imbalances arising from the boundaries between essential and non-essential retail.

From March to June 2020, Dunelm received support of £14.5m under the UK Government’s Job Retention Scheme (JRS) to help fund the pay of our colleagues who were unable to work as a result of our stores being closed, and/or because they were vulnerable or a carer for a vulnerable individual. In June 2020, having proved the resilience of the Group’s business model we decided not to claim further amounts under the JRS, and in December 2020 the Board considered and decided to repay the £14.5m received under the JRS. A key trade-off discussed was the potential impact on FY21 profit and shareholder returns in the event of potential further lockdowns and store closures. However, it was noted that were these to happen, and if Click & Collect would be permitted (unlike the first lockdown in March and April 2020), then our business would still likely break even and be profitable and cash generative in FY21, even after repayment. From a colleague perspective, the Board agreed that the repayment would have little bearing on our colleagues’ wellbeing; many colleagues would be employed in store to support our Click & Collect operations and to prepare for store re-openings and the time could also be used constructively to train our colleagues and keep them motivated. Additionally, any colleague not required or unable to work would receive at least 80% of their contractual pay under our own Company-funded furlough equivalent scheme. There would, however, be some potential disadvantage for those colleagues in a performance-related bonus or share incentive scheme. The Board also discussed that the ability of the Group to pay suppliers, landlords and HMRC in full and in accordance with agreed terms would not be adversely impacted by repayment. Having taken the above stakeholder matters into consideration, it was agreed that in the long-term interests of the Company, its reputation and its adherence to its shared values, the repayment of the JRS received in FY20 outweighed other considerations.

In June 2021, the Board considered whether to repay support received by way of business rates relief to all retailers in FY20 and FY21, and Covid-related grants received in FY21 targeted at retailers who had been forced to close their stores. Again, a wide range of stakeholder interests were considered, including the strong financial performance of the business, that sales and market share had been lost during periods of forced store closures, that the Company had operated a self-funded furlough scheme for colleagues during FY21, any potential impact on suppliers and colleagues as noted above, the fact that repayment would reduce the potential returns to shareholders who had not received a dividend in FY20 although dividend payments have been reinstated in FY21), the stated policies of shareholders and their representatives in relation to repayment of Covid-related relief, the potential competitive imbalances as a result of the boundaries between essential and non-essential retail, and the potential reputational impact of a decision not to repay. After carefully balancing the respective stakeholder interests, the Board decided that for the same reasons noted above in relation to the JRS, the Covid-related grants should be repaid. However, the Board considered that the balance was in favour of not repaying business rates relief in addition to the JRS and Covid-related grants.

RISKS TO DUNELM

Short-term impact on profit and shareholder returns/colleague incentives

OPPORTUNITIES FOR DUNELM

Enhanced reputation for adhering to shared values; potential to pay dividends and colleague bonus without damaging reputation; long-term benefit to shareholders, customers, colleagues and communities.

KEY STAKEHOLDER TRADE-OFFS

Reputation v Shareholders.