HEADLAM GROUP PLC - Annual Report 2025

Headlam Group plc

Annual Report and Accounts

for the year ended 2025

Headlam Group PLC

Company number: 00460129

Headlam is the UK’s leading

floor covering distributor,

operating for over 30 years.

The Group works with suppliers across the globe

manufacturing the broadest range of products, and gives

them a highly effective route to market, selling their products

into the large and diverse customer base in the UK.

Headlam provides its customers with a market-leading service

through the largest product range, in-depth knowledge,

ecommerce and marketing support, and nationwide delivery

service. Headlam offers unrivalled convenience, through

nationwide delivery plus multiple collection points. These

collection points offer the ability for independent retailers

and contractors with limited storage space to collect their

product and take it directly to their customer’s location for

fitting. Headlam also has a growing number of take-back

schemes at its collection points, enabling customers bring

back the used and unwanted flooring that has been lifted

out of their customer’s premises.

The key features of Headlam’s

proposition include:

• Product availability and prompt delivery

• Customer service and strong relationships with fast

response to queries

• Reliable quality

• New product launches and promotions

• Point-of-sale materials to showcase options to

end-consumer

• Digital ordering and stock checking

• Ability to check stock and order out of hours

Years operating

c.2,200

People (2025 average)

£499m

Revenue (2025)

OUR BUSINESS AT A GLANCE

Headlam Group PLC Annual Report & Accounts 2025

Overview

Financial Highlights

Contents

Overview

Our Business at a Glance IFC

Interim Executive Chair’s Review 02

Strategic Report

Market Overview 08

Our Business Model 10

Strategy 12

Key Performance Indicators (‘KPIs’) 14

Stakeholder Engagement 18

Financial Review 22

Sustainability Report 26

Environmental 28

Social 32

Governance 36

Task Force on Climate-Related

Financial Disclosures (‘TCFD’) 38

Streamlined Energy and Carbon

Reporting (‘SECR’) 43

Risk Management 46

Principal Risks 49

Viability Statement 51

Non-Financial and Sustainability

Information Statement 53

Governance

Compliance Statement 56

Chair’s Introduction 58

Board of Directors 60

How the Board Embeds Culture 62

Board Leadership and Company

Purpose 64

Division of Responsibilities 72

Composition, Succession and

Evaluation 77

Audit Committee Report 78

Nomination Committee Report 86

Directors’ Remuneration Report 92

Directors’ Report

118

Statement of Directors’ Responsibilities

123

Financial Statements

Independent Auditors’ Report 126

Consolidated Income Statement 134

Consolidated Statement of

Comprehensive Income 135

Statements of Financial Position 136

Statement of Changes in Equity

– Group 137

Statement of Changes in Equity

– Company 138

Cash Flow Statements 139

Notes to the Financial Statements 140

Alternative Performance Measures 189

Financial Record 193

Additional Information 195

Revenue

Statutory basic

(loss)/earnings per share

£498.7m (5.1)% (102.0)p (226.9)%

(2024: £525.7m) (2024: (31.2)p)

202520242023

£498.7m

£525.7m

£577.3m

202520242023

(102.0)p

(31.2)p

9.6p

Underlying operating (loss)/profit Underlying (loss)/profit before tax

£(33.4)m (34.1)% £(39.5)m (24.6)%

(2024: £(24.9)m) (2024: £(31.7)m)

202520242023

£(33.4)m

£(24.9)m

£15.9m

202520242023

£(39.5)m

£(31.7)m

£11.0m

Net cash/(debt) Statutory (loss)/profit before tax

£(31.4)m (388.1)% £(69.6)m (82.7)%

(2024: £10.9m) (2024: £(38.1)m)

202520242023

£(31.4)m

£10.9m

£(29.6)m

202520242023

£(69.6)m

£(38.1)m

£7.2m

“ Our new core customer

strategy, combined with

the ongoing benefits

of our transformation

programme, provides a clear

road map to profitability

in 2027 and beyond.”

Introduction and market update

Headlam is the largest flooring distributor in the UK, with

unrivalled scale and well-established national reach. Our

network of distribution centres provide an excellent service

to independent retailers and contractors, with customers

enjoying access to the broadest product range, including our

own exclusive brands.

Over the course of the year performance was impacted by

a trading environment that has remained challenging. To

compensate, we launched a revised transformation plan

designed to considerably reduce losses in 2026 and return the

Group to profitability in 2027, even if market conditions remain

subdued.

To complement the transformation programme, we have

initiated a new ‘core customer’ focused strategy which

enables significant additional network and infrastructure cost

savings as the Group consolidates its operations on serving

independent retailers and contractors.

These measures, combined with the Group’s market position,

provides a platform for a return to sustainable profitable

growth. Despite the timing of a market recovery remaining

uncertain, we enter 2026 with a clear plan to create

meaningful value over the medium term.

Financial performance 2025

Revenue declined 4.6% in 2025 on a same working day basis,

reflecting both persistently challenging market conditions

and the deliberate decision, taken in November 2025, to exit

low-margin revenue that was diluting profitability. Revenue

from larger customers grew in the year overall but declined

in the last few weeks, largely reflecting the revised strategy,

published in November, to reduce low-margin revenue.

Gross margin of 29.5% was broadly flat year-on-year.

Operating costs of £180.7 million were also flat year-on-year

with cost inflation and trade counter investments offset by

benefits from the transformation plan. The underlying loss

before tax increased from £31.7 million to £39.5 million.

The Group had Net Debt of £31.4 million at the end of the

year and owned property in the UK valued at £75.3 million. In

January 2026 the Group agreed a new borrowing facility for

three years (with the option to extend).

The financial performance is set out in more detail in the

Financial Review.

Transformation plan progress in 2025

Despite the market environment, the application of the

transformation plan launched in 2024 has ensured good

operational progress over the year.

Key highlights include:

• Network optimisation in the South East, including the

opening of a new distribution centre in Rayleigh and the

closure of the Ipswich site. The review of our South East

network continues as we optimise our footprint to match

our revised customer base

• Rollout of innovative new display stands, supporting our

independent retailer customers. Strong feedback from

independent retailer customers

Stephen Bird

Interim Executive Chair

INTERIM EXECUTIVE CHAIR’S REVIEW

Headlam Group PLC Annual Report & Accounts 2025

Overview

• Consolidation of operations in the Midlands, with

Nottingham transferred into other sites

• Launch of fully centralised buying and supply chain,

already yielding significant benefits in stock levels and

stock turn. From early October 2025 to February 2026,

stock levels in the UK reduced by c.£30 million with further

opportunity

• Preparation for sale of the Group’s businesses in France

and Netherlands

Headlam’s 2026 – 2028

‘core customer’ strategy

The medium-term objective for Headlam is to be a profitable,

cash generative business positioned for sustainable growth.

From a profit perspective, this translates to our expectations

that our transformation plan will create a return to

profitability in 2027 and then a return to historic midsingle-

digit operating profit margin levels thereafter from the

annualised positive benefit of these initiatives.

To fund the strategy and build balance sheet resilience, cash

is expected to be generated from property disposals and

working capital optimisation. We therefore expect to have

significantly reduced Net Debt by the end of 2027 with further

improvement thereafter.

The new strategy, specifically focused on profit generation,

alters the preceding narrative which was focused on revenue

growth. In seeking to fill excess capacity with increased

volumes from larger customers and through trade counter

expansion, we moved away from our core independent

retailers and contractors, the customers on which the strength

of this business depends. Those customers were increasingly of

the view that the Group was competing against them rather

than supporting them. As a result, we lost share.

The larger customer business that we won, whilst providing

positive contribution to the fixed cost base, required us to

maintain a higher level of infrastructure than would have

otherwise been the case and therefore hindered the ability

to implement significant reductions in the fixed cost base.

Furthermore, although the Group secured additional low-

margin revenue, we lost more profitable residential revenue

from our core customer base.

Our core customer strategy refocuses the business on

independent retailers and contractors whilst adjusting the

cost base of the business accordingly. We firmly believe

that this will be to the benefit of all stakeholders and create

shareholder value.

The strategy has the following core components:

1. Reduce low-margin revenue - refocus on independent

retailers and contractors, whilst eliminating low-margin

revenue that ties up fixed costs

2. Reduce costs - as low-margin business is exited, we will

take out the variable costs associated with it, as well as

reducing structural, fixed costs that previously had to be

maintained in order to service that low-margin business

3. Enhance customer service –we are already rapidly

improving customer service to our independent retailer

and contractor customer base. Our measure of delivery

success is substantially improved year-on-year for

the first two months of this year. This is starting to be

recognised in feedback from customers.

4. Simplify ranges and consolidate supply base – put simply,

we have had too many ranges and too many suppliers,

with volumes spread too thinly across the supply base.

There is opportunity to reduce range duplication, whilst

maintaining a broad product offering, and also to

consolidate our supply base to strengthen relationships

with key strategic sourcing partners

5. Optimise cash – a smaller business means less cash

needs to be tied up in working capital and there are also

opportunities to dispose of surplus assets

Taking each in turn:

1. Reduce low-margin revenue

We will refocus and grow with independent retailers and

contractors, whist eliminating low-margin revenue elsewhere.

The focus on fixing or exiting insufficiently profitable business

falls into four categories.

A. Reduction in low-margin large customer business

The Group will ensure that all resources are fully utilised

to serve profitable revenue. As a result, large low margin

customers that serve to increase utilisation of existing

capacity, but contribute little to profits and require us to

maintain a higher fixed cost base, are no longer desirable.

B. Exit Continental European business

The sale of our businesses in France and the Netherlands

continues to progress. By focusing solely on the UK, losses

are reduced and focus increased on our core customers.

Collectively, those businesses made an underlying loss before

tax of £3.7 million in 2025, and are presented as a discontinued

operation.

C. Category mix

Within our product categories, there is a wide range of gross

margin. Certain products, particularly in the contract element

of the market, can be at relatively low gross margin and, when

central costs are fully allocated, the profit contribution is

marginal.

By focusing on the more profitable categories and actively

deprioritising low gross margin categories, our fixed costs

and infrastructure requirements, such as distribution centres

and vehicles, naturally reduce, benefiting overall Group

profitability albeit at the expense of revenue.

In addition, we are proactively re-energising our higher-

margin consumer brands which are highly valued by

independents enabling them to generate strong margins and

compete against national chains.

D. Trade counters

As at the end of 2025 we had 80 trade counters. However, a

collection of our trade counters, notably those in the South

East, are exposed to relatively high rent costs which reduces

the viability of a collection point rather than servicing those

areas with delivery only. Given higher costs, and a product

range typically focused on lower gross margin categories, the

plan is to reduce our trade counter network whilst migrating

some profitable category sales to adjacent trade counters or

switching this revenue from ‘collection sales’ to ‘delivered sales’.

This initiative significantly reduces fixed costs and whilst revenue

also reduces, this is skewed to the lower margin categories.

Furthermore, we have already repositioned the role and

organisational structure of the trade counters. Specifically:

Previously they were a separate business unit with their own

management team. We have now moved the management

of the trade counters into our Mercado independent retailer

and contractor sales team. Our trade counter sites have now

been turned into collection points.

We have reclarified our approach to which customers we will

trade with; specifically, that we will only service customers in

the flooring trade. Previously, the trade counter business, whilst

only ever servicing trade customers, did sell a small amount to

adjacent non-flooring trades. These non-flooring accounts

were closed in February 2026.

• Furthermore, we are repositioning the ranges available

in the trade counter sites, in order to provide our

independent retailer and contract customers with access

to certain ranges that are not available to smaller trade

customers of our trade counter collection points.

In total, the above initiatives are anticipated to cumulatively

reduce revenue whilst significantly increasing the gross and

operating margins of the business when associated costs are

removed.

2. Reduce costs

In line with a substantial reduction in unprofitable revenue

there is the opportunity to reduce both direct and indirect

costs significantly. Direct overheads include warehouse,

transport, energy, rent and rates.

As part of the core customer strategy our network footprint

will be significantly reduced. In June 2024, prior to embarking

on the transformation programme, we had 1.5 million

square foot of warehousing space in our distribution centres

(excluding cross-dock facilities). This has been reduced to

1.3 million to date and will reduce further.

3. Substantially enhance customer

service to our independent and

contractor customer base

Headlam has taken immense pride in its service levels over

the years, but in the last year these have not met our high

standards. Deliveries have not been consistent enough and

availability of some ranges has not been strong enough. The

root cause of much of these issues is from a fragmented,

decentralised business model that has taken time to

centralise. This has meant that we have not had stock in

the right places and have had to internally move too much

product around our network, putting pressure on costs and

on-time delivery, as well as stock availability.

In recent weeks we have made strong progress in addressing

delivery consistency. Our measure of delivery success is

substantially improved year-on-year for the first two months

of this year. This is starting to be recognised in feedback from

customers.

We are addressing stock availability through better inventory

management and our newly centralised buying function.

4. Simplify our range and

consolidate our supply base

In late 2024, we launched a single go-to-market proposition,

under our Mercado brand, consolidating 32 trading

businesses. Earlier this year we also consolidated six different

own product brand businesses into the Mercado sales team.

We are also reducing SKUs to focus on the products that

matter most to our core customers. We have already reduced

our ‘live’ product range from 27k to 16k SKUs with further

reduction potential as we focus on profitable category mix.

As the UK’s largest purchaser of flooring, we have the chance

to create long-term, mutually beneficial supplier partnerships

as we consolidate our purchases. Supplier benefits secured

in 2025 will take effect and fully annualise in 2026 with good

visibility on further opportunities for increased collaboration

benefiting 2026 and 2027.

In addition, there are opportunities to optimise our approach

to pricing and discounting. Having consolidated 32 trading

businesses, with 32 price lists and different approaches

to discounting, there is now an opportunity to implement

consistency and optimisation, which we expect to yield gross

margin benefits.

5. Optimise cash

The core customer strategy and transformation plan requires

cash to cover the trading losses until the Group becomes

sustainably cash-generative and to fund the cost of

transformation. The Group has a clear and well progressed

plan in place to generate cash inflows through the disposal

of assets, albeit these are not solely in our control, and a

reduction in working capital requirements. The cash inflows

from these are intended to more than cover the cash

requirements, leaving the Group with significantly reduced

Net Debt at the end of 2027.

The Group has several options for realising cash from property

assets, including: outright sale, sale and leaseback, or through

utilising the assets for further borrowings. There are currently

three properties on the market for disposal and more will

become available for sale over the next 18 months. Any further

transactions, if realised, would accelerate our reduction in Net

Debt and further increase the Group’s liquidity.

Since implementing fully centralised buying we have already

significantly reduced stock levels and improved stock turn. In

2023 the stock turn was 3.2x, improving to 3.5x in 2024 and 3.8x

in 2025, with recent run rate above 4x. Over the medium term

we expect to sustain a stock turn of at least 5.0x, which will

generate further significant cash benefits whilst still providing

the Group with substantially higher levels of stock than its

competitors in the UK.

INTERIM EXECUTIVE CHAIR’S REVIEW CONTINUED

Headlam Group PLC Annual Report & Accounts 2025

Overview

Progress to date

Since the initiation of the core customer strategy in November

2025, and reflecting our determination to proceed at pace,

we have achieved the following:

• Over £10 million of annualised payroll savings achieved by

end of December 2025

• Increased pricing with a low margin large customer, which

is expected to cease to be a customer in the coming

months which reduces pressure on the network, improving

service levels to independent retailers and enabling us to

reduce fixed costs

• Service delivery substantially improved year-on-year for

the first two months of 2026

• Agreement of a new borrowing facility

Reflecting the amount, and pace, of change in the business,

we have decided to pause the implementation of the new

ERP. The development work performed to date has been

“mothballed” in readiness for the project recommencing at

the appropriate time.

Highly valued colleagues

Across the UK, France and the Netherlands Headlam Group

PLC employed an average c.2,200 people in 2025. To maximise

the success of the core customer strategy, it is essential that our

colleagues recognise their importance and the weight placed

on continually striving to make Headlam a great place to work.

We recognise that implementing significant change can be

unsettling for colleagues and a number of colleagues did

leave the Group prior to the end of 2025 as part of collective

consultation processes. I would like to thank those colleagues

for their hard work over the years and throughout the

consultation processes, and I wish them all the best for the

future. I also wish to recognise the colleagues who remain with

the Group and who continue to work hard to implement the

changes to the business.

Stephen Bird

Interim Executive Chair

25 March 2026

Outlook

• The new core customer strategy will see a material

planned reduction in revenue over 2026 and 2027.

• Once fully implemented, and, assuming a stable

market, this is expected to result in a smaller base

revenue on continuing operations but with a

significant enhancement to quality of earnings

through enhanced gross margin.

• With cost saving initiatives also on track, overall

future net operating margins expected to return to

mid-single digit once the transformation plan fully

executed.

• Property disposal programme and a reduction in

working capital expected to materially reduce Net

Debt by the end of 2026 with further improvement

anticipated in 2027.

• In the near term, trading conditions remain

challenging: consumer spending on home

improvements continues to decline and the conflict

in the Middle East, whilst hard to predict, has

already created cost pressures for the wider UK

flooring industry with significant price increases in

polypropylene and fuel.

• Over the medium term, with a clear and granular

transformation strategy now in place and beginning

to have a positive impact despite continuing

challenging trading conditions, the Board believes

that the outlook for Headlam is positive reflecting

the benefits of its market leading position, inherent

strengths and renewed focus on core independent

retailers and contractors.

• The Board therefore continues to have confidence in

a return to profitability in 2027 as previously guided.

STRATEGIC

REPORT

Market Overview

Our Business Model

Strategy

Key Performance Indicators (‘KPIs’)

Stakeholder Engagement

Financial Review

Sustainability Report

Environmental

Social

Governance

Task Force on Climate-Related Financial Disclosures

(‘TCFD’)

Streamlined Energy and Carbon Reporting (‘SECR’)

Risk Management

Principal Risks

Viability Statement

Non-Financial and Sustainability

Information Statement

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

The flooring market in the UK is worth

around £2.5 billion at distributor selling

prices and has experienced an exceptionally

challenging period over the past few years.

Approximately two-thirds of the UK market is residential,

making it heavily dependent on consumer spending on home

improvements. As a high-value, discretionary purchase,

flooring has been one of the weakest areas of consumer

expenditure, experiencing a significant decline. This partly

reflects the impact of the cost-of-living crisis on disposable

incomes, a sharp reduction in housing transactions (down

20% in 2023 and a further 8% in Q1 2024, before improving

thereafter), and subdued consumer confidence. As a result,

market volumes have declined consistently over the past four

years.

This market decline has resulted in a number of large retailers,

contractors and distributors ceasing to be viable over the last

few years, most notably Carpetright and Homebase in 2024.

Conversely, the independent retailer and contractor market

has proved to be relatively resilient.

There are varying estimates of the scale of decline in volume

in the flooring market in recent years. Using external data

points we estimate it to be around 25%. In our view, some of this

could be a permanent reduction and we should not expect it

to come back, at least not in the short to medium term. This

‘structural’ element relates to replacement cycles, with flooring

products lasting longer and a gradual change in the mix from

soft flooring to hard flooring, which can be more durable.

However, an element of the decline in recent years is expected

to be cyclical and reflects consumers holding back on spending

decisions. This points to a positive outlook for demand for

flooring in the coming years, albeit the timing is uncertain.

A notable feature of the flooring market from 2023 through

to 2025 has been the absence of manufacturer-led price

increases. Historically, manufacturers typically implemented

annual inflationary price rises, which flowed through the

supply chain to distributors and retailers, and were ultimately

passed on to consumers. Whilst such price inflation was

neutral to margin percentages, it increased absolute gross

profit for distributors, helping to offset rising overhead

costs. However, due to exceptionally weak market volumes,

price increases in 2023, 2024 and 2025 have been minimal

as manufacturers compete for volume to maintain factory

utilisation. We are starting to see signs of a return to more

normal levels of price inflation in the sector in 2026, albeit this

remains uncertain.

The long-term outlook for the flooring market is positive,

supported by a degree of cyclical recovery plus population

growth and more stable macroeconomic conditions. As the

clear market leader in the UK, supported by over 30 years

of industry expertise, a large customer base, long-standing

supplier relationships and the most extensive delivery and

collection network nationwide, Headlam is well positioned to

capture long-term opportunities.

“ The flooring market has

experienced an exceptionally

challenging period over

the past four years, but the

long-term outlook is positive.”

Stephen Bird

Interim Executive Chair

MARKET OVERVIEW

Market Indicators

Jan-24

Feb-24

Mar-24

Apr-24

May-24

Jun-24

Jul-24

Aug-24

Sep-24

Oct-24

Nov-24

Dec-24

Feb-25

Jan-25

Mar-25

Apr-25

May-25

Jun-25

Jul-25

Aug-25

Sep-25

Oct-25

Nov-25

Dec-25

Overall index Major purchase index

-5

-10

-15

-25

-20

-30

-40

-35

Consumer confidence in major purchases has

remained negative but improving

Housing transactions declined 20% in 2023,

growing thereafter

Consumer spending on home improvements

has continued to decline

Jan-24

Feb-24

Mar-24

Apr-24

May-24

Jun-24

Jul-24

Aug-24

Sep-24

Oct-24

Nov-24

Dec-24

Jan-25

Feb-25

Mar-25

Apr-25

May-25

Jun-25

Jul-25

Aug-25

Sep-25

Oct-25

Nov-25

Dec-25

50%

25%

10%

20%

-5%

-10%

-15%

-20%

-25%

-30%

Jan-24

Feb-24

Mar-24

Apr-24

May-24

Jun-24

Jul-24

Aug-24

Sep-24

Oct-24

Nov-24

Dec-24

Jan-25

Feb-25

Mar-25

Apr-25

May-25

Jun-25

Jul-25

Aug-25

Sep-25

Oct-25

Nov-25

Dec-26

Jan-26

-5%

-10%

-15%

-20%

Sources:

• UK market size: estimates by LEK, Northwest Strategy Associates, MTW Research.

• Consumer confidence: NIQ GfK.

• Housing transactions: www.gov.uk/government/statistics/monthly-property-transactions-completed-in-the-uk-with-value-40000-

or-above.

• Consumer spending on home improvements: www.barclayscorporate.com/insights/industry-expertise/uk-consumer-spending-report.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

We create value by

leveraging our key

relationships, supply chain

expertise, and innovative

approach to deliver

products that are both

sustainable and fit for

purpose.

Our people

Attracting and retaining the best

people to provide the highest

levels of customer service, and

working together to deliver

success.

Our culture

A shared group of values, including

to ensure a business of integrity

with robust controls and ethical

conduct.

Our expertise

Ensuring we retain and build upon

our market leading expertise

through ongoing investment in

people and the business.

Our sustainable mindset

Ensuring the long-term success

of the business through a focus

on a sustainable business model

and working closely with all

stakeholders.

Our relationships

Actively engaging with all stakeholders, including people,

customers and suppliers, to support each other and deliver

success together.

Working closely with our suppliers across the globe to launch innovative and

successful products into the marketplace, sharing data and ensuring an

efficient and ethical supply chain.

What differentiates us

Our customer-led

approach

Broadest product

offering; nationwide

delivery and collection;

industry-leading App;

improved B2B website.

Our comprehensive

The broadest offering

encompassing a

portfolio of own brands

as well as leading

third-party brands, with

opportunity for future

growth by leveraging

our scale and reach.

Our material handling

and processing

capabilities

Largest inventory

holding amongst peers.

Able to process a high

volume of orders for fast

delivery.

Our extensive

distribution network

The largest delivery

and collection network

in the UK.

Our product

knowledge and

ranging

Unrivalled product

knowledge and

expertise. Able to

provide valuable

insight to both

customers and

suppliers.

Our disciplined

capital allocation

strategy

Balancing investment

with shareholder

returns.

What we rely on

Supporting our suppliers

What differentiates us

OUR BUSINESS MODEL

Purchasing

Sourcing and purchasing leading,

innovative and exclusive products

from a wide range of suppliers/

manufacturers from across

the globe.

Customer service

Providing our customer base with

the widest range of products

and comprehensive service

propositions tailored to their

specific needs.

Solutions

Offering an array of solutions

across the value chain, including

stockholding and storage

solutions, product insight and

knowledge, curated exclusive

ranges, and sales support.

Delivery & Collection

Providing a truly nationwide

delivery service, along with the

convenience of c.80 collection

points.

We work alongside our suppliers to launch innovative and successful

products into the marketplace, sharing data and ensuring an efficient

and ethical supply chain.

Providing access to a broad range of flooring products, through strong

supplier relationships, underpinned by nationwide distribution, specialist sales

expertise and digital tools that help customers operate efficiently.

Our Colleagues

Providing an inclusive and

collaborative working environment

where people are supported, and

can develop and succeed.

Our Customers

Helping our customers grow their

businesses through an outstanding

service, and giving them

competitive advantages.

Our Suppliers

Providing a highly effective and

efficient route to market for their

products and access to a large and

fragmented customer base.

Our Shareholders

A focus on ensuring the long-term

success of the businesses, and

improving financial performance

to ensure increasing shareholder

returns.

Our Communities

and the Environment

Supporting local communities

through employment and

engagement activities, and

reducing our impact on the

environment through our

sustainability strategy.

The value we create

Our customer-led

approach

Broadest product

offering; nationwide

delivery and collection;

industry-leading App;

improved B2B website.

Our comprehensive

The broadest offering

encompassing a

portfolio of own brands

as well as leading

third-party brands, with

opportunity for future

growth by leveraging

our scale and reach.

Our material handling

and processing

capabilities

Largest inventory

holding amongst peers.

Able to process a high

volume of orders for fast

delivery.

Our extensive

distribution network

The largest delivery

and collection network

in the UK.

Our product

knowledge and

ranging

Unrivalled product

knowledge and

expertise. Able to

provide valuable

insight to both

customers and

suppliers.

Our disciplined

capital allocation

strategy

Balancing investment

with shareholder

returns.

What we do The value we create

What differentiates us

Supporting our customers

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

“ Our revised strategy

refocuses the business

on independent

retailers and

contractors whilst right

sizing the business.

We firmly believe

that this will be to

the benefit of all

stakeholders and

create shareholder

value.”

The medium-term objective for Headlam is to be

a profitable, cash generative business positioned

for sustainable growth.

From a profit perspective, this translates to the Group substantially

reducing operating losses in 2026, before low single-digit operating

profit margin in 2027. As cost initiatives implemented in 2027 annualise,

we expect to generate a mid single-digit operating profit margin in

2028. Significantly increased profit generation is the fundamental

driver of the strategy, with a detailed plan in place to achieve it.

To fund the strategy and build balance sheet resilience, cash will be

generated from property disposals and working capital optimisation.

We expect to have little to no net debt by the end of 2027.

The new strategy, specifically focused on profit generation, alters the

preceding narrative which was focused on revenue growth. Although

market conditions over the past three years in particular have been

challenging, the Group’s pursuit of growth to fulfil this objective,

although sound in theory, has proven counter-productive.

An attempt to fill the excess capacity in our network and fully

utilise the Group’s infrastructure with increased volumes from larger

customers and through the trade counter expansion, alienated our

core independent retailers and contractors. These highly valued

customers, on which the strength of the business depends, were

increasingly of the view that the Group was competing against them

rather than providing support and a high quality of service. As a result,

we lost share.

The larger customer business that we won, whilst providing positive

contribution to the fixed cost base, required us to maintain a higher

level of infrastructure than if we did not have that business and

therefore hindered the ability to implement significant reductions

in the fixed cost base. Furthermore, although the Group secured

additional low-margin revenue, we lost more profitable residential

revenue from our core customer base.

Our revised strategy refocuses the business on independent retailers

and contractors whilst right sizing the business. We firmly believe that

this will be to the benefit of all stakeholders and create shareholder

value.

The enhanced transformation plan itself has the following core

components:

1. Reduce low-margin revenue - refocus on independent retailers

and contractors, whilst eliminating low-margin revenue that ties

up fixed costs

2. Reduce costs - as low-margin business is exited, we will take out

the variable costs associated with it, as well as reducing structural,

fixed costs that previously had to be maintained in order to

service that low-margin business

3. Enhance customer service – our service levels have been below

our high standards over the last year and we are already rapidly

improving customer service to our independent retailer and

contractor customer base

4. Simplify ranges and consolidate supply base – put simply, we’ve

had too many range and too many suppliers, with volumes

spread too thinly across the supply base. There is opportunity to

reduce range duplication, whilst maintaining a broad product

offering, and also to consolidate our supply base to strengthen

relationships with key strategic sourcing partners

5. Optimise cash – a smaller business means less cash needs to be

tied up in working capital and there are also opportunities to

dispose of surplus assets

OUR STRATEGY

Medium-term

objective

Strategic

focus

Key

initiatives

Behaviours

Reduce

low-margin

revenue

Simplify

ranges and

consolidate

supply base

Optimise

cash

Reduce

costs

Enhance

customer

service

Simplicity

Ownership

CareCommitment

Teamwork

A profitable, cash generative business

positioned for sustainable growth

Refocusing on independent

retailers and contractors, whilst

right-sizing the business

4 5

2 3

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

202520242023

(4.6)

(10.2)

(2.8)

202520242023

29.5

29.7

31.7

202520242023

36.2

34.4

29.2

CBA

Financial KPIs

Like-for-like

revenue growth (%)

APM

Underlying gross

profit margin (%)

Underlying

operating

cost ratio (%)

APM

Measurement

Year-on-year revenue growth,

expressed as a percentage and

adjusted to normalise currency

and for consistent working days,

for businesses making a full year’s

contribution.

Why it’s important and relevant

Allows a consistent measure of

year-on-year performance.

Initiatives and actions

for improvement

Organic revenue growth is a key

strategic objective with specific

projects to support its delivery.

Link to Strategy

Measurement

Measured as a percentage of

revenue.

Why it’s important and relevant

Shows the effectiveness of gross

profit generation from revenue.

Initiatives and actions

for improvement

Ongoing pricing discipline, and

product ranging.

Link to Strategy

Measurement

Measured as a percentage of

revenue.

Why it’s important and relevant

Shows how effective the

Company is at converting gross

profit into operating profit.

Underlying² is used to show

the underlying performance

of the business without non-

underlying items.

Initiatives and actions

for improvement

Focus on operating efficiencies

including simplifying our network

and our operations under the

Transformation Plan.

Link to Strategy

The Board believes these Key Performance Indicators (‘KPIs’) provide a comprehensive and relevant list of measurements

with which to assess the Group’s financial, operational, and social performance towards the achievement of its strategy.

Commentary on the Group’s use of Alternative Performance Measures (‘APMs’) alongside International Financial Reporting

Standards (‘IFRS’) Measures is given within the Financial Review on pages 22 to 25, and below.

Like-for-like revenue is calculated based on constant currency from activities and businesses that made a full contribution in both the 2025 and the comparator

year(s), and is adjusted for any variances in working days.

To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before Non-Underlying Items. These items

are detailed in note 3 and principally comprise: amortisation of acquired intangibles and other acquisition-related costs; impairment of assets; business restructuring

and change-related costs; profit on sale of property, plant and equipment; ERP system development; and insurance proceeds. These underlying measures, along with

other alternative financial measures including debt and cash flow metrics, form the Group’s Alternative Performance Measures (‘APMs’) that are used internally by

management as key measures to assess performance. Further explanation in relation to these measures can be found in the glossary of APMs.

KEY PERFORMANCE INDICATORS

202520242023

(6.7)

(4.7)

2.5

202520242023

(102.0)

(31.2)

9.6

202520242023

(25.4)

(13.2)

7.6

D E F

Underlying

operating

profit /(loss) margin (%)

APM

Statutory basic earnings/(loss)

per share (‘EPS’) (p)

Underlying return on capital

employed (‘ROCE’) (%)

APM

Measurement

Measured as a percentage of

revenue.

Why it’s important and relevant

Shows the effectiveness of

sustainable operating profit

generation from revenue.

Underlying² is used to show

the underlying performance

of the business prior to non-

underlying items.

Initiatives and actions

for improvement

Existing strategy of maximising

sales, complemented by the

Transformation Plan to simplify our

customer offer, together with the

operating efficiencies described

in KPI 3.

Link to Strategy

2 4

Measurement

Profit after tax divided by average

basic weighted number of shares.

Why it’s important and relevant

Shows the level of profit per share

attributable to shareholders.

Initiatives and actions

for improvement

In line with statutory profit

performance.

Link to Strategy

2 4

Measurement

Measured as underlying²

operating profit as a percentage

capital employed.

Why it’s important and relevant

Demonstrates the relative level

of underlying profit generated by

the capital employed. Underlying²

is used to show the underlying

performance of the business

without non-underlying items.

Initiatives and actions

for improvement

Focus on efficient use of capital.

May be offset in the short term

by a period of upfront investment

and maturity, e.g. trade counter

roll-out.

Link to Strategy

For more information on our

strategy see pages 12 to 13

Key to strategic links

Reduce low-

margin revenue

Reduce

costs

Optimise

cash

Enhance

customer service

Simplify ranges and

consolidate supply base

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

202520242023

3.8

3.5

3.2

202520242023

Non-Financial KPIs

Inventory turn Employee retention (%) Reportable incidents

(‘RIDDOR Reports’)

Measurement

Annual ratio measured by

comparing underlying cost of

goods sold during the financial

period with the average annual

inventory level (using averaged

data points at 1 January, 30 June

and 31 December).

Why it’s important and relevant

A higher inventory turn is an

indicator of efficient revenue

generation, and more effective

utilisation of distribution centre

capacity.

Initiatives and actions

for improvement

Centralised buying and stock

control team, maintaining a

unified national product file.

Link to Strategy

Measurement

Retention measures the ability

to retain employees in the

current year compared with

previous years. It is measured

as a percentage of employees

retained in the Company between

1 January and 31 December.

*The figures have been restated

to exclude the impact of

redundancies.

Why it’s important and relevant

Shows the effectiveness of

colleague engagement initiatives.

Initiatives and actions

for improvement

Focus on people and culture,

including investing in people

through training and review of

rewards and benefits.

Link to Strategy

2 3

Measurement

Reporting of Injuries, Diseases

and Dangerous Occurrences

Regulations 2013 (‘RIDDORs’).

These regulations require

employers, the self-employed

and those in control of premises

to report specified workplace

incidents.

Why it’s important and relevant

By measuring reportable injuries,

it is possible to identify any

deficiencies in the Company’s

processes, allowing continuous

improvement in health and safety

standards.

Initiatives and actions

for improvement

Change in the National Safety

Team structure to deliver effective

support to the Group.

Link to Strategy

2 3

Key to strategic links

Reduce low-

margin revenue

Reduce

costs

Optimise

cash

Enhance

customer service

Simplify ranges and

consolidate supply base

KEY PERFORMANCE INDICATORS CONTINUED

202520242023

1414

202520242023

J K

Deliveries per

commercial vehicle

UK Scope 1 and 2 emission

reduction (%)

Measurement

Average deliveries per commercial

vehicle per day in area following

Transport Integration (delivery

consolidation) project. Prior to the

project, in 2019 it was 12.

Why it’s important and relevant

The Transport Integration

project results in more deliveries

per commercial vehicle, which

reduces the Company’s impact

on the environment through

a reduced number of vehicles

needed to serve local areas.

Initiatives and actions

for improvement

Transformation Plan simplifying

our network.

Link to Strategy

Measurement

Percentage reduction in UK Scope

1 and 2 emissions (tCO

e) against

a baseline year set at 2019 on a

location basis.

Why it’s important and relevant

Need to meet the reduction

pathway required to achieve

the interim target of a 46%

reduction by 2030, and reduce

the Company’s contribution to

climate change.

Initiatives and actions

for improvement

Actively engaged in transition

planning, with the main

decarbonisation actions currently

being pursued detailed in the

Sustainability Report on page 26.

Link to Strategy

2 3

For more information on our

strategy see pages 12 to 13

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Acting in the interests of stakeholders is vital in delivering our purpose

The Board has responsibility for managing the business to promote its success, and having regard to how its

decisions and events impact its stakeholders, engaging with and supporting them appropriately.

Our Colleagues Our Customers Our Suppliers Our Shareholders

Relationship to Headlam

Colleagues are at the heart of our business, and are

our greatest asset. There are approximately 2,200

colleagues within the Headlam group within a variety of

departments, including warehousing, transport, sales, and

administration.

How we support

We continue to focus on making Headlam a great place

to work, and ensure colleagues share in the Group’s long-

term success.

How we engage

The CEO/Executive Chair, CFO, Executive Team, and

non-executive members of the Board all have frequent

interaction with colleagues, including site visits and both

formal and informal meetings and forums (inclusive of the

Employee Forum).

Effect on decision making, outcome, and benefits to

stakeholders

We launched a transformation plan in September 2024,

which we updated in November 2025, with the target

of returning the business to profitability in 2027. This has

had a significant impact on some of our colleagues. A

number of colleagues have left the business through

2024 and 2025, which we recognise has been difficult

and unsettling. We have carefully communicated and

engaged with our colleagues throughout.

We have made further investments in a strong health and

safety culture.

We conducted our third colleague engagement survey,

providing valuable insight into what is working well and

what can be done to better engage our colleagues.

Took the decision to again tier our cost-of-living increases

to ensure lowest-paid colleagues got the greatest

increase.

Relationship to Headlam

Imperative to our success and the growth of the

Company.

We have an extensive customer base across the

fragmented flooring market, with a renewed focus in

particular on independent retailers and contractors.

How we support

We provide our customers with a market-leading service

through the largest product range, in-depth knowledge

ecommerce and marketing support, and nationwide fast

delivery service.

We help our customers grow their businesses through

providing them with competitive advantages.

How we engage

Frequent interaction through sales representatives,

dedicated service teams, and communications channels.

Customer surveys, and feedback mechanisms. Focus

groups, including on new product launches.

Effect on decision making, outcome, and benefits to

stakeholders

As announced in November 2025 we made the decision

to refocus on the independent retailer and contractor

market. The trade counter network has been repositioned

to be collection points for our core customers, providing

unrivalled convenience.

Considerable investment and progress in optimising the

network to increase the level of service to all customers.

Relationship to Headlam

Key to ensuring we can supply the best product at a

competitive price in a timely manner to customers/end-

consumers.

We work with suppliers across the globe manufacturing

the broadest range of products, and give them a

highly effective route to market into the fragmented

customer base.

How we support

Helping and supporting manufacturers with selling their

products into our large and diverse trade customer base.

How we engage

Frequent visits to suppliers’ sites and premises. Annual

Supplier Conference held to share our insights and

strategy with them, and how we can more effectively

work together.

Sharing of sales data, and insight into customer and end-

consumer buying.

Effect on decision making, outcome, and benefits to

stakeholders

During the previous year we launched a transformation

plan to simplify the business and its processes. This makes

Headlam easier to do business with, which is beneficial for

our suppliers.

During 2025 we centralised the buying function, resulting

in central coordination of ranges and buying decisions.

This has been accompanied by a supplier sourcing

strategy to reduce the number of suppliers and give

more volume to a smaller number of suppliers, to bring

efficiencies to the suppliers and to Headlam.

Continued to work closely on sharing data, and ensuring

an efficient and ethical supply chain.

Relationship to Headlam

The owners of the Company. It is important that the

Board is aware of and solicits their views, and then

evaluates these views in relation to the strategic and

corporate objectives of the Company.

Key joint focus on the long-term success and

sustainability of the Company.

How we support

Focus on delivering a long-term sustainable business that

operates with the highest level of governance.

How we engage

Frequent regulatory announcements with appropriate

levels of disclosure.

In-person presentations and meetings, including offering

meetings at the Company’s sites. Use of webinars and

recordings to allow all shareholders to hear and view

materials.

Solicitation and consideration of feedback, including on

strategy and its oversight.

Effect on decision making, outcome, and benefits to

stakeholders

The views of stakeholders, including shareholders were

considered as we shaped and implemented both our

existing strategic priorities and the transformation plan.

Efficiency and mitigating actions to help support

margins and better align costs with the weak market

backdrop. Ongoing scrutiny of operational performance,

efficiencies, and the cost base.

The Board carefully considered the impact on

shareholders of a cessation in the dividend whilst the

transformation plan is executed.

STAKEHOLDER ENGAGEMENT

Our Colleagues Our Customers Our Suppliers Our Shareholders

Relationship to Headlam

Colleagues are at the heart of our business, and are

our greatest asset. There are approximately 2,200

colleagues within the Headlam group within a variety of

departments, including warehousing, transport, sales, and

administration.

How we support

We continue to focus on making Headlam a great place

to work, and ensure colleagues share in the Group’s long-

term success.

How we engage

The CEO/Executive Chair, CFO, Executive Team, and

non-executive members of the Board all have frequent

interaction with colleagues, including site visits and both

formal and informal meetings and forums (inclusive of the

Employee Forum).

Effect on decision making, outcome, and benefits to

stakeholders

We launched a transformation plan in September 2024,

which we updated in November 2025, with the target

of returning the business to profitability in 2027. This has

had a significant impact on some of our colleagues. A

number of colleagues have left the business through

2024 and 2025, which we recognise has been difficult

and unsettling. We have carefully communicated and

engaged with our colleagues throughout.

We have made further investments in a strong health and

safety culture.

We conducted our third colleague engagement survey,

providing valuable insight into what is working well and

what can be done to better engage our colleagues.

Took the decision to again tier our cost-of-living increases

to ensure lowest-paid colleagues got the greatest

increase.

Relationship to Headlam

Imperative to our success and the growth of the

Company.

We have an extensive customer base across the

fragmented flooring market, with a renewed focus in

particular on independent retailers and contractors.

How we support

We provide our customers with a market-leading service

through the largest product range, in-depth knowledge

ecommerce and marketing support, and nationwide fast

delivery service.

We help our customers grow their businesses through

providing them with competitive advantages.

How we engage

Frequent interaction through sales representatives,

dedicated service teams, and communications channels.

Customer surveys, and feedback mechanisms. Focus

groups, including on new product launches.

Effect on decision making, outcome, and benefits to

stakeholders

As announced in November 2025 we made the decision

to refocus on the independent retailer and contractor

market. The trade counter network has been repositioned

to be collection points for our core customers, providing

unrivalled convenience.

Considerable investment and progress in optimising the

network to increase the level of service to all customers.

Relationship to Headlam

Key to ensuring we can supply the best product at a

competitive price in a timely manner to customers/end-

consumers.

We work with suppliers across the globe manufacturing

the broadest range of products, and give them a

highly effective route to market into the fragmented

customer base.

How we support

Helping and supporting manufacturers with selling their

products into our large and diverse trade customer base.

How we engage

Frequent visits to suppliers’ sites and premises. Annual

Supplier Conference held to share our insights and

strategy with them, and how we can more effectively

work together.

Sharing of sales data, and insight into customer and end-

consumer buying.

Effect on decision making, outcome, and benefits to

stakeholders

During the previous year we launched a transformation

plan to simplify the business and its processes. This makes

Headlam easier to do business with, which is beneficial for

our suppliers.

During 2025 we centralised the buying function, resulting

in central coordination of ranges and buying decisions.

This has been accompanied by a supplier sourcing

strategy to reduce the number of suppliers and give

more volume to a smaller number of suppliers, to bring

efficiencies to the suppliers and to Headlam.

Continued to work closely on sharing data, and ensuring

an efficient and ethical supply chain.

Relationship to Headlam

The owners of the Company. It is important that the

Board is aware of and solicits their views, and then

evaluates these views in relation to the strategic and

corporate objectives of the Company.

Key joint focus on the long-term success and

sustainability of the Company.

How we support

Focus on delivering a long-term sustainable business that

operates with the highest level of governance.

How we engage

Frequent regulatory announcements with appropriate

levels of disclosure.

In-person presentations and meetings, including offering

meetings at the Company’s sites. Use of webinars and

recordings to allow all shareholders to hear and view

materials.

Solicitation and consideration of feedback, including on

strategy and its oversight.

Effect on decision making, outcome, and benefits to

stakeholders

The views of stakeholders, including shareholders were

considered as we shaped and implemented both our

existing strategic priorities and the transformation plan.

Efficiency and mitigating actions to help support

margins and better align costs with the weak market

backdrop. Ongoing scrutiny of operational performance,

efficiencies, and the cost base.

The Board carefully considered the impact on

shareholders of a cessation in the dividend whilst the

transformation plan is executed.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Acting in the interests of stakeholders is vital in delivering our purpose

The Board has responsibility for managing the business to promote its success, and having regard to how its

decisions and events impact its stakeholders, engaging with and supporting them appropriately.

Our Communities and the Environment

Relationship to Headlam

Key to supporting the success of the Company’s regional

and national businesses.

We actively recruit people from local communities,

so very important to the ongoing success of the

Company by attracting great people.

Minimising environmental impact is critical to managing

climate change, and the knock-on impact on communities.

How we support

Supporting communities through employment and

engagement activities, and also by reducing our impact

on the environment through out sustainability strategy.

How we engage

Engagement with colleagues to ensure aware of local

causes and events.

Actively advertise job vacancies through word of mouth

and locally.

Locally focused Communities Programme, which gives

colleagues the opportunity to both volunteer and donate

to projects and charities in their local community.

Effect on decision making, outcome and

benefits to stakeholders

Through engaging with our communities and other

stakeholders we identified a need for developing new

trained fitters; we subsequently implemented fitter

training programme, supported by our suppliers and also

by our customers, who will employ our trainees at the end

of their training programme.

The Directors of the Company are required by

Section 172 of the Companies Act 2006 to act in a

way that promotes the success of the Company for

the benefit of stakeholders as a whole and in doing

so, they must also have regard to wider expectations

of responsible business behaviour, specifically:

• the likely consequences of any decision in the

long term;

• the interests of the Company’s people;

• the need to foster the Company’s business

relationships with suppliers, customers and others;

• the impact of the Company’s operations on the

community and the environment;

• the desirability of the Company maintaining

a reputation for high standards of business

conduct; and

• the need to act fairly between members of the

Company.

The Board understands the importance of

engagement with its key stakeholders as only in this

way can it truly understand their needs and concerns

to support its decision making, and the likely impact

of those decisions on each stakeholder group. The

Company uses a variety of methods to engage, both

formally and informally, believing that much can be

gained from personal interaction.

The Board acknowledges that situations may arise

where stakeholder groups have conflicting priorities of

achieving its strategic objectives and the long-term

sustainable success of the business.

Following consideration of the information contained

within Stakeholders and Engagement, and all

other activities and undertakings detailed in this

Annual Report, the Board considers it has fulfilled

its duty in respect of Section 172, both individually

and collectively, and that it has acted in the way it

considers would be most likely to promote the success

of the Company for the benefit of its members as a

whole (having regard to the stakeholders and matters

set out in s172(1) (a) to (f) of the Act) in the decisions

taken during the year ended 31 December 2025.

Stephen Bird,

Interim Executive Chair

Signed on behalf of the Board 25 March 2026

Our s.172 statement

STAKEHOLDER ENGAGEMENT CONTINUED

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Summary income statement

Underlying

result

2025

£m

Non-

Underlying

Items

2025

£m

Total

2025

£m

Re-presented

Underlying

result

2024

£m

Non-

Underlying

Items

2024

£m

Total

2024

£m

Revenue 498.7 – 498.7 525.7 – 525.7

Cost of sales (351.4) (3.6) (355.0) (369.7) (10.6) (380.3)

Gross profit 147.3 (3.6) 143.7 156.0 (10.6) 145.4

Operating costs (180.7) (26.5) (207.2) (180.9) 4.2 (176.7)

Operating loss (33.4) (30.1) (63.5) (24.9) (6.4) (31.3)

Net finance costs (6.1) – (6.1) (6.8) – (6.8)

Loss before tax (39.5) (30.1) (69.6) (31.7) (6.4) (38.1)

Tax 4.1 0.7 4.8 6.8 10.2 17.0

Loss from continuing operations (35.4) (29.4) (64.8) (24.9) 3.8 (21.1)

Loss from discontinued operations (4.4) (12.7) (17.1) (3.2) (0.7) (3.9)

Loss for the period (39.8) (42.1) (81.9) (28.1) 3.1 (25.0)

Revenue

Total revenue in the Period decreased by 4.6% on a same

working day basis to £498.7 million (2024: £525.7 million). This

excludes revenue in Continental Europe which has been

presented as a discontinued operation

In the UK, we previously reported revenues through three main

sales channels: Regional Distribution, Trade Counters and

Larger Customers. Over the last 18 months, the simplification

of the Group, integration of sales teams, and the launch

of customer initiatives such as ‘order anywhere, collect

anywhere’, increased the crossover of revenues between

these sales channels, particularly Regional Distribution and

Trade Counters. This has been further accelerated through

the consolidation of the previously separate Trade Counters

business into the main sales organisation. These trade counter

sites now operate as collection points under the control of

our Regional Sales Managers for independent retailers and

contractors. Accordingly, we show UK revenue in total rather

than split into channels.

Overall revenue in the second half of the year was similar, on a

year-on-year basis, to the first half, but this actually reflected

a lower rate of decline in revenue from independent retailers

and contractors offset by lower growth in revenue from larger

customers.

Continental Europe

Revenue declined 0.8% in Continental Europe; the net

of growth in the Netherlands, reflecting new distribution

agreements for exclusive supply of certain branded ranges,

and decline in France due to ongoing market weakness. The

revenue performance in France improved in the second half

compared to the first six months, albeit remained in decline.

Gross Margin

Gross margin in the year was 29.5%, broadly unchanged

from the 29.7% achieved in the previous year. This reflected

the adverse impact of customer mix (with growth in lower-

margin larger customer sales) offset by early benefits from the

integrated supplier sourcing strategy and centralised buying

function.

Costs

Underlying operating costs of £180.7 million (2024:

£180.9 million) were flat year on year. Cost inflation has

remained elevated, albeit to a lower extent than previous

years, driven by the 6.7% increase in the national minimum

wage and the increase in employer’s National Insurance

contributions. In addition, the final stage of the roll out of

new trade counter collection points added c. £4.8 million

of additional operating costs. The cost inflation and trade

counter investment costs were all offset by benefits from the

transformation plan. These benefits accelerate in 2026 and,

at the same time, we expect cost inflation to be lower and

will also no longer have additional trade counter investment

costs, following the cessation of that rollout programme.

The results for the year ended 31 December 2024 have been re-presented to refer the presentation of the Continental European businesses as discontinued

(see note 25 for further information).

To supplement IFRS reporting, we also present our results on an underlying basis to show the performance of the business before Non-Underlying Items.

These items are detailed in note 3 and principally comprise: amortisation of acquired intangibles, impairment of assets, business restructuring and change-

related costs, profit on sale of property, ERP system development, and provision relating to legal claim.

FINANCIAL REVIEW

Underlying Profit/Loss

Underlying loss before tax of £39.5 million compared to a loss of £31.7 million in 2024. The table below breaks down the year-on-

year movement:

Underlying Loss

Before Tax

£m

2024 (31.7)

Revenue (7.7)

Trade Counter investment (2.3)

Cost inflation (4.7)

Mitigating actions 6.2

Interest costs 0.7

2025 (39.5)

The decline in revenue contributed to a £7.7 million reduction in profit year-on-year.

The roll out of new trade counter collection points contributed to a £2.3 million reduction in profit, reflecting the net of additional

operating costs partially offset by the incremental revenue from new sites.

Cost inflation was a £4.7 million headwind reflecting the factors explained above. This cost inflation impact was lower than the

previous two years (2024: £7.6 million; 2023: £10.2 million) reflecting an easing in inflationary pressure. Mitigating actions, through

the implementation of the transformation plan, provided £6.2 million of benefit in the year through cost saving initiatives.

Net interest costs of £6.1 million (2024: £6.8 million) were slightly lower year-on-year, partly reflecting lower average borrowings,

offset by the interest component of the incremental lease cost of trade counter collection points and distribution centres.

Non-Underlying Items

Non-underlying items before tax in the year, relating to continuing operations, totalled a £30.1 million expense (2024: £6.4 million

expense) as set out in the table below. The net cash impact of these non-underlying items in 2025 was a £4.2 million cash

outflow.

2025

Cash

£m

2025

Non-cash

£m

2025

Total

£m

2024

Total

£m

Amortisation of intangibles – (1.1) (1.1) (1.2)

Impairment of assets – (4.8) (4.8) (4.0)

Business restructuring and change-related costs (19.8) (3.4) (23.2) (19.7)

Profit on sale of property 21.2 (15.0) 6.2 21.1

ERP system development (5.6) – (5.6) (2.6)

Provision relating to legal claim – (1.6) (1.6) –

Non-underlying income/(expense) before tax (4.2) (25.9) (30.1) (6.4)

Consistent with previous periods, the amortisation of acquired intangibles arising upon consolidation were categorised as non-

underlying and amounted to £1.1 million (2024: £1.2 million).

Impairment of assets was a £4.8 million (2024: £4.0 million) non-cash expense and relates to the impairment of goodwill and

other intangible assets associated with Melrose cash generating unit.

Business restructuring and change-related costs are in respect of the transformation plan. The cash items principally comprised

severance, recruitment, retention and other people-related costs; the one-off cost of investment in new point-of-sale materials

to accompany the Mercado consolidation; and advisory costs. The non-cash expense of £3.4 million principally relates to stock

provisions, reflecting the write-down of legacy stock holdings in preparation for network optimisation initiatives and the range

rationalisation activities undertaken following the centralisation of the buying function.

The cost of developing the new ERP system is expensed rather than capitalised due to it being a cloud-based solution and, as

previously guided, the development cost is being treated as a non-underlying expense, of which £5.6 million was incurred in the

year (2024: £2.6 million). At the end of the year, the decision was taken to temporarily pause the ERP replacement programme

whilst the business focuses on the transformation plan.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

A £1.6m provision has been recorded in respect of a health

and safety offence relating to an accident at one of the

Group’s sites in 2022.

EPS and Dividend

Total basic loss per share on an underlying basis was a loss

of 44.1 pence per share (2024: a loss of 31.0 pence per share),

reflecting the factors set out above.

No interim or final ordinary dividend has been declared in

respect of the current or prior year. Whilst we have opted not

to declare a dividend, our long-term commitment remains

focused on delivering shareholder value. The Board will

continue to review how the business is performing, taking

into account the market conditions and the implementation

of the transformation plan, in assessing when it may be

appropriate to reinstate dividend payments.

Tax

The Group’s consolidated underlying effective tax rate for

continuing operation for the Period was 10.4% (2024: 21.5%).

This is lower than the standard rate of corporation tax in the

UK primarily due to the partial recognition of a deferred tax

assets relating to losses.

Cash Flow and Net Debt

2025

£m

2024

£m

Underlying operating loss (33.4) (24.9)

Depreciation and amortisation 20.9 19.9

EBITDA (12.5) (5.0)

Change in inventories 10.6 16.8

Change in receivables 16.9 2.0

Change in payables (34.3) 12.2

Other 0.7 1.0

Underlying Operating

Cash Flow (18.6) 27.0

Interest and Tax 1.4 (4.7)

Lease payments (15.8) (13.7)

Capital expenditure (4.4) (10.5)

Non-underlying items (4.2) 48.5

Dividends – (4.8)

Discontinued operations (0.8) (1.2)

Net cash flow before

movement in borrowings (42.4) 40.6

Movement in borrowings 59.0 (50.0)

Net cash flows 16.6 (9.4)

Underlying Operating Cash Flow in the year was an outflow

of £18.6 million compared to an inflow of £27.0 million in 2024.

The outflow in 2025 included a £10.8 million payment of VAT

in January, that had been collected on the property sales in

December 2024. Excluding this timing item, the Underlying

Operating Cash Flow in the year was an outflow of £7.8 million

(and the prior year would have been an inflow of £16.2 million),

which comprised of an EBITDA loss of £12.5 million, partially

offset by working capital and other inflows (after adjusting for

the £10.8 million VAT timing) of £4.7 million.

Inventories continue to be well-controlled and, in the latter

few months of the year and the first two months of 2026,

reduced significantly following the implementation of the

centralised buying and supply chain processes. The reduction

in inventory towards the end of the year was initially principally

offset within working capital by a reduction in payables; the

efficiencies in inventory levels turn into cash benefit as the

working capital cycles through and hence is more of a 2026

cash benefit. Inventories have continued to decline following

the year-end. Inventory turn improved from a year-round

average of 3.2x in 2023 to 3.5x in 2024 and again to 3.8x in

2025. In the last few months it has averaged over 4x. There

remains further opportunity here; we target at least 5.0x (and

this would remain below other flooring distributors).

Over the last two years the Group has averaged a net positive

working capital balance of over £70 million; this means that

the Group has had £70 million of cash tied up in funding

its working capital. As the Group streamlines its focus and

actively reduces low margin revenue, it will require (all else

equal) less working capital to be invested in the business.

This, combined with the further opportunity for inventory

efficiency, means that we anticipate a substantial working

capital inflow over 2026 and 2027.

A net £1.4 million cash was received in the year (2024:

£4.7 million outflow) in respect of interest and tax, reflecting a

refund of corporation tax payments on account made in 2024.

Lease payments were a £15.8 million cash outflow (2024:

£13.7 million); the increase reflects the additional trade

counter and distribution centre leases. Capital expenditure

was £4.4 million (2024: £10.5 million) and included £1.8 million

for fitting out new or refurbished trade counters.

There was a £4.2 million outflow (2024: £48.5 million inflow)

in respect of non-underlying items, comprising £19.8 million

business restructuring and change-related costs, and

£5.6 million ERP system development costs, partially offset by

£21.2 million proceeds from property disposal.

FINANCIAL REVIEW CONTINUED

Net Debt excluding lease liabilities was £31.4 million at the

end of the year. This compares to Net Cash of £10.9 million at

31 December 2024. The prior year Net Cash position included

a temporary timing difference on property VAT; £10.8 million

of VAT was collected on property sales in December 2024 and

paid over to HMRC in January 2025. Excluding this, the prior

year position was Net Cash of £0.1 million. The movement

since this normalised Net Cash position of £0.1 million to the

Net Debt of £31.4 million at the end of 2025 principally reflects

the EBITDA loss of £12.5 million, lease payments of £15.8 million,

capital expenditure of £4.4 million and non-underlying items

of £4.2 million.

At the end of the year, the Group had total banking facilities

available of £72.5 million (31 December 2024: £100.4 million),

of which £61.0 million (31 December 2024: £81.5 million) was

committed. The committed facility comprised a revolving

credit facility (‘RCF’) with three lenders that was due to expire

in October 2027. In January 2026 this facility was replaced with

an asset-based lending facility (‘ABL’) of up to £85.0 million.

This also replaced a £7.5 million uncommitted overdraft.

The available amount of the ABL depends on the amount

of relevant assets (property, receivables and inventory)

against which the Group can borrow and is also subject to a

requirement to hold a minimum amount of headroom on the

facility, by way of a liquidity headroom covenant.

The RCF was subject to covenants on liquidity headroom and

quarterly EBITDA. All such covenants were met during the

year. The ABL also has covenants on liquidity headroom and

quarterly EBITDA, as well as operational covenants such as

inventory days and debtor days.

The Group continues to have strong asset backing; as at

31 December 2025, the Group owned UK property with a market

valuation of £75 million. Three of those properties are currently

under offer, with sale processes expected to complete in the

coming months. We anticipate further properties will become

surplus to requirements over the next 18 months.

Principal risks and uncertainties

The Group is exposed to a number of principal risks which

may affect its business model, future performance, solvency

or liquidity. The group has a well-established framework for

reviewing and assessing these risks on a regular basis; and has

put in place appropriate processes, procedures and actions

to mitigate them. However, no system of control or series of

mitigations can completely eliminate all risks. The principal

risks and uncertainties that may affect the group were last

reported on within the 2024 Annual Report and Accounts

and have been considered and updated for the 2025 Annual

Report and Accounts.

No new principal risks have been identified. The risk ratings of

a number of the principal risks have been amended slightly;

however, the scope of the principal risks remain broadly

unchanged since last reported.

Adam Phillips

Chief Financial Officer

25 March 2026

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Sustainable by design

As we execute our refocused strategy, ESG remains a

fundamental enabler of long-term value creation and

resilience across our business. It is embedded in our

operating model and will become a key differentiator of

our proposition for customers over the medium term.

A clear demonstration of this approach is the successful

take-back trial completed at our Northampton

site. The trial has delivered actionable insight into

expected material volumes, operating economics,

and the most effective partnership model with our

waste management provider. Importantly, it has also

confirmed the commercial and service value this

offering creates for our customers.

In 2025, we extended the trial and we are now

evaluating what a full scale nationwide take-back

scheme across our Trade Counter network would

look like.

This initiative supports our strategic priorities by

strengthening customer loyalty, enhancing sustainability

credentials, and creating a scalable platform that

improves recycling accessibility for our most valued

independent customers.

We have also partnered with a number of key suppliers

to launch our Trainee Flooring Fitter programme. This

six-month training programme addresses structural skills

shortages within the industry, supports long-term sector

sustainability, and reinforces our differentiated value

proposition to independent customers. As our refocused

strategy prioritises share growth in this segment,

developing industry capability will remain a strategic

priority.

As outlined in this report, we have delivered further

progress across our ESG agenda during the year. This

includes deeper engagement with our supply base

through our annual supplier conference, enhancements

to waste management processes, a 10% decrease in

colleague engagement, strengthened development

pathways, and continued improvements to our

governance and control framework. We believe these

outcomes reflect disciplined execution and confirm that

ESG is fully integrated into our refocused strategy that

will return the business to profitability and ensure that

our independent flooring retailers and contractors are

at the heart of our business.

Environmental

Priorities

a. Product design

b. Service design

c. Building design

Why we have chosen them

a. To deliver our long-term circularity ambition, we are acting

now to engineer products with increased recycled content

and improved end-of-life recyclability, reducing future

regulatory risk and supporting sustainable margin delivery.

b. Scaling a national take-back scheme strengthens our

customer proposition, drives loyalty among independent

customers, and provides a practical pathway to increased

material recovery and waste reduction.

c. As we reduce our footprint, we will embed energy efficiency

and low-carbon design standards from the outset into

any new or relocated sites, supporting cost efficiency and

disciplined carbon reduction.

Progress made

a. Strengthened supplier collaboration through joint product

development plans, whilst actively contributing via Carpets

Recycling UK to the development of an industry-wide

Sustainability Pledge - supporting innovation, resilience, and

improved ESG standards across the value chain.

b. Successfully extended a take-back trial across four Trade

Counters, validating operational feasibility, customer

demand, and the potential to scale this capability across the

network.

c. Embedded environmental considerations into site

development, with facilities planners fully integrated

into the process to address waste management, energy

efficiency, biodiversity, and broader environmental

performance from the design stage.

Outlook

a. Upskill the central buying team, under the leadership of

the Chief Buying Officer, continue to embed sustainability

into product development decisions and accelerate the

delivery of more sustainable, commercially viable ranges.

b. Evaluate the trial of the Take Back scheme, building on

proven success to test scalability, operational consistency,

and customer adoption ahead of wider roll out.

c. Partner with operations and property teams to develop a

standardised building blueprint, optimising sustainability

performance across energy efficiency, carbon reduction,

and whole-life cost as the estate expands.

SUSTAINABILITY AT HEADLAM

Social

Priorities

a. Engagement plans to create the right environment to

attract and retain the best colleagues.

b. We want to attract and retain colleagues with the right

skills, behaviours and expertise. We truly believe that

engaged and motivated colleagues provide the best

service and apply their knowledge and expertise to their

fullest.

Progress made

a. We have launched a new set of behaviours to support the

success of our colleagues and Headlam overall to better

navigate the changes in the market and those we have

internally. There will be a culture programme launched

through leaders in the Leadership population during 2026.

b. We are continually reviewing our benefits to remain

competitive and an attractive place to work.

Governance

Priorities

a. Buying process review (supplier and product selection).

b. Systems and reporting requirements.

Why we have chosen them

a. Fully centralised UK Distribution buying and supply chain

teams now enable consistent, group-wide processes

and improved governance. The establishment of Scope 3

emissions targets provides a clear framework for focused

planning, supplier engagement, and measurable progress.

b. The ERP implementation programme, whilst temporarily

paused, creates an opportunity to rationalise systems and

embed improved ESG data capture and reporting across

the business, strengthening decision-making, transparency,

and long-term control.

Progress made

a. ESG standards and assurance requirements are embedded

within the new product introduction process for own-

brand products, ensuring sustainability considerations are

integrated at the point of design. Scope 3 emissions targets

have been formally set and agreed, providing a clear

framework for delivery and accountability.

b. The ESG Director has actively contributed to ERP

requirements workshops, ensuring ESG data, controls,

and reporting needs are incorporated into system design,

supporting future compliance, transparency, and decision

making.

Outlook

a. Defined Scope 3 action plans in 2025, providing a

structured pathway to delivery, whilst continuing to

educate buying and supply teams on responsible sourcing

best practice to support measurable emissions reduction

across the value chain.

b. Review and enhancement of ESG data and reporting

capabilities to deliver a harmonised ESG dashboard and

clearly define requirements for integration into the new

ERP programme, strengthening transparency, consistency,

and management oversight.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Environmental

We remain committed to protecting the planet and have

set a clear ambition to achieve net zero emissions by 2040.

Our strategy is focused on designing products that can be

renewed, repurposed, and readily recycled, enabling greater

reuse within the products we supply.

In parallel, we are building a more

circular supply chain and taking

greater responsibility for the recovery

of materials placed onto the market.

This approach supports regulatory

readiness, improves resource efficiency,

and underpins sustainable long-term

value creation.

Reducing our

Carbon Emissions

Throughout 2025, we will continue

to deliver against our carbon

reduction roadmap and advance

the implementation of our Scope

3 strategy. The Company follows a

‘true’ Net Zero approach, prioritising

real decarbonisation with offsetting

applied only to residual emissions

of approximately 10%. Our targets

are science based, with Scope 1 and

2 aligned to Scope 3 timelines, and

measured against consistent baselines

- Scope 1 and 2 versus 2019, and Scope

3 versus 2023.

Key focus areas for 2025 included

sustainable product development,

improving efficiencies in our

non-commercial fleet, and promoting

energy-conscious behaviours across

our workforce, ensuring measurable

progress toward our long-term Net

Zero ambitions.

Transport Efficiencies

In 2023, we implemented Webfleet, a

vehicle telematics system, to enhance

driver safety, operational efficiency,

and fuel performance. In 2025 we have

achieved a further 39% reduction in

heavy braking events.

Energy Intensity

In 2024, we completed solar panel

installations across 12 distribution

centres, which continue to contribute

towards each site’s energy needs.

We remain committed to investing in

renewable solutions and identifying

further opportunities to improve energy

efficiency and cost performance.

Key achievements

in 2025

• Aligned and formally set

Scope 1, 2 and 3 emissions

targets, with a clear ambition

to achieve net zero by 2040,

providing a consistent and

accountable decarbonisation

pathway.

• Delivered a 51% reduction

in Scope 1 and 2 emissions

against a 2019 baseline,

demonstrating tangible

progress and disciplined

execution.

• Implemented comprehensive

waste monitoring and

reporting across all major

distribution centres,

strengthening data quality,

oversight, and operational

control.

• Extended our recycling centres

service in our trade counter

collection points, enhancing

the customer proposition

whilst supporting circularity

ambitions.

• Gave our first ESG Initiative of

the year award to one of our

key strategic suppliers at our

annual supplier conference.

• Established partnerships with

waste management providers

and recyclers to ensure end-

of-life materials are recovered

and regenerated, reducing

landfill dependency and

supporting resource efficiency.

• Maintained ISO 14001

certification across our

national distribution centres,

reinforcing environmental

management standards and

external assurance.

SUSTAINABILITY AT HEADLAM CONTINUED

Net Zero Emissions Timeline

Key Achievements and Targets

2023

• Solar panels installed across 11 sites.

• ISO 14001 environmental certification at key sites.

• Over 85% of UK non-commercial fleet electric/low emission.

• Good Energy and Recycling Behaviours workshops held at 11

largest sites.

• Continued trial of low emission commercial vehicles.

• Transport integration completed.

2024

• Final solar panel installation, taking the total to 12 sites.

• Telematics used to improve driver behaviour and reduce emissions.

• Reviewed waste management across UK distribution sites.

• Scope 3 strategy and targets developed.

• Continued trial of low emission commercial fleet vehicles.

• Trial of Trade Counter take-back and recycling scheme in

Northampton.

• Launched EV salary sacrifice scheme.

2025

• Assessment of the take-back recycling scheme trial.

• Scope 3 targets implemented.

• Carbon workshops commenced with buying team;

further planned throughout 2025.

2030

• Interim target: 46% reduction against 2019 baseline (Scope 1 & 2).

• Roll-out of low carbon commercial vehicles.

• Potential heating electrification to reduce gas consumption.

2032

• Interim target of 42% reduction of Scope 3 emissions against

2023 baseline

2040

• Net Zero emissions target (Scope 1, 2 and 3).

UK and Continental Europe

Scope 1 and 2 emissions

2025 Full Year Data

94%

Scope 1: 94% (13.0ktCO

Scope 2: 6% (0.9ktCO

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Sustainable

by design

Sales

Takeback/

Recovery

Distribution

Material

Processing

Manufacturing

Recycled

material

Environmental

Scope 3 Emissions

2025 Full Year Data

Purchased goods

80.5% (628,655 tCO

Capital goods

0.6% (4,616 tCO

Fuel-related

0.4% (3,427 tCO

Upstream transportation

0.4% (3,398tCO

Waste generated

0.1% (958 tCO

Business travel

0.1% (336 tCO

Employee commuting

0.3% (2,179 tCO

End of life treatment

15.8% (123,835 tCO

Total Scope 1, 2 and 3

Emissions: 815,119 tCO

2025 Full Year Data

Scope 1

1.7% (12,967 tCO

Scope 2 (location-based)

0.1% (947 tCO

Scope 3

98.2% (767,404 tCO

In 2025, we continued to evaluate sustainability across the full

product lifecycle through our Sustainable by Design programme.

We have invested in take-back

trials, providing end-of-life product

management and ensuring recovered

materials are returned to raw material

form for reuse through partnerships with

recyclers and manufacturers.

Our Florprotec brand continues to

offer a collection service for end-of-life

products, with materials reintegrated

into new products. Additionally, we

collaborate with leading UK and

European manufacturers to design

broadloom and vinyl ranges that are

easily recyclable, reducing reliance on

specialist recyclers and improving the

quality of recycled materials.

Take-back Scheme

The take-back and recycling

trial, launched in May 2024 at the

Northampton Trade Counter, continued

through 2025. Customers can return

post-consumer and post-industrial

flooring, underlay, vinyl, LVT, laminate,

packaging, and general waste. The

service remains free during the trial,

encouraging adoption and providing

valuable insights to support potential

national roll out.

Sustainable product development

SUSTAINABILITY AT HEADLAM CONTINUED

Partnerships

• Biffa: collects, sorts, and recycles

flooring by material type.

• Recofloor: facilitates vinyl and LVT

collection on behalf of Polyfloor

and Altro.

Water

We are a low water-use business,

primarily for cleaning vehicles, and

continue to minimise usage wherever

possible.

Waste

In 2026, we aim to maintain or improve

our operational waste diversion from

landfill, with waste recycled from UK

Distribution Centres. Recycling bins are

provided at all major centres, and stock

repurposing continues through Melrose

Interiors. Packaging is recovered

wherever possible and recycled when

reuse is not feasible, supporting

both sustainability and operational

efficiency.

Raw Materials

We prioritise renewable materials

wherever possible, particularly within

our flagship Crucial Trading brand. All

timber is sourced from verified, legal

suppliers with fully traceable supply

chains via Track Record Global. Where

non-renewable materials are used,

recycled content is incorporated

wherever feasible, and products are

designed for end-of-life recyclability,

supporting circularity and sustainable

value creation.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Making Headlam a great place to work with a

positive impact on communities.

Our Colleagues

Across the UK, France, and the

Netherlands, Headlam Group PLC

employed approximately 2,200 people

on average in 2025. Colleagues remain

at the heart of our business and are our

greatest asset. We continually focus

on making Headlam a great place to

work and ensure colleagues share in the

Group’s long-term success.

Whether colleagues work in warehouses,

transport, sales and trade counters,

support offices, or corporate functions,

a range of working arrangements

are available to attract and retain

colleagues who live our values:

We avoid

overcomplication by

keeping things simple

We create a trusted

environment where

people are empowered

to act and can learn

and improve

We uphold high standards

and confidently challenge

wrong behaviours

We create an inclusive

environment where

people celebrate

success together

We ensure that every

individual feels valued,

supported and safe

And always, do the right thing

The behaviours underpin and

demonstrate our commitment to

integrity. Our Colleague Code of

Ethics, The Headlam Way, covers

topics including safety, behaviours

towards each other, conflicts of interest,

sustainability, bribery and corruption,

fair competition, confidentiality, and

more. It complements our Speak

Up policy, enabling colleagues to

confidentially raise concerns directly

to the Audit Committee Chair. All new

colleagues familiarise themselves with

these policies during online induction,

and updates are communicated

through monthly leadership calls and

manager briefings.

In the UK, Headlam employs salaried

colleagues exclusively, with no zero-hour

contracts. Colleagues are entitled to

employment benefits from day one,

including company sick pay and the

right to request flexible working. Just

over 5% of colleagues currently have

flexible working arrangements. In 2025,

most colleagues remain permanent,

with temporary workers averaging

approximately 6% of the workforce,

primarily in operation to manage peaks,

cover long-term absences, or support

business change.

We continue to showcase career

opportunities through internal

communications, highlighting

colleagues who have progressed

through the business. This, coupled with

colleagues’ commitment to supporting

customers and each other, contributes

to Headlam’s strong tenure.

Social

Key achievements

in 2025

• Colleague Engagement

dropped by 10ptts, however

2025 has been a significant

year of changes and only

remains 11ptts behind the

industry benchmark.

• Reduction in RIDDORs by 29%

year on year.

• Safety culture training roll out

continues.

• Gender pay gap reduced year

on year.

• Strategic approach to

community support continued

in Leeds through the Trainee

Fitter programme, helping

bridge the skills gap in

the industry and improve

employability in the area.

SUSTAINABILITY AT HEADLAM CONTINUED

Length of Service

0-3 mths

1.75%

5+ yrs

47.27%

2-5 yrs

23.39%

4 mths-2 yrs

27.59%

Our long-serving colleagues, with their in-depth knowledge

of customers, services, products, processes, and systems,

remain a foundation of our success. We focus on retention

through Reward, Learning and Development and Colleague

Engagement. Uncontrolled labour turnover, along with

attendance and engagement, are key People KPIs, with

actions implemented throughout 2025 to improve all three.

We also target recruitment to diversify skills and experience,

bringing in expertise from other industries, talent banking

core skills, and working with recruitment partners to provide

candidates with clear insights into opportunities at Headlam.

Improving attraction and selection methods remains a priority

in 2026.

Keeping Each Other Safe

and Well, Every Day

2025 was a very productive year for the National Safety

Team. Over a period of nine months a new Safety Platform

was delivered to 98 sites in the group. This was met with

overwhelming success with over 35,000 inspections

completed on the new system. This has seen a significant

increase in engagement with all employees using the platform

and allowed the National Safety Team to focus on any

concerns identified through the analytical reports generated

once the platform was populated.

We have now significant increase in reporting Near Misses and

reduced LTIs by over 50% throughout the Network.

We have maintained our ISO 45001 accreditation after

external audits of 6 sites.

The RIDDOR incident frequency rate per 1,000,000

hours worked was 3.98 in 2025, compared to the HSE

recommendation of 3.77.

Type of RIDDOR

Incident 2024 2025

Slip, trips, and fall 2 4

Struck by moving vehicle 3 2

Contact with machinery 2 0

Hit by moving/falling,

flying object

1 0

Handling, lifting,

carrying 4 3

Fall from height 3 2

Other 2 3

Total 17 14

Supporting Colleagues Through Change

There continued to be several changes across the business in

2025 as part of the acceleration of our plans to turnaround

Headlam.

In 2025 our cost challenges remained and from opportunities

identified, we re-established a better year end position on

headcount and 130 colleagues left the business through

redundancy. Our continued review of footprint, efficiency

and effectiveness will result in ongoing re-design to create a

stable position for reset and growth.

We have adopted a way of working that includes a Top 30

cohort of Leaders to manage change and challenge what we

do here at Headlam.

Colleague Engagement

We conducted our first colleague engagement survey in 2023.

We maintained the engagement score in 2024 and in 2025 it

reduced 10ppts, reflecting the intense change occurring in the

business.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Learning and Development

Our learning management system, Eloomi provides colleagues

with access to over 600 elearning modules, the ability to book

on to face-to-face training, the creation of playlists, reporting

capability and a user-friendly way to develop bespoke

elearning content. Since launching the platform over 1,300

colleagues have used it to access learning,

We also started to deliver our new leadership programme,

Lead the Way, consisting of two levels of leadership

development delivered face to face. Feedback from

managers was positive across all modules and in our

engagement survey 89% of our managers said that they know

what is expected of them to manage their direct reports

well, which was an improvement of 3ppts year on year. More

importantly we saw a strong score of 86% on the leadership

question ‘My Manager and I have a good working relationship’.

Managers and leaders continued to benefit from Health &

Safety training throughout the year with DSS+ delivering Felt

Leadership training for our senior leaders which covers the

importance of creating a Safety culture, and See it, Say it

training for our management teams.

We invested in training for our sales teams by providing our

Area Sales Managers (‘ASMs’) with Driving Sales Growth

training, a programme designed to help them to hone their

selling skills. Our Regional Sales Managers attended Delivering

Sales Performance to help their ASMs embed their training,

provide guidance on field observation and feedback and

to support their coaching skills for 121s, appraisals and team

meetings.

As part of the acceleration of our strategy through the

implementation of our sales transformation and network

rationalisation we provided impacted leaders with training to

help them to lead through the change process. This not only

explored their potential reactions to change but also how

their teams may react and the support they can provide to

help colleagues to adapt.

To complement our existing Driver, Warehouse and Supervisor

and Manager apprenticeships we successfully launched our

first bespoke Headlam apprenticeship for our Trade Counter

teams, Sales through Service, a level 2 Customer Service

Apprenticeship. This provides our Trade Counter Assistants

with an opportunity to further develop their skills to support

their career development ambitions. To help bring careers at

Headlam to life for all our colleagues we have commenced

a series of articles on our internal communication channel,

myHub, highlighting career stories of a selection of colleagues

as well as ‘Day In The Life Of’ articles.

Reward

In 2025, we implemented the Real Living Wage increase to

£12.60 for all colleagues, reinforcing our commitment to fair

and competitive pay across the business. This ensure that all

roles within the organisation meet or exceed the updated Real

Living Wage benchmark, supporting our objective to remain

an employer of choice within the industry.

Building on the benchmarking process introduced in 2024, we

applied a robust pay review methodology during the January

2025 cycle to ensure equal pay across all roles. This process

ensured that no colleague fell below 20% of the median pay

for their specific job role, supporting pay consistency, reducing

risk of pay inequity, and aligning with our principles of fairness

and transparency.

Additionally, we introduced a holiday purchase scheme in

2025, providing colleagues with greater flexibility in managing

their work-life balance. Engagement with the scheme was

strong, with 272 colleagues participating in its first year.

Together, these initiatives demonstrate our ongoing focus on

delivering a fair, transparent, and competitive reward offering

that supports our retention and engagement objectives,

whilst aligning with our values and people strategy.

Diversity, Equity, and Inclusion

We know that diversity brings fresh ideas, different ways of

thinking and better represents the huge array of customers

we support and so we remain committed to attracting and

retaining a diverse workforce by creating an inclusive place

to work.

Diversity in gender

Women represent 26.4% of Headlam’s overall workforce,

an increase of 2.4% from last year. During 2025, 33% of the

Executive Committee were female, and women make up

27.3% of our management population, within an industry

that is overwhelmingly male dominated. We continue to take

proactive steps to improve gender diversity by working closely

with out recruitment agencies to ensure balanced longlists,

encouraging women to apply for internal opportunities, and

supporting their development by providing access to learning

and progression pathways. We also actively showcase the

successful careers that women can and do have within

Headlam.

Through these initiatives, we aim to continue growing the

number of women across all levels of the business. For further

information on the actions, we have taken and continue to

take to support gender diversity, please refer to our Gender

Pay Gap Report. This reports a Headlam UK mean gender

pay gap of -7.5% and a median gender pay gap of -9.2%,

available on our corporate website.

Social

SUSTAINABILITY AT HEADLAM CONTINUED

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Commitment to ESG and

Workplace Excellence

Annual targets were set to drive continuous improvement,

and governance was embedded across our ways of working,

including reporting, standard meetings, and leadership

oversight.

Colleagues were supported to understand expectations

through:

• The Colleague Code of Ethics, workplace policies, and

standard operating procedures

• Monthly leadership briefings, management

communications, team meetings, and toolbox talks

• Objective-setting and check-ins to review progress

Formal oversight included:

• Board meetings

• Executive Performance Reviews

• Commercial Performance Reviews

• Audit and ESG Committee meetings

ESG Committee

The ESG Committee provides oversight of Headlam’s ESG

strategy and is chaired by the CEO. Members include a Non-

Executive Director, the Chief People Officer, the Chief Buying

Officer, and senior leaders.

In 2025, the Committee met three times, reviewing:

• Health & Safety, decarbonisation, and waste

management

• Take-back scheme and sustainable product development

• Ethical sourcing audits and raw material traceability

• Fleet innovation, colleague inclusion, engagement, and

wellbeing

• Policy updates, regulatory horizon scanning, and

packaging

Executive Accountability

• ESG targets are incorporated into Annual Bonus Schemes

and the Performance Share Plan for Executive Directors

and Executive Team members.

• Progress is reported through the ESG Committee and

reviewed at monthly Executive Performance Review

meetings and Commercial Review Progress meetings.

Responsible Sourcing

Headlam maintains a robust responsible sourcing programme:

Supplier onboarding requires:

• Completion of a due diligence assessment

• Agreement to our Supplier Code of Conduct and

Sustainability Charter

• Any risks related to human rights, health & safety,

environment, or business ethics must be addressed before

awarding contracts.

• SEDEX membership ensures Headlam brand suppliers

undergo independent audits every two years using the

SMETA format.

• In 2026, we aim to strengthen circular supply chains,

increase material recovery, and implement innovative

environmental solutions.

• Timber sourcing remains critical:

– Domus continues FSC certification

– All suppliers must provide certified timber, ensuring no

deforestation or degradation

Quality and Supplier Management

• All Headlam-branded products must comply with UK and

EU regulations and meet agreed quality standards.

• Customer feedback is continually reviewed, and any

supplier or product that falls below the Acceptable Quality

Limits (‘AQL’) triggers an immediate quality review with

corrective action.

Operations

• Focus in 2025 was on delivering orders on time, in full, and

damage-free.

• Improvements were implemented in collaboration with the

customer support team, based on customer feedback.

Speak Up (Whistleblowing)

Headlam provides confidential mechanisms for colleagues

to raise concerns if Code of Ethics policies are not being

followed:

• Channels: Speak Up email or third-party confidential

reporting service

• Investigations are overseen by the Chief People Officer,

Company Secretary, Director of Group Finance, Head of

Internal Audit, and the Audit Chair

• Outcomes are reported to the Board

SUSTAINABILITY AT HEADLAM CONTINUED

Improved Colleague Support

Key improvements implemented in 2025:

• Embed usage of our new learning management system

(Eloomi)

• The launch of the Safety Culture system

Policies and Processes

The following ESG and People policies were updated in 2025

and are available on the corporate website:

• Attendance at work

Project and Programme Governance

In 2025 we had two major programmes running at the same

time:

• Transformation plan, to return the business to profit.

• ERP system implementation.

At the end of the year the decision was taken to pause the ERP

project in order to prioritise the transformation plan.

Both programmes had ESG oversight through:

• Steering committee membership by the Chief People and

Sustainability Officer

• ESG Director engagement through workshops and weekly

updates

• Opportunities to advance ESG initiatives via new buildings,

processes, reporting, and supplier/customer collaboration

Stakeholder Engagement

• Continued industry engagement through Carpets

Recycling UK, suppliers, and industry bodies

• Supplier conference (September 2025) showcased Take-

Back trial progress and recyclable product sourcing

• Regular supplier meetings to discuss product innovation

and Take-back initiatives

• Colleague engagement through:

– Employee Forums, ASM forums, and Quality

Improvement Forums

– Sharing best practices in Health & Safety,

engagement, and quality improvements

• Customer surveys indicated:

– Increased perception of Headlam as environmentally

responsible

– Top enquiries related to recycled materials, sustainable

products, and recyclability

• Shareholder reporting: Progress on sustainability is

included in the Annual Report and Accounts and

monitored by ESG rating agencies

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

The table below and continuing on pages 39 to 42 details the Group’s responses consistent with the TCFD recommendations

and pillars.

The Group has considered and taken into account the TCFD all-sector guidance and supplemental guidance for financial and

non-financial companies and believes it to be consistent with them.

This TCFD disclosure forms part of the Group’s overall Sustainability Report on pages 26 to 36. It should be read as part of the

full report which includes the Group’s key decarbonisation actions to reach Net Zero and reduce its contribution to climate

change, together with KPIs and targets to measure progress.

Governance Disclosure

The Board’s oversight of

climate-related risks and

opportunities

The Board has primary oversight and ultimate responsibility for ESG strategy and

performance, which includes the approach and actions in relation to climate-related

issues. ESG is considered regularly as part of the Board programme of business, with

ESG policy and strategy considered in depth on an annual basis. An Executive ESG

Committee assists the Board with the more detailed aspects of its ESG agenda and holds

management to account on the implementation of the ESG strategy approved by the

Board. The Committee’s terms of reference are publicly available on the Group’s website.

Whilst ultimate responsibility for risk governance sits with the Board, the Audit Committee

assists in risk oversight (as described within Risk Management on page 46. The Group’s

most material ESG issues are included in the Group’s Risk Register. During 2025, these

material issues were reported to the Audit Committee by the Executive Risk Committee

(detailed below) and discussed at each of their quarterly meetings, with management’s

approach to mitigating risk and capturing opportunity challenged appropriately.

Management’s role in

assessing and managing

climate-related risks and

opportunities

As above, the Group has an Executive ESG Committee, which, as part of its remit, focuses

on decarbonisation actions and reducing the Group’s contribution to climate change.

The ESG Committee reviews and tracks the outputs from major decarbonisation projects,

which may both mitigate climate risk and capture opportunities.

The Group also has an established Executive Risk Committee, which meets quarterly and

comprises the Chief Financial Officer, members of the Executive Team, senior managers

and heads of department (including from operations and finance). Its role is to review

identified risks, including the likelihood and potential impact of each risk, establishing and

monitoring the effectiveness of mitigating and opportunistic actions, and considering

emerging risk. The Group’s most material ESG issues per the Materiality Assessment Map

published on the Group’s website are included in the Group’s Risk Register, which forms the

basis for Committee discussions. Materiality for climate-related risks and opportunities

is assessed with reference to that used for mainstream reporting but also considers the

key risks being assessed by management to inform current and future strategy along with

internal feedback.

The organisation’s processes

for identifying and assessing

climate-related risks

The Group’s risk governance and management processes are detailed within Risk

Management on page 46 of the Annual Report and Accounts. Its preparation includes

a quantitative assessment of ESG risks, inclusive of climate-related, on the composite

bases of likelihood and potential impact of ‘raw’ risk. Risks considered include Transition

Risks, such as market, policy and legal (both existing and emerging), technology, and

reputation, and Physical Risks (both acute and chronic). This process has allowed the

Group to both identify climate-related risks and opportunities and determine their

relative significance to the business.

TASK FORCE ON CLIMATERELATED

FINANCIAL DISCLOSURES ‘TCFD’

Governance Disclosure

How processes for identifying,

assessing and managing

climate-related risks

are integrated into the

organisation’s overall risk

management

Climate-related risks are considered as part of the ESG Strategy and ‘Environmental’

Principal Risk and, therefore, integrated into the Group’s overall risk management process.

Additionally, through preparation of the Group’s annually reviewed and publicly disclosed

Environmental Policy and TCFD disclosure, the Group gives full consideration and

commentary on climate-related factors.

The climate-related risks and

opportunities the organisation

has identified over the short,

medium and long term

The impact of climate-related

risks and opportunities on the

organisation’s business(es),

strategy and financial

planning

The organisation’s processes

for managing climate-related

risks

The Group has identified its climate-related risks and opportunities, and assessed

strategy resilience, through quantitative scenario analysis. The range of possible risks

and opportunities were analysed under two future climate forecasts. Both Physical and

Transition Risks were considered, modelled around the widely recognised Representative

Concentration Pathways (‘RCPs’) and Shared Socio-economic Pathways (‘SSPs’). The

scenarios chosen were: global warming of 2ºC (RCP 3.4), considered the most likely

scenario; and global warming of 4ºC (RCP 8.5), considered a resilience scenario. Time

horizons have been chosen that best reflect the Group’s business plan, strategy, and

various financial accounting policies. The total time horizon considered is up to 2050,

split into short term (three years, 2026–2028), medium term (2029–2035) and long term

(2036–2050). The assumptions used in the scenario analysis, with reference to Extended

Producer Responsibility impact and the transition to a more sustainable fleet, are also

discussed in note 10 to the Financial Statements.

Factors Middle of the road Fossil-fuelled growth

RCP 3.4 8.5

SSP 2 5

Temperature rise 2ºC 4ºC

Likelihood High Moderate

Societal response Proactive, Disorderly Reactive

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

The quantitative assessment below considered the likelihood and estimated financial impact of each climate-related risk.

Average potential financial impact on

annual profit £m

Category Risk Key assumptions

Short term

(2026–2028)

Medium term

(2029–2035)

Long term

(2036–2050) Strategic response and resilience

Scenario 1 (Transition): Average global temperatures rising by 2ºC above pre-industrial levels by 2100

Policy and

Legal:

Financial

impact of

potential new

legislation/

regulation

(including

product

legislation)

Risk: Increased operating

costs through Extended

Producer Responsibility

(‘EPR’) for bulky

The EPR (bulky waste) legislation is assumed to come into effect in 2028-2029,

which essentially introduces an extra tax on the sale of residential floorcoverings

for companies considered to be manufacturer or first point of contact in the UK for

imported items. The rates used in the scenario modelling are best estimates, before

the legislation is enacted.

The scenario modelling assumes that the take-back scheme, currently in an

extended trial, is rolled out across the network and that the materials collected are

then transferred to recycling centres.

It is assumed that the take-back tonnages are at least the same level as the

materials sold by the Group which would attract the EPR fees. The net EPR fees are

therefore expected to be £nil.

It is assumed that the transport costs incurred in transferring the materials to the

recycling centres will be broadly offset by revenues generated from both the take-

back centres and recycling centres.

– –

– Collaborate with suppliers on new sustainable product launches.

Roll-out the take-back scheme to avoid materials entering into the waste

stream to offset EPR fees.

It is likely that any residual costs arising (either from take-back tonnages

not fully offsetting EPR fees or recycling revenues not offsetting transport

costs) could be passed on to customers, reducing the potential financial

impact to an immaterial amount.

Market:

Transitioning

to more

sustainable

business and

operating

practices

Risk: Increased costs of

operating a sustainable

fleet with low-carbon

technologies

The technology for zero-emission heavy goods vehicles (‘HGVs’) continues to be

developed. The total cost of ownership for a short-range zero-emission HGV fleet is

becoming more comparable to that of a diesel HGV fleet.

The Group is monitoring the developments in the powertrain and energy storage

technologies, which are leading to improvements in the range of zero-emission

HGVs.

There is a degree of uncertainty in the cost estimates for a zero-emission long-

range HGV fleet (as operated by the Group), including the investment required in

charging infrastructure.

It has been assumed, for this scenario modelling, that the cost of operating a zero-

emission HGV fleet is in line with that of operating a diesel fleet.

There is a large global market for HGVs, providing a commercial incentive for

companies to develop a viable, cost-effective zero-emission solution for long range

HGVs.

– – – Ongoing trials of zero-emission commercial vehicles.

Scenario 2 (Physical): Average global temperatures rising by 4ºC above pre-industrial levels by 2100

Acute: Asset

damage

Risk: Business interruption

and loss of revenue following

damage to distribution

network as a result of

extreme weather event;

consequential impairment

of assets and increased

insurance premiums

A weather event, likely to be a flooding event, is assumed to occur in the long term.

Only a small number of the geographically dispersed sites are considered to have

a high risk of flooding. There are no sites, which if affected, would give rise to a

material profit impact.

– – – The Group’s assets are not expected to be exposed to high physical

climate-related risk due to the geographies in which it operates.

Operations are disaggregated with business continuity plans in place if

specific sites are affected by isolated events.

Chronic

and Acute:

Supply chain

disruption

Risk: Potential raw material

shortages and knock-

on impact on product

availability from supply

chain disruption leading to

loss of revenue

The scenario modelling assumes there is no loss of revenue from this risk due to the

comprehensive inventory and homogeneous products held and sold by the Group.

– – – Market-leading position and strategic partnerships with suppliers should

enable the Group to preserve levels of availability.

Comprehensive inventory levels maintained at any one time providing

strong availability, also helped by the Group’s strategy to increase its

focus on holding and selling fast-moving lines.

TASK FORCE ON CLIMATERELATED

FINANCIAL DISCLOSURES

‘TCFD’ CONTINUED

The quantitative assessment below considered the likelihood and estimated financial impact of each climate-related risk.

Average potential financial impact on

annual profit £m

Category Risk Key assumptions

Short term

(2026–2028)

Medium term

(2029–2035)

Long term

(2036–2050) Strategic response and resilience

Scenario 1 (Transition): Average global temperatures rising by 2ºC above pre-industrial levels by 2100

Policy and

Legal:

Financial

impact of

potential new

legislation/

regulation

(including

product

legislation)

Risk: Increased operating

costs through Extended

Producer Responsibility

(‘EPR’) for bulky

The EPR (bulky waste) legislation is assumed to come into effect in 2028-2029,

which essentially introduces an extra tax on the sale of residential floorcoverings

for companies considered to be manufacturer or first point of contact in the UK for

imported items. The rates used in the scenario modelling are best estimates, before

the legislation is enacted.

The scenario modelling assumes that the take-back scheme, currently in an

extended trial, is rolled out across the network and that the materials collected are

then transferred to recycling centres.

It is assumed that the take-back tonnages are at least the same level as the

materials sold by the Group which would attract the EPR fees. The net EPR fees are

therefore expected to be £nil.

It is assumed that the transport costs incurred in transferring the materials to the

recycling centres will be broadly offset by revenues generated from both the take-

back centres and recycling centres.

– –

– Collaborate with suppliers on new sustainable product launches.

Roll-out the take-back scheme to avoid materials entering into the waste

stream to offset EPR fees.

It is likely that any residual costs arising (either from take-back tonnages

not fully offsetting EPR fees or recycling revenues not offsetting transport

costs) could be passed on to customers, reducing the potential financial

impact to an immaterial amount.

Market:

Transitioning

to more

sustainable

business and

operating

practices

Risk: Increased costs of

operating a sustainable

fleet with low-carbon

technologies

The technology for zero-emission heavy goods vehicles (‘HGVs’) continues to be

developed. The total cost of ownership for a short-range zero-emission HGV fleet is

becoming more comparable to that of a diesel HGV fleet.

The Group is monitoring the developments in the powertrain and energy storage

technologies, which are leading to improvements in the range of zero-emission

HGVs.

There is a degree of uncertainty in the cost estimates for a zero-emission long-

range HGV fleet (as operated by the Group), including the investment required in

charging infrastructure.

It has been assumed, for this scenario modelling, that the cost of operating a zero-

emission HGV fleet is in line with that of operating a diesel fleet.

There is a large global market for HGVs, providing a commercial incentive for

companies to develop a viable, cost-effective zero-emission solution for long range

HGVs.

– – – Ongoing trials of zero-emission commercial vehicles.

Scenario 2 (Physical): Average global temperatures rising by 4ºC above pre-industrial levels by 2100

Acute: Asset

damage

Risk: Business interruption

and loss of revenue following

damage to distribution

network as a result of

extreme weather event;

consequential impairment

of assets and increased

insurance premiums

A weather event, likely to be a flooding event, is assumed to occur in the long term.

Only a small number of the geographically dispersed sites are considered to have

a high risk of flooding. There are no sites, which if affected, would give rise to a

material profit impact.

– – – The Group’s assets are not expected to be exposed to high physical

climate-related risk due to the geographies in which it operates.

Operations are disaggregated with business continuity plans in place if

specific sites are affected by isolated events.

Chronic

and Acute:

Supply chain

disruption

Risk: Potential raw material

shortages and knock-

on impact on product

availability from supply

chain disruption leading to

loss of revenue

The scenario modelling assumes there is no loss of revenue from this risk due to the

comprehensive inventory and homogeneous products held and sold by the Group.

– – – Market-leading position and strategic partnerships with suppliers should

enable the Group to preserve levels of availability.

Comprehensive inventory levels maintained at any one time providing

strong availability, also helped by the Group’s strategy to increase its

focus on holding and selling fast-moving lines.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Strategy and

Risk Management Disclosure

Resilience of the

organisation’s

strategy, taking

into consideration

different climate-

related scenarios

The analysis suggests that none of the risks identified above would have a material profit impact

to the Group in the transition scenario. This is on the basis that the take-back scheme offsets any

EPR fees and that any residual costs can be passed on to customers. As noted, there is a high

degree of uncertainty around the cost of transitioning to a zero emission HGV fleet.

In the physical scenario, the analysis suggests that there would not be a significant impact on the

business.

There are a number of strategic responses that the Group could and is already taking against

these risks, as noted above. When taking into account the judged severity of the potential risks,

time horizons and mitigating actions, the Group is currently considered to remain a resilient

business in both scenarios modelled above. Overall, the business model is deemed fit for purpose.

Metrics and Targets Disclosure

Metrics used by the

organisation to assess

climate-related risks

and opportunities

The Group uses the below KPIs and targets to both assess the risks and opportunities as well as its

progress in relation to its overall ESG Strategy.

KPI

• Energy usage (per SECR disclosure)

• Scope 1, 2 and 3 emissions (year on year)

• Achieving reduction pathway required for Scope 1, 2 and 3 emissions to achieve interim target

• Number of sustainable own brand product launches

• ESG rating agency scores

• Physical asset damaged related insurance claims/premiums

Target

• Interim emissions target (Scope 1, 2 and 3)

• Net Zero emissions target (Scope 1, 2 and 3)

An intensity metric is additionally given within the Group’s SECR Disclosure on page 44.

An ESG metric has been introduced into Executive Director and Executive Team

performance-related variable remuneration.

Link to Risks

Link to KPIs

Scope 1, Scope 2 and

Scope 3 greenhouse

(‘GHG’) emissions,

and the related risks

The Group’s Scope 1, 2 and 3 emissions are summarised on pages 43 to 45 of the Sustainability

Report.

Targets used by

the organisation to

manage climate-

related risks and

opportunities and

performance against

targets

The Group’s Scope 1, 2 and 3 targets are aligned and set to be net zero by 2040.

The Group has an interim Scope 1 and 2 target for a 46% reduction against the 2019 baseline by 2030.

The Group also has an interim Scope 3 target for a 42% reduction against the 2023 baseline by 2032.

TASK FORCE ON CLIMATERELATED

FINANCIAL DISCLOSURES

‘TCFD’ CONTINUED

This SECR disclosure forms part of the Company’s overall

Sustainability Report on pages 26 to 36, and should be read as

part of the full report.

This disclosure along with the full report summarises the

Company’s energy usage, associated emissions, energy

efficiency actions being undertaken and energy performance

under the government policy Streamlined Energy and Carbon

Reporting (‘SECR’), as implemented by the Companies

(Directors’ Report) and Limited Liability Partnerships (Energy

and Carbon Report) Regulations 2018.

This disclosure also summarises the methodologies utilised for

all calculations related to the elements reported under Energy

and Carbon, and includes intensity metrics. With the energy

efficiency actions detailed in the full report, this disclosure fully

complies with the reporting regulations under the new SECR

legislation.

This disclosure, and full supporting documentation, has been

prepared by Inspired Energy PLC in conjunction with members

of Headlam’s Executive Team for Headlam Group PLC by

means of interpreting the Companies (Directors’ Report) and

Limited Liability Partnerships (Energy and Carbon Report)

Regulations 2018 as they apply to information supplied by

Headlam Group PLC and its energy suppliers.

The following figures demonstrate year-on-year changes

in consumption and resulting emissions for Headlam Group

PLC for 2025 and 2024. Headlam Group PLC has chosen to

disclose its consumption and emissions data for its global

operations, in addition to mandatory UK consumption and

emissions data.

Definitions of the Scopes used in this disclosure:

• Scope 1 consumption and emissions include direct

combustion of natural gas, and fuels utilised for

transportation, for example, company vehicle fleets.

• Scope 2 consumption and emissions cover indirect

emissions related to the consumption of purchased

electricity in day-to-day business operations, and

electricity consumed in vehicles such as EVs and PHEVs.

• Scope 3 consumption and emissions cover emissions

resulting from sources not directly owned by Headlam

Group PLC, which relates to grey fleet business travel

undertaken in employee-owned vehicles only.

Consumption (kWh) and Greenhouse Gas emissions (tCO

e) Totals

The following tables show the consumption and associated emissions for financial years ending December 2025 and December

2024 for all operations.

UK Totals

The total Energy Consumption (kWh) figures for reportable UK-based energy supplies are outlined below:

Utility and Scope

2025

Consumption

kWh

2024

Consumption

kWh

Grid-Supplied Electricity (Scope 2) 4,503,458 5,330,844

Gaseous and other fuels (Scope 1) 3,565,851 4,270,355

Transportation (Scope 1) 46,737,273 56,919,467

Transportation (Scope 2) 116,234 126,675

Transportation (Scope 3) 341,486 343,438

Total 55,264,302 66,990,779

The total emission (tCO

e) figures for reportable UK-based energy supplies are outlined below.

Utility and Scope

2025

Consumption

tCO

2024

Consumption

tCO

Grid-Supplied Electricity (Scope 2) 797.11 1,103.75

Gaseous and other fuels (Scope 1) 652.41 781.05

Transportation (Scope 1) 11,384.07 13,470.67

Transportation (Scope 2) 20.57 26.23

Transportation (Scope 3) 76.00 76.55

Total 12,930.16 15,458.25

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

STREAMLINED ENERGY AND

CARBON REPORTING ‘SECR’

UK Intensity Metric

An intensity metric of tCO

e per £m has been applied for our annual total emissions. The methodology of the intensity metric

calculations is detailed in the appendix, and the results of this analysis are as follows:

Intensity Metric

2025

Intensity

Metric

2024

Intensity

Metric

tCO

e/£m UK Revenue 25.93 29.41

Continental European Totals

Headlam Group PLC have sites that they are responsible for in France and in the Netherlands. The consumption and emission

figures for these are shown below:

France totals

Utility and Scope

2025

Consumption

kWh

2025

Consumption

tCO

Grid-Supplied Electricity (Scope 2) 434,508 30.65

Gaseous and other fuels (Scope 1) 505,082 92.41

Transportation (Scope 1) 1,913,431 435.05

Total 2,853,021 558.11

Netherlands totals

Utility and Scope

2025

Consumption

kWh

2025

Consumption

tCO

Grid-Supplied Electricity (Scope 2) 272,578 84.23

Gaseous and other fuels (Scope 1) 302,565 55.60

Transportation (Scope 2) 84,240 14.91

Transportation (Scope 1) 1,459,098 348.05

Total 2,118,481 502.79

UK and European totals

Utility and Scope

2025

Consumption

kWh

2025

Consumption

tCO

Grid-Supplied Electricity (Scope 2) 5,210,544 912.00

Gaseous and other fuels (Scope 1) 4,373,498 800.41

Transportation (Scope 1) 50,109,802 12,167.17

Transportation (Scope 2) 200,474 35.48

Transportation (Scope 3) 341,486 76.00

Total 60,235,804 13,991.06

STREAMLINED ENERGY AND

CARBON REPORTING ‘SECR’

CONTINUED

UK and European Intensity Metric

An intensity metric of tCO

e per £m has been applied for our annual total emissions. The methodology of the intensity metric

calculations is detailed in the appendix, and the results of this analysis are as follows:

Intensity Metric

2025

Intensity

Metric

tCO

e/£m Group Revenue 24.74

Headlam is committed to year-on-year improvements in its

operational energy efficiency. A register of energy efficiency

measures has been compiled, with a view to implementing

these measures in the next five years.

Optimisation of Distribution Network

Headlam consolidated its operations into single sites from

multiple sites, streamlining the overall operational footprint.

This resulted in a reduction in unnecessary energy wastage

from a wider network of sites.

Good Energy Behaviour Training

In 2025, Headlam conducted company-wide training on

best practices to reduce energy consumption and the use

of energy efficiency measures. The training aimed to guide

employees in their day-to-day activities to be more conscious

of energy being consumed and mitigate some of this excess.

Measures to be Addressed in 2026

Company Car Fleet Electrification

Headlam continues to gradually phase out fossil-fuel vehicles

as it transitions to a fully electric fleet.

Staff Awareness and Behaviour Changes

Headlam will continue to raise staff awareness through

company-wide training on best practices to reduce energy

consumption, this ensures employees understand the

company’s sustainability objectives and follow guidance in

their day-to-day activities, thereby reducing unnecessary

energy use.

Energy Efficiency Upgrades

Headlam will assess the feasibility of implementing further

energy efficiency measures to optimise energy use and

reduce emissions.

Year-on-year changes

Gas and electricity emissions have reduced due to site

closures and implementation of energy efficiency measures.

Transport emissions have decreased by 15.42% compared

to 2024, primarily due to reduced fuel consumption in both

company cars and the commercial fleet.

The total intensity metric has decreased by 11.72% compared

to 2024 driven by a significant reduction in total emission

across all categories.

Total Group Revenue (£m) £565.6m

Total UK Revenue (£m) £498.7m

Total Continental Europe Revenue (£m) £66.9m

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Overview

The table on pages 49 to 50 summarises the Principal Risks (in

no particular order), which the Board considers could have

a material impact on the Group’s reputation, operations or

financial performance. No new Principal Risks have been

identified.

The risk heat map on page 48 shows the Board’s assessment

of the level of risk for each of these Principal Risks as of the

date of this Annual Report and Accounts. The assessment

of the level of risk is first conducted by the Executive Risk

Committee and then reviewed and approved, following any

changes, by the Board.

Risk governance

Risk is encountered as part of the ordinary course of business

as well as through the implementation of the Group’s strategy

and transformation plan.

The Board has overall responsibility for the stewardship of

risk management and for ensuring that the Group exercises

an appropriate level of risk management to support the

achievement of its strategy. The Principal Risks faced by the

Group could have a material adverse effect on its business,

financial performance, or reputation, either alone or in

combination, so the management of such risks through

appropriate review, monitoring and control is important to

the Group’s long-term sustainable success. Changes to the

trading environment can also affect the likelihood and impact

of risks and may give rise to new risks.

The Board is supported in its risk management responsibilities

and in reviewing the effectiveness of the risk management

framework by the Audit Committee and the Executive Risk

Committee.

Risk appetite

The Board has considered the amount and type of risk

that the Group is willing to pursue or retain.

The Executive Risk Committee conducted an exercise to

determine risk appetite for each principal risk across a

fifteen-point scale, ranging from 1 (very risk averse) to 15

(very high risk appetite). The outcome of this was then

presented to, and discussed with, and challenged by, the

Audit Committee, and subsequently ratified by the Board.

The Executive Risk Committee is advised by an external

risk management specialist and meets quarterly to assess

the Group’s internal risk register, the adequacy of and

any changes in controls, and to undertake continuous

identification of emerging risks. The work of the Executive Risk

Committee is considered by the Audit Committee at each

of its four scheduled meetings during a year, and informs

the Audit Committee’s risk management discussions. The

Board carries out an assessment of the Group’s Principal Risks

and Uncertainties and identifies any emerging risks, at least

annually.

The Audit Committee, on behalf of the Board, also monitors

the Group’s system of risk management and internal control,

and conducts a review of its effectiveness at least once

a year, as well as overseeing the internal and third-party

assurance relating to the Principal Risks.

RISK MANAGEMENT

Risk monitoring structure

Board

The Board has overall responsibility for the Group's system of risk management and internal control.

Committees Risk Identification Risk Management

Independent assurance

Audit

Committee

Nomination

Committee

Remuneration

Committee

Assesses strategic risks

identified by management

capable of threatening

the business model, future

performance, solvency or

liquidity in the context of

the Company’s strategy

and the interests of

stakeholders and market

context.

Overall responsibility for corporate

governance, internal control and

risk management and for setting

risk appetite taking into account the

expectations of stakeholders and

feedback received from engagement

activities.

Audit Committee receives updates from

Executive Risk Committee on key risks

and assesses adequacy of controls and

risk classification and identification

processes.

Other Committees consider risk

management as it relates to their role

and priorities.

Executive Risk Committee Assesses risks and

mitigating controls using a

specified scoring system,

based on likelihood and

impact, and reports into

the Audit Committee.

Reviews operation and design of internal

controls to ensure risks remain within

appetite.

Senior Leadership Team

Group functions

Business management

Use knowledge of best

practice, business and

the market in which we

operate to assess changes

in key risks.

Applies local knowledge

to identify and assess

operational risk.

Responsible for ensuring that risk

management is embedded within the

business and appropriate actions are

taken to manage risk.

Applies local knowledge to identify and

assess operational risk.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Key

Market (economy and competition)

Market (strategy)

IT (systems and infrastructure)

IT (cyber security)

People

Health and Safety

Supply chain

Legislation, regulation and reporting

Environmental and decarbonisation

Change and decision making

High

Impact

Low

HighLikelihood

Risk heat map

Emerging risks

Identification and review of emerging risks are integrated

into our risk review process. Emerging risks are risks that

are rapidly evolving, or arriving at pace, for which the

impact and likelihood have not yet been fully understood

and for which the appropriate mitigations have not yet

been fully identified.

We continue to monitor the uncertain macroeconomic

and geopolitical environment to assess impacts on

customers, suppliers and colleagues. Currently we monitor

this through the lens of our existing principal risks, but

with a view to separating out any elements if it were

considered to be a principal risk of its own.

There are no emerging risks assessed as being of

significance to disclose currently.

Our principal risks

The Group has identified ten principal risks. There have been

no additions or deletions to these principal risks during the

year. However, a number of changes have been made to the

risk ratings, taking into account the events of the year (both

macro and micro) and any specific relevant circumstances

for the Group, along with the mitigating actions and controls.

These changes are summarised below:

Increased risk:

• Risk 3 – IT (systems and infrastructure): During the year

we made the decision to pause the ERP replacement

project, in order to focus on the transformation plan. The

increasing age of the legacy system and the complexity

of maintaining ongoing developments on this system,

as well as adapting it to meet the requirements of the

transformation plan, increases the risk profile. There are

additional mitigating controls that we are implementing in

order to improve the resilience of the legacy system, which

soften the increase in inherent risk.

• Risk 4 – IT (Cyber security): We have increased the

likelihood of the risk, reflecting the increase in cyber attack

activity more generally and also directed at the Group

specifically. The impact has reduced slightly, reflecting the

progress made on improving controls and contingency

plans.

• Risk 5 – People: This risk has increased, both in terms of

likelihood and impact, reflecting the scale of change that

the business is undergoing through the transformation

plan, and also reflecting on the changes at board level.

Movement on heat map but similar overall risk profile:

• Risk 7 – Supply chain: Following discussion in the

Executive Risk Committee, which was then ratified by the

Audit Committee, the risk likelihood has been reduced

and impact increased. This change was not driven by

any specific factors within Headlam Group; it reflects an

updated view of the risk profile more generally.

RISK MANAGEMENT CONTINUED

Risk and description Mitigating actions Link to

Strategy

Risk change

Market (economy and competition)

Failure to sustain revenue

and profit performance

as a result of economic

backdrop, market

demand, service levels or

competitive dynamics

The Group closely monitors market activity on a daily basis at both an

individual business and Group level. This visibility allows the Group to take

prompt action in response, including enhanced sales activity, operational

efficiency, managing inventory levels, and cash management.

The Group maintains customer engagement and feedback activities to

gain insight into customer preferences to ensure its service proposition and

offering remains competitive.

In response to prolonged market weakness the Group has launched

a transformation plan designed to improve profitability and reduce

borrowings. Importantly, the transformation plan is intended to return the

Group to profitability without requiring improvement in market conditions

Market (strategy)

Failure to develop and

deliver on profit and

cash improvement

opportunities

The description of this risk has been amended from ‘Failure to develop and

deliver on revenue growth opportunities’ to ‘Failure to develop and deliver

on profit and cash improvement opportunities’. This reflects the revision to

the areas of strategic focus as announced in November 2025. The Group’s

strategic focus is on returning the Group to profitability through a number of

key initiatives.

The Board has direct oversight of the Group’s strategy, and its effective

implementation, with the performance of each key initiative monitored

against clear targets and objectives.

IT (systems and infrastructure)

Failure to develop and

maintain IT systems and

infrastructure that is

resilient, scalable, and

able to support the

strategy

During the year we made the decision to pause the ERP replacement

project, in order to focus on the transformation plan. There are additional

mitigations that we are implementing in order to improve the resilience of

the legacy system, given that we will be operating this system for a longer

period than previously expected. These mitigating actions include people

and hardware.

IT (cyber security)

Failure to develop and

maintain adequate or

effective security and

cyber controls

Targeted use of specialist external advice and support.

Regular employee cyber engagement programme.

In 2025 we have implemented new technology and processes including

a new vulnerability tool, a new ‘Manage, Detect and Response’ tool and

tighter conditional access control.

People

Failure to recruit and

retain the right people

with relevant skills, values

and behaviours

The Board continues to focus on making the Group a great place to work,

and ensure colleagues share in the Group’s long-term success.

For details on the developments in 2025, see pages 32 to 34.

Key

Increased

Unchanged

Decreased

Key to strategic links

Reduce low-

margin revenue

Reduce

costs

Optimise

cash

Enhance

customer service

Simplify ranges and

consolidate supply base

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

PRINCIPAL RISKS

Risk and description Mitigating actions Link to

Strategy

Risk change

Health and safety

Failure to provide a safe

place to work for our

people

Health and safety is a standing agenda item at all Board Meetings. The

Group has a dedicated in-house health and safety team, with a dedicated

Group Health & Safety Director.

The Group also engages external support, and is focused on having a strong

and embedded health and safety culture across the group. During the year

the Group rolled out Safety Culture, a new reporting and analysis platform.

Supply chain

Failure to maintain a

supply chain that provides

innovative, competitively

priced, environmentally

sound and legally

compliant products on a

reliable and ethical basis

Increased engagement with suppliers to help mitigate against any supply

chain risk. Including on: Sustainability Charter; Ethical Code of Conduct; and

Self-Assessment Questionnaire (delivered by a third-party leading social

audit business).

Working closely with certain suppliers to launch new competitive and

sustainable ranges.

We engage with suppliers regularly and hold an annual supplier conference.

Legislation, regulation and reporting

Failure to operate with high

standards of governance

supported by a sound

system of internal control

that ensures compliance

with laws and regulations,

including disclosure and

reporting requirements

The Group manages its obligations through a framework of policies and

procedures and, where appropriate, engages the services of specialist third-

party advisers.

The Group has an online compliance training portal with courses related

to Anti-Bribery, Modern Slavery and Human Trafficking, Cyber security and

Social Media Awareness being rolled out to appropriate staff members.

The Group has a Code of Conduct, setting out clear standards and

expectations for all employees (also see Supplier Ethical Code of Conduct

above).

Environmental and decarbonisation

Failure to reduce

environmental impact,

including failure to deliver

GHG reductions in line with

Net Zero commitments

and contribution to

climate change

The Group continues to develop and progress its overall ESG Strategy. For

full details on environmental-related actions, see the Sustainability Report

on pages 26 to 36, which includes the Group’s TCFD disclosure. This disclosure

details the climate-related risks the Group has identified, and how it is

specifically assessing and addressing them.

Change and decision making

Failure to successfully

drive the cultural and

operating model changes

necessary to deliver the

strategy

The Group’s strategy and strategic objectives continue to be embedded

through regular group-wide communications and engagement. Senior

Leadership meetings are held regularly to discuss overall progress and focus

on specific elements of the strategy.

The Board has direct oversight of strategy and its progress. The Board is

mindful of the impact of the market conditions on the financial performance,

resulting in a strategic focus on returning the business to profitability.

Key

Increased

Unchanged

Decreased

Key to strategic links

Reduce low-

margin revenue

Reduce

costs

Optimise

cash

Enhance

customer service

Simplify ranges and

consolidate supply base

PRINCIPAL RISKS CONTINUED

Background

The UK Corporate Governance Code 2024 requires the

Board to assess the risks to the sustainability of the business

model and delivery of strategy and whether these have

been considered and addressed. This statement sets out, in

overview, that assessment.

Consistent with previous years, a period of three years, to

31 December 2028, was chosen for the purpose of the viability

assessment. This period best aligns with the Group’s strategy.

It also aligns with the Group’s recently agreed new borrowing

facility, which expires just after 31 December 2028 (albeit the

Group has the option to extend).

The assumptions used in this longer-term viability assessment

are consistent with the assumptions used in the Directors’

assessment of going concern.

Sensitivity analysis

Reporting on the Group’s and Company’s viability and

assessing going concern requires the Board to consider those

principal risks that could impair the solvency and liquidity of

the Group and Company. In order to determine those risks, the

Board considered the Group-wide principal risks as set out in

the Risk Management and Principal Risks sections on pages

46 to 50.

In light of the Group’s competitive position, corporate

governance controls, mitigating actions and factors within

its control, it is the Board’s opinion that it is unlikely that

any of the individual risks other than market (economy and

competition) could compromise the Group’s viability in the

assessment period.

The identified principal risks include environmental

and decarbonisation risk. It is the Board’s opinion that

environmental risks are unlikely to compromise the Group’s

viability over the assessment period, including transition risks,

which are considered the most likely to occur. In particular,

any new potential legislation, regarding extended producer

responsibility for bulky household waste items, is unlikely to

significantly impact the Group’s viability after factoring in

the planned mitigating actions concerning the take-back

scheme.

In respect of ultimately transitioning to a sustainable fleet, it

has been assumed that such costs are broadly comparable

to those of operating a diesel fleet. There is a degree of

uncertainty in the cost estimates for a zero emission HGV

fleet. However, the assumption is on the basis that there

is a large global market for HGVs, providing commercial

incentives for companies to develop a viable, cost-effective

zero-emission solution for long-range HGVs. Climate-change

risks are discussed further in the TCFD quantitative analysis on

pages 38 to 43, including consideration of the impact of the

risks over time horizons longer than this assessment period.

In respect of market (economy and competition) risk, the key

risks relate to sustained periods of macroeconomic downturn

that create reduced consumer and business confidence and

the impact of competitive dynamics, which could result in a

significant reduction in demand for the Group’s products.

Market backdrop

There has been no recovery in the flooring market in

2025, which is estimated to be around 25% smaller than

it was in 2019. Whilst the lead indicators for the flooring

and home improvements markets continue to point to

improvement in the medium term, these indicators remain

volatile and sensitive to macroeconomic and geopolitical

factors. Furthermore, whilst demand in the flooring market

has reduced significantly in recent years, the amount of

distribution capacity in the market has increased, which has

further impacted revenue.

In setting the downside scenario to be modelled, the Board

recognises that, as the Group exited 2025, the market in which

the Group operates had already declined by a cumulative

around 25% over recent years. The downside scenario includes

an estimate of the further additional severe-but-plausible

decline in revenue that could occur.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

VIABILITY STATEMENT

Transformation plan

The viability assessment is set in the context of the Group’s

previously announced transformation plan to return the

Group to profit. This transformation plan is expected to be

net cash generative, resulting in lower Net Debt at the end

of 2026 and 2027 than at the end of 2025. The cash inflow

from the transformation plan represents the net impact

of a) cash inflows from property disposals, b) cash inflows

from a reduction in working capital, offset somewhat by; c)

the cash outflow impact of the losses in the business until

it returns to profit, and d) the cash costs of executing the

transformation plan.

Banking facilities

As at 31 December 2025, the Group had a net debt position

excluding lease liabilities of £31.4 million and had total

banking facilities available of £72.3 million (31 December 2024:

£99.3 million), of which £61.0 million (31 December 2024:

£81.5 million) was committed. The committed facility

comprised a revolving credit facility (‘RCF’) with three lenders

that was due to expire in October 2027. The Group also had

a £7.5 million uncommitted overdraft. In January 2026, the

RCF and the uncommitted overdraft were replaced by an

asset-based lending facility (‘ABL’) of up to £85.0 million

with two lenders. The available amount of the ABL depends

on the amount of relevant assets (property, receivables

and inventory) against which the Group can borrow. It is

also subject to a requirement to hold a minimum amount

of headroom on the facility, by way of liquidity headroom

covenants together with a quarterly EBITDA covenant and

operational covenants including inventory stock turn and

debtor days. The quarterly EBITDA covenant applies until

31 December 2027 after which it is superseded by a fixed

charge cover covenant.

Asset backing

As at 31 December 2025, the Group owned freehold and

long leasehold property in the UK valued at c.£75 million. Of

this, property valued at c.£54 million is included in the ABL.

The remaining properties (valued at c.£21 million) are outside

the ABL and unencumbered; three of these properties,

representing the significant majority of the value, are currently

on the market for sale, are under offer, and are expected

to complete in the next few months. Furthermore, the

Group anticipates further properties will become surplus to

requirements over the next 18 months as part of the Group’s

transformation plan. The Group has included the cash

proceeds from planned property disposals in the cash flow

projections used for the viability assessment.

Over the last two years the Group has averaged a net

positive working capital balance of over £70 million; this

means that the Group has had over £70 million of cash tied

up in funding its working capital. As the Group implements its

transformation plan it expects to be able to release working

capital and manage the re-shaped business with a lower

overall working capital requirement. This, combined with

further opportunity for inventory efficiency, means that the

Group anticipates a significant double-digit £million working

capital inflow over 2026 and 2027, which has been included in

the viability assessment.

Downside Scenario

This scenario is modelled on the basis that consumer

confidence for major purchases is depressed throughout 2026,

leading to market volumes continuing to decline. This decline

is applied in addition to the actions already assumed to be

taken by the Group to reduce low margin revenue and to

reduce fixed costs.

Market conditions are then assumed to recover over 2027

such that 2028 conditions are broadly similar to 2025 albeit

volumes remaining heavily depressed compared to 2019

levels. This compares to the base case which assumes a lesser

level of decline in 2026.

In the base case and downside scenario, the Group would

continue to operate within its banking facilities. In making

this assessment, the Group has assumed it can achieve the

cash inflows included in its projections, including the sale of

properties. These property disposals are not wholly in the

Group’s control, but the Group has a strong track record

of successfully completing such transactions over the last

two years.

Should a more severe scenario occur, for example a multi-

year macroeconomic downturn, the Group has a number of

mitigating actions available to it including: further working

capital optimisation; increasing the amount of borrowing

capacity in the ABL through meeting certain operational

KPIs; additional cost mitigations; additional property sales;

the sale and leaseback of properties; utilising unencumbered

properties for additional borrowing capacity; and faster

conversion of rebates into cash. However, the Group notes

that not all of these mitigating actions would be in the control

of the Group and/or are not contractually agreed at the time

of making the viability assessment.

Viability statement

Based on the results of the analysis, the Board has a

reasonable expectation that the Group will continue in

operation and be able to meet its liabilities as they fall due

over the three-year period of assessment.

VIABILITY STATEMENT CONTINUED

The table below sets out where stakeholders can find information in the Strategic Report (that relates to non-financial matters

detailed under Section 414CA and 414CB of the UK Companies Act 2006), and the Strategic Report taken together with the table

below, comprises the Company’s Non-Financial Information Statement.

Reporting

Requirement Relevant policies Additional Information

Matters

Environmental

matters

ESG Policy

Supplier Code of Conduct

Sustainability Report – pages 26 to 36.

SECR Disclosure – pages 43 to 45.

Corporate Governance Report – pages 55 to

124.

People Code of Ethics Stakeholder Engagement and Section 172

Statement – pages 18 to 20.

Sustainability Report – pages 26 to 36.

Corporate Governance Report – pages 55 to

124.

Social matters Equal Opportunities and Diversity Policy

Flexible Working Policy

Stakeholder Engagement and Section 172

Statement – pages 18 to 20.

Sustainability Report – pages 26 to 36.

Corporate Governance Report – pages 55 to

124.

Respect for Human

Rights

Health and Safety Policy

Modern Slavery Statement

Health and Safety – pages 33.

Modern Slavery – page 121.

Other Statutory Disclosures – pages 118 to 122.

Anti-Corruption and

Anti-Bribery matters

Anti-Corruption and Bribery Policy

Speak Up Policy

Expenses Policy

Corporate Governance Report – pages 55 to

123.

Audit Committee Report – pages 78 to 85.

Other Statutory Disclosures – pages 118 to 123.

Information disclosed in support of the matters

Business model Business Model – pages 10 to 11.

Principal risks,

impact and

mitigation

Risk Management, and Principal Risks and

Uncertainties – pages 46 to 50.

Non-financial

key performance

indicators

Key Performance Indicators – pages 14 to 17.

Sustainability Report – pages 26 to 36.

This Strategic Report was approved by the Board on 25 March 2026 and signed on its behalf by

Stephen Bird

Interim Executive Chair

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

NONFINANCIAL AND SUSTAINABILITY

INFORMATION STATEMENT

5454

GOVERNANCE

Compliance Statement 56

Chair’s Introduction 58

Board of Directors 60

How the Board Embeds Culture 62

Board Leadership and Company Purpose 64

Division of Responsibilities 72

Composition, Succession and Evaluation 77

Audit Committee Report 78

Nomination Committee Report 86

Directors’ Remuneration Report 92

Directors’ Report 118

Statement of Directors’ Responsibilities 123

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

It is the Board’s view that, throughout the financial year ended 31 December 2025, and as at

the date of this report, the Company complied with the relevant principles and provisions

set out in the UK Corporate Governance Code 2024 (the ‘Code’) with the exception from

3 October 2025 of the requirement that the roles of Chair and Chief Executive should not be

performed by the same person following Chris Payne stepping down from the Board when

Stephen Bird was appointed Interim Executive Chair whilst a search for successor

was undertaken.

This report complies with Rule 7 of the Disclosure Rules and Transparency Rules of the Financial Conduct Authority, with the

information required to be disclosed by sub-section 2.6 of Rule 7 being shown on pages 140 to 196. The Company has also

complied with the relevant requirements of the Disclosure Guidance and Transparency Rules, the Listing Rules, Directors’

Remuneration Reporting regulations and narrative reporting requirements.

The Corporate Governance section of this Annual Report and Accounts explains how the Code principles have been applied.

The 2024 UK Corporate Governance Code is available at www.frc.org.uk.

Composition, succession

and evaluation

Formal, rigorous and transparent

procedures are in place to support

Board appointments, led by the

Nomination Committee, which

considers the importance of diversity

in decision-making.

The Nomination Committee regularly

reviews composition of the Board and

Committees to ensure appropriate

combination of skills, experience

and knowledge and to plan for the

progressive refreshing of the Board.

Annual evaluation of the Board’s

composition, diversity and

effectiveness.

Nomination Committee report –

pages 86 to 90

Appointments to the Board –

page 86

Board Diversity Policy – page 87

Board composition – pages

88 to 90

Board evaluation – page 77

Board leadership

and Company purpose

The Board is responsible for:

• Promoting the long-term

sustainable success of the

Company and establishing the

Company’s purpose, values and

strategy (ensuring that its culture is

aligned).

• Ensuring the necessary resources

are in place to meet objectives

and measure performance against

them within a framework of

effective controls.

• Engaging with stakeholders to

inform decisions and ensuring that

workforce policies and practices

are consistent with the Company’s

values and support long-term

success.

Board of Directors – pages

60 to 61

Leadership and purpose – pages

64 to 68

Board activities during the year

– pages 64, 65, 74 and 75

Considering stakeholders in

decision making – pages 18 and 19

Division of

responsibilities

The Chair leads the Board and

is responsible for its overall

effectiveness in driving the Company.

There is clear division of responsibilities

between the leadership of the Board

and the executive leadership of the

business.

The Non-Executive Directors

dedicate sufficient time to meet their

responsibilities and provide constructive

challenge, strategic guidance, specialist

advice and hold management to

account.

Board policies and processes are

in place to ensure that the Board

functions effectively.

Board roles – page 71

Division of responsibilities – pages

70 to 76

Nomination Committee report –

pages 86 to 90

Dealing with Directors’ conflicts of

interest – page 73

Implementation of the Principles of the Code

5656

COMPLIANCE STATEMENT

Audit, risk and

internal control

The Board has established formal

and transparent policies and

procedures to ensure the integrity

of the independence of the Group’s

external audit, and to satisfy itself of

the integrity of the Group’s financial

statements and to confirm that

they represent a fair, balanced and

understandable assessment of the

Company’s position and prospects.

Procedures have been established

to manage risk, oversee the internal

control framework and determine the

nature and extent of the principal risks

the Company is willing to take in order

to achieve its long-term strategic

objectives.

Audit Committee report –

pages 78 to 85

Fair, balanced and

understandable statement –

page 85

Risk management and principal

risks – pages 46 to 52

Remuneration

The Board, through its Remuneration

Committee, determines Director and

senior management remuneration

policies and practices and ensures

they align to the Company’s purpose,

values, and promote the successful

delivery of the Company’s long-term

strategy.

Each element of performance-related

pay allows for the independent exercise

of judgement and discretion when

authorising remuneration outcomes.

Controls have been implemented to

ensure that no Director is involved in

deciding their own remuneration.

Remuneration Overview –

page 94

Directors’ Remuneration Policy –

pages 95 to 105

Directors’ Annual Report on

Remuneration – pages 106 to 117

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Governance

“ The Board has overseen

a number of required

changes to the Company’s

strategy and executive

management team to

drive forward its revised

strategy and to accelerate

its transformation

programme.”

On behalf of the Board, I am pleased to

present the Governance report for the

financial year ended 31 December 2025.

This report sets out our approach to effective governance,

outlines the areas of focus for the Board and the key activities

undertaken. My role and that of the Board has been to guide

the business and the executive management to refocus the

Group on the profitable independent retailer and contractor

customer base through our revised strategy and ensure

it is supported by the right people. The last financial year

has been an important period and we have accelerated

the implementation of our transformation programme

and our revised strategy to create a structurally stronger,

more profitable business from which we can be rescale with

confidence.

Stephen Bird

Interim Executive Chair

Board changes and succession planning

Following Keith’s decision to step down from the Board, the

Nomination Committee and the Board implemented the

Chair succession plan, and after a successful handover I

became Chair on 27 February 2025. Jemima, Chair of the

Remuneration Committee, was also appointed our Senior

Independent Director at the same time. The composition of

the Board and its Committees was also reviewed, to ensure

that these remain appropriate with the right mix of expertise

and experience to support the Company in its strategic goals.

Chair and CEO succession

and Board composition

Sharper focus on our core customer strategy refocused

on independent retails and contractors required some

interim changes in 2025 where I stepped into the role

of Interim Executive Chair following Keith Edelman

stepping down as Chair in February (as part of the Chair

succession plan) and Chris Payne stepping down as

Chief Executive Officer in October. This enabled the

Board together with a strengthened interim executive

management team to oversee a further acceleration of

the execution of its transformation programme.

Following an extensive search, I’m very pleased on

behalf of the Board to welcome Rob Barclay as

our Chief Executive Officer Designate who will

become Chief Executive Officer and join the Board

on 27 April 2026 after a short handover (when I will

revert to Non-Executive Chair), and Richard Jones who

joined the Group as Interim CFO on 12th March 2026

and will replace Adam Phillips, CFO, on the Board on

26th March 2026. The Board would like to thank Adam

for all of his hard work and wish him well in his new role.

5858

CHAIR’S INTRODUCTION

Strategy and culture

The Board has made progress in many key areas throughout

the year, including the review of the Group’s strategy, and

governance and oversight of the transformation programme.

Karen Hubbard continues in her role of Non-Executive Director

responsible for employee engagement and she continues to

provide regular reports to the Board. This role and reporting,

together with other activity on how the Board monitors

the culture of the Group (see pages 62 and 63), creates an

appropriate cultural dashboard and continues to enhance

the quality of the information the Board receives from our

employees.

We held a further supplier conference in the year, which was

attended by our key suppliers and we held a sales conference

in September attended by our sales force colleagues. Our

supplier code of conduct and colleague code of conduct

continue to be in place.

Our on-going engagement work with all our stakeholders

helps shape how the Board takes their views into

consideration to support our decision-making and ensure

the culture of the business is developing in line with our stated

purpose and values. Information of our engagement with

stakeholders can be found on pages 18 to 20 and throughout

this Governance report.

This commitment to guiding and promoting a healthy culture

is underpinned by a significant ongoing work programme to

develop a strong safety culture. Please see page 33 for further

details.

Please see pages 62 and 63 on how the Board monitors

culture so that the Board continues to understand the

changes and trends within the business, which deepens our

ongoing relationships with all our stakeholders.

Environmental, social and

governance (‘ESG’) responsibilities

Our ESG strategy and work to deliver this has continued

throughout 2025 as a key work stream and embedded into

the business through the established ESG Committee which

is attended by Non-Executive Director Karen Hubbard. ESG

updates have been given to our stakeholders and Karen

Hubbard formally reports back to the Board on the ESG

Committee progress. The highlights from the year and our

progress in key areas are outlined in our Sustainability Report

on page 26.

We have made great strides forward during the course of the

year and as a Board we are focused on delivering tangible

progress in the year ahead.

Diversity

The Board recognises that diversity both on the Board and in

the wider organisation leads to healthy debate, which in turn

leads to better decisions and helps support the Company.

The Board reviews its diversity policy annually and it was a key

consideration when the Board considered who was going to

appointed as the Senior Independent Director in my place. In

making our appointments we have aimed to cultivate a broad

spectrum of attributes and characteristics in the Boardroom

and we continue to keep the position under review as we

move forward in all our succession planning activity. Diversity

across the organisation is summarised on page 34 and further

information on Board diversity can be found in the report of

the Nomination Committee on pages 78 to 85.

Board evaluation

An externally facilitated evaluation was carried out towards

the end of the year, and the results were pleasing and

confirmed that the Board and Committees are working well.

More information on the Board evaluation can be found on

page 77.

Our colleagues

It has been a busy year overseeing the of our revised strategy,

the transformation programme and the recruitment of a

number of highly skilled colleagues at all levels of the business

to drive us forward.

The Board recognises the significant contributions from all

our colleagues throughout the year and thanks them for their

hard work and dedication.

Stephen Bird

Interim Executive Chair

25 March 2026

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

The whole Board has oversight of the Company’s sustainability agenda and ESG Strategy, which incorporates

areas of focus including workforce engagement, health and safety, IT resilience, and DEI. Additional oversight

and individual accountability for specific focus areas is given through Board and Executive Team membership

of the ESG Committee, the Risk Committee, and the formal Employee Forum.

Stephen Bird

Interim Executive Chair

Jemima Bird

Senior Independent Director

Adam Phillips

Chief Financial Officer

Karen Hubbard

Independent Non-Executive Director

Robin Williams

Independent Non-Executive Director

Alison Hughes

General Counsel & Company Secretary

R A

Stephen was appointed our Non-

Executive Chair on 27 February 2025,

(previously he was Senior Independent

Director from 2022) and then appointed

as Interim Executive Chair on

3 October 2025. Stephen’s last executive

role was Group Chief Executive of

Videndum plc (formerly The Vitec

Group plc), the international provider of

premium branded hardware products

and software solutions to the growing

content creation market, having

held the position since 2009. He was

previously Senior Independent Director

of Dialight plc, the global leader in

sustainable LED lighting for industrial

applications, stepping down in 2021

after nearly nine years on the Board.

Stephen has extensive executive

experience developing successful,

customer-led growth strategies to help

businesses grow and adapt to changing

markets. Prior to joining Videndum

plc, Stephen was Divisional Managing

Director of Weir Oil & Gas, and held

senior roles at Danaher Corporation,

Black & Decker, and Technicolor Group.

He is a member of the English National

Ballet’s Finance and General Purposes

Committee.

Jemima was appointed our

Senior Independent Director on

27 February 2025 and is also our Chair

of the Remuneration Committee.

Jemima has over 20 years’ retail

experience working with many of the

UK’s leading high-street brands, and has

held numerous executive commercial,

marketing and operations positions. She

is currently a Non-Executive Director

and the Chair of the Remuneration

Committees at both Pinewood

Technologies Group plc and Creightons

plc and was previously a Non-Executive

Director at Carpetright plc, (a leading

floorcoverings and beds provider,

until it was taken private in 2020) and

previously the Senior Independent

Director and Chair of the Remuneration

Committee at the Revel Collective plc.

Previously, Jemima was the Senior

Trustee for the Football Foundation, the

UK’s largest sports charity.

Adam joined the Company as Chief

Financial Officer in March 2023.

He was previously Group Financial

Controller at Mobico Group plc, the

FTSE 250 multinational transport

provider. Prior to this Adam was at

Halfords Group plc, in a number of roles,

including Corporate Finance Director

and Group Strategy Director.

Adam is a qualified Chartered

Accountant having trained with

KPMG and is a Fellow of the Institute

of Chartered Accountants in England

and Wales. Adam is Chair of the Risk

Committee.

Karen was appointed a Non-Executive

Director in 2022. Karen has over 25

years’ experience in retail, at both

executive and Director levels across

various industries and markets. She

was previously Chief Executive Officer

of Card Factory plc, the UK’s leading

specialist retailer of greeting cards,

gifts, wrap and bags, where she

diversified their income from a UK

high-street business to a multi-channel,

international, wholesale and franchised

operation. Karen has also served as

Chief Operating Officer at B&M, on the

ASDA Stores Executive Board as Director

for Property, Multi-Channel and Format

Development, in addition to working for

BP Oil’s retail divisions.

Karen currently serves as Non-Executive

Chair in privately backed businesses

Custom Materials Limited and Fun

Brands Group. In addition, she is a Non-

Executive Director and Chair of ESG of

St Austell Brewery.

Karen is a member of the ESG

Committee and the Employee Forum,

and the Independent Director who has

oversight of workforce engagement.

Robin was appointed a Non-Executive

Director and Chair of the Audit

Committee in 2022. Robin has over 30

years’ experience with listed companies,

including as founder CEO and Executive

Director with FTSE 250 companies

within the packaging and the building

materials industries. He is currently Non-

Executive Chairman of Keystone Law

Group plc and of Churchill China plc and

was previously a Non-Executive Director

of The Manufacturing Technology

Centre Ltd.

Robin is a qualified Chartered Accountant

and brings experience of chairing audit

committees as well as insights from a

wide range of sectors as an Executive and

Non-Executive Board member of public

and private companies.

Alison was appointed in December

2023 and has over 20 years’ experience

across several business sectors,

including retail and hospitality and

extensive experience in corporate and

commercial legal matters, corporate

governance and compliance matters.

Previously she was the Director of

Group Legal & Company Secretariat

at Mitchells & Butlers plc, a FTSE 250

company within the hospitality industry.

Prior to that she worked at Boots

plc, and trained and qualified as a

solicitor with Wragge & Co LLP (now

Gowling WLG).

Alison is a qualified solicitor with over

20 years’ post qualification experience.

She is a member of the Disclosure

Committee, ESG Committee and the

Risk Committee.

6060

BOARD OF DIRECTORS

Committee Membership key

Audit Committee

Employee Forum

Risk Committee

Disclosure Committee

Nomination Committee Committee Chair

ESG Committee

Remuneration Committee

Stephen Bird

Interim Executive Chair

Jemima Bird

Senior Independent Director

Adam Phillips

Chief Financial Officer

Karen Hubbard

Independent Non-Executive Director

Robin Williams

Independent Non-Executive Director

Alison Hughes

General Counsel & Company Secretary

R D

Stephen was appointed our Non-

Executive Chair on 27 February 2025,

(previously he was Senior Independent

Director from 2022) and then appointed

as Interim Executive Chair on

3 October 2025. Stephen’s last executive

role was Group Chief Executive of

Videndum plc (formerly The Vitec

Group plc), the international provider of

premium branded hardware products

and software solutions to the growing

content creation market, having

held the position since 2009. He was

previously Senior Independent Director

of Dialight plc, the global leader in

sustainable LED lighting for industrial

applications, stepping down in 2021

after nearly nine years on the Board.

Stephen has extensive executive

experience developing successful,

customer-led growth strategies to help

businesses grow and adapt to changing

markets. Prior to joining Videndum

plc, Stephen was Divisional Managing

Director of Weir Oil & Gas, and held

senior roles at Danaher Corporation,

Black & Decker, and Technicolor Group.

He is a member of the English National

Ballet’s Finance and General Purposes

Committee.

Jemima was appointed our

Senior Independent Director on

27 February 2025 and is also our Chair

of the Remuneration Committee.

Jemima has over 20 years’ retail

experience working with many of the

UK’s leading high-street brands, and has

held numerous executive commercial,

marketing and operations positions. She

is currently a Non-Executive Director

and the Chair of the Remuneration

Committees at both Pinewood

Technologies Group plc and Creightons

plc and was previously a Non-Executive

Director at Carpetright plc, (a leading

floorcoverings and beds provider,

until it was taken private in 2020) and

previously the Senior Independent

Director and Chair of the Remuneration

Committee at the Revel Collective plc.

Previously, Jemima was the Senior

Trustee for the Football Foundation, the

UK’s largest sports charity.

Adam joined the Company as Chief

Financial Officer in March 2023.

He was previously Group Financial

Controller at Mobico Group plc, the

FTSE 250 multinational transport

provider. Prior to this Adam was at

Halfords Group plc, in a number of roles,

including Corporate Finance Director

and Group Strategy Director.

Adam is a qualified Chartered

Accountant having trained with

KPMG and is a Fellow of the Institute

of Chartered Accountants in England

and Wales. Adam is Chair of the Risk

Committee.

Karen was appointed a Non-Executive

Director in 2022. Karen has over 25

years’ experience in retail, at both

executive and Director levels across

various industries and markets. She

was previously Chief Executive Officer

of Card Factory plc, the UK’s leading

specialist retailer of greeting cards,

gifts, wrap and bags, where she

diversified their income from a UK

high-street business to a multi-channel,

international, wholesale and franchised

operation. Karen has also served as

Chief Operating Officer at B&M, on the

ASDA Stores Executive Board as Director

for Property, Multi-Channel and Format

Development, in addition to working for

BP Oil’s retail divisions.

Karen currently serves as Non-Executive

Chair in privately backed businesses

Custom Materials Limited and Fun

Brands Group. In addition, she is a Non-

Executive Director and Chair of ESG of

St Austell Brewery.

Karen is a member of the ESG

Committee and the Employee Forum,

and the Independent Director who has

oversight of workforce engagement.

Robin was appointed a Non-Executive

Director and Chair of the Audit

Committee in 2022. Robin has over 30

years’ experience with listed companies,

including as founder CEO and Executive

Director with FTSE 250 companies

within the packaging and the building

materials industries. He is currently Non-

Executive Chairman of Keystone Law

Group plc and of Churchill China plc and

was previously a Non-Executive Director

of The Manufacturing Technology

Centre Ltd.

Robin is a qualified Chartered Accountant

and brings experience of chairing audit

committees as well as insights from a

wide range of sectors as an Executive and

Non-Executive Board member of public

and private companies.

Alison was appointed in December

2023 and has over 20 years’ experience

across several business sectors,

including retail and hospitality and

extensive experience in corporate and

commercial legal matters, corporate

governance and compliance matters.

Previously she was the Director of

Group Legal & Company Secretariat

at Mitchells & Butlers plc, a FTSE 250

company within the hospitality industry.

Prior to that she worked at Boots

plc, and trained and qualified as a

solicitor with Wragge & Co LLP (now

Gowling WLG).

Alison is a qualified solicitor with over

20 years’ post qualification experience.

She is a member of the Disclosure

Committee, ESG Committee and the

Risk Committee.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

The Board regularly reviews a number of measures throughout the year to monitor the culture of the

Company and how it is embedded through the values of the Company summarised below, please also

see pages 32 to 34 on culture and colleague engagement:

Care: We ensure that every individual feels respected, listened to and safe

• Review of health and safety (‘H&S’) metrics and information included in the regular Board H&S

reports.

• Review and approval of the Company’s H&S policy.

• Presentations by the Company’s Group H&S Director alongside visits to the site to see H&S measures

and processes in practice.

• Review of the feedback and scoring from the Company’s annual ‘Have your Say’ employee survey

which includes specific feedback from employees on their perspective and rating of safety of

physical work environments, employee behaviours in respect of health and safety and wellbeing

all scores for these this year were improved from the prior year and where there was an applicable

industry benchmark scores were higher than the industry benchmark.

• Review and approval of the Company’s whistleblowing policy, the ‘Speak Up’ Policy and its

processes.

• Oversight and visibility of whistleblowing cases during the year and the whistleblowing procedures

in place mean any cases, (including those that may relate to H&S) are immediately visible to the

Audit Chair (who is the designated Board Director with oversight of the Company’s review and

investigation process for all whistleblowing cases).

• Board Directors regularly take the opportunity to seek colleagues’ feedback on a number of issues

when they are out in the businesses during the year.

• Employees have access to training to be able to do their best work, and develop and progress their

careers.

• Employees have access to various wellbeing facilities.

• The Company regularly celebrates and recognises employees when they do a great job.

• Listening forums such as Employee Forums where employees have the opportunity to raise their

questions, ideas and questions whilst having the opportunity to discuss these directly with Executive

Committee members and Board Directors.

Teamwork: We create an inclusive environment where people celebrate success together

• Review of the updates from the Company on its diversity and inclusion plans, including changes to

recruitment processes and other inclusion initiatives.

• Review of regular updates on colleague turnover through the regular Chief People Officer reports

across all areas and departments of the Company, and which also includes commentary relating to

any particular trends for the Board to consider and if required investigate further.

• Review of the annual colleague engagement survey, (which includes colleagues’ feedback, for

example on the Company’s work environment and if everyone feels included, regardless of gender,

background, ethnicity, sexual orientation, age etc, feedback on line managers ability to manage

changes which affect their teams, ability to be themselves at work).

• Review of the annual Gender Pay Gap report.

• Review of reports from each of the Employee Forums by Karen Hubbard (who is the designated

Non-Executive Director for workplace engagement).

• Board Directors have, and regularly take, the opportunity to seek colleagues feedback on a number

of issues when they are out in the businesses during the year.

• The Board and throughout the Company there are regular celebrations and events to recognise

employees and teams when they are doing a great job.

• Listening forums such as Employee Forums where employees have the opportunity to raise their

feedback on success as well as areas for improvement whilst having the opportunity to discuss

these directly with Executive Committee members and Board Directors.

6262

HOW THE BOARD EMBEDS CULTURE

Commitment: We uphold high standards and confidently challenge wrong behaviours

• Board reviews business performance measures and metrics regularly through the various regular

reports from the Executive Committee members, (including in the context of the market and the

Company’s competitors).

• Review of the annual colleague engagement survey, which includes on colleagues’ feedback on

whether they are satisfied with the communications they receive about local sites and departments

in order to do their jobs effectively..

• Board reviews our customers’ feedback through the customer survey and reports on the same to

the Board.

• Board reviews and receives specific reporting and presentations on major business change

programmes such as the Company’s transformation programme, along with external advisers, to

have the opportunity to directly ask questions of specialist advisers and subject matter experts.

Ownership: We create a trusted environment where people are empowered to act and can learn and improve

• The strength of leadership is measured as part of the colleague engagement survey which includes

feedback on colleague motivation, line management, colleague recognition, line manager

communication and ability to raise issues, all of which this year showed an improvement compared

to the prior year.

• The Chief People Officer regular reports include reporting on metrics such absence, which give an

indication of the strength of leadership amongst other metrics.

• The visibility that the Board has of whistleblowing cases also means that any cases related to

leadership or colleague behaviour would be immediately visible to the Audit Chair.

• Review of reports from each of the Employee Forums through Karen Hubbard, who is the

designated Non-Executive Director for workplace engagement.

• Board Directors regularly take the opportunity to seek colleagues’ feedback on a number of issues

when they are out in the businesses during the year.

• Oversight of succession planning for the Board, Executive Committee and senior leaders.

Simplicity: We avoid over complication by keeping things simple

• Board and Company has overseen revised reporting on business performance measures and

metrics this year adopting a flexible approach and required format of reporting from Executive

Committee members to keep things simple and enable executive management to focus on key

initiatives to drive better performance.

• Review of the annual colleague engagement survey to understand how are colleagues are feeling

about things and how we can communicate better in order for them to do their jobs effectively.

• Board reviews our customers’ feedback through the customer survey and reports on the same to

the Board.

• Sharper focus on a revised Company strategy has enabled the Executive Committee members to

focus on key messages and simple actions to drive better business performance.

• As appropriate, Board continues to review and receive specific reporting and presentations on

major business change programmes such as the Company’s transformation programme, along with

external advisers, to have the opportunity to directly ask questions of specialist advisers and subject

matter experts.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Board activity in 2025

The Board maintains a comprehensive schedule of meetings

and a forward agenda to ensure its time is used most

effectively and efficiently. However, there is flexibility in

this programme, which is important to permit key items to

be added to any agenda, so that the Board can focus on

evolving and important matters at the most appropriate time.

This was specifically illustrated this year by the Board having

regular dedicated Board meetings and calls this year on the

acceleration of the Company’s transformation programme

and of its revisited strategy, with subsequent updates on the

transformation programme for the Board at all of its meetings

and calls thereafter.

Board agendas are structured carefully to facilitate

discussions and allocate appropriate time to all relevant

matters, and the agendas are agreed in advance by the

Interim Executive Chair, (along with the General Counsel &

Company Secretary).

A typical Board meeting will comprise the following elements:

• Reports from the Chairs of each of the Board Committees

on the proceedings of those meetings, including the key

discussion points and particular matters to bring to the

Board’s attention.

• Following every Employee Forum and ESG Committee,

a report on the topics discussed is presented by Karen

Hubbard to add further context at the Board meeting.

• Performance reports from the Executive Committee,

including: reports from the Chief Executive, Chief Finance

Officer, Chief People Officer, Sales Director and Chief

Transformation Officer.

• Deep dive reports into areas of particular strategic

importance, opportunities and risks, to evaluate

progress, provide insight and, where necessary, decide on

appropriate action.

• Legal and governance updates, including: Quarterly

Reports from the General Counsel & Company Secretary,

approval of delegated financial authorities across the

Group; approvals of various policies (such as ‘Speak Up’

Policy, Health & Safety Policy, Approval of the Anti-Slavery

and Human Trafficking Statement).

• Time is set aside at various meetings for the Chair to hold

an Independent Non-Executive Director only meeting,

(where it is considered appropriate, to provide the

opportunity for discussion on key matters without the

Executive Directors and management present).

• All of the Board also meet over dinner on a number of

occasions before certain Board meetings, also joined by

members of the Executive Committee, to enable Board

members and Executive Committee members to build a

rapport with each other and a relationship on a personal

level, share external views and consider issues impacting

the Group, resulting in better Board dynamics and

decision making.

Health &

Safety policy

Board reviews

and approves the

Company’s Health &

Safety policy

Review ERP Project Nexus

Board consider and approve

the pause to the ERP

replacement programme whilst

the business continues to focus

on key transformation activity

Strategy Day

Board receives

updates from our key

areas of the business

and its strategy for

each area

Transformation Programme

update

Board receives update of the

Company’s transformation

programme

March

August

September

December

6464

BOARD LEADERSHIP AND COMPANY PURPOSE

Strategy Day

Board receives update from

key areas of the business and

its strategy for each area

Independent Retail

Board receives update

from Independent Retailer

Leadership team and reviews

the sale and leaseback

proposal for its Tamworth site

Rayleigh site visit

Board visits its new warehouse site in

Rayleigh for a site visit shortly after

it became operational and receives

updates on its network strategy and

hears from its contracts leadership team

Buying &

supply chain

Board receives

update from the

Chief Buying Officer

Transformation

Programme

Board receives update

on its accelerated

transformation programme

and strategy review

Update on strategy

Board reviews the latest

feedback on its revised

strategy and progress

on accelerated

transformation actions

April May

July

October

November

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Our Board is ultimately responsible for the strategy, management,

performance and long-term sustainable success of the Group.

It is the principal decision-making forum for the Group,

providing entrepreneurial leadership, both directly and

through its Committees and by delegating authority to the

Executive Team.

This responsibility includes: setting the Company’s purpose,

values and strategy; reviewing and promoting the desired

organisational culture; ensuring the necessary resources are

available to meet agreed objectives; and ensuring that all of

these elements are aligned. The Company’s business model

and strategy is detailed on pages 7 to 17.

Through the strong governance framework that it has in

place, the Board is able to deliver on its strategy of providing

strong sustainable financial and operational performance.

The Board is also accountable for ensuring that in carrying

out its duties the Group’s legal and regulatory obligations

are being met; and for ensuring that it operates within

appropriately established risk parameters.

Culture and colleagues

The Board is responsible for monitoring and assessing culture.

The Board does not have a single way to assess culture,

instead it draws on multiple sources to understand the way

colleagues feel about the Company. This is done through

formal and informal methods, through the outputs from the

Employee Forums and the reports of the Executive Team to

the Board. Please also see pages 62 and 63.

Colleagues are encouraged to incorporate the values and

behaviours into work every day to deliver our objectives,

together.

Karen Hubbard is the Independent Non-Executive Director

accountable for representing the voice of our colleagues in

Board meetings. Please see page 69 for feedback from Karen

on 2025 Employee Forums.

Work continues to enhance communication to ensure that

staff across the business, especially those more remotely

situated and any new colleagues are briefed on relevant

Company news, so they do not feel isolated. The Group-

wide intranet continues to be developed as a place for

colleagues to access all communication and information

about benefits and personal and financial wellbeing. In

addition to this, the following improvements have been during

the year; the sales conference was held off-site, the ongoing

leadership development programme, as well as the employee

engagement survey and specific senior leadership team

meetings to discuss the revised strategy and how everyone

can contribute to this.

The ‘Speak Up’ Policy (which continues to include an externally

managed helpline) which was launched in 2022 continued

to be in place during the year and this, together with a

well-established grievance policy, provides a mechanism

for colleagues to raise matters of concern more formally.

In addition, the Headlam Code of Ethics continues to be

issued to all new employees and is part of the new induction

programme. As well as reviewing People KPIs at the Board

and the outputs from the listening channels, the Board has

continued to influence and monitor Group culture in a number

of additional ways summarised below but please also see

pages 62 and 63 on how the Board assesses how its culture is

embedded in the Group:

• Increasing the focus on the health, safety and working

practices of our colleagues and reviewing key health

and safety performance indicators, please see page 33.

• Reviewing and revising remuneration structures for

senior management.

• Reviewing the progress of the implementation of the

People Strategy.

• Regular meetings with management and inviting

presentations at the Board and Committee meetings

from relevant managers and colleagues.

• Assessing other cultural indicators such as the attitude

to risk, the implementation and compliance with

Group-wide policies such as Anti-Corruption and

Bribery, Fraud and Money Laundering.

6666

BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED

Board Engagement with Stakeholders

Information on our stakeholder engagement and Section 172 Statement of the Strategic report on pages 18 to 20.

By understanding the interests and needs of all our stakeholders, the Board can take these views into account in Boardroom

discussions and decisions. The relevance of each stakeholder group may change depending on the issue under discussion.

The Board continued to develop its methods of engagement during the year and this work will be continued during 2025.

Our Colleagues

Board members engage with a wide variety of colleagues. Karen Hubbard is our

dedicated Employee Non-Executive Director and attends various Employee Forums.

See pages 32 to 34 for employee engagement

Our Customers

The Board receives customer insights through Board reports and strategy

presentations and from the Group Marketing Director and other members of the senior

management team.

Our Suppliers

Supplier relationships provide valuable insights through engagement with operations

teams and through the Interim Executive Chair and Chief Buying Officer.

See page 19 for supplier engagement

Our Shareholders

There is regular dialogue with our shareholders, especially following the revised strategy

announced on 11 November 2025.

See page 19 for shareholder engagement

Our Communities

and the Environment

It is important that we operate safely and sustainably and that we review the impact of

our operations on local communities and on the environment. The Board receives regular

updates on these activities.

Karen Hubbard is our dedicated ESG Non-Executive Director and attends the ESG Committee.

Further information can be found in our Sustainability Report on pages 26 to 45

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Examples of how the Board considered the interests of its key stakeholders

when making decisions.

Project Nexus – ERP

Replacement Programme

During the year the Board made the

decision to pause the ERP replacement

programme. This was taken after

considering the competing priorities

for colleague time and attention

between the ERP programme and the

transformation plan. The Board also

recognised that the transformation plan

could have an impact on the design of

the new ERP. This could cause rework

of the ERP if the two programmes were

running concurrently; hence it was felt

appropriate to mitigate such a risk in

order to conserve resources.

Debt Refinancing

In January 2026 the Group announced

the completion of a refinancing of

its borrowing facilities. The decision

to launch the refinancing process

was taken by the Board during 2025

and then the final facility agreement

was approved in January 2026. In

commencing the refinancing in 2025

the Board reflected on the fact that the

prevailing facility was not due to expire

until October 2027, but that it was in

the interests of multiple stakeholders

to secure new financing well ahead of

that in order to provide reassurance

that the Group had access to borrowing

facilities throughout the period of

the transformation plan and beyond.

Furthermore, the prevailing facility had

required discussions with the lenders

every six months on covenants, which

was time-consuming and incurred fees.

Transformation programme

In response to challenging market conditions, with consumer spending on

home improvements in significant decline combined with heavy cost inflation

in recent years, the Board made the decision to launch a transformation

programme in 2024.

The objective of this was to make Headlam a more effective organisation and simplify the

Group’s offer to its customers, whilst also driving through efficiencies in working capital and asset

ownership in order to fund the changes needed. The Board continually review the progress of

the transformation plan and the wider strategic initiatives. The prevailing strategy had been to

offset cyclical market decline, and the impact of new entrants, with growth with larger customers

and through trade counter expansion in order to broaden the customer base. Whilst this strategy

had achieved growth in those newer customer groups, it had come at the expense of the core

customer group of independent retailers and contractors. Accordingly, and as a product of its

continual review of the performance of the business, the Board decided, in the second half of

2025, to make a change in leadership of the Group and to embark on a change in the strategic

direction. This change involves a more significant right-sizing of the business towards current

market volumes, rather than assuming a material cyclical recovery, as well as a refocus on the

independent retailers and contractors.

6868

BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED

Describe the Employee Forum

and your role as designated

Non-Executive Director,

workforce engagement and

how it adds value to the Group?

What have been your

highlights this year?

The Employee Forum is one of the ways we engage

with our colleagues. It provides the opportunity for

colleagues to meet with myself and senior members

of management on a regular basis, helping them

to stay connected to the strategy and direction of

the Company. It also provides the opportunity for

us to listen directly to what colleagues have to say

and hear about matters the Board is reviewing and

considering.

I also actively spend time with colleagues, without

management present, to give colleagues the

opportunity to provide feedback directly to

the Board.

As the nominated Non-Executive Director for

workplace engagement, I then provide this

feedback directly to the Board which helps us

all gain a better understanding of day-to-day

operations and insight into the implementation

of the transformation plans, and how that

impacts our colleagues. It also helps ensure the

Board understands how the Company’s culture is

embedded.

I continue to liaise with the Interim Chief People

Officer and support the Group in how it can

better communicate and engage with colleagues.

In addition, as a member of the Remuneration

Committee my insight is also very helpful in the

context of Executive pay.

I have once again been especially impressed by

the willingness of the forum members to raise issues

and confidently challenge business processes and

provide constructive insights.

Good progress has also been made this year in

getting communication to all levels, functions

and sites. I’ve been pleased to hear about

the improvements in the level and cascade of

communications across the Company, especially as

the Company implements its transformation plans.

I’ve also been pleased to see a good representation

at the Employee Forums of a workforce that is

diverse in terms of functions and also geographically

spread. I’m looking forward to seeing continued

improvements in 2026 as the format of the

Employee Forum is reviewed by senior management

and it continues to evolve as a successful way to

engage with our colleagues.

Karen Hubbard

Non-Executive Director nominated to

represent the employee voice at the Board

“ Pleased to hear directly

from our colleagues about

the continued improvement

in communications and

engagement this year.”

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Q&A WITH KAREN HUBBARD

Board balance

As at 31 December 2025 the Board consisted of the Interim

Executive Chair, the Chief Financial Officer, the Senior

Independent Director and two further Non-Executive

Directors.

As such, at least half the Board, (excluding the Interim

Executive Chair and the Chief Financial Officer), were Non-

Executive Directors in accordance with the Code during

the year.

The Board undertook a review of the size and balance of

the Board and confirmed that it was appropriate to meet

the business and operational objectives. Further information

on the changes to the Board in 2025 can be found in the

Nomination Committee report on page 86.

Decisions are made by the Board following detailed

consideration of the items under review and no one

individual or small group of individuals dominate the

Board’s decision-making.

The Board operates within a corporate governance

framework designed to support the achievement of

long-term sustainable success. The Board has overall

responsibility for setting the Group’s strategy and setting

objectives for the business, taking into account the risk

appetite of the business. The Board has a formal schedule

of matters reserved for its approval and then delegates

responsibilities to its committees and management. The list of

the key matters considered by the Board in 2025 can be found

on page 75.

The schedule of matters reserved for the Board has

been reviewed and is available from the Governance

section of the Company’s website, www.headlam.com.

It includes matters relating to strategy and management,

structure and capital, financial reporting and controls,

risk management and internal controls, contracts, Board

membership and delegation of authority, acquisitions and

risk management. An overview of the main duties, roles

and responsibilities of the Board are also available on the

Company’s website.

The Statement of the Responsibilities of the Chair, Chief

Executive and Senior Independent Director has been

reviewed and is also available on the Company’s website.

Board at a Glance

Gender representation

as at 31 December 2025

Board Independence

as at 31 December 2025

Board Director tenure

as at 31 December 2025

Interim Executive Chair 1

Executive Directors 1

Independent Non-Executive

Directors (including the

Senior Independent Director)

Adam Phillips

Jemima Bird

Robin Williams

Karen Hubbard

Stephen Bird

7.4

4.4

3.5

3.3

2.9

Male

Female

7070

DIVISION OF RESPONSIBILITIES

Non-Executive Chair (pre 3 October 2025)

The Non-Executive Chair leads the Board and sets the

cultural tone from the top. He ensures high standards

of corporate governance are maintained. He is

responsible, with the Board, for understanding the

views of all key stakeholders and ensuring they are

considered in all decision-making. He ensures that all

Directors are able to participate in discussions and

constructive challenge and to promote effective

communication between the Executive and Non-

Executive Directors. The Non-Executive Chair led the

annual Board effectiveness review and ensures any

new Directors have a tailored induction.

General Counsel & Company Secretary

The General Counsel & Company Secretary is secretary to the Board and its Committees. The role is to support the

Chair and Chief Executive in fulfilling their duties particularly in relation to induction, training and Board effectiveness

evaluations. In addition, she supports the Non-Executive Directors and provides updates to the Board and advice on

corporate governance and compliance matters.

Chief Executive

The Chief Executive leads the Group and ensures the

delivery of its commercial objectives, whilst ensuring

that operational policies and practices are driving the

appropriate behaviour in line with the desired culture.

He proposes and develops the Group’s strategy in

consultation with the Executive Team, the Chair and

the Board and leads the communication programme

with all key stakeholders including employees. They are

responsible for overseeing Group health and safety

and diversity initiatives and ensuring the Board has all

the information it requires.

Senior Independent Director

In addition to their role as a Non-Executive Director,

They act as a sounding board for the Chair and

acts as an intermediary for other Directors when

necessary. They are available to shareholders where

communication through the Chair or Executive

Directors may not seem appropriate and to provide

additional support in resolving significant issues. They

are also responsible for leading the effectiveness

evaluation of the Chair and discussions regarding

the term of appointment and fees of the Chair. From

3 October Jemima Bird as Senior Independent Director

also supported the Interim Executive Chair and in doing

so carried out some elements of the Non-Executive

Chair role.

Chief Financial Officer

The Chief Financial Officer is responsible for bringing the

commercial and financial perspective to the Boardroom.

He is responsible for managing the Group’s finance

function and ensuring that the appropriate financial

support and processes are in place to support the

implementation of the Group’s strategy. He oversees

and supports the relationship with the investment

community and shareholders. He chairs the Executive

Risk Committee which oversees the Group’s risk profile

and risk management process. From 3 October, the Chief

Financial Officer carried out some elements of the Chief

Executive role to support the Interim Executive Chair.

Independent Non-Executive Directors

The role of the Independent Non-Executive Director

is to provide strategic and specialist guidance with

effective and constructive challenge. They critically

assess the strategy and scrutinise the performance of

management in meeting agreed goals and objectives

within the risk and control framework set by the Board.

They ensure all stakeholders are considered in the

decision-making process. They have a prime role in

succession planning and setting appropriate levels of

remuneration for the Executive Directors and senior

management team.

Board and Committee Structure as at 31 December 2025

Interim Executive Chair (from 3 October 2025)

After Chris Payne stepped down on 3 October 2025,

Stephen Bird assumed the role of Interim Executive Chair

whilst a search for Chris’ successor was undertaken.

Stephen fulfilled elements of the Chief Executive roles.

However, the Board naturally increased the governance

oversight and frequency of Board meetings and calls

to collate feedback and oversight over the Executive

Committee and the Company’s performance, including

presentations and information validated by external

advisers to the Board to maintain an independent

overview as and where appropriate.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Committee attendance

Membership of the Board and its Committees and attendance at meetings held during the year ended 31 December 2025.

Board

Nomination

Committee

Audit

Committee

Remuneration

Committee

Keith Edelman 1/15 1/4 – –

Chris Payne 12/15 – – 2/4

Stephen Bird 14/15 3/4 4/4 3/4

Jemima Bird 15/15 4/4 4/4 4/4

Karen Hubbard 15/15 4/4 4/4 4/4

Robin Williams 15/15 4/4 4/4 4/4

Adam Phillips 15/15 – – –

The numbers in the table above confirm how many meetings each Director attended and the total each was eligible to attend during the year.

Nomination

Committee

To monitor the

size, diversity and

composition of the Board

and its Committees

and ensure a formal,

rigorous and transparent

procedure for the

appointment of new

Directors and to plan for

succession. To take an

active role in monitoring

the Company’s diversity

strategy and approach

and monitoring its

effectiveness.

See page 86 to

Audit

Committee

To assist the Board in

fulfilling its obligations

relating to the Group’s

financial reporting

practices, internal control

and risk management

framework, and its

external audit and other

assurance processes.

See page 78 to

Executive Risk

Committee

Meets quarterly

to evaluate and

propose policies and

processes to current

and emerging risks.

Remuneration

Committee

To determine and agree

the remuneration policy

for Executive Directors

and Executive Team, and

to monitor and report

on it. To review wider

workforce remuneration

and related policies

in accordance with

the Code.

See page 92 to

Disclosure

Committee

Meets as required

to assist the Board

in discharging its

responsibilities in

relation to the control of

inside information and

obligations under the

Market Abuse Regulation.

Group Board

7272

DIVISION OF RESPONSIBILITIES CONTINUED

ESG

Committee

The Committee generally

meets quarterly to

further develop the

Sustainability Strategy

and to monitor progress

towards achieving the

agreed commitments.

However, due to business

need the Committee

met twice in 2025 but still

seeks to embed good

sustainability practices

across the Group and is

attended by a group of

leaders from across the

business.

For more

information

on the

Sustainability

strategy see

page 26

Employee

Forum

The Employee Forum

seeks to allow colleagues

to express and discuss

their views on any

issue, and provides

an opportunity for

them to influence and

develop a more inclusive

working environment.

The Employee Forum

meets quarterly.

There are additional

check in meetings

between the formal

meetings attended

by Employee Forum

representatives only.

For more

information on

Employee Forum

see page 69

Group

Executive

Team

The Executive Team

meets every month to

develop and monitor

strategy, operational

plans and procedures

and to ensure financial

performance against the

budget is monitored. The

Executive Committee

assesses and controls

risk and prioritises and

allocated resources

to deliver the strategy.

Group health and safety

is now monitored during

each Executive Team

monthly meeting.

See page 10

onwards and 33

Board roles and responsibilities

All Directors share collective responsibility for the activities

of the Board; the long-term success of the business and its

impact on stakeholders and the wider society. The Board

roles are constructed to ensure a clear distinction between

leadership of the Board and the executive leadership of the

business. Specific Board roles are outlined in the table on

page 71.

Board Committees and delegation

Various operational matters and decisions have been

delegated to Board or management committees.

The Company has long-established Audit, Disclosure,

Nomination and Remuneration Committees which, oversee

and debate important issues of policy and assist the Board in

attending to its responsibilities.

Terms of reference for the Audit, Nomination and

Remuneration Committees have been reviewed during the

year and are available on the Governance section of the

Company’s website.

The Executive Directors are responsible for the detailed

implementation of the strategic decisions of the Board. The

Non-Executive Directors are responsible for evaluating and

challenging management’s proposals and their mix of skills

and experience bring a broader perspective to the Board’s

dialogue and decision-making process.

Independence

The Company recognises the importance of its

Non-Executive Directors remaining independent of executive

management in character and judgement, in order for them

to effectively support and challenge management. The

Board considered the independence of the Non-Executive

Directors and, taking into account the Board’s review of the

Conflicts of Interests register, consider that three remain

independent in character and judgement and free from any

business or other relationship that could materially interfere

with the exercise of independent and objective judgement.

None of the circumstances outlined in the Code that may

impair, or could appear to impair, independence apply in

the case of any Non-Executive Director. Stephen Bird was

considered independent upon appointment to the Board and

upon appointment as Non-Executive Chair. Jemima Bird was

considered independent upon her appointment to the Board

and upon her appointment as Senior Independent Director on

27 February 2025 and throughout 2025 and continues to be

considered as independent notwithstanding the additional

support which Jemima has provided the Company since

3 October 2025 to support the Interim Executive Chair whilst

searches for successors for certain management roles were

undertaken.

The Board considered Jemima independent because the

additional time commitment was exceptional in nature and

temporary, the remuneration (i.e. a fixed fee which was not

performance or share price linked) should be considered

to be an increase in her Director’s fee, rather than as

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Group Chief Executive

additional remuneration, the payment of additional fees is

consistent with the current Directors’ Remuneration Policy

and the amounts paid are not outside of market norms if

converted to a per day rate and Jemima remained a Non-

Executive Director (i.e. she has not become a employee of

the Company). The Board has met more frequently to have

more oversight and receives third-party presentations and

data to maintain an independent evaluation of matters being

presented by management.

The Senior Independent Director is available to shareholders

if they have concerns which are not resolved through the

normal channels of the Chair, Chief Executive or Chief

Financial Officer, or for which such contact is inappropriate.

The Non-Executive Chair and Non-Executive Directors do not

participate in any bonus, share option or pension scheme of

the Company, nor are they subject to minimum shareholding

requirements. They are initially appointed for a three-year

term and, subject to review and re-election by shareholders,

can serve up to a maximum of three such terms.

In line with the Code, all Board members seeking re-election

stand for re-election by shareholders annually at the AGM,

(neither Keith Edelman who left in 2025 or Adam Phillips who

leaves shortly in 2026 will stand for re-election).

Board activity in 2025

Board meetings provide the forum for the debate, review and

challenge of strategic, operational and governance matters,

please also see pages 64, 65 and 75.

The Board had 15 meetings during the year to discuss the

latest operating and financial information, key strategic

items, additional deep dives into specific items and other

topics requiring discussion or decision. The agenda has strong

links to the strategic objectives of the Group and is set via a

collaborative process between the Interim Executive Chair

and the General Counsel & Company Secretary. Sufficient

time is allocated to each item to ensure effective discussion.

Standing agenda items include updates from the Interim

Executive Chair, Chief Financial Officer, and Interim Chief

People Officer on trading matters, health and safety, people

and financial reports. The annual Board work programme

ensures that the view of all stakeholders, including employees,

suppliers, customers and shareholders are taken into

consideration. This ensures that the Directors discharge their

duties including those under section 172(1) of the Companies

Act 2006. Further detail on stakeholders can be found on

pages 18 to 20.

Board papers are issued where possible, five working days

prior to each meeting to allow adequate consideration of

the matters to be discussed. The Board’s meeting agenda is

structured to ensure sufficient time is given to each item under

consideration.

For further information on strategy see page 12

The Board receives an update from the General Counsel &

Company Secretary on a quarterly basis including updates

on matters of corporate governance. Matters requiring

attention between these quarterly updates are shared at

the next meeting, or between meetings as required. The

Board performs deep dives into areas of importance such

as sales, buying, ecommerce and digital, and conducts post

implementation reviews of key capital projects.

7474

DIVISION OF RESPONSIBILITIES CONTINUED

Strategy and management

• Review of Group strategy and

priorities

• Review of organisation

structure to deliver the

strategy and the resources

required

• Consideration of the

operational strategy to

deliver the strategic goals

• Deep dives into strategic

areas, including ERP

replacement programme

• Sale and leaseback of the

Tamworth distribution centre

• Oversight of the strategy

refresh announced in

November 2025

• Considered the impact

of Company culture on

initiatives and projects

See page 12 to read more

on Strategy

Internal controls and

risk management

• Consideration of the

effectiveness of the internal

audit function

• Completed an assessment

of the Company’s emerging

and principal risks and risk

appetite

• Monitored health and

safety performance and

implementation of continual

improvements to procedures

• Monitored the ongoing

implementation of

recommendations arising out

of IT security

• Received a presentation

from the appointed Health &

Safety Director

See page 46 on risk

management

Financial and

performance reporting

• Review of the trading

performance and the

approval of the Company’s

annual and half-year results

• Approval of the Company’s

dividend policy

• Reviewed the Company’s

capital allocation priorities

• Reviewed and approved the

Company’s 2025 and 2026

budget, forecasts and key

performance targets

• Long-term viability

statement, and time frame

over which it should be

considered

• Approved the UK Tax strategy

See page 51 for long-term

viability statement

ESG and stakeholder

engagement

• Interacted with shareholders

and the wider investment

community

• Reviewed investor relations

programme and feedback

provided by the Company’s

investors, stockbrokers and

financial PR agency plus

reports on investor roadshows

• Received progress updates on

ESG Committee activity

• Received feedback from the

Supplier Conference

See page 26 for

Sustainability report

People

• Approval of the appointment

of Stephen Bird (as Interim

Executive Chair with effect

from 3 October)

• Executive Committee

succession planning

• Consideration of health

and safety

• Consideration of Group

diversity

• Gender pay gap reporting

• Modern slavery reporting

• Employee share grants and

long service awards

See pages 32 to 35, 62, 63

and 88 on culture,

colleague engagement and

diversity

Governance and culture

• Participated in and reviewed

the results of an externally

facilitated Board and

Committee evaluation

• Approved the terms of

reference of each Board

Committee

• Reviewed and approved the

Board’s principal policies

• Reviewed the Company’s

• Approved the Company’s

Anti-Corruption and Bribery

policy, procedures on gifts

and hospitality, Fraud and

Anti-Money Laundering policy

and Speak Up policy

• Received and considered

reports on compliance

with financial, regulatory,

corporate responsibility and

environmental commitments

Key highlights of the Board discussions during the year under review are outlined.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Outside the Boardroom

Throughout the year the Board undertook

site visits across the business.

In April they visited the Rayleigh distribution centre which

included a tour of the site as well as presentations from site

management on the performance and opportunities for

the business (including health and safety performance). The

Board also meets and speaks with a variety of employees

during these visits.

In addition the Directors undertook further site and customer

visits, which allowed an additional opportunity to discuss

areas relevant to the customers and the Board and meet a

variety of customer managers and employees.

The Interim Executive Chair is kept up to date about emerging

issues through regular interaction with the Chief Financial

Officer and other members of the Executive Committee.

All this activity allows the development of a deeper

understanding of the Company and to ask questions about

any specific areas of interest. This improves the constructive

challenge at Board meetings.

The Chair and Non-Executive Directors schedule meetings

without the Executive Management present to allow

an opportunity to discuss the operation of the Board

and any areas for consideration are fed back to the

Executive Directors.

The Senior Independent Director also held a meeting of

the Non-Executive Directors without management or the

Chair present.

Risk management

The Board has overall responsibility for Group’s system of

risk management and internal control and for reviewing its

effectiveness and is supported in this regard by the Audit

Committee and the Executive Risk Committee.

Emerging risks are considered by the Board at least annually.

Further information on the Company’s approach to risk

management is available in the Strategic report on page 7

and in the Audit Committee report on page 78.

A description of the risks identified, together with details of

how they are managed or mitigated, is set out on pages 46

to 50.

The Audit Committee, on behalf of the Board, monitors the

Company’s system of risk management and internal control

with papers from the Executive Risk Committee at each of its

meetings, and conducts a review of its effectiveness at least

once a year.

Board induction and training

The process for identifying and evaluating new candidates

for Board positions has been delegated to the Nomination

Committee under its terms of reference. Once a preferred

candidate has been identified they are recommended to the

Board for appointment. Further information on this process is

outlined below.

Induction

Upon joining, each new Director receives a tailored induction

programme relevant to their experience, expertise and

committee membership. Particular emphasis is placed on the

new Director visiting several operating locations and businesses

and meeting the associated senior managers and colleagues to

aid with deep understanding of the Group’s business operations

and the day-to-day challenges facing the business. The Director

is also able to accompany a salesperson and a driver for a day

to help develop an all-round understanding of the roles and the

challenges faced at all levels of the organisation.

An induction programme will typically include briefings

on strategy and other matters, site visits, and one-to-one

meetings with senior colleagues, including other Directors and

each member of the Executive Team, in addition to advisers

such as the Company’s stockbrokers and auditor. Briefings

are included on health and safety, investor and workforce

engagement, culture, governance and risk.

Meetings will also be scheduled with each Committee Chair

and relevant advisers.

A comprehensive information pack is provided which includes

(but is not limited to):

• Background information about the Group and current

strategy documents;

• Board and Committee minutes and meeting procedures;

• Group policies;

• Matters reserved for the Board and Committee terms

of reference;

• Financial budgets;

• Shareholder and other stakeholder feedback;

• Customer insights; and

• Relevant industry and financial reports.

Training and development

All Directors are considered to be suitably qualified, trained

and experienced so as to be able to participate fully in the

work of the Board. To assist with the independent conduct of

their function and, if required, in connection with their duties,

a process is in place for the Non-Executive Directors to obtain

professional advice at the Company’s expense.

The Directors keep their knowledge and skills up to date

and have the opportunity to discuss areas for development

with the Chair. Virtual seminars and on-line courses run by

professional bodies on various commercial, operational and

regulatory matters were attended by the Directors as part of

their ongoing development .

As required, professional advisers are invited to the Board

meetings to provide in-depth updates and the Board also

receives updates on environmental, employee and governance

issues as appropriate. The General Counsel & Company

Secretary provides regular updates on regulatory matters.

Presentations at the Board during 2025 have covered ESG

updates, cybersecurity, investor views, customer insight,

and market remuneration and policy trends. In addition,

the General Counsel & Company Secretary provides regular

updates on developments in Corporate Governance.

The Non-Executive Directors further enhance their

understanding and knowledge of the business and culture

by spending time with the Executive Directors, the Executive

Team, other senior management and colleagues.

7676

DIVISION OF RESPONSIBILITIES CONTINUED

Board evaluation

Progress during 2025 versus actions identified as part of the prior year’s Board evaluation (2024)

Customer

Continued Board engagement

with Executive team Meetings

Actions

identified in

2024

To ensure that the Board

continued to understand the

Company’s different customer

segments it was agreed that

each of the Board members

would contact and/or visit

different customer types to gain

further insight.

To ensure the continued

dialogue and engagement

between Executive team

members and individual

Board members outside of the

Boardroom to get the benefit of

the Board Directors’ experiences

and input into the Company’s

strategy and its implementation.

It was agreed that the Board

would continue with a recent

practice of each Non-Executive

Director providing direct

feedback at the end of each

meeting for the benefit of the

Executive Directors to share with

the Executive team members.

Progress

made in 2025

The Board completed this and

met with different customers

during the year.

The Board continued to engage

with the Executive team on

an individual and collective

basis to further understand the

challenges the Company faces

which enabled the Board to take

urgent action to accelerate the

transformation programme and

revise its strategy.

The Board has embedded this

feedback approach at each

meeting which has worked well

to capture consistent points for

Executive team members.

2025 Board evaluation

The Code recommends that there should be a formal and

rigorous annual evaluation of the performance of the Board

and its Committees and that this process is externally

facilitated at least every three years. The Board undertook

an externally facilitated self-evaluation in 2025 with Telos

Partners.

The evaluation noted the positive performance of the Board

in several areas and highlighted areas, which would benefit

from further improvement.

The Board discussed the report and agreed actions to take

forward based on the suggestions in the report.

Performance review of the Chair

(and Interim Executive Chair) during

the financial year

The Senior Independent Director (Jemima Bird), following

results of the Board evaluation and consultation with other

Directors, provided feedback to Stephen Bird as the Chair

and Interim Executive Chair on his own performance. The

review noted that the Chair had strengthened relationships

between the Board and the Management Team, with a more

collaborative leadership and approach, allowing full member

participation in meetings. In addition, given the Company’s

performance a directive-led approach with the Management

Team was deemed appropriate and would receive periodic

reviews as business context evolves. Please see the Nomination

Committee report on pages 78 to 85 on how it ensured that

the Company continues to have the most effective Board

composition and combination of skills to support the delivery of

the acceleration of the Company’s strategy.

Individual Director performance

reviews during the financial year

As part of the annual effectiveness review of the Directors,

the Chair provided feedback to each Director on their own

performance and discussed training and development

opportunities.

Following the results of the evaluation and the relevant

performance reviews described in this section, the Board

confirms that all Directors, including the current Chair

of the Board, continue to be effective and demonstrate

commitment to the role, including dedicating sufficient time

to attend all necessary meetings and to carry out all other

duties required of them.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

COMPOSITION, SUCCESSION

AND EVALUATION

Statement from the Chair

of the Audit Committee

On behalf of the Board, I am

pleased to present the Audit

Committee’s report for the

year ended 31 December

2025.

This report outlines the Audit

Committee’s ongoing role in providing

robust challenge and oversight of the

Group’s financial reporting, internal

controls, and risk management.

The macroeconomic and industry

headwinds commented upon last year

have persisted through the year, which

has created externally driven challenges.

These have been compounded

by certain adverse unintended

consequences of the strategy that the

Group had been pursuing and which

was revised during the year. The Audit

Committee has continued to monitor

closely for the potential impact of these

challenges on the Group.

Membership and

meetings

The Audit Committee comprises

Stephen Bird, Jemima Bird, Karen

Hubbard and myself. All members are

independent Non-Executive Directors,

except for a period of time, when

Stephen Bird and Jemima Bird took on

executive duties following the departure

of the CEO in October 2025, bringing

a broad range of relevant experience

that enables effective challenge

and thorough analysis of the matters

considered. Further details of the

Committee members’ experience can

be found in the Directors’ biographies

on pages 60 and 61. Information on

the remuneration of Audit Committee

members is set out in the Report on

Directors’ Remuneration on page 106.

The Audit Committee met four times

during the year in scheduled meetings

aligned to the annual programme of

business and the financial reporting cycle.

Meetings are held shortly before Board

meetings to facilitate effective and timely

reporting, with the Chair of the Audit

Committee providing a verbal update to

the Board following each meeting.

The Chief Executive/Executive

Chair, Chief Financial Officer, and

representatives of the external auditor

attend Audit Committee meetings at

the invitation of the Committee Chair.

The Director of Group Finance, the Head

of Internal Audit, and other members

of senior management attend as

appropriate. During the year, the Audit

Committee also held meetings with the

external auditor without management

present and, separately, with the Head

of Internal Audit. In addition, I meet

regularly with the Lead Audit Partner

outside the formal meeting schedule

and maintain ongoing contact with the

Chief Financial Officer and the Head of

Internal Audit.

The Company Secretary acts as

Secretary to the Audit Committee.

In addition to formal meetings,

Audit Committee members met with

members of the operational and

finance teams, as well as other senior

management, during the year.

Main role and key

responsibilities

The Audit Committee is appointed by

the Board and operates under written

terms of reference (available in the

investors section at www.headlam.com).

At the start of the year the Audit

Committee agreed its priority areas of

focus for 2025. These are set out in the

table below along with a summary of

the progress the Audit Committee has

made on these priorities.

“ The Audit Committee has continued to

closely monitor the impact of market

conditions, and the transformation plan,

on the Group’s significant accounting

matters and key judgements.”

Robin Williams

Chair of the Audit Committee

Key responsibilities:

• Monitoring the integrity of the

Group’s financial statements

and results announcements

and any other published

financial information and

significant financial reporting

issues and judgements, as well

as other required disclosures.

• Reviewing the adequacy and

effectiveness of the Group’s

internal controls and risk

management systems.

• Approving the activities,

reviewing the findings and

assessing the effectiveness

of the Group’s internal audit

function.

• Recommending the external

auditor appointment;

assessing audit quality and

effectiveness; assessing

independence, objectivity

and approving fees; and

monitoring non-audit services.

7878

AUDIT COMMITTEE REPORT

Key areas of focus Progress made

Preparation for

compliance with the UK

Corporate Governance

Code reform including

readiness for the required

Director’s Declaration in

respect of the year ended

31 December 2026

Preparations for compliance progressed well

during the year. A dry run of the controls and areas

underpinning the Declaration was performed in

2025.

Whilst the key remediation focus is on material

controls, attention is also given to key controls

which form part of our internal control

environment assessment.

Continued oversight

and challenge of the

impact of the Group’s

transformation plan

on financial reporting

and on significant

judgements and

estimates

The impact of the transformation plan has been

assessed as part of the half year process on

significant judgements and estimates, including

bad debt and stock provisioning as well as going

concern.

Oversight of financial

control implications of

the new ERP

The Finance team have been heavily involved in

shaping the design of the new system, including

the incorporation of the required controls. The new

system is defined in a master document called

‘Day In The Life’.

The Board carefully discussed the considerations as

to whether or not to pause the implementation of

the new ERP system, ultimately deciding to pause

it. Prior to that decision the project team had been

building towards doing walk throughs of each

of the key processes for the Executive team and

certain members of the Audit Committee.

Assessing impact of

macroeconomic and

trading environment

on the Group’s

accounting judgements

and estimates (e.g.

impairment, going

concern, etc.)

The macroeconomic impact and trading

environment has also been considered in the

half year process on significant judgements and

estimates, notably in the 3 year plan roll forward

and going concern assessment.

Consideration of

emerging risks, including

through a facilitated

workshop

The Risk Committee undertook a facilitated

workshop in 2024 and this was envisaged to be

repeated in 2025, with the Audit Committee.

However, given other business priorities in light of

business performance, this will be covered by the

Audit Committee during 2026. Consideration of

emerging risks has, nonetheless, continued during

the year.

How the Committee

spent its time

Financial Reporting 30%

External Audit 30%

Internal Controls and Risk 25%

Governance 15%

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Activities of the Audit Committee during the year

The key activities of the Audit Committee in discharging its principal areas of responsibility are outlined below

External Audit

• Approved the external audit plan, scope, materiality,

and the audit fee.

• Reviewed audit findings, including private meetings

with the external Auditor, and assessed auditor

independence and effectiveness.

• Oversight of the audit tender process concluding in

the recommendation to reappoint PwC.

Governance

• Reviewed and approved the Audit Committee’s

terms of reference, annual programme of work and

key governance policies.

• Considered matters relating to modern slavery and

human trafficking and received updates on relevant

corporate governance developments.

Going concern and viability reporting

• Reviewed financial modelling supporting the going

concern assessment.

• Considered the viability assessment and scenario

analysis underpinning the long-term viability

statement.

Financial reporting

• Reviewed the interim and annual financial

statements, including significant accounting

judgements, estimates and risk disclosures.

• Considered the effectiveness of processes to ensure

the Annual Report and Accounts are fair, balanced

and understandable.

• Assessed the impact of macroeconomic and

trading conditions, and the transformation plan,

on accounting judgements, disclosures and

liquidity, and reviewed the going concern basis of

preparation.

• Considered the external Auditor’s findings and

management’s responses, and approved the Audit

Committee Report for inclusion in the Annual Report

and Accounts.

Internal controls and Risk

• Approved the internal audit charter and plan and

reviewed reports on the effectiveness of internal

controls and risk management.

• Supported the Board in its review of principal and

emerging risks and related disclosures.

• Oversight of the preparation for compliance with the

Director’s Declaration in respect of the year ended

31 December 2026.

8080

AUDIT COMMITTEE REPORT CONTINUED

Significant financial reporting issues and areas of estimate and judgement

The Audit Committee received and discussed reports and recommendations from management and the Auditor setting out the

significant issues and areas of judgement and estimation.

Significant issues and areas of

estimate and judgement How they were addressed

Supplier arrangements

The Group has a significant number

of rebate agreements with suppliers.

These agreements can contain multiple

terms or tiered arrangements based on

the volume of goods purchased. The

majority of these rebates are paid to the

Group after the year-end, meaning that

there is typically a significant rebate

receivable at the year-end balance

sheet date.

Management explained to the Audit Committee the process of calculating the

amounts expected to be received and confirming these balances with suppliers

and discussed the assumptions made in the calculations. The Audit Committee

challenged the assumptions used by management and reviewed the level of cash

receipts and credit notes received after the year-end.

The work of the external auditor in relation to supplier rebates was discussed by

the Audit Committee.

Based on this, the Audit Committee was satisfied that the amounts recognised

have been appropriately scrutinised and that the assumptions upon which the

calculation was based are sufficiently robust.

Non-underlying items

The Group accounting policy for

non-underlying items states that

performance measures will be

presented which exclude items which

are associated with the acquisition of

businesses and other items which by

virtue of their nature, size and expected

frequency, warrant separate additional

disclosure in the financial statements

in order to fully understand the

underlying performance of the Group.

Management must exercise judgement

in deciding whether items should be

treated as non-underlying by reference

to this policy.

The Audit Committee considered the presentation of non-underlying items in

accordance with the Group accounting policy. This year the non-underlying items

included income of £6.2 million in respect of the profit on disposal of properties,

and expenses of £36.3 million comprising: £1.1 million of amortisation of intangibles

and other acquisition-related expenses, £4.8 million impairment of assets, £23.2

million business restructuring and change-related costs, £5.6 million ERP system

development, and £1.6 million provision relating to legal claim.

The Audit Committee received reports from management and the Auditor,

outlining the judgements applied including consideration of materiality. The Audit

Committee also considered whether the Annual Report and Accounts was fair,

balanced and understandable and challenged management’s designation of

items as non-underlying. The Audit Committee concluded that the disclosure of

non-underlying items was sufficient and appropriate for the user of the accounts

to understand the nature of the items and reason for their treatment as non-

underlying.

Carrying value of

non-current assets and

recoverability of investments in

subsidiaries

The Group had £7.6 million of goodwill

allocated on its balance sheet at 31

December 2025, resulting from past

acquisitions, along with intangible

assets, property, plant and equipment

and right-of-use assets. Furthermore,

the Company’s investments in

subsidiaries are £12.6 million. The

assessment of the recoverable amount

of these assets are estimated based on

future cashflows and any impairment

has the potential to be material.

Management performed the annual impairment review of goodwill, along with

impairment reviews for other groups of assets at both June 2025 and December

2025 where indicators of impairment were identified. The key assumptions used

in an impairment review are the level of revenue growth, gross margin and the

discount rate.

Management concluded that an impairment of £4.8 million was necessary during

2025, in respect of the Melrose cash generating unit, as described in note 10.

Management also assessed the recoverability of the Company’s investment in

its subsidiaries and an impairment of £83.8 million was recorded. This was driven

by an increase in debt in HFD Limited and the reduced value in use of cash flow

projections as a result of the Group’s transformation plan, which, whilst providing

a clear line of sight to return to profitability, is based on a smaller business and

hence the absolute profit in the long term projections has changed compared to

previous impairment assessments.

The Audit Committee considered the impairment reviews carried out by

management and discussed the basis of the key assumptions and the sensitivities

performed. The Audit Committee also considered the external auditors’ findings

and discussed this matter with the external auditors. Based on this the Audit

Committee was satisfied that the approach taken by management was robust

and that the assumptions made were reasonable.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Significant issues and areas of

estimate and judgement How they were addressed

Recoverability of deferred tax

assets

A net deferred tax asset of £8.2m has

been recognised in respect of tax losses

Over the last two years the Group’s deferred tax assets in respect of tax losses

have increased. In determining whether it is appropriate to recognise deferred tax

assets management is required to consider whether there are sufficient deferred

tax liabilities against which to offset these deferred tax assets and, where this is

not the case, to satisfy itself that there are sufficient taxable profits projected in

order to utilise these losses in an appropriate timeframe.

Management has assessed future trading forecasts and has concluded that the

deferred tax assets recognised will be recoverable using estimated future taxable

income over a five year period to 2030 based on approved business plans for the

Group up to 2029 with 2030 assumed to be in line with 2029. The directors have

not deemed it appropriate to estimate future taxable income past 2030 given

the unreliability of using estimating data past this point. The losses can be carried

forward indefinitely and have no expiry date.

The Committee considered management’s assessment and its projections, after

which the Committee concurred with management’s view that it was appropriate

to recognise the deferred tax assets

Provision for legal claim

The Group has recognised a provision of

£1.6m in respect of a health and safety

offence in 2022

The legal claims provision relates to one of the Company’s subsidiaries, MCD

Group Limited, which is being prosecuted by a local authority for a health and

safety offence relating to an accident at one of the Group’s sites, previously

disclosed in our 2022 Annual Report. MCD Group Limited has pleaded guilty to the

offence and awaits sentencing.

There is significant uncertainty in estimating the level of fine that may be

imposed. The Committee considered management’s assessment, as well as

external input, including with reference to sentencing guidelines. The Committee

concurred with the provision of £1.6 million recognised, being the best estimate at

the current time.

Going Concern

In determining the appropriate basis of

preparation of the financial statements

the Directors are required to consider

whether the Group can continue in

operational existence for a period no

shorter than 12 months from the date of

approval of the financial statements

The Audit Committee assessed management’s going concern analysis, which

included forecasts of a base case scenario and a severe but plausible downside

scenario, and covenant compliance and liquidity headroom in those scenarios.

Particular attention was given to assumptions relating to revenue, transformation

plan initiatives, cash inflows from property disposals and working capital

optimisation, and the availability of committed borrowing facilities.

The Audit Committee challenged these assumptions and reviewed the mitigating

actions available, including those that are in the Group’s control and those

that are not. The Audit Committee noted that the Group was compliant with

covenants in both the base case and the downside scenarios. Having considered

the analysis and the disclosures proposed in the financial statements, the Audit

Committee concluded that it is appropriate to prepare the financial statements

on a going concern basis. The Audit Committee also noted that, whilst the

transformation plan is anticipated to result in a reduction in Net Debt, there

are cash inflows in the projections (specifically, property disposals) that are not

wholly within the Group’s control. Accordingly, the Committee concurred that

those particular circumstances represent a material uncertainty which has been

disclosed in the financial statements.

8282

AUDIT COMMITTEE REPORT CONTINUED

Internal audit

The Group has a Head of Internal Audit, who provides regular

reports to the Audit Committee at each meeting. During the

year, the function delivered the approved internal audit plan,

which was developed with reference to the Group’s principal

risks.

The Audit Committee also receives assurance from a range

of other sources, including internal control reviews carried

out by the Group finance team and additional management

reporting. This includes a consolidated overview of assurance

activities across the Group, together with internal self-

certification reports covering compliance with regulatory

requirements and Group policies.

The internal audit function will continue to develop in line with

the Group’s strategy, focusing on assessing the effectiveness

of risk management processes, policies, procedures, systems

and key controls. Management considers recommendations

arising from internal audit reviews, with progress against

agreed actions monitored by Internal Audit and reported to

the Audit Committee on an ongoing basis.

The Audit Committee remains satisfied with the independence

and effectiveness of the internal audit function. The Head

of Internal Audit reports directly to the Chair of the Audit

Committee, with an administrative reporting line to the Chief

Executive, and holds no other operational responsibilities, in

accordance with the Institute of Internal Auditors’ Code of

Practice.

Private sessions between the Audit Committee and the Head

of Internal Audit are held twice annually, with additional

meetings between the Head of Internal Audit and the

Committee Chair taking place at least quarterly.

External auditor

Non-audit services

The Audit Committee has reviewed its policy for the provision

of non-audit services (‘Non-Audit Policy’) within the last 12

months. Under the Non-Audit Policy and in line with FRC’s

Ethical Standard, non-audit fees paid to the external auditor

should not exceed 70% of the average audit fee for the

preceding three periods.

During the year, no non-audit services were provided by the

Auditor and therefore no fees were paid to the Auditor for

non-audit services. The general policy is that the external

auditor must not carry out any non-audit services. The Group’s

statutory auditor will only be engaged to carry out non-

audit services in exceptional circumstances or where there

is a regulatory request and any such engagement would

be approved by the Audit Committee. This is to ensure the

independence of the external auditor is safeguarded.

Independence and objectivity

The Audit Committee annually reviews the appointment of

the external auditor and considers their independence and

objectivity.

PwC was initially appointed as Auditor in 2016 following a full

tender exercise. Gill Hinks took over as lead audit partner for

Headlam Group plc following the conclusion of the 2019 audit

and, as she had served as lead audit partner for five years

prior to this year’s audit commencing, the Audit Committee

considered, in conjunction with the external auditors,

appropriate lead audit partner arrangements in accordance

with current professional standards. Laura Hill became lead

audit partner for the year ended 31 December 2025.

The Audit Committee considered the conduct of the external

auditor and the level of challenge displayed during the course

of the year-end audit, in particular the depth of discussions

and the challenge to the Group’s approach to its significant

judgements.

The external auditor has processes in place to ensure that

independence is maintained and has written to the Audit

Committee confirming that, in their opinion, they remain

independent within the meaning of the relevant regulations

on this matter and their own professional standards and

that no conflict of interest exists that would affect their

professional judgement.

Taking into account the external auditor’s confirmation, its

own deliberations and feedback from management, the

Audit Committee agreed that the external auditor remained

independent from management and able to display an

independent view on the position of the business.

Effectiveness of external audit

An effectiveness review is performed after the conclusion of

each year’s audit. Feedback was obtained from members of

the Audit Committee, regular attendees and members of the

finance team. The review covers several themes including the

calibre of the external auditor, the team and relationship with

the business and the independence and objectivity displayed.

The progress achieved against the agreed audit plan and

the competence with which the auditor handled the key

accounting and audit judgements were also considered.

Following the review, the Audit Committee concluded that the

external auditor, PwC LLP, remained independent and that

the external audit process remained effective.

Audit tender

PwC will, for the year ending 31 December 2026, have been the

Group’s Auditor for ten years. Accordingly the Group conducted

a competitive tender process for the Group’s external audit, in

line with regulatory requirements and to ensure continued audit

quality, independence and value for money.

Two members of the Audit Committee formed a tender

subcommittee which also included the Chief Financial Officer

and Director of Group Finance. This tender subcommittee

oversaw the tender process, which included the preparation

of a detailed request for proposal and management

presentations. A number of leading audit firms were invited

to participate in the tender, including the incumbent auditor.

The Committee was satisfied that the process was fair,

competitive and appropriately robust.

Management supported the process by coordinating

information requests and providing factual input; however,

the final evaluation and recommendation were made solely

by the Audit Committee, following input from the tender

subcommittee.

Following the conclusion of the tender, the Audit Committee

recommended the reappointment of PwC as the Company’s

external auditor, subject to shareholder approval at the AGM.

The Audit Committee’s recommendation, that a resolution to

reappoint PwC LLP be proposed at the AGM, was accepted

and endorsed by the Board. In accordance with regulatory

requirements, the next audit tender will be conducted no later

than 2036.

The Audit Committee concluded that the tender process was

thorough and effective and that the recommended auditor

is well placed to deliver a high-quality, independent audit of

the Group.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

FRC review of 2024 financial statements

The FRC conducts a review programme of companies’ annual

reports and accounts. During 2025 the FRC conducted such a

routine review of the Company’s 2024 accounts and enquired

into specific areas of the Company’s reporting.

As a result of this FRC review, the Company has changed its

accounting policy for cash and cash equivalents in order to

provide reliable and more relevant information in the financial

statements.

The Group accounting policy when there is a cash pooling

arrangement in place, covered by one single bank contract,

relating to a single currency and subsidiaries operating in

the same country, is that cash and cash equivalents and

overdrafts are considered to be a single unit of account and

they are reported on an aggregated basis.

The Company is now deemed to be the primary participant in

the pooling arrangement and the amount recorded as cash

and cash equivalents in the Company’s financial statements

is the net cash balance on the pooling arrangement rather

than its memo account balance, with the difference recorded

as an intercompany balance. This change in accounting

policy has resulted in the restatement of the Company’s

cash and cash equivalents at 31 December 2024 period from

£82.3 million to £7.5 million with corresponding adjustments to

trade and other receivables from £28.7 million to £128.6 million

and trade and other payables from £49.2 million to

£74.3 million. The brought forward cash and cash equivalents

balance as at 1 January 2024 has been restated from

£63.2 million to £15.1 million.

There is no change to the Group’s cash and cash equivalents

in the consolidated financial statements.

It is noted that there are inherent limitations to the FRC review

of the 2024 annual report and accounts and that it does not

provide assurance that the annual report and accounts are

correct in all material aspects. The FRC role is not to verify

the information provided to it, but to consider compliance

with reporting requirements. The FRC accepts no liability

for reliance on them by the Company or any third party,

including, but not limited to, investors and shareholders.

Misstatements

Management reported to the Audit Committee that they

were not aware of any material misstatements or immaterial

misstatements made intentionally to achieve a particular

presentation. The external auditor reported to the Audit

Committee the misstatements that had been found in the

course of the audit work and no material amounts remained

unadjusted.

Information security and cyber risk

The Audit Committee, with its membership consisting of only

Non-Executive Directors, oversees the Group’s approach to

information security and cyber risk management as part

of its review of the risk management and internal control

framework and its oversight of the work of the Executive Risk

Committee.

The Company has a clear approach to identifying and

mitigating information security risk. Information security and

cyber risks are mitigated through processes and procedures

employed by the Group; training provided to all colleagues

with email access and annual cyber awareness training; and

independent assurance and annual penetration testing.

A small subsidiary of the Company was subjected to a

cyber attack during the year, which successfully infiltrated

and disabled the standalone ERP system of the subsidiary.

However, through swift action to isolate and disconnect the

affected system and launch an alternative version of the ERP

system, populated with backup data, there was very minimal

disruption with little to no lost revenue as a result. We did not

identify any loss of data from this attack.

Risk management and

internal control effectiveness review

The Board has ultimate responsibility for the effective

management of risk throughout the Group, including

determining its risk appetite and identifying key strategic and

emerging risks. The role of the Audit Committee is to monitor,

on behalf of the Board, the Group’s financial and non-

financial risk and internal control management systems and

assess their effectiveness.

In supporting the Board in its assessment of the effectiveness

of risk management and internal control process, the

Audit Committee relies on a number of different sources of

assurance: at each meeting, the Audit Committee reviews the

minutes of and considers assurance provided by the Executive

Risk Committee as part of its assessment of the effectiveness

of the risk management framework; reports provided by

management and the Executive Risk Committee; and the

assurance provided by third parties in specific risk areas.

The Audit Committee also receives reports from the external

auditor on matters identified during the course of its statutory

audit work. The Audit Committee takes into account the

resources within the finance team including the structure of

the team, and the qualifications, experience and competence

of the people within it, in forming its view.

The Group’s control framework is intended to manage rather

than eliminate the risk of failure to achieve business objectives.

Such a framework can only provide reasonable and not

absolute assurance against material misstatement or loss.

The control framework is evolving in line with the strategic

objectives and has been enhanced by the implementation of a

set of minimum controls standards, with a rolling programme of

testing to ensure that all of the minimum control standards are

designed and operating effectively.

Health and safety risks are managed by the Executive Risk

Committee but performance is monitored directly by the

Board at each of its scheduled meetings.

An overview of the risk management framework and the

principal risks and uncertainties it identifies, is set out on

pages 46 to 50.

The Audit Committee was satisfied that the reporting

disclosures in respect of internal controls and risk management

are a fair representation of the Group’s position.

8484

AUDIT COMMITTEE REPORT CONTINUED

Fair, balanced and understandable

At the request of the Board, the Audit Committee reviewed

the Group’s Annual Report and Accounts and considered

if when taken as a whole, it was fair, balanced and

understandable, and provides the information necessary

for shareholders to assess the Company’s position and

performance, business model and strategy, as required by the

Code Provision 25.

The key themes are considered early in the process and this

process involved a wide range of individuals including the

Interim Executive Chair, Chief Financial Officer, Company

Secretary, Finance Team, Interim Chief People Officer and

senior managers of the businesses.

The Audit Committee followed robust procedures to make

this assessment. These included reviewing the early stages of

drafting and any feedback was then incorporated into the

subsequent drafts. Each Director also had the opportunity

to review and feedback on a full copy of the report which

provides additional oversight. The Audit Committee also

had oversight of the overall process and also the results of

the evaluations of the remuneration committee report and

the governance section as well as private sessions with the

external auditor.

In addition, the Audit Committee considered and challenged

the going concern assumptions and the management’s areas

of significant judgements as part of the year end process as

did the external auditor.

The Audit Committee considered the content and if it was

balanced with both negative and positive factors being

presented and that it represented the events throughout the

year. The balance and consistency between narrative and

financial reporting was reviewed.

It was recommended to the Board that the 2025 Annual Report

and Accounts did reflect a fair, balanced and understandable

assessment of the Company’s position and prospects and

contained sufficient information for shareholders to assess the

Company’s position, performance, business model and strategy.

Speak Up policy

The Group’s ‘Speak Up’ Policy enables employees to

confidentially raise concerns regarding potential improprieties

in financial reporting or other matters. All employees receive

the Policy at induction and through ongoing training and

communications throughout the year.

Concerns can be raised via clearly defined internal channels

or anonymously through an independent external provider.

The ‘Speak Up’ Committee - comprising the Interim Chief

People Officer, General Counsel & Company Secretary,

Director of Group Finance, and Head of Internal Audit -

oversees the process, with all incidents reported to the Chair

of the Audit Committee. Investigations are conducted in line

with the Policy, with outcomes communicated to the Board as

appropriate.

The Group maintains a zero-tolerance approach to

bribery. During the year, the Audit Committee reviewed the

Anti-Corruption and Bribery, and Fraud and Anti-Money

Laundering Policies and recommended their approval to the

Board. Further details are available on page 75.

Committee effectiveness review

The effectiveness of the Audit Committee was evaluated as

part of the Board evaluation. Further details of this can be

found on page 77. The review found that the Audit Committee

is operating effectively and that its role and remit remain

appropriate for the current needs of the business.

Summary

The Audit Committee has concluded, as a result of its work

during the year, that it has acted in accordance with its terms

of reference and fulfilled its responsibilities.

The Audit Committee remains committed to maintaining

an open and constructive dialogue on relevant audit

matters with shareholders. If you should have any

questions on any aspect of this report, please do email

headlamgr[email protected] and I will also be available at

the AGM to answer any questions about the work of the Audit

Committee.

This Audit Committee report forms part of the Corporate

Governance Report and is signed on behalf of the Audit

Committee by:

Robin Williams

Chair of the Audit Committee

25 March 2026

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Statement from the

Chair of the Nomination

Committee

On behalf of the Board, I

am pleased to present the

Nomination Committee

report for the year ended

31 December 2025.

Succession planning

Following a succession Chair transition

between Keith and myself, I took over

as Chair of the Board and Chair of the

Nomination Committee with effect

from 27 February 2025.

The Nomination Committee then also

considered the balance of skills and

experience on the Board to support the

delivery of the key strategic aims and

revised strategy of the Company.

As a result, Jemima Bird, our Chair

of the Remuneration Committee

was appointed as the Senior

Independent Director with effect from

27 February 2025. Full details of all the

Board can be found in their biographies

on pages 60 and 61.

Executive Directors

The focus later in 2025 was to consider

the composition of the Board and

the senior management team in light

of the Company’s performance and

needs going forwards, with careful

planning to support the Company

through accelerating its transformation

programme and revised strategy.

Following Chris Payne’s stepping down

as Chief Executive Officer on 3 October,

I became Interim Executive Chair whilst

a search for a successor for Chief

Executive Officer took place.

Following a successful search using

search agency Warren Partners, I’m very

pleased to welcome Rob Barclay as

our Chief Executive Officer Designate

who joined on 9 March 2026 and will

assume the Chief Executive Officer role

on 27 April 2026 after a short handover

and I will revert back my role as Non-

Executive Chair.

I’m very pleased to welcome Rob

Barclay as our Chief Executive

Officer Designate who will become

Chief Executive Officer and join the

Board on 27 April 2026 after a short

handover (when I will revert to Non-

Executive Chair), and Richard Jones

who joined the Group as Interim CFO

on 12th March 2026 and will replace

Adam Phillips, CFO, on the Board on

26th March 2026.

Board composition

The Nomination Committee will

continue to monitor the composition of

the Board, its Committees and senior

management on an ongoing basis to

ensure they remain appropriate and

effective and have the right balance

of skills, knowledge, experience and

diversity to deliver the Company’s

strategy now and in the future.

“ The Committee is committed to

ensuring that the Board and the senior

management team have the right skills,

experience, knowledge and background

to deliver the revised strategy.”

Stephen Bird

Chair of the Nomination Committee

Key responsibilities:

• Monitoring the structure, size

and composition of the Board,

its Committees and the senior

management on an ongoing

basis to ensure they remain

appropriate and effective

and have the right balance of

skills, knowledge, experience

and diversity to deliver the

Company’s strategy now and

in the future.

• Making recommendations

to the Board of any changes

required and leads the process

regarding appointments

to the Board, including the

role as Chair and Senior

Independent Director.

• Succession planning for the

Board (including Chair and

Committee Chairs) and senior

management and making

recommendations to the

Board.

• Considering the diversity of

the Board and the talent

pipeline.

Full details of responsibilities

delegated to the Nomination

Committee by the Board in the

written terms of reference which

are available on the Company’s

website.

8686

NOMINATION COMMITTEE REPORT

The Nomination Committee also

annually considers the tenure of the

Board and when considering succession

planning for the Board, consideration is

given to skills, experience and diversity

to ensure that there is the appropriate

mix to continue to lead the Company

and deliver long-term success of the

Company for all of our stakeholders.

Strengthening the Senior

Management Team

The Nomination Committee focused

on the search and recruitment of a

replacement Chief Executive Officer

during 2025 whilst also ensuring the

right people with the right skills were in

place within the senior management

team to deliver the revised strategy and

ensure performance management was

strengthened throughout the business.

An interim review was undertaken

of the senior management team,

to ensure the accelerated delivery

of the transformation programme

and revised strategy in challenging

market conditions with added

expertise in buying and supply chain

transformation and sales to drive our

sales force performance. We also

supplemented the senior management

team with interim support with further

expertise across HR, Operations and

Transformation.

Board diversity

Board diversity and the advantages

it can make to decision making are

acknowledged by the Board. Diversity

is considered for every appointment,

which are made on merit against

objective criteria. Recruitment agencies

are instructed to present a diverse list of

candidates for all roles.

Any appointments are made to ensure

the correct and complementary skills

are on the Board, and provide the level

of experience required to deliver the

strategy for our stakeholders. The Board

diversity policy is considered every year

by the Board, which was last reviewed

in July 2025 and can be found on the

Company’s website.

The key statement of the Board

diversity policy is that the Company

is committed to developing a diverse

workforce and equal opportunities for

all and that the Board recognises the

valuable contribution that diversity

including gender, ethnicity and personal

strengths can bring to the Board.

The Board diversity policy also

commits to maintaining the current

gender balance of the Board, and the

Nomination Committee continues to

be committed to increasing gender

and ethnic diversity at Board level

and will seek to achieve this when the

opportunity arises and appropriate

candidates are identified.

Notwithstanding this, all Board

appointments will be made on merit

and against objective criteria and the

Nomination Committee will monitor

progress against the Board diversity

policy.

In terms of Board gender diversity,

as at 31 December 2025, there were

five Board members, two of which

were female (40%) and three were

male (60%).

One of our female Board Directors,

Jemima Bird is our Senior Independent

Director. Whilst the Board has 40%

female Board Directors, it recognises

that it does not have a Director from

an ethnic minority background, which

means it does not comply with all of the

diversity and inclusion targets set out in

the Listing Rules. However, the Board is

committed to increasing diversity when

the opportunity arises and appropriate

candidates are identified.

The Board has reviewed its size,

structure and composition during

the year, (and more recently on

4 March 2026), and concluded that

its remains suitable to meet the

Company’s needs and to promote the

desired culture, (please also see the

results of the 2025 Board Evaluation on

page 77).

It remains the policy that all

appointments to the Board and

Executive team should be made

on merit and against objective

criteria, whilst addressing diversity

considerations of the Board. The

Board’s diversity objective is to have a

broad range of age, gender, ethnicity,

approach, skills, experience and

educational/professional backgrounds

represented at Board level and in

senior management positions, and the

Nomination Committee will continue

to review what steps and recruitment

processes are appropriate for achieving

diversity.

The information required by the

Listing Rule for companies to report

information and disclose the gender

and ethnic background representation

on their boards and executive

management on a comply or explain

basis is included below.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Data concerning gender and ethnicity representation is collected directly from all the individual Board and Executive team

members as part of their onboarding process, or in the case of the Non-Executive Directors, through a Diversity and Inclusion

Monitoring Form (the ‘Form’) which was issued for completion asking individuals to disclose their gender and ethnicity using the

options included on the Form, which align with the detail in the left-hand columns of the tables below and therefore includes the

option to not specify an answer.

Gender representation as at 31 December 2025

Board Executive Committee

Number of

Board members

Percentage of

the Board

Number of

senior positions

on the Board

(CEO, CFO, SID

and Chair)

Number in

Executive

management

Percentage

of Executive

management

Men 3 60% 2 5 55%

Women 2 40% 1 4 45%

Not specified/prefer not to say – – – – –

Ethnicity representation as at 31 December 2025

Board Executive Committee

Number of

Board members

Percentage of

the Board

Number of

senior positions

on the Board

(CEO, CFO, SID

and Chair)

Number in

Executive

management

Percentage

of Executive

management

White British or other White

(including minority-white groups)

5 100% 2 9 100%

Mixed/Multiple Ethnic Groups – – – – –

Asian/Asian British – – – – –

Black/African/Caribbean/

Black British

– – – – –

Other ethnic group, including Arab – – – – –

Not specified/prefer not to say – – – – –

Group-wide diversity

The Company has continued to implement its inclusion and wellbeing strategy, which includes actions to improve the diversity,

equity and inclusion of our workforce, please see further details on page 34.

Colleague engagement

Karen Hubbard is appointed as the designated Non-Executive Director for workforce engagement. Further information on the

establishment of the Employee Forum and how the employee voice is heard in the Boardroom can be found on page 69.

Effectiveness of the Nomination Committee

The effectiveness of the Nomination Committee was evaluated as part of the 2025 Board and Committees evaluation, which

was undertaken externally this year by an external third-party consultant, Telos Partners. The report highlighted that the Board

and its Committees continue to function well. The findings were discussed and it was agreed that the Nomination Committee

remained effective.

Directors – retirement, election and re-election

Individuals seeking election and re-election at the 2026 AGM is set out in the AGM Notice of Meeting.

8888

NOMINATION COMMITTEE REPORT CONTINUED

Each Director has been subject to a performance evaluation

and the Nomination Committee has conducted its own

annual review of the appropriateness of the Directors’ skills

and experience; their time commitment to the Company;

and their contribution to the Board during the year. As part of

this review, each Director has confirmed that they continue

to allocate sufficient time to discharge their responsibilities

effectively, and the Nomination Committee evaluates their

ability to do so, taking into consideration other external

commitments, in addition to their individual performance

throughout the year and their skills and experience set against

the agreed strategy.

Following this review the Nomination Committee, and

subsequently the Board has concluded that each Director

continues to make an effective and valuable contribution and

demonstrates commitment to their role. It is recommended

that shareholders approve the resolutions to be proposed to the

forthcoming AGM relating to the election and/or re-election of

each Director (as applicable).

A year of progress

Despite the challenges throughout the year, we have made

good progress with our revised strategy and accelerating our

transformation programme . The Nomination Committee

always has the long-term success of the business for all

stakeholders in mind.

Membership and attendance

at 2025 meetings

During the year, I acted as Chair of the Nomination

Committee, and it comprises a majority of Independent

Non-Executive Directors as required by the Code, their

biographies are set out on pages 60 and 61. Appointments

to the Nomination Committee are made by the Board. The

Nomination Committee considers the composition of the

Board and its committees on an annual basis.

The Nomination Committee met on four occasions in order

to fulfil its responsibilities delegated to it by the Board.

Attendance is shown in the table below.

Only members of the Nomination Committee are entitled to

be present at meetings. However, other Directors (including

the Chief Executive Officer), members of the Executive

team and advisers may be invited to attend Nomination

Committee meetings at the discretion of the Chair. The

General Counsel & Company Secretary performs the role of

Secretary to the Nomination Committee.

No Director is involved in any decisions regarding their

own continuation in office, re-appointment or re-election,

including the Chair and this operated where in relation

to my appointment as Interim Executive Chair, our Senior

Independent Director chaired the Nomination Committee

which discussed this.

Name No. of meetings attended

Stephen Bird 3/4

Jemima Bird 4/4

Karen Hubbard 4/4

Robin Williams 4/4

As referred to above, there was one Nomination

Committee meeting held to discuss specifics relating to my

appointment as Interim Executive Chair and given this, it

was not appropriate that I attended this meeting and so my

attendance record in the table above reflects this.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Appointment and re-appointment

of Directors

The Nomination Committee has procedures in place for a

formal, rigorous and transparent process leading to Board

appointments, ensuring that appointments to the Board

are made on merit, against objective criteria and promote

diversity of gender, social and ethnic backgrounds. This has

been shown by the decision to appoint Jemima Bird as our

Senior Independent Director last year.

The Chair and the other Non-Executive Directors are

appointed for an initial period of three-years, which, with

the approval of the Nomination Committee and the Board,

would normally be extended for a further three years term.

All appointments are subject to annual election by the

shareholders.

The letters of appointment of all Non-Executive Directors

(alongside the service contracts for the Executive Directors)

are available for inspection at the Company’s registered

office during normal office hours. Copies are also made

available at each of the Company’s Annual General Meetings

for 15 minutes prior to the meeting and throughout.

Time commitments

The letters of appointment clearly set out the time

commitment expected from each Non-Executive Director

and this is reviewed annually by the Committee to ensure it

remains appropriate. Each Non-Executive Director confirms

at the time of their appointment, and each year thereafter,

with careful consideration to their external appointments,

that they can continue to dedicate sufficient time to the

Group’s business.

All Directors have demonstrated strong time commitment to

their roles during the year.

The Nomination Committee confirms that it is fully satisfied

that each Director dedicates the appropriate amount of time

to their roles on the Board and the Nomination Committee.

Board size, structure and composition

The composition and performance of the Board and its

Committees was considered by the Nomination Committee

as part of its annual assessment and it was concluded

that the Board and each Committee continue to function

effectively. The Nomination Committee concluded that the

composition of the Board is compliant with the provisions

of the Code, is appropriate to meet the business and

operational objectives, and is sufficient to bring a balanced

and experienced view to the decision-making process.

Activities of the Nomination Committee

The Nomination Committee agrees an annual workplan and, in

addition to matters relating specifically to its terms of reference,

agendas incorporate matters arising and topical items upon

which the Nomination Committee has chosen to focus.

The key activities of the Nomination Committee during the

year in discharging its principal areas of responsibility are

shown as follows:

Skills assessment and succession

• Reviewed the skills and experience required by the Board

in the context of wider business needs and culture, long-

term strategic objectives and stakeholder feedback.

• Reviewed the skills and experience of Non-Executive

Directors to fully support the achievement of the Group’s

strategic objectives.

• Supported the recruitment of key interim Executive team

and management positions.

• Implemented the Chair and CEO succession plans.

Governance

• Reviewed the structure, size and composition of the Board

and its Committees.

• Reviewed and updated the terms of reference of the

Committee and its annual plan.

• Reviewed the time commitment required of Non-

Executive Directors and evaluated whether enough time

had been committed to fulfil their duties.

• Recommended the re-election of all Directors due to retire

at the AGM

• Reviewed the role descriptions of the Chair, Chief

Executive and Senior Independent Director positions

• Considered and re-approved the policy on approving

external appointments.

• Reviewed and approved the Board diversity policy.

Evaluation

• Reviewed the results of the Board effectiveness in relation

to the Board, its Committees and their own performance.

• Considered the composition, size and diversity of

the Board.

Reporting

• Considered and recommended to the Board the

Nomination Committee report for inclusion in the Annual

Report and Accounts

This report and the information on pages 56 to 123 forms part

of the Corporate Governance report and is signed on behalf

of the Nomination Committee by:

Stephen Bird

Chair of the Nomination Committee

25 March 2026

9090

NOMINATION COMMITTEE REPORT CONTINUED

Strategic Report

Governance

Headlam Group PLC Annual Report & Accounts 2025

Annual statement

On behalf of the Board,

I am pleased to present

the Directors’ Remuneration

Report for 2025.

The report includes this Annual

Statement, a new Directors’

Remuneration Policy (‘Policy’) given

that the current Policy expires in

2026, and the Annual Report on

Remuneration for the financial year

ended 31 December 2025. The Directors’

Remuneration Report (excluding the

Policy) will be subject to an advisory

shareholder vote at the AGM on

20 May 2026 and the Policy will be

subject to a binding shareholder vote

at the same meeting. This new Policy,

subject to the approval of shareholders,

will last for three years from the date

of approval or until another policy is

approved at a general meeting in the

interim.

Business performance and

incentive out-turn for 2025

As set out in the Chair’s statement on

page 2, 2025 proved to be a difficult

year for the industry as a whole,

and for many businesses exposed

to consumer discretionary spend.

Financial performance reflected both

a persistently challenging market and

the deliberate decision to exit low-

margin revenue as the Group refocused

on its core customer base. Despite this

backdrop, the Company made good

progress with the acceleration of its

strategy to optimise and simplify the

business through its transformation

plan.

No annual bonus was payable in

respect of 2025 as a result of the

threshold profit target (70% of the

bonus) not being met. While progress

was made against a number of the

non-financial targets (30% of the

bonus), the Committee determined

that it was not appropriate to award an

annual bonus in light of the Company’s

financial performance and broader

stakeholder experience.

In respect of the 2023 PSP award due

to vest in April 2026, the Committee

determined that EPS and TSR

performance was below threshold. As

such, and as noted in the discretion

section below, the Committee agreed

to lapse the 2023 PSP awards regardless

of performance against the ESG

targets. Further details of the 2023 PSP

award are set out on page 110.

Noting the above, the Policy is

considered to have operated as

intended and as detailed below, no

changes are considered necessary.

Proposed New Policy

The three-year term of our current

shareholder-approved Directors’

Remuneration Policy expires in 2026 and,

as a result, we are seeking approval for

a new Policy at the 2026 AGM. Following

a detailed review of the Policy towards

the end of 2025, the Committee

determined that it continued to remain

fit for purpose and, as such, no changes

are proposed in respect of the Policy

that was last approved by shareholders

at the 2023 AGM.

Board Changes

Chris Payne stepped down as Chief

Executive Officer and Executive Director

on 3 October 2025 and Stephen Bird

assumed the role of interim Executive

Chair on the same date. Rob Barclay

joined the Company as Designate Chief

Executive Officer on 9 March 2026 and

will assume full responsibility as Chief

Executive Officer on 27 April 2026 when

Stephen Bird will revert to his role as Non-

Executive Chair. Richard Jones joined the

Group as Interim Chief Financial Officer

on 12 March 2026 and joins the Board

on 26 March 2026 following an orderly

handover from Adam Phillips.

“ Careful consideration in exercising

our discretion has been vital this year,

allowing us to strike the right balance for

our stakeholders during what has been

a challenging period for the Company.”

Jemima Bird

Chair of the Remuneration Committee

Key responsibilities:

• Designing the framework

and policy for Executive

Directors’ remuneration and

determining remuneration

packages for the Executive

Directors, Chair and senior

managers.

• Establishing remuneration

schemes that promote

long-term shareholdings

by Executive Directors and

that support alignment with

shareholders’ interests, both

in employment, and post

cessation.

• Reviewing workforce

remuneration and related

policies.

9292

DIRECTORS’ REMUNERATION REPORT

Discretion

The Remuneration Committee is conscious of its role in

ensuring that remuneration is appropriate when considering

the performance of the business and the individual Directors.

As detailed above, whilst the Remuneration Committee

recognises the significant work carried out by the management

team in respect of delivering the Company’s transformation

programme, the Remuneration Committee determined that no

bonus should be payable to the Executive Directors in respect

of the year ended 31 December 2025. In addition, noting that

EPS and relative TSR performance was below threshold, the

Committee determined that the 2023 PSP should lapse in full,

regardless of performance against the ESG targets. Finally, the

Remuneration Committee exercised negative discretion post

year end to lapse that Chris Payne’s 2024 DBP share awards

given his departure.

Remuneration for 2026

Base salary

No salary increases were awarded from 1 January 2026.

As such, current salary levels are as follows:

Director

1 January

2026*

1 January

2025*

Interim

Executive Chair

Stephen Bird £500,000 £500,000

Chief Executive

Officer

Rob Barclay £435,000 –

Chief Financial

Officer

Adam Phillips £331,500 £331,500

*Or appointment date where later.

Upon appointment as Interim Executive Chair on 3 October 2025, Stephen

Bird’s Non-Executive Chair fee was increased from £150,000 to £500,000. This

additional fee, which reflects his significantly enhanced role, will be payable

until Stephen Bird return to his role of Non-Executive Chair on 27 April 2026.

The new Chief Executive will receive a base salary £435,000 from appointment,

significantly lower than the £494,190 paid to the previous incumbent.

In addition to his base salary, Adam Phillips will continue to receive a £10,000 per

month acting up allowance which commenced on 3 October 2025 which will

cease upon the appointment of the new Chief Executive. The allowance, which

does not receive the benefit of pension provision. reflects Adam’s significant

additional roles and responsibilities in respect of supporting the Interim

Executive Chair.

The Interim Chief Financial Officer, who joined the Group on 12 March 2026, initially

on a below Board role will receive a base salary of £300,000 from appointment.

Pension

Pension contributions will continue to be capped at 8% of

salary for Executive Directors which is comparable to the

majority of employees. The Interim Executive Chair does not

receive a pension contribution.

Annual bonus

The maximum annual bonus opportunity for 2026 will remain at

125% of base salary with a minimum of one-third of any award

deferred into shares for two years. The payment of any annual

bonus awards, which will be pro-rated for new joiners, will be

based on both financial (majority weighting) and key strategic

and ESG-related objectives (minority weighting). Full disclosure

of the targets, which are considered to be commercially

sensitive, will be provided in the 2026 Annual Report and

Accounts. Neither the departing Chief Financial Officer or

Interim Executive Chair will be eligible for a 2026 annual bonus.

The bonus potential for the new Chief Executive Officer will be

pro-rated to reflect the partial year served.

PSP

It is the Committee’s intention to grant PSP awards up to 150%

of salary to Executive Directors in 2026, albeit neither the

departing Chief Financial Officer or Interim Executive Chair

are eligible to receive awards. Vesting will be subject to EPS

targets for the majority of the award and relative TSR targets

for a minority of the award.

Shareholder alignment

The combination of a post-vesting holding period

requirement under the PSP, the deferral into shares under

the annual bonus scheme and the shareholding guidelines

will continue to provide alignment between the interests

of Executive Directors, the shareholders and delivery of the

strategy. Awards will continue to be subject to a two-year

holding period following the date of vesting.

Non-Executive Directors’ fees for 2026

No increases were awarded in respect of the Non-Executive

Director base fees (£50,000), the Senior Independent Non-

Executive Director fee (£10,000) or the additional fees in respect

of Chairing the Audit Committee, Remuneration Committee

and Employee Forum and ESG committee (£7,500 each.)

However, reflecting her significant additional time commitment

following the departures of the Chief Executive and Chief

Customer Officer, Jemima Bird received an additional fee of

£48,000 between 3 October 2025 and 31 December 2025. This

reflects significant additional time commitment in excess of

her Non-Executive Director and SID roles to assist the Interim

Executive Chair in respect of delivering the transformation plan

to return the Group to profitability. This included a review of

the strategy, meetings with one customer to renegotiate key

contractual relationships, a number of shareholder meetings

and specific oversight for the Customer, Marketing, and People

teams. The additional support provided, capped at £8,000 per

month, will cease at the point that the new Chief Executive

is appointed and this additional time commitment is not

considered to have impaired Jemima Bird’s independence. and

Jemima was considered independent on appointment and

throughout 2025 and 2026.

Shareholder views and voting outcomes

Headlam is committed to maintaining good communications

with shareholders. It considers the AGM to be an opportunity to

communicate with shareholders, giving them the opportunity

to raise any issues or concerns they may have. In addition, the

Committee seeks to engage directly with major shareholders

and the main representative bodies, should any material change

be proposed to the Policy. The Committee was pleased to

receive over 99% votes in favour of the Directors’ Remuneration

Report (excluding the Policy) at the 2025 AGM and we hope we

will again receive your support at the forthcoming AGM.

Conclusion

We remain committed to a responsible approach to

executive pay, as I trust this Directors’ Remuneration Report

demonstrates. That said, I would be happy to meet or speak

with shareholders if there are any questions or feedback on

our approach to executive remuneration.

Jemima Bird

Chair of the Remuneration Committee

25 March 2026

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

At a glance remuneration overview

Executive Remuneration for the year ending 31 December 2026

Fixed

Remuneration

Salary Workforce Aligned Pension Benefits

(c.30% of total reward assuming maximum performance)

Variable

Remuneration

Annual Bonus Performance Share Plan

Link to Strategy

Performance measures support Group

strategy to:

– increase profitability for shareholders

– deliver key strategic and ESG-related priorities

Performance measures support Group strategy to

deliver:

– higher returns to shareholders

– increased earnings

Potential

(Maximum 125% of Salary)

1/3rd deferred into shares under the Deferred Bonus

Plan

(Maximum 150% Salary)

Two-year post-vesting holding period

Dividend equivalents accrue to extent awards vest

FY2025 Performance Metrics

Underlying Profit Before Tax - majority (to support

profitability of the business)

Key strategic and ESG-related objectives - minority

(to support business growth and ESG objectives)

Underlying Basic Earnings Per Share (EPS) - majority (to

support the growth of earnings)

Relative Total Shareholder Return (TSR) - minority

(to align the interests of Directors with those of

shareholders)

Shareholder

alignment

In Employment Post Employment

200% of salary Lower of shareholding at cessation of employment and

200% of salary to be held for two years post cessation

9494

DIRECTORS’ REMUNERATION REPORT CONTINUED

Directors’ Remuneration Policy

This part of the Directors’ Remuneration Report sets out the Directors’ Remuneration Policy for the Company.

The three-year term of our current shareholder-approved Directors’ Remuneration Policy expires in 2026 and, as a result, we are

seeking approval for a new Policy at the 2026 AGM. The Policy in this report will therefore be put to a binding shareholder vote

at the AGM on 20 May 2026 and will take formal effect from that date, subject to shareholder approval. The Policy will formally

apply for three years beginning on the date of approval unless a new Policy is presented to shareholders in the interim. Following

approval all payments to Directors will be consistent with the approved Policy.

Considerations when determining the remuneration policy

The overarching objective of the remuneration policy is to promote the long-term success of the Group. In seeking to achieve

this objective the policy has been designed based on the following key principles:

• to operate remuneration arrangements which are simple and transparent, and which help to build and maintain a

sustainable performance culture;

• to appropriately align executive reward with the Group’s strategic objectives and with the best interests of shareholders and

other key stakeholders;

• to promote appropriately the long-term success of the Group, and to not pay more than is necessary in doing so; and

• to have a competitive mix of base salary and short and long-term incentives, with an appropriate proportion of the

package determined by the rigorous application of stretching targets linked to the Group’s performance.

Consideration of employment conditions elsewhere in the Group

In setting remuneration for the Executive Directors, the Remuneration Committee takes note of the overall approach to reward

for employees in the Group. Salary increases will ordinarily be (in percentage of salary terms) no higher than those of the wider

workforce. The Company operates an Employee Forum at which aspects of remuneration across the Group (including Executive

Director remuneration) is discussed. In addition, the Chair of the Remuneration Committee receives feedback on remuneration

matters directly from the designated workforce engagement Non-Executive Director and the Group People Director updates

the Remuneration Committee periodically on remuneration arrangements and employment conditions across the Group.

Shareholder views

The Remuneration Committee is committed to an ongoing dialogue with shareholders and welcomes feedback on Executive

and Non-Executive Directors’ remuneration. The Remuneration Committee will seek to engage directly with larger shareholders

and their representative bodies should any material changes be made to the Policy. The Remuneration Committee also

considers shareholder feedback received in relation to the remuneration-related resolutions each year following the AGM.

This, plus any additional feedback received from time to time, is then considered as part of the Committee’s annual review of

remuneration policy and its implementation.

Changes to the remuneration policy approved at the 2023 AGM

Shareholders approved our current Remuneration Policy at the 2023 AGM with over 90% of votes cast in favour. Following a

review of the Policy, the Committee determined that it remained fit for purpose and, as such, no changes have been proposed in

respect of the Policy that was approved by shareholders at the 2023 AGM.

Strategic Report

Headlam Group PLC Annual Report & Accounts 2025

Governance

Headlam Group PLC Annual Report & Accounts 2025

Summary Policy table for Executive Directors

Component

Purpose and link

to strategy Operation Maximum opportunity Performance measures

Base salary To provide a

competitive base

salary for the market

in which the Group

operates to attract

and retain Executives

of a suitable calibre.

Salaries are usually reviewed annually, with any increases typically effective 1 January.

Salaries are typically set after considering:

• pay and conditions elsewhere in the Group;

• overall Group performance;

• individual performance and experience;

• progression within the role; and

• competitive salary levels in companies of a broadly similar size and complexity

and market forces.

Whilst there is no maximum salary, increases will normally be in line with

the typical range of salary increases awarded (in percentage of salary

terms) to the wider workforce.

Larger salary increases may be awarded to take account of individual

circumstances, such as:

• where an Executive Director has been promoted or has had a

change in scope or responsibility;

• where the Remuneration Committee has set the salary of a new

hire at a discount to the market level initially, a series of planned

increases can be implemented over the following few years to bring

the salary to the appropriate market position, subject to individual

performance;

• where there has been a change in market practice; or

• where there has been a significant change in the scale of the role or

the size and/or complexity of the business.

Increases may be implemented over such time period as the

Remuneration Committee deems appropriate.

Although there are no formal performance

conditions, any increase in base salary is only

implemented after careful consideration of

individual contribution and performance and

having due regard to the factors set out in the

Operation column of this table.

Benefits To provide broadly

market competitive

benefits as part of the

total remuneration

package.

Executive Directors receive benefits in line with market practice, and these

include life assurance, private medical insurance, company car or car allowance

and, where relevant, relocation expenses. Executive Directors are also provided

with the opportunity to join any HMRC approved all-employee share plan

arrangements on the same basis as other employees.

Executive Directors will be eligible for any other benefits which are introduced

for the wider workforce on broadly similar terms and other benefits might

be provided from time to time based on individual circumstances and if the

Committee decides payment of such benefits is appropriate.

Any reasonable business-related expenses can be reimbursed (and any tax

thereon met if determined to be a taxable benefit).

Whilst the Remuneration Committee has not set an absolute maximum

on the level of benefits Executive Directors may receive, the value of

benefits is set at a level that the Remuneration Committee considers

appropriate against the market and provides a sufficient level of

benefits based on individual circumstances.

Not applicable.

Retirement

benefits

To provide employees

with long-term

savings to allow for

retirement planning.

The Group may offer participation in a defined contribution pension plan or may

permit Executive Directors to take a cash supplement in lieu of pension up to the

same value.

Workforce aligned (currently 8% of base salary). Not applicable.

Annual bonus Rewards performance

against targets which

support the strategic

direction of the

Group. Bonus deferral

provides a retention

element through

share ownership and

direct alignment with

shareholders’ interests.

Awards are based on performance typically measured over one year.

Pay-out levels are determined by the Remuneration Committee after the year

end based on performance against pre-set targets.

Executive Directors will defer at least one-third of any bonus award into shares,

typically for a two-year period. The Committee may decide to pay the whole of

the bonus earned in cash where the amount to be deferred would, in the opinion

of the Remuneration Committee, be so small as to make deferral administratively

burdensome. Deferred shares will typically take the form of nil-cost share options

but may be structured as an alternative form of share award.

Deferred bonus awards may be granted on the basis that the participant shall

be entitled to an additional benefit (in cash or shares) in respect of dividends

paid over the deferral period, calculated on such basis as the Committee shall

determine.

The vesting of the deferred shares is not subject to the satisfaction of any

additional performance conditions.

The annual bonus plan includes provisions which enable the Remuneration

Committee (in respect of both the cash and the deferred elements of bonuses)

to recover or withhold value in the event of certain defined circumstances.

125% of base salary. Targets are set annually with measures linked to

the Group’s strategy and aligned with key financial,

strategic and/or individual targets.

The majority, if not all, of the annual bonus will

be assessed against key financial performance

metrics of the business and any balance will be

based on non-financial strategic, ESG-related

and/or personal objectives.

A graduated scale of targets is set for each

measure, with up to 10% of each element payable

for achieving the relevant threshold performance

level and 100% of maximum potential for achieving

stretch performance.

9696