Committee Membership

There are three Members of the Committee, each of which is an independent Non-Executive Director, with myself, the Senior Independent Director, being Chairman of the Committee. The other Members of the Committee during the 2021 financial year were Sir Michael Lyons, Nicky Dulieu and Vanda Murray. Vanda Murray stepped down as a Member of the Committee on 6 November 2020 when she retired from the Board. In line with Provision 24, the Chairman of the Board is not a Member of the Committee.

Richard Akers was appointed as an independent Non-Executive Director and Chair-Designate on 1 June 2021 however upon advice from the Nomination Committee, the decision was taken that Richard would not act as a Member of the Audit Committee. In adopting the Code in both letter and spirit, and taking into consideration Provision 24 of the Code, as Richard Akers would be working closely with John Tutte during a period of handover of the Non-Executive Chairman role, it was agreed that it would not be appropriate for him to act as a Member of the Committee.

As outlined further in the Nomination Committee Report on page 120, I will have completed a nine-year term as a Non-Executive Director of the Company by December 2021 and, in line with Provision 10 of the Code, I will not be seeking re-election at the AGM in 2022.

The Board is satisfied that there is the requisite recent and relevant financial experience on the Committee (in line with Provision 24 of the Code) and that there is sufficient competence in accounting and auditing (in line with DTR 7.1.1A) due to the following:

• I, as Chairman of the Committee, am a Fellow of the Institute of Chartered Accountants in England and Wales;
• Nicky Dulieu is a Fellow member of the Association of Chartered Certified Accountants and has held various strategic and financial roles within a FTSE 250 company over a 23-year period. She is currently the Chair of the Audit Committee at WH Smith plc; and
• Sir Michael Lyons has been a Member of the Committee since his appointment to the Board in January 2015 and has recent experience of providing independent challenge of the Company’s financial performance, risk management and control procedures.
  
  

The qualifications, skills and experience of each Committee Member can be found on pages 92 to 93.

Committee Meetings

The Company Secretary acts as Secretary to the Committee and detailed papers and information were circulated by the Company Secretary sufficiently in advance of meetings to allow proper consideration of the matters for discussion.

To enable the Committee to provide robust challenge of the reports submitted to the Committee, regular attendees at the meetings during the year included the Group Finance Director, Finance Director - Group Services (who has the responsibility for the Company’s internal audit), Chief Information Officer (who has the responsibility for IT, including cyber security and systems accounts) and KPMG LLP as the external auditor.

The Committee met four times during the year and details of the meeting attendance can be seen in the table below. A summary of the principal activities of the Committee is provided below.

¹ Vanda Murray stepped down from the Board on 6 November 2020 and attended both meetings held between the beginning of the 2021 financial year and her retirement date.

^*Member considered to be independent. Throughout the 2021 financial year the Committee was made up of 100% independent Members.

The Committee has also had the opportunity to meet separately with the external auditors and internal audit function following the final audit and the review of the 52 weeks ended 27 June 2021 financial statements.

Responsibilities and Terms of Reference

The key responsibilities of the Committee are:

• monitoring the timeliness and integrity of the financial statements and accompanying reports to the shareholders and Corporate Governance Statements, including reviewing any significant financial reporting judgements contained therein and the findings of the external auditors;
• monitoring and reviewing any formal announcements relating to the Company’s financial performance;
• reviewing and monitoring the effectiveness of systems for internal control, financial reporting and risk management, including the Risk Register, covering all material controls (including financial, operational and compliance controls), having regard to the long-term prospects and viability of the Company;
• making recommendations to the Board in relation to the appointment and removal of the external auditors and approving the remuneration and terms of engagement;
• determining the criteria used in order to assess the quality of the external audit and reporting on any significant issues considered in relation to the financial statements;
• reviewing and monitoring the external audit process and independent activity of the external auditors as well as the nature and scope of the external audit and its effectiveness;
• reviewing and monitoring the external auditor’s independence and objectivity;
• monitoring and reviewing the policy on the engagement of the external auditors to supply non-audit services, taking into consideration the impact this may have on independence;
• ensuring that the internal and external audit functions remain independent and effective through formal and transparent review;
• reviewing the Company’s procedures for detecting fraud and the adequacy of its systems and controls for the prevention of bribery;
• reviewing the Company’s procedures for data management and cyber resilience;
• reviewing the Company’s procedures and controls for the prevention of tax evasion and the facilitation of tax evasion;
• reviewing the Company’s procedures for raising concerns; and
• reporting to the Board on how the Committee has discharged its responsibilities.
  
  

The Committee’s Terms of Reference are available on the Company’s website (redrowplc.co.uk).

Audit Committee Reporting on Significant Issues

The primary areas of judgement and estimation uncertainty which were considered and challenged by the Committee and how these were addressed are set out below:

Main Activities During the Year

The Committee followed a programme which is structured around the annual reporting cycle and received reports from internal audit, the external audit and management. The principal activities undertaken were as follows:

Going Concern

Biannually, management conducts a detailed going concern review, considering liquidity and banking covenant compliance. The Committee has challenged forecast cash flows and the assumptions applied to derive the cash flows and availability of finance from existing facilities. The Committee has challenged the various risks associated with the COVID-19 pandemic that have been assumed as part of this review. The cash flow forecasts evidence that the Group has adequate levels of liquidity from its committed facilities and complies with all banking covenants for at least 12 months from 14 September 2021. The Committee therefore considers that it is appropriate to continue to adopt a going concern basis in the preparation of the financial statements.

External Auditors

Following the latest tender process which was undertaken by the Committee in 2018, KPMG LLP was appointed as the external auditor of the Company in 2019 and reappointed at the 2020 Annual General Meeting, with 99.98% of votes cast in favour of reappointment.

The tenure of the current Audit Partner from KPMG LLP, Nick Plumb, commenced from the financial year commencing 1 July 2019.

Provision of Non-Audit Services by External AuditorS

The Committee has a formal policy in respect of the work of the external auditors. The purpose of this policy is to ensure that the auditors’ objectivity and independence is maintained by ensuring both that the nature of any non-audit work undertaken and the level of fees paid does not compromise the auditors’ position.

Appointments in respect of non-audit work require the prior approval of the Committee within an established budget. In addition, no work can be undertaken by the external auditors in any area where there is any identifiable risk that the work of an individual within the external audit firm or the external audit firm generally could conflict or compromise the quality, objectivity or independence of any audit or compliance work undertaken for the Group.

The external auditors are not indemnified by the Company nor has the Company purchased liability insurance for them.

Non-audit services provided by the external auditors during the 2021 financial year comprised audit related assurance services, in the form of an independent review of the half-yearly statements. The Committee concluded that the provision of such services was appropriate given that they were closely related to the work performed in the external audit process and, for reason of effectiveness and efficiency, it was considered advantageous to engage the external auditors due to their knowledge and expertise.

The Committee, in line with the above formal policy, approved all non-audit service fees for the work undertaken in the financial year. The provision of such services was in line with the FRC’s Revised Ethical Standard 2019. As a result of this policy and additional discussions with the external auditors, the Committee is satisfied that the independence of KPMG LLP was not compromised because of this additional work. Details of fees paid to KPMG LLP for audit and non-audit purposes are disclosed on page 191.

Independence Assessment of External Auditors

In line with Provision 25 of the Code, the Committee monitors and reviews the independence and objectivity of the external auditors. The Committee is satisfied that KPMG LLP remain independent and objective following its assessment, taking into consideration the following:

• Tenure of the audit firm – the 2020 financial year was the first period of KPMG LLP’s appointment as the external auditor. The Committee is aware of the requirement for it to retender the Company’s statutory audit services engagement at least every ten years, with rotation at least every twenty years. The Committee is also mindful of the Competition & Markets Authority view that companies may benefit from going out to tender every five years and, when considering the specific timing for the retender of the external auditor, the Committee shall consider which year would be in the best interests of its members among other factors. Having completed only two years of external audit services, the Committee is satisfied that the independence of KPMG LLP has not been impaired;
• Tenure of the audit partner – the 2020 financial year was the first period of Nick Plumb’s engagement as Audit Partner of the external auditor. The Committee is aware of the requirement for the Audit Partner of the external auditor to be rotated at least every five years. Having completed only one year as Audit Partner, the Committee is satisfied that the independence of the external auditors, and Nick Plumb as Audit Partner, has not been impaired;
• Connection of the audit firm to the Members of the Committee – KPMG LLP has no connection to any Member of the Committee or the Board; and
• Level of non-audit services provided to the Company – the Committee is satisfied that the level of non-audit services provided by KPMG LLP was in line with the Company’s policy and was appropriate in respect of the audit services provided and that an effective audit could be conducted, with such level in no way compromising independence.
  
  

Effectiveness Assessment of External Auditors

The performance of the external auditors is subject to regular review by the Committee, in line with Provision 25 of the Code.

This year, a tailored assessment framework was compiled following the first year of audit by the external auditors to allow for a rigorous evaluation by the individual Members of the Committee, as well as regular attendees. The assessment framework shall be used in forthcoming years, being adapted where appropriate, allowing for an objective analysis of progress and possible areas of improvement over the tenure of the external auditor.

In its assessment of the effectiveness of the external auditors, the Committee considered the quality of the external audit processes; the knowledge and experience of the external audit team; the external audit scope and plan; the external audit communications; and the external audit governance and independence.

Following its assessment, an anonymised report was presented to the Audit Committee and the external auditor. The areas of improvement highlighted within the assessment were discussed with the external auditor. Following this discussion, the Committee were satisfied with the effectiveness of KPMG LLP.

Re-Appointment of External Auditors

Following its assessment of the independence and effectiveness of the external auditors, having received the recommendation from the Committee, the Company will be proposing the re-appointment of KPMG LLP as its external auditor at the 2021 Annual General Meeting.

The Committee confirms that there were no contractual obligations that acted to restrict the Committee’s choice of external auditor.

Internal Controls

The Board recognises its overall responsibility for the Group’s system of internal control and for monitoring its effectiveness. There is an ongoing process for identifying, evaluating and managing significant risks. However, in reviewing the effectiveness of internal control, any internal control system can only provide reasonable but not absolute assurance against material misstatement or loss.

Key business activities, including finance, land acquisition, product design, and procurement and information technology are controlled by the Executive Directors. All activity is organised within a defined structure with formal lines of responsibility, designated authority levels and a structured reporting framework. A formalised reporting structure has been established within the Group. The Executive Directors, the Company Secretary, Regional Chief Executives, Group Human Resources Director, Group Customer & Marketing Director and Group Communities Director (the “Executive Management Team”) meet monthly to discuss the Group’s key issues, principal and emerging risks and opportunities, and more frequently if required to meet the demands of the business. The Divisions also hold monthly board meetings which are attended on a rotational basis by the Executive Directors.

The key features of the Group’s internal controls are as follows:

• defined authorisation levels exist over key areas such as land purchase, the placing of orders and contracts and staff recruitment;
• the requirement of a formal land bid approval meeting to be held for all sites above a certain land value threshold prior to being submitted. Depending on the threshold, the meeting must be attended by the Non-Executive Chairman, the Group Chief Executive, the Group Finance Director, the Regional Chief Executive, the Managing Director of the Division and Harrow Estates and provides greater Group visibility of potential sites at an earlier stage;
• prior to completion on land purchases above a certain monetary threshold, the requirement for a peer review of the contract to be conducted by another Divisional Legal Director, following which the Legal Director must prepare a supplementary report for the Division;
• a requirement for a peer review to be conducted by another Divisional Commercial Director on the instruction of Group Commercial for any subcontract orders above a certain monetary threshold;
• a comprehensive prioritised Risk Register which is regularly reviewed and presented to the Committee;
• the Group’s management information systems provide weekly updates on key statistics and information in respect of sales and production and the content of these weekly reports is regularly reviewed to ensure it remains appropriate;
• the Group has an in-house Health, Safety and Environmental department and places great emphasis on the importance of health and safety and environment management. The department works closely with the Divisions to ensure that training is provided to employees and subcontractors. Best practice is shared and appropriate actions are taken to comply with health and safety best practice and legislation throughout the organisation;
• an Environmental, Social and Governance ("ESG") scorecard with cross discipline support which improves the focus on the relevant key performance indicators and controls over delivery in those areas;
• the Board requires each director in its operating Divisions to complete an annual statement on Corporate Governance and related party transactions. The statement is designed to provide assurance that Group policies and procedures are being implemented and complied with in all material respects;
• key functional directors must complete a Principal Controls Self-Assessment Questionnaire which is reviewed by the Board to assist in improvements in the control framework;
• a weekly business report comprising sales funnel information, gross margins and order book is produced for the Group, each division and each site and circulated across the Group;
• a monthly reporting pack is circulated in advance and reviewed at the meetings of the Board, Executive Management Team and divisional boards. Annual budgets are set, with actual performance compared against the annual budget;
• preparation and regular updates of strategic plans;
• the policy and procedures manuals which cover all the significant aspects of the Group’s operations and describes the systems and controls that are to be applied; and
• daily statements of a reconciled cash position identifying significant payments are prepared, rolling cash flow forecasts are prepared and forecast banking covenant compliance are tested.

Throughout the year, the Committee carried out assessments of internal control by considering documentation from the Executive Directors and the internal audit function as well as taking into consideration events since 27 June 2021. The internal controls extended to the financial reporting process and the preparation of consolidated financial statements. The basis for the preparation of consolidated financial statements has been undertaken in accordance with the Company’s accounting policies as set out on page 184.

In assessing the effectiveness of the internal audit function, the Committee is satisfied that it has the appropriate status, processes, knowledge and resources to deliver an effective internal audit and that the function has had a positive impact on the controls and governance of the Group.

The Committee therefore confirms that it is satisfied that the system of controls has been in operation throughout the financial year and up to the date of this report.

Risk Register

The Group formally reviews its prioritised Risk Register biannually and more often as necessary. At least annually, the detailed Risk Register is circulated to all Divisional Managing Directors, the Regional Chief Executives and key Group Directors and Heads of Department to review with their teams. Feedback is then collated on any omissions or amendments to the risks or controls, any views regarding risks which have become more or less significant since the last review period and any other comments relating to the risks or controls.

Responses from the review exercise are then summarised and forwarded to the risk owners together with the current detailed Risk Register and a scoring matrix. The Risk Register is then updated as appropriate, according to the impact and likelihood of the risks after taking into consideration the prevent and detect controls.

The Executive Management Team, through its regular meetings, reviews key areas of risk on an ongoing basis and considers whether the internal controls identified in relation to those risks remain appropriate. The updated and reviewed Risk Register is then discussed and approved by the Committee.

Insurance

The Board has appointed an experienced broker to advise on and co-ordinate all insurance matters across the Group and they liaise closely with appropriate Group personnel at head office and within the divisions and report directly to the Group Finance Director. The insurance renewal is discussed and agreed by the Committee annually.

Risk Management and Internal Audit

The Group has in place a robust risk management framework and the table below provides details of the key components of the risk management system which are subject to regular review and challenge by the Committee:

The internal audit strategy and risk management framework is discussed with the external auditors and discussed and agreed with the Committee. Suggested control improvements and any control weaknesses identified are followed up as appropriate.

Bribery Act

Following the introduction of the Bribery Act 2010 the Company put in place a formal policy on bribery and corruption for all employees to strictly adhere to. The Company Secretary ensures that the policy is complied with, updates the policy, procedures and Code of Conduct as and when required and provides regular reports to the Committee.

The Bribery Act policy is formally reviewed and approved each year by the Committee.

The policy contains the definition of bribery and corruption, providing examples of how this could work in the context of the Company’s industry and also offering guidance as to what would be considered acceptable behaviour. The policy deals with all matters of bribery and corruption and clarifies the Company’s strict approach to any form of facilitation payment or conflict of interest.

Training is given to all staff to highlight the various forms of bribery and all new staff attend an induction course at the commencement of their employment which includes a section relating specifically to bribery and the implication on individuals and the Company of an act of bribery either given or received. Within the Code of Conduct, there is a specific decision-making tool which is designed to provide employees with key questions to ask themselves should they ever be faced with difficult situations which could ultimately lead to bribery or corruption. This seeks to guide them to act in a way that is in line with Company policy and prevent any form bribery of taking place.

As outlined on page 115 within the Risk Management framework, the Committee is provided with Gift Register Reports following the twice yearly reviews on the compliance with the Anti-Bribery and Corruption policy and Gifts and Hospitality policy.

The Criminal Finances Act

Following the introduction of the Criminal Finances Act 2017 on 30 September 2017, the Company put in place a policy relating to the facilitation of tax evasion. The policy is applicable to every employee and the Redrow Employee Handbook, which is provided to each new employee, includes reference to the policy and the Group’s zero-tolerance stance on tax evasion and its facilitation. As with the Bribery Act policy, the Company Secretary ensures that the policy is complied with and reports to the Committee on matters falling within the policy.

The Anti-Facilitation of Tax Evasion policy is formally reviewed and approved each year by the Committee. There were no changes made to the policy during the year.

Performance Evaluation

During the year, a formal internal evaluation of the Committee was carried out to build upon the progress made by the 2019 evaluation which was externally facilitated by Independent Audit, as well as the formal internal evaluation undertaken last year. In line with Provision 21 of the Code, the Board shall be engaging an external evaluator to facilitate the evaluation of the Committee in 2022.

After reviewing the 2020 self-evaluation report, a questionnaire was created and tailored, taking into consideration comments made in the previous years’ assessment as well as the current market. The Members of the Committee, as well as those people who regularly attend the Committee meetings by invitation, were invited to participate in the evaluation.

Following completion of the questionnaire, an anonymised effectiveness report was compiled and presented to the Members of the Committee. The findings of the evaluation were discussed and the Committee was found to be effective, concluding that it had fulfilled its remit and had in place appropriate Terms of Reference.

The evaluation highlighted that the Committee was particularly strong in ensuring that the fundamental reporting environment is sound and actively supporting the internal audit function. There was also unanimous agreement that there is a good level of support for the Committee and that the Committee benefits from good and open discussions and is led by a knowledgeable Chairman who promotes challenge and debate from all Members.

Compliance Statement

The Company has complied with the provisions of The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the 52 weeks ended 27 June 2021.

NICK HEWSON

Chairman of the Audit Committee

14 September 2021