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.