b. Operating Profit

Fees payable to the Company’s Auditors comprise:

(i) fees payable for the audit of parent company and consolidated financial statements £50,000 (2019: £30,000) and fees payable for the audit of the Company’s subsidiaries pursuant to legislation £150,000 (2019: £147,750).

(ii) Auditors’ remuneration for other services comprised £36,895 (2019: £20,000) in respect of an independent review of the half-yearly financial statements (Audit related assurance services), £nil (2019: £9,100) in respect of iXBRL tagging (Taxation compliance services) and £nil (2019: £1,130) in respect of 'PwC Inform', an on-line technical accounting guide (other services).

Amounts receivable by the Group's auditor in respect of pension services performed for the pension trustees is £40k (2019: £24k).

The 2020 ratio of non-audit fees to audit fees is 1:5.42 (2019: 1:5.88).

Current income tax charge in the Company is £1m (2019: credit of £3m).

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

b. Number

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

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:

Detailed disclosure of Directors’ emoluments and interests in shares are included in the Directors’ Remuneration Report on pages 78 to 100, 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.

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 11 September 2019 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.

* 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 11 September 2019 comprises £5.945 in respect of non-market based performance conditions.

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.

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.

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

Share options outstanding

The following share options were outstanding at 28 June 2020:

The total share options outstanding at 28 June 2020 under the LTIP, Deferred Bonus Incentive Plan and the Save As You Earn schemes represent 1.2% of the issued share capital (2019: 1.4%).

Movements in the year

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

The weighted average share price at the date of exercise of share options exercised during the year was £6.67 (2019: £6.07).

The options outstanding at 28 June 2020 had a range of exercise prices of £nil to £4.94 (2019: £nil to £4.90) and a weighted average remaining contractual life of 5.6 years (2019: 5.3 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 £5m (2019: charge £7m).

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

** 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.

On 11 March 2020, the Chancellor of the Exchequer and UK Statistics Authority jointly issued a consultation on changing the Retail Price Index (RPI) formula. They intend to amend the RPI index to reflect the Consumer Price Index including Housing (CPIH).

We have assessed the likely outcome of the Consultation, which we believe to be that the RPI formula will change to be the same as the CPIH formula, from 2030, and considered the inflation assumptions above in the light of this. As the CPI inflation assumption is only of relevance to deferred members of the scheme whose average term to retirement is c10 years, we consider it appropriate to maintain our current approach to deriving CPI.

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_2019 1.50% Long Term Trend (2019: SAPS CMI_2018 1.5% Long Term Trend)

The life expectancies from age 65 implied by these tables for typical members are:

It has been assumed that members take 80% of the maximum tax-free cash available to them at the point they retire via commutation of their pension; this is based on the current commutation factors in use for the defined benefit scheme.

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:

The Scheme’s assets are invested in such a way so as to ensure that the assets are sufficient and appropriate to meet the associated liabilities as they fall due. In selecting the assets, consideration is given to the nature of the liabilities and the investment strategy of the Scheme includes an allocation to liability driven investments to mitigate the impacts of changes in interest rates and inflation on both the assets and liabilities.

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

All benefits are vested at 28 June 2020 (unchanged from 30 June 2019).

Following a High Court ruling on 26th October 2018, at the 2019 year-end the Company made an allowance within the defined benefit obligation for the estimated liabilities associated with the requirement to provide equalised benefits to male and female members in respect of Guaranteed Minimum Pensions (GMPs); otherwise known as ‘GMP Equalisation’. GMP Equalisation is an issue that impacts all defined benefit schemes that were contracted out of the State additional second pension between 17 May 1990 and 5 April 1997. For the DB Scheme, the additional liability in respect of GMP Equalisation is broadly 0.5% of the defined benefit obligation and continues to be included in this figure.

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

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

The scheme rules permit the refund of any surplus to the Company with no restrictions. The surplus has therefore been recognised in full in the Group and Company balance sheets and there is no requirement to restrict the surplus nor to recognise any additional liability in respect of agreed deficit contributions.

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 144. All figures are before allowing for deferred tax.

On implementation of IFRS 16 leases, lease payment commitments are reported within trade and other payables.

b. Investments in joint ventures

(i) £9m of the loans to joint ventures are secured (2019: £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

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 28 June 2020 is shown on page 151. 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 dormant and exempt from audit.

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

The Group has no material unrecognised deferred tax assets.

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. In the Chancellor's Budget on 11 March 2020 it was reconfirmed that the rate of corporation tax will remain at 19% from 1 April 2020. This measure (cancelling the enacted cut to 17%) will be made under a Budget resolution which has statutory effect under the Provisional Collection of Taxes Act 1968. As such, it is substantively enacted on the passing of the resolution. The rate will also stay at 19% for the following year. Deferred tax balances have been valued at 19% (2019: 17%).

Non-current trade receivables due after more than one year are stated after an allowance of £nil has been made (2019: £5m) in respect of expected credit losses. This allowance is based on an estimate of default rates. £nil provision was made during the year (2019: £1m). £nil was utilised (2019: £nil). £3m provision was released during the year (2019: £nil) and £2m provision was transferred to be held against current trade assets (2019: £3m). Current trade assets are therefore stated after an allowance of £4m (2019: £3m) in respect of expected credit losses with £nil provision utilised (2019: £nil) and £1m provision released (2019: £nil).

Amounts due from subsidiary companies are unsecured, repayable on demand and carry interest at market rate on trading balances. The balance classified as current is anticipated to be repayable within the normal operating cycle of the subsidiary businesses. 

Inventories of £1,027m were expensed in the year (2019: £1,526m). Work in progress includes £1m (2019: £3m) in respect of part exchange properties. Land held for development in the sum of £160m is subject to a legal charge as security in respect of deferred consideration (2019: £312m).

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 £33m (2019: £nil). £35m of impairment costs arising from the strategic decision to scale back our London operations were expensed in the year (2019: £nil).

The Directors consider all inventory to be current in nature as they are expected to be released within the Group's normal operating cycle of c.4 years.

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.

For the 52 weeks ended 28 June 2020, 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 c£1m (2019: less than £1m).

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

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

The Company was fully compliant with its banking covenants as at 28 June 2020.

At the year end, the Group and Company had £193m (2019: £170m) 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.

d. Maturity of trade and other payables

The maturity profile of the total contracted payments in respect of financial liabilities (excluding amounts due on land creditors shown separately in note 15c) at the balance sheet date is as follows:

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:

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.

g. Fair values

The fair values of financial assets and liabilities is as follows:

Other financial liabilities are at amortised cost.

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

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.

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2019: £7m) and a £1m Consolidation reserve (2019: £1m).

Undistributable reserves

Other reserves are not available for distribution.

* Includes dividends received from subsidiary companies.

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2019: £7m).

Undistributable reserves

Other reserves are not available for distribution.

23. Alternative Performance Measures

Redrow uses a variety f Alternative Performance Measures (APMs) which are not defined or specified by IFRSs but which the Directors believe are pertinent to reviewing the performance of the Group, in conjunction with IFRS defined measures.  

Accident incident rate by site

No. of notifiable accidents in financial year divided by average no. of sites.

Earnings per share (EPS)

Profit attributable to ordinary equity shareholders (excluding exceptional items and deferred tax rate changes) divided by the weighted average no. of ordinary shares in issue during the financial year. See note 6.

HBF customer satisfaction rating

 Independent HBF customer satisfaction rating score.

Land holding years

No. of plots in owned land holdings at June divided by no. of legal completions in financial year.

Monies committed to fund improvements in local communities

These reflect committed Section 106 contributions and affordable housing provided in the year

Net Asset Value Per ordinary share

Total net assets at June divided by the number of ordinary shares in issue at June.

Number of trainees

No. of trainees at June as a percentage of employees at June.

Order Book

The value of reserved and exchanged sales which had not legally completed at year end.

private reservation rate

No. of private reservations per week in financial year divided by average no. of sales outlets.

Return on capital employed (ROCE)

Operating profit before exceptional items adjusted for joint ventures as a percentage of opening and closing capital employed. See note 15f.

Return on equity (ROE)

Profit before tax before exceptional items adjusted for joint ventures as a percentage of opening and closing net assets.

Revenue

Revenue per consolidated income statement.

Revenue value of private reservations secured in the year

The fair value receivable in the future of private house sales reserved by customers during the year, net of cancellations.

Sales outlets

Average no. of sales outlets open in the year.