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1. Critical Accounting Judgements and Key Sources of Estimation Uncertainty

Judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management have not made any individual critical accounting judgements that are material to the Group. Management considers the key sources of estimation uncertainty relate to:

Carrying value of inventories

The Group carries inventories at the lower of cost and net realisable value less cash on account.

Due to the nature of development timescales, it is routinely necessary to estimate costs to complete and future revenues and to allocate non-unit specific development costs between units legally completing in the current financial year and in future periods. A full review of the net realisable value of inventories was undertaken by the Group as at 30 June 2019. Reasonably foreseeable changes in the assumptions used would not have a significant impact on the net realisable value.

Pensions

The Group has utilised assumptions including a rate of return on assets, mortality assumptions and a discount rate having been advised by its actuary. To the extent that such assumed rates are different from what actually transpires, the retirement benefit obligations of the Group would change.

The primary risks the Group is exposed to by the defined benefit pension scheme are the movement in corporate bond yields, the market’s long-term expectations for inflation and movement in mortality rates. The scheme closed to future accrual with effect from 1 March 2012. See Note 7e.

2. Revenue and Operating Profit

a. Revenue

An analysis of the Group's revenue is as follows:

2019
£m 
2018
£m 
Revenue from the sale of new housing 2,091 1,900
Revenue from the sale of land 21 20
2,112 1,920

b. Operating Profit

Note 2019
£m 
2018
£m 
Operating profit is stated after charging:
Inventories expensed in the year  13 1,526 1,375
Depreciation  9 3 2
Amortisation 8 - 1
Operating leases – plant and machinery  3 3
                             – other  1 1
Research and development expenditure  1 1
Auditors’ remuneration – fees payable to the Company’s Auditors for audit services (i)  - -
                                        – fees payable to the Company’s Auditors for other services (ii)  - -

Fees payable to the Company’s Auditors comprise:

(i) fees payable for the audit of parent company and consolidated financial statements £30,000 (2018: £30,000) and fees payable for the audit of the Company’s subsidiaries pursuant to legislation £147,750 (2018: £157,000).

(ii) Auditors’ remuneration for other services comprised £20,000 (2018: £20,000) in respect of an independent review of the half-yearly financial statements (Audit related assurance services), £9,100 (2018: £9,100) in respect of iXBRL tagging (Taxation compliance services) and £1,130 (2018: £1,130) in respect of 'PwC Inform', an on-line technical accounting guide (other services).

3. Net Financing Costs

2019
£m 
2018
£m 
Interest payable on bank loans (2) (4)
Imputed interest on deferred land creditors (6) (6)
Financial costs (8) (10)
Other interest receivable 3 3
Financial income 3 3
Net financing costs (5) (7)

4. Income Tax Expense

2019
£m 
2018
£m 
Current tax charge
UK Corporation Tax 77 73
Deferred tax
Origination and reversal of temporary differences - (1)
Total income tax charge income statement 77 72
Reconciliation of tax charge for the year
Profit before tax 406 380
Tax calculated at UK Corporation Tax rate at 19.0% (2018: 19.0%) 77 72
Tax charged for the year 77 72
Deferred tax recognised directly in equity
Relating to pension scheme (1) 4
(1) 4

Current income tax credit in the Company is £3m (2018: £nil).

Information on the impact of future tax rate changes is included in note 11.

5. Dividends

The following dividends were paid by the Group:

2019
£m
2018
£m
Prior year final dividend per share of 19.0p (2018: 11.0p); Current year interim dividend per share of 10.0p (2018: 9.0p) 107 74
B share dividend 30.15p (2018: nil pence) 111 -
218 74

The Board made an additional cash return of 30 pence per share through a B share scheme. Each shareholder at the record date was issued with one B share for every existing ordinary share held at the time. Barclays Bank PLC (or a subsidiary thereof) (acting as principal, and not as agent, nominee or trustee for Redrow plc) made an offer to purchase the B shares for an amount of 30 pence per B share (free of all expenses and commissions). The company accepted the offer on behalf of shareholders and paid a single dividend to Barclays as holder of all the B shares of 30.15p per share.

The Board decided to propose a final dividend of 20.5p per share in respect of 2019 (£72m (2018: 19.0p, £70m)). The dividend has not been provided for and there are no income tax consequences.

6. Earnings Per Ordinary Share

The basic earnings per share calculation for the year ended 30 June 2019 is based on the weighted average number of shares in issue during the period of 356m (2018: 361m) excluding those held in trust under the Redrow Long Term Incentive Plan (9m shares (2018: 9m shares)), which are treated as cancelled.

Diluted earnings per share has been calculated after adjusting the weighted average number of shares in issue for all potentially dilutive shares held under unexercised options.

For the 12 months ended 30 June 2019
Earnings
£m 
Number
of shares
millions
Per share
pence 
Basic earnings per share  329 356 92.3
Effect of share options and SAYE  - 2 (0.3)
Diluted earnings per share 329 358 92.0
For the 12 months ended 30 June 2018
Earnings
£m 
Number
of shares
millions
Per share
pence 
Basic earnings per share  308 361 85.3
Effect of share options and SAYE  - 1 (0.1)
Diluted earnings per share  308 362 85.2

7. Employees

a. Cost (including Directors)

Group Company
2019
£m 
2018
£m
2019
£m
2018
£m
Wages and salaries 109 106 3 3
Social security costs 15 15 1 2
Other pension costs  10 9 - -
Share-based payments  7 9 1 2
141 139 5 7

b. Number

The monthly average number of persons employed by the Group was:

Group Company
2019
Number 
2018
Number
2019
Number
2018
Number
Directors and administrative staff 896 960 8 9
Other personnel 1,408 1,348 - -
2,304 2,308 8 9

c. Key management remuneration

Key management personnel, as defined under IAS 24 ‘Related party disclosures’, are identified as the Executive Management Team and the Non-Executive Directors.

Summary key management remuneration is as follows:

2019
£m
2018
£m
Salaries and short-term employee benefits 5 5
Share-based payments 2 3
7 8

In addition, the Redrow Staff Pension scheme paid £15,756 (2018: £15,246) to The Steve Morgan Foundation on behalf of Steve Morgan in his capacity as an active Scheme pensioner.

Detailed disclosure of Directors’ emoluments and interests in shares are included in the Directors’ Remuneration Report on pages 60 to 79, which form part of these financial statements.

d. Share-based payments

Save As You Earn Share Option scheme (SAYE)

The Redrow plc SAYE scheme is open to all employees and share options can be exercised either three or five years after the date of grant, depending on the length of the savings contract. The SAYE schemes are not subject to performance conditions.

The SAYE schemes have been valued using the Black-Scholes pricing model.

2019
2018
Options granted during the year 712,217 824,208
Date of grant  1 January 2019 1 January 2018
Fair value at measurement date  £2.03 £2.31
Share price  £5.78 £6.13
Exercise price  £4.62 £4.90
Option life (contract length)  3/5 years 3/5 years
Expected dividend yield 3.38% 4.03%
Risk free interest rate  1.5% 1.5%

The expected volatility on SAYE schemes is based on the historic volatility of the Group’s share price over periods equal to the length of the savings contract.

Long Term Incentive scheme (LTIP)

Except in specified circumstances, options granted under the scheme are exercisable between three and ten years after the date of grant.

Options granted under the LTIP on 10 September 2018 were granted to a limited number of Senior Executives. The scheme is discussed in greater detail within the Directors’ Remuneration Report.

The LTIP has been valued using the Black-Scholes pricing model.

2019
2018
Options granted during the year 335,604 321,012
Date of grant  10 September 2018 15 November 2017
Fair value at measurement date  £5.97 £5.20
Share price  £5.97 £5.85
Exercise price  £0.00 £0.00
Expected volatility N/A* N/A*
Option life 3 years 3 years
Expected dividend yield 3.38% 4.03%
Risk free interest rate  N/A* N/A*

* For nil-cost awards not subject to a market based condition, volatility and risk free rate are not applicable.

The fair value at the measurement date of the LTIP granted on 10 September 2018 comprises £5.97 in respect of non-market based performance conditions.

The fair value at the measurement date of the LTIP granted on 15 November 2017 comprises £5.20 in respect of non-market based performance conditions.

Deferred Bonus Incentive (DBI)

Grants under the DBI were limited to Senior Management. Except in specified circumstances options granted under the scheme are exercisable between one and ten years after the date of grant for Tranche 1 and between two and ten years after the date of grant for Tranche 2 and are not subject to performance conditions.

The DBI has been valued using the Black-Scholes pricing model.

2019
Tranche 1
2019
Tranche  2
2018
Tranche 1 
2018
Tranche 2
Options granted during the year 575,210 575,349 450,047 449,915
Date of grant  10 September 2018 10 September 2018 11 September 2017 11 September 2017
Fair value at measurement date  £5.97 £5.97 £6.11 £5.87
Share price  £5.97 £5.97 £6.33 £6.33
Exercise price  £0.00 £0.00 £0.00 £0.00
Expected volatility N/A* N/A* N/A* N/A*
Option life 1 year 2 years 1 year 2 years
Expected dividend yield 3.38% 3.74% 3.38% 3.74%
Risk free interest rate  N/A* N/A* N/A* N/A*

* For nil-cost awards not subject to a market based condition, volatility and risk free rate are not applicable.

Company Share Option Plan (CSOP)

Grants under the CSOP were limited to Senior Management. Except in specified circumstances, options granted to those other than the Executive Directors are exercisable between three and ten years after the date of grant and are not subject to performance conditions.

Share options outstanding

The following share options were outstanding at 30 June 2019:

Type of scheme Date of grant Number of options 2019 Number of options 2018 Exercise price 
Long Term Share Incentive 2015 14 September 2015  - 175,810 -
Long Term Share Incentive 2016 12 September 2016  308,714 308,714 -
Long Term Share Incentive 2017 15 November 2017 321,012 321,012 -
Long Term Share Incentive 2018 10 September 2018 335,604  - -
Deferred Bonus Incentive 2012 – Tranche 1 23 October 2012  4,656 4,656 -
Deferred Bonus Incentive 2012 – Tranche 2 23 October 2012  4,656 4,656 -
Deferred Bonus Incentive 2013 – Tranche 1 24 September 2013  4,642 6,562 -
Deferred Bonus Incentive 2013 – Tranche 2 24 September 2013  4,642 8,374 -
Deferred Bonus Incentive 2014 – Tranche 1  8 September 2014  3,615 15,619 -
Deferred Bonus Incentive 2014 – Tranche 2 8 September 2014  10,133 34,851 -
Deferred Bonus Incentive 2015 – Tranche 1  14 September 2015  18,055 56,179 -
Deferred Bonus Incentive 2015 – Tranche 2  14 September 2015  18,059 76,860 -
Deferred Bonus Incentive 2016 – Tranche 1  12 September 2016  45,774 183,390 -
Deferred Bonus Incentive 2016 – Tranche 2  12 September 2016  59,868 622,100 -
Deferred Bonus Incentive 2017 – Tranche 1  11 September 2017 56,651 417,174 -
Deferred Bonus Incentive 2017 – Tranche 2 11 September 2017 378,972 417,053 -
Deferred Bonus Incentive 2018 – Tranche 1 10 September 2018 554,139 - -
Deferred Bonus Incentive 2018 – Tranche 2 10 September 2018 554,270 - -
Company Share Option Plan  21 November 2008  - 35,970 £1.25
Save As You Earn  1 January 2012 - 32,999 £0.95
Save As You Earn  1 January 2014 - 136,228 £1.98
Save As You Earn  1 January 2015 137,678 154,273 £2.21
Save As You Earn  1 January 2016 85,540 391,882 £3.70
Save As You Earn  1 January 2017 768,706 886,247 £3.20
Save As You Earn  1 January 2018 635,764 752,871 £4.90
Save As You Earn 1 January 2019 665,318 - £4.62

The total share options outstanding at 30 June 2019 under the LTIP, Deferred Bonus Incentive Plan, Company Share Option Plan and the Save As You Earn schemes represent 1.4% of the issued share capital (2018: 1.4%).


Movements in the year

The number and weighted average exercise prices of share options is as follows:

Number
of options
2019
Weighted
average
exercise price
2019
Number
of options
2018 
Weighted
average
exercise price
2018 
Long Term Share Incentive scheme:
Outstanding at the beginning of the year 805,536 - 1,113,175 -
Lapsed during the year - - (26,239) -
Exercised during the year (175,810) - (602,412) -
Granted during the year 335,604 - 321,012 -
Outstanding at the end of the year 965,330 - 805,536 -
Exercisable at the end of the year - - - -
Deferred Bonus Incentive scheme: 
Outstanding at the beginning of the year 1,847,474 - 2,207,002 -
Lapsed during the year (285,500) - (205,409) -
Exercised during the year (994,401) - (1,054,081) -
Granted during the year 1,150,559 - 899,962 -
Outstanding at the end of the year 1,718,132 - 1,847,474 -
Exercisable at the end of the year 230,751 - 391,147 -
Company Share Option Plan:
Outstanding at the beginning of the year 35,970 £1.25 77,935 £1.25
Lapsed during the year (35,970) £1.25 - £1.25
Exercised during the year - £1.25 (41,965) £1.25
Outstanding at the end of the year - - 35,970 £1.25
Exercisable at the end of the year - - 35,970 £1.25
Save As You Earn scheme: 
Outstanding at the beginning of the year 2,334,500 £3.66 2,567,073 £2.81
Lapsed during the year (295,938) £4.08 (297,925) £3.54
Exercised during the year (457,773) £2.98 (758,856) £2.15
Granted during the year 712,217 £4.62 824,208 £4.90
Outstanding at the end of the year  2,293,006 £4.04 2,334,500 £3.66
Exercisable at the end of the year  12,604 £3.70 6,228 £2.34

The weighted average share price at the date of exercise of share options exercised during the year was £6.07 (2018: £6.21).

The options outstanding at 30 June 2019 had a range of exercise prices of £nil to £4.90 (2018: £nil to £4.90) and a weighted average remaining contractual life of 5.3 years (2018: 5.5 years).

The expected life used in the models has been adjusted, based on best estimates, to reflect exercise restrictions and behavioural considerations.

The charge to income in relation to equity settled share-based payments in the year is £7m (2018: charge £9m).

e. Retirement benefit schemes

The Redrow Staff Pension Scheme (the ‘Scheme’) comprises two sections: a funded, self-administered, defined benefit section and a funded defined contribution section. The defined benefit section was closed to all new entrants from July 2006, having been closed to all but a limited number of agreed new entrants from October 2001. Both sections of the Scheme were closed to future accrual with effect from 1 March 2012.

The total pension charge for the year was £16m (2018: credit of £13m). A charge of £7m related to the defined benefit section of the Scheme (2018: credit of £22m), with £nil being charged to the income statement (2018: charge of £nil) and a charge of £7m to the statement of comprehensive income (2018: credit of £22m). The charge arising from the defined contribution section was £9m (2018: £9m).

Triennial valuation

A full independent triennial actuarial valuation of the defined benefit section of the Scheme was undertaken at 1 July 2017 using the Projected Unit Method. As at 1 July 2017, in the opinion of the Actuary, there was a deficit of £15m in the defined benefit section of the Scheme, based on the Trustees’ technical provisions assumptions with the Scheme’s assets representing 90% of the Scheme’s technical provisions. As at 1 July 2017 the value of the defined benefit section of the Scheme’s assets was £126m. The previous triennial valuation was undertaken as at 1 July 2014 and reported a deficit of £20m.

Defined benefit scheme – IAS 19R valuation

Redrow recognises all actuarial gains and losses for its defined benefit plan in the period in which they occur, outside the income statement, in the statement of comprehensive income.

This disclosure relates to the defined benefit section of the Scheme. The Scheme’s assets are held separately from the assets of Redrow and are administered by the trustees and managed professionally.

The latest formal actuarial valuation of the defined benefit section was carried out at 1 July 2017. This valuation has been updated to 30 June 2018 by a qualified actuary for the purposes of these financial statements.

The Group agreed a recovery plan for the 1 July 2014 actuarial valuation: it agreed to contribute £1.1m per annum to the Scheme from 1 July 2014 to 30 June 2020 and £1.5m per annum from 1 July 2020 to 30 June 2026. During the 2017 financial year, the Group agreed to increase its contributions to £3.0m per annum from 1 January 2018. As a result, the Group expects to contribute £3.0m to the Scheme in the year ending 30 June 2020.

The major financial assumptions used in arriving at the IAS 19R valuation were:

2019 2018
Long-term rate of increase in pensionable salaries n/a n/a
Rate of increase of benefits in payment (lesser of 5% per annum and RPI)1
3.1% 2.9%
Rate of increase of benefits in payment (lesser of 2.5% per annum and RPI)2 2.1% 2.0%
Discount rate  2.3% 2.9%
Inflation assumption – RPI  3.3% 3.1%
                                    – CPI  2.3% 2.1%

1 In respect of pensions in excess of the guaranteed minimum pension earned prior to 30 June 2006.

2 In respect of pensions in excess of the guaranteed minimum pension earned after 30 June 2006. Other pension increases are valued in a consistent manner.

The mortality tables used in the actuarial valuation were as follows (which make allowance for projected further improvements in mortality):

For male and female members:    SAPS CMI_2018 1.50% Long Term Trend (2018: SAPS CMI_2017 1.25% Long Term Trend)

The life expectancies implied by these tables for typical members are:

Pensioner currently aged 65: Male 21.9 years Female 23.9 years 
(2018: Male 22.0 years) (2018: Female 23.9 years)
Future pensioner when aged 65: Male 23.2 years Female 25.2 years 
(2018: Male 23.0 years) (2018: Female 25.0 years)

It has been assumed that the majority of members will commute part of their pension in return for a tax free cash sum on retirement.

The total assets, the split between the major asset classes in the Scheme, the present value of the Schemes’ liabilities and the amounts recognised in the balance sheet are shown below:

Group and Company
2019
£m
Quoted
market price in
active market 
2019
£m
No quoted
market price in
active market 
2019
£m
Total
2018
£m
Quoted
market price in
active market 
2018
£m
No quoted
market price in
active market 
2018
£m
Total 
Equities 53 - 53 49 - 49
Debt instruments 67 - 67 50 - 50
Other 15 - 15 16 - 16
Cash 11 - 11 16 - 16
Insurance policies - 2 2 - 2 2
Total market value of assets 146 2 148 131 2 133
Present value of obligations (130) (111)
Surplus in the Scheme 18 22

The defined benefit obligation can be approximately attributed to the scheme members as follows:

2019
2018
Deferred members 71 68
Pensioner members 29 32
100 100

All benefits are vested at 30 June 2019 (unchanged from 30 June 2018).

The total amounts credited/(charged) against income in the year were as follows:

Group and Company
2019
£m
2018
£m
Amounts included within the income statement: 
Administrative expenses 
Past service costs (1.0) -
Net interest on defined benefit liability  1.0 -
- -
Amounts recognised in the statement of comprehensive income: 
Return on scheme assets excluding interest income  13 5
Actuarial gains arising from changes in demographic assumptions  - 1
Actuarial movements arising from changes in financial assumptions  (20) 11
Actuarial gains arising from experience adjustments
- 5
(7) 22
(7) 22

The amount included in the balance sheet arising from the (deficit)/surplus in respect of the Group’s defined benefit section is as follows:

Group and Company
2019
£m
2018
£m
Balance sheet surplus
At start of year 22 (2)
Amounts (charged)/credited against statement of comprehensive income (7) 22
Employer contributions paid 3 2
At end of year  18 22
Changes in the present value of the defined benefit obligation: 
At start of year 111 130
Past service cost 1 -
Interest expense 3 3
Benefit payments (5) (5)
Actuarial (gains) arising from changes in demographic assumptions
- (1)
Actuarial movements arising from changes in financial assumptions  20 (11)
Actuarial gains arising from experience adjustments - (5)
At end of year  130 111
Changes in the fair value of the Scheme’s assets: 
At start of year 133 128
Interest income 4 3
Return on scheme assets excluding interest income  13 5
Normal employer contributions  3 2
Benefit payments  (5) (5)
At end of year  148 133

Sensitivity of key assumptions

The table below gives a broad indication of the impact on the IAS 19R numbers to changes in assumptions and experience (away from the assumptions shown on page 110). All figures are before allowing for deferred tax.

Item Approximate impact
2019
Approximate impact
2018
Present value of defined benefit obligation (£m) 
Discount rate -25 basis points  136.9 116.5
Discount rate +25 basis points  123.0 105.2
Price inflation rate -25 basis points  123.2 105.4
Price inflation rate +25 basis points  136.7 116.4
Post-retirement mortality assumption -1 year age adjustment  133.9 114.0
Weighted average duration of defined benefit obligation (in years) 
Discount rate -25 basis points  21.30 20.43
Discount rate +25 basis points  21.52 20.38

8. Intangible Assets

The Group
Goodwill
£m
Software
£m
Total
£m
Cost
As at 1 July 2017 1 2 3
Additions - 1 1
At 30 June 2018 1 3 4
Additions  - - -
At 30 June 2019 1 3 4
Accumulated amortisation 
At 1 July 2017 - 1 1
Charge  - 1 1
At 30 June 2018 - 2 2
Charge  - - -
At 30 June 2019 - 2 2
Net book value 
At 30 June 2019 1 1 2
At 30 June 2018 1 1 2
At 30 June 2017 1 1 2

9. Property, Plant and Equipment

The Group
Freehold property
£m
Plant and machinery
£m
Fixtures
and fittings
£m
Total
£m
Cost
As at 1 July 2017 17 3 8 28
Additions - - 1 1
At 30 June 2018 17 3 9 29
Additions 2 - 2 4
At 30 June 2019 19 3 11 33
Accumulated depreciation
At 1 July 2017 4 3 5 12
Charge  - - 2 2
At 30 June 2018 4 3 7 14
Charge 1 - 2 3
At 30 June 2019 5 3 9 17
Net book value 
At 30 June 2019 14 - 2 16
At 30 June 2018 13 - 2 15
At 30 June 2017 13 - 3 16

10. Investments

a. Investments

Group Company
2019
£m 
2018
£m 
2019
£m 
2018
£m 
Joint ventures 6 6 - -
6 6 - -

b. Investments in joint ventures

Group Company
2019
£m 
2018
£m 
2019
£m 
2018
£m 
Share of joint venture net assets: 
Current assets 6 7 - -
Current liabilities  (2) (3) - -
Non-current liabilities  (2) (2) - -
Net assets 2 2 - -
Loans from Group companies(i)  4 4 - -
6 6 - -
Share of post-tax profits from joint ventures: 
Revenue 1 38 - -
Cost of sales  (1) (31) - -
Gross profit  - 7 - -
Administrative expenses - - - -
Operating profit  - 7 - -
Finance costs  - (1) - -
Profit before tax  - 6 - -
Taxation - (1) - -
- 5 - -

(i) £4m of the loans to joint ventures are secured (2018: £4m). 

The Group’s joint venture investments are:

  • its 50% shareholding in the ordinary share capital of Menta Redrow Limited and Menta Redrow (II) Limited, both companies incorporated in Great Britain with a 30 June year end. Menta Redrow Limited and Menta Redrow (II) Limited were formed to pursue redevelopment opportunities in Croydon.

c. Investments in subsidiary undertakings

Company
£m 
At 1 July 2018 and 30 June 2019  -

The principal subsidiary company is Redrow Homes Limited. All subsidiary companies are incorporated in Great Britain except Redrow Homes (Park Heights) Limited which is incorporated in Jersey. A full list of subsidiary undertakings as at 30 June 2019 is shown on page 116. The capital of all the subsidiary companies, consisting of ordinary shares, is wholly owned by HB (HDG) Limited which in turn is wholly and directly owned by Redrow plc.

The principal activity of Redrow Homes Limited, Redrow Real Estate Limited, Redrow Regeneration plc, The Waterford Park Company Limited and The Waterford Park Company (Balmoral) Limited is residential development. The principal activity of Harrow Estates plc is land acquisition, development and resale. HB (HDG) Limited is an intermediate holding company. St David's Park Limited principal activity is business park maintenance services. Those subsidiaries marked with * are non-trading.

All the subsidiaries registered office is Redrow House, St David’s Park, Flintshire, CH5 3RX apart from those marked (i) and (ii) whose registered offices are as follows:

(i) c/o TLT LLP, 140 West George Street, Glasgow, G2 2HG
(ii) 13 Castle Street, St. Helier, Jersey, JE4 5UT

Subsidiaries
Name Company
Number
Name Company
Number
HB (HDG) Limited  1990709 St David’s Park Limited  2479183
Redrow Homes Limited  1990710 PB0311 Limited* 7577839
Harrow Estates plc  6825371 Debut Freeholds Limited* 4638403
Redrow Real Estate Limited 3996541 Tay Homes (Western) Limited* 2806562
Redrow Regeneration plc  5405272 Tay Homes (Northern) Limited*  2708575
Redmira Limited* 7587765 Tay Homes (Midlands) Limited* 2183136
HB (NW) Limited* 1189328 Tay Homes (North West) Limited* 2189721
HB (LCS) Limited (i)* SC38052 Redrow Homes (Park Heights) Limited (ii)* 66240
HB (MID) Limited* 2469449 Redrow Construction Limited* 1375826
HB (SW) Limited* 3522335 Poche Interior Design Limited* 2169473
HB (SWA) Limited* 2230870 Redrow (Shareplan) Limited* 3520984
HB (Y) Limited* 2293006 Cadmoore Limited* 3977222
HB (ESTN) Limited*  4017345 Redrow (Sudbury) Limited* 4558070
HB (WM) Limited* 3379746 The Waterford Park Company Limited 5429823
HB (SM) Limited* 3522321 The Waterford Park Company (Balmoral) Limited 6047122
HB (SN) Limited* 537405 HB (Herne Bay No 1) Limited* 7743649
HB (WC) Limited* 4984069 HB (Herne Bay No 2) Limited* 9163243
HB (WX) Limited* 1940936 Redrow Homes East Midlands Limited* 4219459
HB (EM) Limited* 2827161 Radleigh Construction Limited* 4219460
HB (CD) Limited* 2034733 Radleigh Homes Limited* 4210633
HB (GRPS) Limited* 2898913 Radbourne Edge (Holdings) Limited* 8737345
HB (CPTS) Limited* 1079513 Redrow Langley Limited*  7306461
HB (SE) Limited* 3988594 Radleigh (Hackwood) Limited* 8131049
HB (CSCT) Limited (i)* SC231364
HB (SC) Limited (i)*
SC74732
HB (1995) Limited (i)*
SC155021
Redrow Homes (Wallyford) Limited (i)*
SC205159

11. Deferred Tax Assets and Liabilities

The following are the deferred tax assets and liabilities recognised by the Group and the movements thereon during the current and prior year:

Imputed
interest
£m 
Short-term
temporary
differences
£m 
Total
£m 
Deferred tax assets 
At 1 July 2017 3 2 5
Charge to income  - (1) (1)
Charge to equity  - - -
At 30 June 2018 3 1 4
Charge to income  - - -
Charge to equity  - - -
At 30 June 2019 3 1 4
Employee
benefits
£m 
Short-term
temporary
differences
£m 
Total
£m 
Deferred tax liabilities
At 1 July 2017 - (3) (3)
Credit to income - 2 2
Charge to equity  (4) - (4)
At 30 June 2018 (4) (1) (5)
Credit to income - - -
Credit to equity  1 - 1
At 30 June 2019 (3) (1) (4)

The Group has no material unrecognised deferred tax assets.

A Corporation Tax rate of 20% from 1 April 2016 was substantively enacted on 2 July 2013. Changes to reduce the Corporation Tax rate to 19% from 1 April 2017 and to 18% from 1 April 2020 were substantively enacted on 26 October 2015. A further change to reduce the rate to 17% from 1 April 2020 was substantively enacted on 6 September 2016. Deferred tax balances have been valued at 17%.

12. Trade and Other Receivables

Group Company

2019
£m 
2018
£m 
2019
£m 
2018
£m 
Non-current assets 
Trade receivables (net) 9 8 - -

9 8 - -
Current assets 


Trade receivables (net) 28 8 - -
Amounts due from subsidiary companies 
- - 890 675
Other receivables 
19 29 - -
Prepayments and accrued income 1 5 - -
48 42 890 675

Trade receivables due after more than one year are stated after an allowance of £5m has been made (2018: £7m) in respect of expected credit losses. This allowance is based on an estimate of default rates. £1m provision was made during the year (2018: £nil). £nil was utilised (2018: £1m). £nil provision was released during the year (2018: £nil) but £3m provision was transferred to be held against current trade assets (2018: £nil). Current trade assets are therefore stated after an allowance of £3m (2018: £nil) in respect of expected credit losses.

Trade and other receivables due between one and two years are £3m (2018: £2m), between two and five years are £6m (2018: £6m) and due in more than five years are £nil (2018: £nil). The Group holds a charge over the underlying assets. At the balance sheet date, there is no material difference between the fair value of trade and other receivables and their carrying values as shown in the balance sheet.

Amounts due from subsidiary companies are unsecured, repayable on demand and carry interest at market rate on trading balances.

13. Inventories

Group Company

2019
£m 
2018
£m 
2019
£m 
2018
£m 
Land for development 1,547 1,443 - -
Work in progress 790 781 - -
Stock of show homes 
67 67 - -
2,404 2,291 - -
Cash on account (107) (73) - -
2,297 2,218 - -

Inventories of £1,526m were expensed in the year (2018: £1,375m). Work in progress includes £3m (2018: £2m) in respect of part exchange properties. Land held for development in the sum of £312m is subject to a legal charge as security in respect of deferred consideration (2018: £229m).

Cash on account comprises £32m (2018: £4m) attributable to land and £75m (2018: £69m) attributable to work in progress.

The carrying value of undeveloped land where net realisable value has been determined on the basis of a sale of land in its current state is £nil (2018: £nil).

As discussed in note 1, the Group considers the carrying value of inventories to be a critical accounting judgement.

14. Financial Risk Management

The Group’s financial instruments comprise cash and cash equivalents, bank loans and overdrafts, derivative financial instruments and various items included within trade receivables and trade payables which arise during the normal course of business.

The tables below provide a summary of financial assets and liabilities by category.

The accounting policies for financial instruments have been applied to the following items:

The Group
2019
Loans and
receivables
£m 
2018 
Loans and
receivables
£m 
Assets per the balance sheet 
Non-current trade and other receivables 9 8
Current trade and other receivables 47 37
Cash and cash equivalents 204 68
260 113
2019
Other
financial
liabilities
£m 
2018 
Other
financial
liabilities
£m 
Liabilities per the balance sheet 
Bank loans and overdrafts  80 5
Trade payables and other payables including customer deposits  381 395
Land creditors  438 387
899 787

Other financial liabilities are at amortised cost.

The Company
2019
Loans and
receivables
£m 
2018
Loans and
receivables
£m 
Assets per the balance sheet 
Cash and cash equivalents 212 89
Amounts due from subsidiary companies 890 675
1,102 764
2019
Other
financial
liabilities
£m 
2018
Other
financial
liabilities
£m 
Liabilities per the balance sheet 
Bank loans and overdrafts  80 5
Amounts owed to subsidiary companies 14 14
94 19

The Group’s activities expose it to a variety of financial risks.

Financial risk management is conducted centrally using policies approved by the Board. Market risk is negligible due to the Group’s limited exposure to equity securities (some limited exposure arises through the Redrow Staff Pension Scheme’s investment portfolio) and the associated price risk. Its foreign exchange exposure is negligible given the nature of the Group’s business and its exclusive UK activities.

a. Liquidity risk and interest rate risk

Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due. Liquidity risks are managed through the regular review of cash forecasts and by maintaining adequate committed banking facilities to ensure appropriate headroom.

At 30 June 2019, the Group had total unsecured bank borrowing facilities of £253m, representing £250m committed facilities and £3m uncommitted facilities.

The Group’s cash surpluses arise from short-term timing differences. As a consequence the Group does not consider it bears significant risk of changes to income and cash flows as a result of movements on interest rates on its interest bearing assets.

The Group is exposed to interest rate risk as it borrows money at floating rates. The Group’s interest rate risk arises primarily from long-term borrowings. In order to manage its interest rate risk, the Group from time to time enters into simple risk management products, almost exclusively interest rate swaps. All interest rate swaps are sterling denominated. The swaps are arranged so as to match with those of the underlying borrowings to which they relate. There were no interest rate swaps in place in 2019 or 2018.

The following table shows the profile of interest bearing debt together with its effective interest rates.

2019 2018
Effective
interest
rate
Total
£m 
Zero
to one
year
£m 
One
to two
years
£m 
Two
to five
years
£m 
Effective
interest
rate
Total
£m 
Zero
to one
year
£m 
One
to two
years
£m 
Two
to five
years
£m 
Bank loans –
floating rate
2.3 80 - - 80 2.6 5 - - 5
80 - - 80 5 - - 5

For the year ended 30 June 2019, it is estimated that for any incremental general increase of 1% in interest rates applying for the full year the decrease in the Group’s profit before tax would be less than £1m (2018: £1m).

b. Maturity of bank loans and borrowings

The maturity of bank loans and borrowings is as below:

The Group
2019 2018
Bank
overdraft
£m 
Bank
loans
£m
Bank
overdraft
£m 
Bank
loans
£m
Due between two and five years - 85 - 5
- 85 - 5

Maturities above include estimated interest payable to the maturity of the facilities.

The Company
2019 2018
Bank
overdraft
£m 
Bank
loans
£m
Bank
overdraft
£m 
Bank
loans
£m
Due between two and five years - 85 - 5
- 85 - 5

Maturities above include estimated interest payable to the maturity of the facilities.

The Company was fully compliant with its banking covenants as at 30 June 2019.

At the year end, the Group and Company had £170m (2018: £245m) of undrawn committed bank facilities available.

There is no material difference between the fair value of the bank overdrafts and bank loans and their carrying values as shown in the balance sheet.

c. Amounts due in respect of development land

The Group’s policy permits land purchases to be made on deferred payment terms. In accordance with IFRS 9, the deferred creditor is recorded at fair value and nominal value is amortised over the deferment period via financing costs, increasing the land creditor to its full cash settlement value on the payment date.

The interest rate used for each deferred payment is an equivalent loan rate available on the date of land purchase, as applicable to a loan lasting for a comparable period of time to that deferment.

The maturity profile of the total contracted cash payments in respect of amounts due in respect of land creditors at the balance sheet date is as follows:

Balance at
30 June
£m 
Total
contracted
cash
payment
£m 
Due
less than
one year
£m
Due
between
one and
two years
£m 
Due
between
two and
five years
£m 
2019 438 446 271 137 38
2018 387 394 209 144 41

d. Maturity of trade and other payables

These represent current liabilities due within one year.

e. Credit risk

Credit risk arises from cash and cash equivalents, including call deposits with banks and financial institutions, derivative financial instruments and trade receivables. It represents the risk of financial loss where counterparties are unable to meet their obligations.

Credit risk is managed centrally in respect of cash and cash equivalents and derivative financial instruments. In respect of placing deposits with banks and financial institutions and funds, individual risk limits are approved by the Board. The table below shows the cash and cash equivalents as at the balance sheet date:

Group Company
2019
£m 
2018
£m 
2019
£m 
2018
£m 
Held at Banks with at least an A credit rating per Standard & Poor  204 68 212 89
204 68 212 89

No credit limits were exceeded during the reporting year or subsequently and the Group does not anticipate any losses from non-performance by these counterparties.

There is no specific concentration of credit risk in respect of home sales as the exposure is spread over a number of customers. In respect of trade receivables, the amounts presented in the balance sheet are stated after adjusting for any doubtful receivables, based on the judgement of the Group’s management through using both previous experience and knowledge of the current position of any more substantial receivables.

f. Capital management

The Group defines total capital as equity plus net debt where net debt is calculated as total borrowings less cash and cash equivalents.

The Group monitors capital on the basis of the level of returns achieved on its capital base and, with respect to its financing structure, the gearing ratio. This is defined as net debt divided by equity.

The Group’s objective in managing capital is to safeguard its ability to continue as a going concern in order to deliver value to its Shareholders and other stakeholders. The Group operates within policies outlined by the Board in order to maintain an appropriate funding structure. The Board keeps the Group’s capital structure under review.

The total capital levels and gearing ratios as at 30 June 2019 and 30 June 2018 are as follows:

2019
£m 
2018
£m 
Total borrowings 80 5
Less cash and cash equivalents (204) (68)
Net (cash) (124) (63)
Equity  1,585 1,483
Total capital  1,461 1,420
Operating profit adjusted for joint ventures      411 388
ROCE (Operating profit as above as a percentage of opening and closing total capital) 28.5% 28.5%
Gearing ratio  N/A N/A

g. Fair values

At 30 June 2019 there is no material difference between the fair value of financial instruments and their carrying values in the balance sheet.

15. Trade and Other Payables

Group Company
2019
£m 
2018
£m 
2019
£m 
2018
£m 
Non-current liabilities 
Amounts due in respect of development land 167 178 - -
167 178 - -
Current liabilities 
Trade payables 347 336 - -
Amounts due in respect of development land 271 209 - -
Customer deposits  27 52 - -
Amounts owed to subsidiary companies  - - 14 14
Other payables 7 7 - -
Other taxation and social security 6 3 - -
Accruals and deferred income  68 64 16 16
726 671 30 30

Amounts due to subsidiary companies are unsecured, repayable on demand and bear interest at market rate on trading balances.

16. Long Term Provisions

The Group
Onerous
contracts
£m 
Other
£m 
Total
£m 
At 1 July 2018 1 8 9
Provisions created during the year  - - -
Provisions released during the year  - (1) (1)
Provisions utilised during the year  - - -
At 30 June 2019 1 7 8

Provisions relate to onerous contracts (in place at June 2009 and viewed as onerous) and maintenance and sundry remedial costs in respect of development activities, which it is assessed will be utilised within four years.

17. Share Capital

Number of
ordinary shares
As at 1 July 2018 (ordinary shares of 10p each) 369,799,938
As at 30 June 2019 (ordinary shares of 10.5p each) 352,190,420

On 8 April 2019, 369,799,941 B shares of 0.1 pence each were allotted and issued to shareholders on the basis of 1 B share for every existing ordinary share of 10 pence each held at the record date. Following the purchase by Barclays of all of the B shares, and payment by the Company of a single dividend to Barclays as holder of all of the B shares, the B shares were reclassified as deferred shares of 0.1 pence and were immediately repurchased and cancelled by the Company.

Alongside the B Share Scheme, on 8 April 2019 the issued share capital of the Company was consolidated. Each shareholder at the record date received 20 new ordinary shares of 10.5 pence each for every existing 21 ordinary shares of 10 pence each held.

On 29 March 2019, in order to ensure that a whole number of new ordinary shares was created following the implementation of the share consolidation, 3 existing ordinary shares were issued by the Company to the Employee Benefit Trust. Following the consolidation, the total number of shares in issue is 352,190,420 ordinary shares of 10.5 pence each.

Options granted to Directors and employees under the LTIP, the CSOP and the SAYE schemes are set out in note 7d.

18. Share Capital, Share Premium Account and Reserves

The Group
Share
capital
£m
Share
premium
account
£m 
Other
reserves
£m 
Retained
earnings
£m 
At 1 July 2017 37 59 8 1,131
Total comprehensive income  - - - 326
Dividends paid  - - - (74)
Movement in respect of LTIP/SAYE  - - - (4)
At 30 June 2018 37 59 8 1,379
Total comprehensive income  - - - 323
Dividends paid  - - - (218)
Movement in respect of LTIP/SAYE  - - - (3)
At 30 June 2019 37 59 8 1,481

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2018: £7m) and a £1m Consolidation reserve (2018: £1m).

Undistributable reserves

Other reserves are not available for distribution.

The Company
Share
capital
£m
Share
premium
account
£m 
Other
reserves
£m 
Retained
earnings
£m 
At 1 July 2017 37 59 7 701
Total comprehensive income - - - 19
Dividends paid  - - - (74)
At 30 June 2018 37 59 7 646
Total comprehensive income* - - - 480
Dividends paid  - - - (218)
At 30 June 2019 37 59 7 908

* Includes dividends received from subsidiary companies.

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2018: £7m).

Undistributable reserves

Other reserves are not available for distribution.

19. Movement in Net Cash

The Group
At
1 July 2018
£m 
Cash flow
 £m 
At
30 June 2019
£m 
Cash and cash equivalents  68 136 204
Bank loans  (5) (75) (80)
Net cash 63 61 124
The Company
At
1 July 2018
£m 
Cash flow
 £m 
At
30 June 2019
£m 
Cash and cash equivalents  89 123 212
Bank loans  (5) (75) (80)
Net cash 84 48 132

20. Operating Lease Commitments

2019
£m 
2018
£m 
Within one year  3 3
Within two to five years  5 4
Later than five years  1 1

21. Contingent Liabilities

The Company has guaranteed the bank borrowings of its subsidiaries. Performance bonds, financial guarantees in respect of certain deferred land creditors and other building or performance guarantees have been entered into in the normal course of business. Management estimate that the bonds and guarantees amount to £136m (2018: £117m) at the year end and consider the possibility of a cash outflow in settlement to be remote.

22. Related Party Transactions

Within the definition of IAS 24 ‘Related party disclosures’, the Board and key management personnel are related parties. Detailed disclosure of the remuneration of the Board is given in the Directors’ Remuneration Report on pages 60 to 79. A summary of remuneration provided to key management personnel is provided in note 7c.

In addition, related party transactions were carried out with parties related to Steve Morgan during the year totalling £0.3m (Company £0.3m), primarily relating to the donation to The Steve Morgan Foundation as described in the Directors’ Remuneration Report on pages 60 to 79 and services provided by Harrow Estates plc on an arm’s length basis under promotional agreements forming part of the acquisition of the Harrow business.

As at 30 June 2019, an amount of £nil was due to Harrow Estates plc under normal trading terms.

There have been no other material transactions with key management personnel. There is no other difference between transactions with key management personnel of the Company and the Group.

The Company funds the operating companies through both equity investment and loans at commercial rates of interest. In addition, the Company provides its subsidiaries with the services of Senior Management, for which a recharge is made to those subsidiary companies based upon utilisation of services.

The amount outstanding from subsidiary undertakings at 30 June 2019 was £890m (2018: £675m). The amount owed to subsidiary undertakings at 30 June 2019 was £14m (2018: £14m).

The Company provided the Group’s defined benefit pension scheme, as detailed in note 7e. Expected service costs were charged to the operating businesses at cost. There is no contractual arrangement or stated policy relating to the charge. Experience and actuarial gains are recognised in the Company, via the statement of comprehensive income.

During the year, the Group received £nil loan repayments from its joint ventures, Menta Redrow Limited and Menta Redrow (II) Limited. It also received a £1.7m dividend from Menta Redrow Limited. The Group’s loans to its joint ventures are disclosed in note 10.

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