We are reporting against the UK Corporate Governance Code (2016 version) (the “Code”) for this report. We welcomed the publication of the new UK Corporate Governance Code, released in July by the Financial Reporting Council (www.frc.org.uk). The renewed focus on long-term success and sustainability in the revised UK Corporate Governance Code is in direct alignment with the Company and the Group’s culture and we are pleased that it will help further raise the standards of corporate governance in the UK.

This report has been prepared and approved by the Board and, on behalf of the Board I confirm that during the financial year ended 30 June 2018, the Company applied the principles of, and was compliant with the provisions of the Code. This report also explains what the Board actually does and describes how it is responsible for setting the codes and values of the Company, thereby ensuring that the Company is run in the best interests of our shareholders and other stakeholders and how it interacts with its shareholders and explains the Company’s strategic goals and performance against them.

Since the last report, Debbie Hewitt has indicated her intention to retire from the Board following the conclusion of the 2018 Annual General Meeting and she will step down as Chairman of the Remuneration and Nomination Committees and as a member of the Audit Committee at the same time. Following the close of the 2018 Annual General Meeting, Nick Hewson will be appointed as the Senior Independent Director and Chairman of the Nomination Committee and Vanda Murray will become Chairman of the Remuneration Committee.

In 2017, Steve Morgan indicated his decision to ease back from a full time Executive role towards a Non-Executive role. The role transition successfully took place in the financial year ended 30 June 2018, with Steve Morgan maintaining focus with the Board on strategic development of the business, the product and key important projects.

A number of Board meetings have been held in a number of the divisions during the year and have included open discussions with the Management Teams on such matters as land acquisition, sales outlets, sales and our product. Our 2018 Annual General Meeting will be held on Wednesday, 7 November 2018 and the Notice of Annual General Meeting together with Explanatory Notes will be sent to you separately.

Finally on behalf of the Board, for those who wish to attend our 2018 Annual General Meeting, the Board looks forward to meeting with you.

GRAHAM COPE

Company Secretary

Introduction

This report sets out the Company’s compliance with the Code issued by the Financial Reporting Council and describes how the governance framework is applied by the Company.

The Directors have considered the contents and requirements of the Code and confirm that throughout the year ended 30 June 2018 the Company has been compliant with the provisions of the Code.

The governance structure is set out in the diagram above.

The Board

The Board comprises a Non-Executive Chairman, two Executive Directors and four Independent Non-Executive Directors, one of which acts as the Senior Independent Director.

THE CHAIRMAN AND GROUP CHIEF EXECUTIVE

The Company has separate roles for the Chairman and Group Chief Executive, ensuring that there is a clear division of responsibilities at the head of the Company between the running of the Board and the operational responsibility for the running of the Company’s business, as required by the Code.

The division of responsibility and accountability between the roles is well defined and using such a balanced approach ensures that no one individual has unfettered powers of decision.

Steve Morgan, as Chairman, is primarily responsible for:

• leading the Board to ensure optimum effectiveness;
• encouraging a culture of openness and debate;
• taking a leading role in determining the Board’s composition and structure;
• ensuring that effective communications are maintained with shareholders; and
• meeting with the Non-Executive Directors without the presence of the Executive Management Team.

John Tutte, as Group Chief Executive, is responsible for:

• operational management of the Group;
• implementing strategic plans with the assistance of the Executive Management Team;
• ensuring that the visions and values of the Company are properly communicated across the Group; and
• reporting on these to the Board.
  
  

THE SENIOR INDEPENDENT DIRECTOR

Debbie Hewitt was appointed as the Senior Independent Director on 1 September 2014. Debbie will retire from the Board at the close of the Annual General Meeting on 7 November 2018 and will be succeeded in her position as Senior Independent Director by Nick Hewson.

Nick has a wealth of experience as a Non-Executive Director and, having been on the Board since 2012, has a good understanding of the business thereby making him best placed to succeed Debbie in her position as Senior Independent Director.

The following additional responsibilities fall within the remit of the Senior Independent Director:

• acting as a sounding board for the Chairman and supporting him in ensuring the Board is effective and that constructive relations are maintained;
• being available to shareholders in order to understand their issues and concerns in order to relay to the Board; and
• leading the evaluation of the performance of the Chairman and obtaining views from other Directors.
  
  

NON-EXECUTIVE DIRECTORS

The role of the Non-Executive Directors within the Company is essential in order to view the Group objectively and provide constructive challenge to the Executive Directors and scrutinise performance. They have a good understanding of the business and bring a range of skills and experience to the discussions of the boardroom. The diversity and skills brought into the Company by the Non-Executive Directors is crucial to developing the strategy of the Group.

The Non-Executive Directors play a vital role in occupying seats on the Board’s Committees and they are positioned in such way that the Committees benefit from their expertise and background.

THE COMPANY SECRETARY

The Company Secretary acts as secretary to the Board and its Committees and his appointment and removal is a matter for the Board as a whole. The Company Secretary is a Member of the Executive Management Team and all Directors have access to his advice and services. In certain circumstances, Board Committees and individual Directors may wish to take independent professional advice in connection with their responsibilities and duties, and, in this regard, the Company will meet the reasonable costs and expenses incurred and the Company Secretary will assist in arranging such advice.

Directors' and Officers' Insurance

The Company has directors’ and officers’ insurance in place which insures Directors against certain liabilities, including legal costs.

Appointments and Re-Elections to the Board

The appointments of the Non-Executive Directors are generally made for three-year terms. Following the assessment on the effectiveness of the Directors, the Nomination Committee will make recommendations to the Board on re-appointments.

The Nomination Committee has recommended the re-appointment of each of the Executive Directors and Non-Executive Directors, save for Debbie Hewitt, who has indicated her intention to retire from the Board. The Nomination Committee report can be found on pages 76 and 77.

Under the Company’s Articles of Association, all Directors are subject to re-election at their first General meeting after appointment. Debbie Hewitt completed nine years as a Non-Executive Director of the Company on 19 August 2018 and will therefore not be submitting herself for re-election. Debbie will retire from the Board following the close of the 2018 Annual General Meeting.

The Board is not seeking to appoint an additional Non-Executive Director to replace Debbie Hewitt as they believe that the resultant balance of Non-Executive and Executive Directors remains effective and contains the appropriate mix of skills and experience for the Board to remain successful. The composition of the Board will remain compliant with principle B.1.2 of the Code following the change as the ratio of Independent Non-Executive Directors to Executive Directors, excluding the Chairman, will be 3:2 (60%).

The Board having been informed of the conditions of the Code on election and re-election, including that there should be a formal, rigorous and transparent procedure for the appointment of new directors to the Board, and that re-election is subject to continued satisfactory performance, has decided that all Directors, with the exception of Debbie Hewitt for the reasons outlined above, will be submitting themselves for re-election at the Annual General Meeting.

The Board has satisfied itself that all Directors who will be submitting themselves for re-election continue to perform satisfactorily. Details of appropriate Annual General Meeting Resolutions will be found in the Notice of Annual General Meeting which will be sent to shareholders separately.

Appointments to External Boards

Prior to Executive Directors and Non-Executive Directors taking on any additional responsibility outside of the Group, an assessment is undertaken to determine whether this will compromise their ability to commit sufficient time to the Company to properly discharge their responsibilities or create any potential conflicts. In making the assessment, the Board considers the mandates attributable to such positions, in line with the scoring mechanism used by Institutional Shareholder Services, to determine whether a person is overboarded. The Board does not consider that any of its Directors are overboarded and is satisfied that sufficient time and energy is devoted to the Company by each Director.

Role of the Board

The Board is responsible for putting in place the strategic plans for the Group and providing the leadership required in order to achieve its vision and goals.

There are matters which the Board delegate to Committees, the Executive Management Team and other relevant management bodies in order to ensure that the Group is operating efficiently and effectively.

In order to ensure that the Board fulfil their statutory duties as Directors, there is a formal schedule of matters reserved specifically for the Board’s decisions. The matters reserved include:

• approval of the Group's long-term objectives and strategy;
• approval of the Annual Report, preliminary and half-yearly financial statements, trading updates and the recommendation of dividends;
• approval of any significant changes in accounting policies or practices; any changes relating to capital structure and approval of treasury policies;
• ensuring the maintenance of a sound system of internal control and risk management;
• assessing the prospects and viability of the Group;
• approval of corporate acquisitions or disposals, significant land purchases or contracts;
• changes to the size, structure and composition of the Board;
• approval of significant policies, including the Group’s Health and Safety policy;
• review of overall corporate governance arrangements; and
• appointment and removal of the Company Secretary.

Long‑term performance and shareholder value relies on high quality corporate governance and the Board is responsible for maintaining strong governance practices and regularly reviewing the Group’s governance structure as illustrated on page 64.

Board Meetings

The Board meets regularly and frequently, not less than six times during the year and maintains a close dialogue, as appropriate, between meetings. Board meetings are held at Head Office or divisional offices when visits are frequently made to a selection of developments accompanied by the local Management Team. Board papers are distributed sufficiently in advance of the meetings to allow adequate time for review to enable informed debate and challenge at meetings and include key strategic, operational and financial information.

Where a Director is unable to attend a meeting, they are encouraged to discuss any issues arising with the Chairman or Group Chief Executive as appropriate. If a Director has a concern about the running of the business, the minutes should accurately reflect this. Should any Director resign from their position as a result of unresolved concerns in the Company, they are requested to submit a written statement to the Chairman outlining their concerns for circulation to the Board. There were no statements received of this nature for the year ended 30 June 2018.

Attendance by individual Directors at Board meetings is set out below.

Table of Attendance

All details for the Directors are provided on pages 62 to 63.

Details of internal control and risk management processes are included in the Audit Committee report on pages 72 to 73.

Board Balance and Independence

The Board considers that it is of a size and has a balance of skills, knowledge and experience that is appropriate for its business. The Executive Management Team provides the Board with an appropriate view of the detail of the business and the benefit of their significant collective experience of the UK house building industry and that enables it to discharge their respective duties and responsibilities effectively. The Non-Executive Directors bring a wealth of experience and understanding from outside the Company which enables them to challenge and help develop proposals on the Company’s strategy. All Non-Executive Directors holding office during the year ended 30 June 2018, other than Steve Morgan, are considered to be independent.

Details of the Directors’ respective experience is set out in their biographical profiles on pages 62 to 63.

Under the Code, at least half the Board, excluding a Non-Executive Chairman, should comprise Non-Executive Directors determined by the Board to be independent. The Board currently comprises one Non-Executive Chairman, two Executive Directors and four Independent Non-Executive Directors in compliance with the Code.

Relationship Agreement

The Company is party to a Relationship Agreement with Bridgemere Securities Limited and Steve Morgan, which regulates the relationship between the parties and complies with the requirements of the Listing Rules, including Listing Rule 9.2.2AR(2)(a) and Listing Rule 6.1.4DR. In accordance with the requirements of Listing Rule 9.8.4R(14), the Board confirms that the Company complied with the independence provisions set out in the Relationship Agreement during the period under review, and, so far as the Company is aware, Bridgemere Securities Limited, Steve Morgan and their associates complied with the independence provisions set out in the Relationship Agreement during the period under review.

Board Performance Evaluation

The Board undertook an internal formal evaluation of its own performance, and the performance of each of its Committees, during the year ended 30 June 2018. This started with a questionnaire designed to assess performance and ongoing effectiveness across key areas in the year ended 30 June 2018 and to maintain visibility and progress during the financial year. Following the completion of the questionnaires, a report was presented to the Board and discussed. The main observations from the evaluation were:

• the appropriateness of the timings and number of meetings and active contribution from Board members were rated very highly;
• the Committees of the Board were deemed to be operating effectively and within their Terms of Reference;
• there was unanimous agreement that the Board was appropriately made up of individuals from a diversity of gender, background and psychological type as well as having an appropriate mix of skills and knowledge; and
• the Board members were highly satisfied that there was a clear linkage between remuneration offered to the Directors and strategy, risks and performance of the Company.
  
  

The evaluation also identified the following areas for improvement which will continue to be addressed over the coming year:

• continued focus on the longer-term strategic objectives of the Group to allow constructive challenge by the Non-Executive Directors;
• further consideration to be made to the longer-term succession planning of the Executive Management Team, although it was acknowledged that good progress had been made; and
• scope for a more rigorous evaluation of performance.
  
  

As a result, the Board considers that it continues to operate effectively with meetings to facilitate and debate decision making.

The evaluation also considered succession planning for the Executive Management Team and the Non-Executive Directors.

Professional Development

The Board recognises that a structured appraisal process and good training are important requirements across the Group. The Board receives regular presentations and briefings from those responsible for key Group disciplines. In addition, the Board maintains close working relationships with divisional Management Teams.

All Directors undertake a comprehensive induction programme following their first appointment.

The programme for the Non-Executive Directors is specifically designed to encompass the full breadth of the business and includes visits to operating businesses.

During the year the formal appraisals of the Group Chief Executive and the Group Finance Director were undertaken by the Chairman.

All Non-Executive Directors had an annual appraisal conducted by the Senior Independent Director.

Committees

The Board is supported by Audit, Nomination, Remuneration and Placemaking and Sustainability Committees and their memberships, roles and activities are set out in separate reports; the Audit Committee report can be found on pages 70 to 75; the Nomination Committee report on pages 76 to 77; the Remuneration Committee report on pages 80 to 95 and the Placemaking and Sustainability Committee report can be found on pages 78 to 79.

Each Committee has Terms of Reference approved by the Board and the minutes of the Committee meetings are circulated, and the Committee Chairmen provide reports, to the Board.

The Audit Committee is chaired by Nick Hewson, the Remuneration and the Nomination Committees are chaired by Debbie Hewitt and the Placemaking and Sustainability Committee is chaired by Sir Michael Lyons. Following Debbie’s retirement at the 2018 Annual General Meeting, she will be succeeded by Vanda Murray as Chairman of the Remuneration Committee and Nick Hewson as Chairman of the Nomination Committee.

The Board completed a performance evaluation of each of its Committees during the financial year ended 30 June 2018. The evaluation reports were discussed at a meeting of the Committees and it was concluded that they were contributing and functioning effectively and were complying with their Terms of Reference.

Capital Structure

The information of the capital structure of the Company is included in the Directors’ Report on page 98.

Diversity

The principle of boardroom diversity is strongly supported by the Board. It is the Board’s policy that appointments to the Board will always be based on merit, so that the Board has the right individuals in place, and recognises that diversity is an important consideration as part of the selective criteria used to assess candidates to achieve a balanced Board. The table below sets out the current position of the Company on a gender basis.

Shareholder Engagement

The Company announces its financial results half-yearly, and, immediately following their publication, undertakes formal presentations to equity analysts. These presentations are available on the Company’s website.

During the year ended 30 June 2018, the Chairman, the Group Chief Executive and the Group Finance Director, together with the Senior Independent Director, also held a number of meetings with significant shareholders and subsequently briefed the Board on issues discussed at these meetings.

Following the full year and half-yearly results’ announcement in September 2017 and February 2018, the Group Chief Executive and the Group Finance Director met current and potential significant shareholders. This included visits to London and the United States of America and feedback from these meetings was independently collated and disseminated to the Board.

Last year the Annual General Meeting took place at a venue close to the Company’s Head Office. All Directors attended the Annual General Meeting on 9 November 2017. Shareholders are encouraged to attend the 2018 Annual General Meeting, which presents an opportunity for all shareholders attending to ask questions formally during the meeting and informally afterwards to the Directors.

Formal notification of the 2018 Annual General Meeting is sent to Shareholders at least 21 working days in advance.

The Company's website, www.redrowplc.co.uk, gives access to current financial and corporate information.

GRAHAM COPE

Company Secretary

3 September 2018