Section 172 Statement

J. & J. Denholm Limited

Section 172(1) Statement

For the year ended 31 December 2022

Section 172(1) of Companies Act 2006 requires directors to act in a way that they consider, in good faith, will be most likely to promote the success of the Group for the benefit of its members as a whole and in doing so (amongst other matters) to have regard to:
(a) the likely consequences of any decision in the long term,
(b) the interests of the Group’s employees,
(c) the need to foster the Group’s business relationships with suppliers, customers and others,
(d) the impact of the Group’s operations on the community and the environment,
(e) the desirability of the Group maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the Group.

The Group sets out below how it has conducted its business, evaluated and made decisions to ensure compliance with the Section 172 (1) Companies Act.

Stakeholder Engagement

The Directors believe that engaging with the Group’s stakeholders is important to the success of the business and have identified the main stakeholders as the shareholders, employees, customers, suppliers, government, financiers, regulators and the communities within which the Group carries out its activities.

When reviewing matters of strategic importance to the Group, the Directors consider how the relevant issues impact its main stakeholders. Underpinning these stakeholder relationships is a culture which promotes high standards of business ethics, which focuses on a long-term sustainable strategy, and which recognises our responsibility to the environment.

There are many engagement mechanisms with these stakeholders within the individual businesses as well as at Group and Board level. Further information on how we engage with our key stakeholders is detailed below:

Shareholders

The Group has well established communication with all shareholders through the publicly available Annual Report, Group and subsidiary company websites, and the half yearly newsletter (The Denholm News) which sets out developments and any major issues facing the Group. These all provide regular updates on overall historical performance, significant developments and can signpost the future direction of travel and potential issues, where appropriate.

The Group communicates with shareholders at the Annual General Meeting, where a trading update is provided, and where shareholders also have the opportunity to meet with and ask questions of the Directors.

The Group communicates with shareholders at the Family Council where representatives of the major shareholders meet with Executive Directors each spring and autumn to receive an update on the Group’s trading performance, outlook, major developments and issues. The Executive Directors attending the Family Council meetings feed back the views of the shareholders to the Board and the Board consider the shareholders’ views as necessary.

The Chairman, Chief Executive Officer, Chief Financial Officer and the Company Secretary additionally communicate with shareholders during the year as required.

Employees

As a business to business services group, the Group considers its employees to be its most valuable asset. The Group takes a positive view of employee communications and has maintained its established system of keeping employees informed of performance, development and progress by way of briefings by management. These briefings are tailored to take into account the audience plus the nature, extent and importance of the information being made available to employees. For example, communications can take the form of one to one meetings or telephone calls with employees; collective meetings of wider teams with their line manager, or email notices to distribute briefings across the Group’s workforce. For manual labour sites, notices are attached to notice boards in communal areas within the premises. The Group has made a significant investment into its IT systems to implement new technologies and tools, including advanced video-conferencing facilities and Microsoft Teams which enables employees to stay in regular communication with each other and their management teams.  The Group is in the final development stages of a Group wide intranet system which will be operational in 2023, and will provide all employees with access to Group news, publications and information.

The Group has developed and implemented an annual Performance Development and Review programme for employees. Each employee meets on an annual basis with their line manager to discuss their development over the previous 12 months and to set goals for their future development, training and job targets. In between these formal meetings, informal feedback discussions are encouraged at all levels.

The Group also communicates with its employees through the medium of the Denholm News.  The Denholm News is a half yearly publication which is issued to all employees in either electronic form or hard copy. The purpose of the Denholm News is to provide employees with an update on the performance of the Group’s business as well as Group wide projects and initiatives.

The safety of its employees is paramount to the Group, with the main Board, divisional and subsidiary boards all committed to ensuring the health and safety functions across the Group operate to best industry practice and maintain strong health and safety procedures to keep our people safe. Employees are encouraged, and enabled through technology, to notify management of any health and safety matter (including Near Misses or Safety Observations) that they identify as requiring consideration or action. New health and safety initiatives and refreshers for each Group company are communicated to all relevant employees by the health and safety manager for the company.

The Group has put in place a management structure to ensure that the management are closely in touch with the employees who work for them. The philosophy of the executive directors of the Company is to manage the business by being out and about and regularly visiting operating sites, thereby bringing them into contact with employees. This is overlaid by having one of the main Board non-executive Directors and two executive Directors sit on each divisional board, where they meet the directors of the operating subsidiaries at least four times a year, and from time to time combining a Company Board meeting with a visit to one or more of the operational sites. In October 2023, the Group will hold its bi-annual conference, attended by the Board and senior management from around the Group.

The Directors seek to reward employees with a competitive remuneration package.

Customers

Customers are critical to the Group’s success. Strong customer relationships are maintained through regular dialogue to better understand customers’ current and future requirements and to ensure that the Group continues to provide a market leading, first-class service while working to the same core values, safety and quality standards.

Ongoing dialogue with customers allows the Group to continually improve its performance and operational delivery.

Engagement with key and prospective customers enables the Group to better understand the needs and requirements of its customer base and in turn develop its long-term strategy.

Communities

It is the Group’s responsibility as a long-term investor in the communities in which it operates, to take a strategic approach to community engagement and support.

Where possible the Group recruits from and develop the local workforce.

The Group continues to support local charities and nationally continues to partner with the Prince’s Trust, a charity which provides employment and training opportunities to young people across the UK.

Suppliers

A strong supply chain is critical to the Group’s success and the Group is committed to fair and ethical treatment, and payment to contracted terms.

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Throughout the year the Board has considered the wider stakeholder group and Section 172(1) requirements during Board discussions, when making decisions and setting the Group’s strategic direction, all of which is reflected in the papers presented and the meeting minutes.

During 2022, in complying with Section 172(1) the Directors took account of the following when dealing with matters of strategic importance to the Group:

Environmental, Social and Governance (ESG)

The Group formally launched its ESG strategy in October 2021 and continued to develop its implementation of the strategy throughout 2022. The actions of the Group in respect of this strategy are outlined in the ESG report on page 19, and the strategy is a key consideration for each company throughout their operational activities and strategic planning.

A copy of the ESG report is available via the company website, so that all stakeholders can monitor the Group’s progress in these areas.

Strategy

In August 2022, the Board held a Strategy Day where the Group’s business was reviewed for each division and key strategic goals discussed with a view to implementing an updated business plan and strategy during 2023, which takes account of wider stakeholder considerations.

A new executive role for a Chief Operating Officer was created to provide additional strategic support, with the existing Chief Financial Officer transitioning into the role of Chief Operating Officer. A new Chief Financial Officer (Steven Wallace) has been recruited to take up post in May 2023.

The Denholm Pension Scheme

The Company has an exposure to future liabilities relating to its defined benefit pension scheme, the Denholm Pension Scheme (“DPS”). 

During the year, the Company made a contribution of £1,650,000 into DPS in order to allow the Trustees to buy an insurance policy to cover the liabilities of 6 pensioners and 72 deferred members. It was considered that this transaction was in the best interests of those members because the insurance policy is provided by Aviva, a well-established insurance firm. In addition, once the buy-out phase of this transaction is concluded then the liabilities of the 78 members, from J & J Denholm’s perspective, will have been extinguished, and this will benefit the other stakeholders by eliminating the overall pension risk to the Group. This process is expected to conclude in 2024.

Acquisitions

During the year the Board considered a number of acquisition opportunities however the main focus was on the integration of the businesses which were acquired in 2021.

The Board gave approval to two related opportunities that arose for Denholm Fishselling (“DFS”). The Board authorised the acquisition of a fishing boat with licence and quota. The completion of the deal concluded in February 2023.  Following the conclusion of that deal, the Board approved the creation of a new partnership agreement with a successful fishing family in the industry, to operate the fishing vessel and licence and to utilise some of the acquired quota. Taken together, the opportunity provides increased profits for the shareholders, while securing further growth and employment opportunities for DFS.

Following the successful performance of John Good Logistics (“JGL”) post completion of its acquisition in August 2021, the Board agreed to the accelerated payment of the entire earn-out facility at the end of the first year of the earn-out period. The payment of the earn-out in full extinguished certain restrictions in the purchase agreement that were preventing the full integration of JGL into the wider Group. A plan is well underway to merge the JGL business with the Group’s existing freight forwarding operation – Denholm Global Logistics, presenting greater opportunities for employees and better returns for shareholders.

Seafoods’ Investment and Redevelopment

In April 2022, the Board supported a proposal to make a significant investment into Denholm Seafoods (“DSF”) by upgrading the existing processing facility and constructing a purpose built coldstore facility. The redevelopment project will enable the growth of its existing business through increased capacity and the business into a market leader, while supporting employment in the local area.

Denholm Industrial Restructure

The strategic advantages of restructuring the Industrial Services division to bring four separate trading companies under one core Denholm Industrial Services brand were supported and the restructure was completed in July 2022. The amalgamated business benefits from greater efficiencies in its operations and administration, and should generate better returns for shareholders.

Dividends

It is important to the Board to meet the shareholders’ dividend expectations. For the financial year ended 31st December 2022, the Board approved the payment of an increased but well covered dividend, that retained sufficient cash in the Group to fund investment for growth. In the short term, pending that investment, the Group’s cash resources will help see the Group meet its proposals for the continuation and growth of the business.