Section 172 Statement

J. & J. Denholm Limited

For the year ended 31 December 2019

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 Company 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 Company’s employees,
c. the need to foster the Company’s business relationships with suppliers, customers and others,
d. the impact of the Company’s operations on the community and the environment,
e. the desirability of the Company maintaining a reputation for high standards of business conduct, and
f. the need to act fairly as between members of the Company.

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, regulators and the communities within which the Group carries out its activities.

The Group communicates with its shareholders regularly through the medium of the annual accounts, the Annual General Meeting (and the Trading Update presented at that meeting) and through the Group newsletter (Denholm News), which sets out developments and any major issues facing the Group. In addition, the major shareholders are members of a family council, which meets with executive directors each spring and autumn to be given an update on the Group’s progress and the major issues it faces. The Company intends to further enhance communication with its shareholders by broadening the membership of the family council.

As a business to business services group the Directors consider that the employees are the Group’s 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 and through the medium of the Denholm News. The Directors seek to reward employees with a competitive package. Each company in the Group is focused on employing strong health and safety procedures to keep our people safe. 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 J. & J. Denholm 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 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 J. & J. Denholm board meeting with a visit to one or more of the operational sites. The Group also organizes a conference on a bi-annual basis, attended by the directors of J. & J. Denholm and senior management from around the Group.

Our customers are critical to our success and we seek to maintain good relations with them by meeting with them and discussing their needs on a regular basis and providing them with a first-class service. The Group values having a strong relationship with its suppliers and seeks to treat them fairly and to pay them promptly.

The Group seeks to comply with the law and the regulations which govern its operations and has put in place policies and procedures which are designed to ensure that it is compliant. It communicates with government bodies and regulators on a regular basis.

During 2019, in complying with Section 172(1) the Directors took account of the following when dealing with matters of strategic importance to the Group:

During the year the Board agreed that the Company should finance the purchase by Mountpark Shipping Company Limited of a five-year-old bulk carrier, and this was purchased in November for a consideration of $16.25million. The Board took account of a number of stakeholder factors in reaching this decision. The main driver of the decision was to improve financial returns, thus benefitting shareholders, by increasing the Group’s investment in shipping. The increased investment in shipping also reduced the Group’s exposure to the UK economy and the pound sterling. The decision also benefitted suppliers, in that it provided an extra ship for Anglo-Eastern to manage and to provide crew for. The investment also provided further work for the employees of the Group’s broking business.

New regulations were introduced with effect from 1st January 2020 limiting sulphur oxide emissions by ships. Prior to this ships used high sulphur fuel oil (HSFO) which, when burnt, produced emissions which were not compliant with the new regulations. Ship owners therefore had the choice of either switching to a fuel which, when burnt, produced emissions that were compliant with the regulations or continue to burn HSFO and fit an exhaust gas cleaning system to bring sulphur emissions within the limit set by the new regulations. The Board of Mountpark Shipping Company decided to switch to burning low sulphur alternatives which produce emissions which are within the limits set by the regulations. In making this decision the Directors had regard to whether investing in an exhaust gas cleaning system would generate an adequate return but also had regard to the environmental impact of such a system.

The Company has an exposure to future liabilities relating to its defined benefit pension scheme. In the past, in order to close off part of this risk the Company has arranged for insurance companies to take on the exposure to these liabilities in respect of retired employees in exchange for a lump-sum payment from the pension scheme (a buy-out). Each time a buy-out has been made it has been necessary for the Company to part-fund the payment by making a special contribution into the pension scheme. During the year the Board decided to take quotes from insurers in respect of a buy-out of liabilities relating to a number of retired employees. Having received the quotes towards
the end of 2019, it was decided not to proceed with a buy-out in this instance, as the cost was perceived to be excessive, but to seek further quotes in 2020. In looking to buy out pensioner liabilities the view was taken that if the buy-out could be achieved at a reasonable price, it would close out the risk of increasing liabilities in respect of these pensioners arising in the future and this would benefit all stakeholders in helping to ensure the long-term prosperity of the Group.

It is important to us to meet our shareholders’ dividend expectations. Our aim is to pay an increasing but well covered dividend, while leaving sufficient cash in the Group to fund our investment for growth. In the short term, pending that investment, the Group’s cash resources will help see the Group through the challenging times caused by the coronavirus. This should benefit all of our stakeholders in ensuring that we have shareholder support for the continuation and growth of the business.