Carrying value of inventories and cost of sales recognition

The Group carries inventories at the lower of cost and net realisable value. 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 thereby impacting current year cost of sales and in future periods. A full review of the net realisable value of inventories was undertaken by the Group as at 27 June 2021 and this requires Management to use its judgement and experience in assessing any impairment provisions that may be required. If there are significant movements in UK house prices or development costs compared to Management expectations then further impairments or reversal of impairments already made may be needed.

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. A sensitivity analysis is included on page 201.

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.

Included within Revenue from the sale of new housing is £236m (2020: £nil) of revenue from contracts with social housing providers or private rental sector providers on which revenue is recognised over time by reference to the stage of completion of contract activity. Of this amount £nil (2020: £nil) was included in contract liabilities at the beginning of the year. The amount of revenue recognised in the current period from performance obligations satisfied (or partially satisfied) in previous periods was £nil (2020: £nil).

The contract assets relate to the Group's rights to consideration for work completed but not invoiced at the balance sheet date for contracts on which revenue is recognised over time. 

The contract liabilities, which are included within social customer payments on account in note 16, relate to the advance consideration from customers at the balance sheet date for contracts on which revenue is recognised over time.

The following table shows further revenue of £213m (2020: £nil) expected to be recognised in future years in respect of contracts on which revenue is recognised over time:

b. Operating Profit

Fees payable to the Company’s Auditors comprise:

(i) fees payable for the audit of parent company and consolidated financial statements £141,250 (2020: £50,000) and fees payable for the audit of the Company’s subsidiaries pursuant to legislation £423,750 (2020: £183,105).

(ii) Auditors’ remuneration for other services comprised £75,000 (2020: £36,895) in respect of an independent review of the half-yearly financial statement.

Amounts receivable by the Group's auditor in respect of pension services performed for the pension trustees is £nil (2020: £40k).

The 2021 ratio of non-audit fees to audit fees is 1:7.53 (2020: 1:6.32).

Current income tax charge in the Company is £nil (2020: credit of £1m).

Information on the impact of future tax rate changes is included in note 12.

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:

The number of Directors where retirement benefits are accruing in respect of defined benefit schemes are 2 (2020: 2). The aggregate amount of gains made by Directors on the exercise of share options was £0.5m (2020: £1.8m).

Detailed disclosure of Directors’ emoluments and interests in shares are included in the Directors’ Remuneration Report on pages 128 to 153, notably the 'Single Total Figure of Remuneration Table (Audited)' on page 144 which details remuneration paid to or received by directors in respect of qualifying services, and the 'Statement of Shareholding and Scheme Interests (Audited)' on page 147 and 148. 

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 22 September 2020 were granted to a limited number of Senior Executives. The scheme is discussed in greater detail within the Directors’ Remuneration Report notably within the 'Directors' Remuneration Policy' on page 136.

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 22 September 2020 comprises £4.053 in respect of non-market based performance conditions.

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.

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.

In respect of options granted during the financial year ended 27 June 2021, Deferred Bonus Incentive Tranche 1 and 2 were absolute contractual entitlements to a small number of individuals and were granted on 22 September 2020. For the majority of senior management participating in this bonus scheme, due to the impact of the COVID-19 pandemic, a lesser, discretionary bonus was granted on 15 March 2021 and due to quantum was granted as a single tranche vesting on 15 March 2022.

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 27 June 2021:

The total share options outstanding at 27 June 2021 under the LTIP, Deferred Bonus Incentive Plan and the Save As You Earn schemes represent 1.3% of the issued share capital (2020: 1.2%).

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 £5.16 (2020: £6.67).

The options outstanding at 27 June 2021 had a range of exercise prices of £nil to £4.94 (2020: £nil to £4.94) and a weighted average remaining contractual life of 5.1 years (2020: 5.6 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 £6m (2020: charge £5m).

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

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

In March 2020, the Chancellor of the Exchequer and UK Statistics Authority jointly issued a consultation on changing the Retail Price Index (RPI) formula. In November 2020 the outcome of the consultation was published with the intention that the RPI index will be amended to reflect the Consumer Price Index including housing (CPIH) from 2030. The inflation assumptions have been considered in light of this.

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:    SAPS3 CMI_2020 1.50% Long Term Trend (2020: SAPS2 CMI_2019 1.50% Long Term Trend)

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

No adjustments have been made to mortality assumptions at the year end to reflect the potential effects of COVID-19 as the actual plan experience is not yet available and as it is too soon to make a judgement on the impact of the pandemic on future mortality improvements. The mortality experience analysis for the Scheme will be carried out in the future as part of the 1 July 2023 funding valuation for the defined benefit section of the Scheme.

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 27 June 2021 (unchanged from 28 June 2020).

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 198). 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) £nil m of the loans to joint ventures are secured (2020: £9m). 

The Group’s joint venture investments were:

• 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.
• On 23 September 2020 Menta Developments Ltd purchased Redrow's remaining investment in Menta Redrow Limited and Menta (Regeneration) Limited purchased Redrow's remaining investment in Menta (II) Limited. No profit or loss was generated.

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 27 June 2021 is shown below. 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.

A reduction in the UK corporation tax rate from 19% to 17% (effective April 2020) was substantively enacted on 6 September 2016. The March 2020 Budget announced that a rate of 19% would continue to apply with effect from 1 April 2020, and this change was substantively enacted on 17 March 2020.

An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the Company's future current tax charge accordingly. The deferred tax asset at 27 June 2021 has been calculated based on these rates (2020: 19%) with the exception of the deferred tax liability on employee benefits which has been calculated at 35% (2020: 19%). This reflects the results of the latest triennial valuation of the defined benefit section of The Redrow Staff Pension Scheme (see page 198) which now suggests the return of the IAS 19 surplus is highly likely to take the form of a lump sum cash refund rather than a reduction in future deficit contributions.

Non-current trade receivables are stated after an allowance of £nil has been made (2020: £nil) in respect of expected credit losses. This allowance is based on an estimate of default rates. £nil provision was made during the year (2020: £nil). £nil was utilised (2020: £nil). Current trade assets are stated after an allowance of £8m (2020: £4m) in respect of expected credit losses with £nil provision utilised (2020: £nil), £nil provision released (2020: £1m) and £4m provision created (2020: £nil).

Amounts due from subsidiary companies are unsecured, repayable on demand and carry interest at market rate. The balance classified as current is anticipated to be repayable within the normal operating cycle of the subsidiary businesses (c4 years as explained in more detail on page 188). Of this amount £100m (2020: £75m) is expected to be recovered within 12 months of the balance sheet date.

Inventories of £1,465m were expensed in the year (2020: £1,027m). Work in progress includes £1m (2020: £1m) in respect of part exchange properties. Land held for development in the sum of £210m is subject to a legal charge as security in respect of deferred consideration (2020: £160m).

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 £16m (2020: £33m). £5m of impairment costs arising from the strategic decision to scale back our London operations were expensed in the year (2020: £35m).

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 c4 years.

For the 52 weeks ended 27 June 2021, 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 (2020: c £1m).

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

The Company

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

The Company was fully compliant with its banking covenants as at 27 June 2021.

At the year end, the Group and Company had £350m (2020: £193m) 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

Basis for determining fair values

The principal methods and assumptions used in estimating the fair value of financial instruments can be found in the Accounting Policies pages 188 to 189.

Fair value hierarchy

Financial assets and liabilities carried at fair value are categorised within the hierarchal classification of IFRS13:

• Level 1: Quoted prices in active markets for identical assets or liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3: Inputs are not based on observable market data.
  
  

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

The Group

Other financial liabilities are at amortised cost.

The Company

See note 2.

Amounts due to subsidiary companies are unsecured, repayable on demand and bear interest at market rate on trading balances. Amounts due in respect of development land are classified as current when they are contractually due within 12 months of the balance sheet date.

Provisions relate to onerous contracts and maintenance, sundry remedial costs in respect of development activities and a provision for potential fire safety remedial works. It is expected that this provision will be utilised within four years. In the current year certain balances have been reclassified from trade payables to provisions to provide greater clarity in disclosures. The Directors do not consider this to represent a material change in presentation.

Remedial Works Provision

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2020: £7m) and a £1m Consolidation reserve (2020: £1m).

Undistributable reserves

Other reserves are not available for distribution.

The Company

Other reserves

Other reserves consists of a £7m Capital redemption reserve (2020: £7m).

Undistributable reserves

Other reserves are not available for distribution.

Non-cash movement comprises movements in respect of LTIP/SAYE together with relevant IAS19, IFRS7 and IFRS16 non cash movements. 

The Company

23. Alternative Performance Measures

Redrow uses a variety of Alternative Performance Measures (APMs) which are not defined or specified by IFRSs but which the Directors believe are pertinent to reviewing and understanding the broader 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.

Dividend per share

Interim and final dividend per share declared in respect of the financial year.

Earnings per share (EPS) (IFRS measure)

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 recommend rating

Independent HBF customer satisfaction rating score.

Hurdle rates

Gross margin and internal rate of return minimum rates required for land purchase appraisals.

Land holding years

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

Legal completions

The number of homes legally completed in the 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 (IFRS measure)

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.