How We Manage Risk
Our Risk Management Process
Key Risk Management Objectives
- To ensure our approach to risk meets the needs of our business and its key stakeholders;
- To effectively communicate our risks and define responsibilities in order to manage risks; and
- To continually evaluate and review the impacts of any potential new risks occurring within our business.
- The ultimate responsibility for the effective management of the risks we face in order to achieve our strategic and financial objectives lies with the Main Board;
- Material risks and principal concerns are identified as part of our risk assessment framework, following a detailed review of the Company’s strategic objectives;
- These headline risks are then approved by the Board to be included within our risk register;
- The risk register is reviewed formally annually and updated for any new risks identified during our Risk Assessment processes; and
- It is also presented to the Audit Committee for final review and consideration to ensure that it is appropriate and reflects our business risks.
- All identified high level risks are then further broken down into components and sub level risks to be considered at the divisional level;
- The probability and potential impact for each sub level risk is assessed by each Divisional Board; and
- Internal controls are implemented to mitigate, control and continuously monitor these risks.
- Any new risks identified at divisional level are individually assessed and evaluated on their potential impact to the business and its likelihood of occurrence;
- These risks are then communicated to the Risk Owners who will use this assessment to inform their formal view on these risks;
- It is then the Risk Owners responsibility to ensure key preventive and detective controls are designed and implemented to address these risks and ensure their inclusion in our risk register; and
- Group Policies and Procedures are updated to reflect any new or improved key controls or processes.
The UK housing market conditions have a direct impact on our business performance.
Economic uncertainty has increased with the lack of clarity over Brexit.
Group Chief Executive
- Market conditions and trends are being closely monitored allowing management to identify and respond to any sudden changes or movements.
- With underlying build costs continuing to rise and house price inflation moderating over the year we maintain tight controls on costs and continue to build our relationships with key suppliers and broaden our supplier base.
- Weekly review of sales at Group, divisional and site level.
- Ensuring strong relationships with lenders and valuers to ensure they recognise our premium product.
- Ongoing and regular monitoring of Government policy and lobbying as appropriate.
Availability of mortgage finance and increased lending criteria requirements are key factors in the current environment.
Group Finance Director
- Proactively engage with the Government, Lenders and Insurers to support the housing market.
- Expert New Build Mortgage Specialists provide updates on and monitoring of regulatory change.
The Group requires appropriate facilities for its short-term liquidity and long-term funding.
Group Finance Director
- Suitable committed banking facilities with covenants and headroom.
- Regular communication with our investors and relationship banks, including visits to developments.
- Regular review of our banking covenants and capital structure.
- Ensuring our future cash flow is sustainable through detailed budgeting process and reviews.
- Strong forecasting and budgeting process.
Failure of our customer service could lead to relative under performance of our business.
Group Communications Director
- My Redrow website to support our customers purchasing their new home.
- Introduction of Hard Hat Tours for customers of their new home at an appropriate stage of production.
- Regular review of our marketing and communications policy at both Group and divisional level.
- Risk has increased following the introduction of GDPR. We mitigate this by ensuring that we are fully compliant with the new GDPR regulations in our marketing activities by taking a proactive approach to GDPR with detailed project team defining and implementing new Policies & Procedures and training for staff.
The ability to purchase land suitable for our products and the timing of future land purchases are fundamental to the Group’s future performance.
Group Development Director
- Proactive monitoring of the market conditions to implement a clear defined strategy at both Group and divisional level.
- Experienced and knowledgeable personnel in our land, planning and technical teams.
- Effective use of our Land Bank Management system to support the land acquisition process and monitor opportunities has led to the risk decreasing overall.
- Peer review by Legal Directors and use of third party legal resources for larger site acquisitions to reduce risk.
The inability to adapt to changes within the planning and regulatory environment could adversely impact on our ability to comply with regulatory requirements.
Group Development Director, Group Human Resources Director and Group Company Secretary
- Close management and monitoring of planning expiry dates and CIL.
- Well prepared planning submissions addressing local concern and deploying good design.
- Careful monitoring of the regulatory environment and regular communication of proposed changes across the Group through the Executive Management Team.
- Proactive approach to the introduction of GDPR with a broad based project team defining and implementing new policies and procedures.
The failure to design and build a desirable product for our customers at the appropriate price may undermine our ability to fulfil our business objectives.
Group Design and Technical Director
- Regular review and product updates in response to the demand in the market and assessment of our customer needs.
- Design focused on high quality build and flexibility to planning changes.
- Regular site visits and implementation of product changes to respond to demands.
The loss of key staff and/or our failure to attract high quality employees will inhibit our ability to achieve our business objectives.
Group Human Resources Director
- Personal Development Programmes supported by National training centres at three locations.
- Graduate training, Undergraduate placements and Apprentice training programmes to aid succession planning.
- Development of a bespoke housebuilding degree course in conjunction with Liverpool John Moores University and Coleg Cambria.
- Remuneration strategy in order to attract and retain talent within the business is reviewed regularly and benchmarked.
- Introduction of a new Engagement Team and development of a new internal communications platform in addition to annual employee survey to create framework for strong, two-way communication.
Instances of non-compliance with Health & Safety standards and Environmental regulations could put our people and the environment at risk, ultimately damaging our reputation. Increased levels of scrutiny of the housebuilding industry heightens the risk environment.
Group Health and Safety and Environmental Director
- Dedicated restructured team operating across the Group to ensure compliance of appropriate Health and Safety standards.
- Separate focus on Assurance visits to site and proactive management support to develop planning and processes.
- Internal and external training provided to all employees.
- Divisional Construction (Design and Management) Regulation (CDM) inspections carried out to assess our compliance with our client duties under CDM.
- Health and Safety discussion at both Group and divisional level board meetings.
- CDM competency accreditation requirement as a minimum for contractor selection process.
The failure of a key component of our supply chain to perform due to financial failure or production issues could disrupt our ability to deliver our homes to programme and budgeted cost.
Group Commercial Director
- Use of reputable supply chain partners with relevant experience and proven track record.
- Monitoring of subcontract supply chain to maintain appropriate number for each trade to identify potential shortage in skilled trades in the near future.
- Subcontractor utilisation on sites monitored to align workload and capacity.
- Materials forecast issued to suppliers and reviewed regularly.
- Group Monthly Product Development meetings to identify and monitor changes in the regulatory environment.
Failure of the Group's IT systems and the security of our internal systems, data and our websites can have significant impact to our business.
The introduction of GDPR has increased the requirements for the control of personal data.
Chief Information Officer
- Communication of IT policy and procedures to all employees.
- Regular systems back up and storage of data offsite.
- Internal IT security specialists.
- Use of third party entity to test the Group's cyber security systems and other proactive approach for cyber security including Cyber Essentials Plus accreditation.
- Compulsory GDPR and IT security online training to all employees within our business.
A significant fraud or uninsured loss could damage the financial performance of our business..
Group Finance Director
- Systems, policies and procedures in place which are designed to segregate duties and minimise any opportunity for fraud.
- Regular Business Process Reviews undertaken to ensure compliance with procedure and policies followed by formal action plans.
- Timely management reporting.
- Insurance strategy driven by business risks.
- Fraud awareness training.
In accordance with provision C.2.2 of the UK Corporate Governance Code 2016, the Directors have assessed the prospects and viability of the Group.
The Group’s investment case, business model and strategy are key to understanding Redrow’s future prospects. The Directors’ assessment has made reference to our current position, our strategy, the potential impact of the principal risks facing the Group, and the Board’s appetite for risk which are to be found in this Report in the Strategic Report. The Group has committed banking facilities through to December 2022.
The Directors have selected a three year timeframe over which to assess the viability of the Group, from 1 July 2018 to 30 June 2021. This timeframe was chosen as it corresponds with the Board’s three year planning horizon. On an annual basis, the Directors review the financial forecasts for the Group constructed using a detailed bottom up process incorporating assumptions about the timing of legal completions of new homes and land purchases, selling prices, profitability, working capital requirements and cash flows. The Group also uses a top down model to give another perspective.
The three year plan is stress tested for robust downside scenarios. This involves flexing key assumptions including the impact of reduced average selling prices, sales rates and land prices which could arise from a deterioration in housing market conditions and mortgage availability.
The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 30 June 2021.
Strategic Report Approval
The Strategic Report outlined on pages 1 to 59 has been approved by the Board.
By order of the Board
3 September 2018