How We Manage Risk
Our Risk Management Process
Our Risk Assessment Process
Key Risk Management Objectives
- To ensure our approach to risk meets the needs of our business and its key stakeholders;
- To ensure that a robust assessment is made of emerging and principal risks;
- To effectively communicate our risks and define responsibilities in order to manage risk;
- To continually evaluate and review the impacts of any potential new risks occurring within our business; and
- To develop and implement action plans to mitigate risks as appropriate.
- The ultimate responsibility for the effective management of the risks we face in order to achieve our strategic and financial objectives lies with the Main Board;
- Material and emerging risks and principal concerns are identified and robustly assessed as part of our risk assessment framework, following a detailed review of the Company’s strategic objectives;
- These headline risks are then approved by the Board to be included within our risk register;
- The risk register is reviewed formally annually and updated for any new risks identified during our Risk Assessment processes; and
- It is also presented to the Audit Committee for final review and consideration to ensure that it is appropriate and reflects our business risks.
- All identified high level risks are then further broken down into components and sub level risks to be considered at the divisional levels and Group department level;
- Management responsibility to implement the Board’s policies on risk management and internal controls; and
- Internal controls operated to mitigate, control and continuously monitor these risks.
- Any new risks identified at divisional level and Group department level are individually robustly assessed and evaluated on their potential impact to the business and its likelihood of occurrence;
- These risks are then communicated to the Risk Owners who will use this assessment to inform their formal view on these risks and all previously identified risks;
- The probability and potential impact for each sub level risk is assessed by the Risk Owners;
- It is then the Risk Owners responsibility to ensure key preventive and detective controls are designed and implemented to address these risks and ensure their inclusion in our risk register; and
- Group Policies and Procedures are updated to reflect any new or improved key controls or processes.
Risk
The UK housing market conditions have a direct impact on our business performance.
Increased Government regulation.
This year the risk has reduced slightly due to the market and ourselves being better placed to manage through a pandemic and the reduction in the likelihood of general price deflation.
Risk Owners
Group Chief Executive
Key Controls and Mitigating Strategies
- Ongoing and regular monitoring of Government policy consultations and developments and lobbying as appropriate.
- Close monitoring of Government guidance.
- Market conditions and trends are being closely monitored allowing management to identify and respond to any sudden changes or movements.
- Weekly review of sales at Group, divisional and site level with monitoring of pricing trends and customer demographics.
- Ensuring strong relationships with lenders and valuers to ensure they recognise our premium product.
- Delegated Crisis Committee established with Executive Board meetings a minimum of twice weekly in times of crisis.
Risk Movement
Example Key Risk Indicators
- Leading market indicators re volumes and values
- Weekly sales statistics
Risk
Failure of our customer service could lead to relative under performance of our business.
Risk Owners
Group Customer & Marketing Director
Key Controls and Mitigating Strategies
- Customer and Quality Director.
- My Redrow website to support our customers purchasing their new home. Increased use of digital and virtual communication tools.
- Online systems provide a full audit trail of the sales process.
- Full training on New Homes Ombudsmen requirements.
- Attention to customer feedback supported by a process at nine months post occupation to address root cause of customer fatigue and dissatisfaction.
- Regular review of our marketing and communications policy at both Group and divisional level.
Risk Movement
Example Key Risk Indicators
- Customer satisfaction metrics (see pages 8 to 9)
- NHBC Construction Quality Review scores and Reportable Items (see pages 10 to 11)
Risk
The failure of a key component of our supply chain to perform due to financial failure or production issues could disrupt our ability to deliver our homes to programme and budgeted cost.
This year the risk has increased due to inflationary pressures on both materials and labour and supply interruptions and shortages of certain components.
Risk Owners
Group Commercial Director
Key Controls and Mitigating Strategies
- Use of reputable supply chain partners with relevant experience and proven track record and maintain regular contact.
- Monitoring of subcontract supply chain to maintain appropriate number for each trade to identify potential shortage in skilled trades in the near future.
- Subcontractor utilisation on sites monitored to align workload and capacity.
- Materials forecast issued to suppliers and reviewed regularly.
- Collaborate with Supply Chain Partners in development of supply continuity strategies.
- Group Monthly Product Development meetings to identify and monitor changes in the regulatory environment.
- Tracking of construction cost movements.
Risk Movement
Example Key Risk Indicators
- Material and trade shortages
- Material and trade price increases
- Advance payment applications
Risk
Non-compliance with Health & Safety standards and Environmental regulations could put our people and the environment at risk.
Increased levels of scrutiny of the housebuilding industry heightens the risk environment as does ensuring safe COVID-19 working practices are adhered to.
This year the risk has also increased due to greater stakeholder and regulatory focus on climate change.
Risk Owners
Group Health and Safety and Environmental Director
Key Controls and Mitigating Strategies
- Dedicated in-house team operating across the Group to ensure compliance of appropriate Health and Safety standards supported by external professional expertise.
- H,S&E Assurance Audits.
- Monthly Divisional H,S&E Leadership meetings.
- Group and Regional H,S&E Leadership meetings.
- Internal and external training provided to all employees.
- Divisional Construction (Design and Management) Regulation (CDM) inspections carried out to assess our compliance with our client duties under CDM.
- Health and Safety discussion at both Group and divisional level board meetings supported by performance information.
- CDM competency accreditation requirement as a minimum for contractor selection process.
- Regular monitoring and reporting on environmental performance.
Risk Movement
Example Key Risk Indicators
- Accident incident rate (see pages 8 to 9)
- H,S&E Assurance Audits outcomes
- 'Near Miss' statistics
Risk
Risks associated with climate change and failure to embed sustainable development principles.
This year the risk has also increased due to greater stakeholder and regulatory focus on climate change and ESG generally.
Risk Owners
Group Communities Director
Key Controls and Mitigating Strategies
- Preparation and planning underway for Future Homes standard.
- Preparation for future Environmental Bill through implementation of our Nature for People Strategy.
- Close monitoring of Government guidance.
- Regular benchmarking against peers.
- ESG scorecard.
- Risks and Opportunities assessment aligned to TCFD framework.
- Training for divisional teams.
Risk Movement
Example Key Risk Indicators
- Group GHG emissions scope 1 & 2
- % of timber certified
- Average SAP rating
- Tonnes of construction waste per 100m2 build
- % of materials suppliers and manufacturers who have actively confirmed compliance with the Modern Slavery legislation and Redrow Code of Conduct
Risk
The inability to adapt to changes within the planning and regulatory environment could adversely impact on our ability to comply with regulatory requirements.
This year the risk has increased due to potential implications arising from the National Model Design Code and other proposed Government legislation, including proposed Residential Property Developers Tax.
Risk Owners
Group Communications Director, Group Human Resources Director, Group Company Secretary and Managing Director (Harrow Estates)
Key Controls and Mitigating Strategies
- Lobby and communicate with local authorities to facilitate early collaboration to shape developments including where a National Model Design Code (NMDC) is required.
- Close management and monitoring of planning expiry dates and CIL.
- Well prepared planning submissions addressing local concern and deploying good design.
- Careful monitoring of the regulatory environment and regular communication of proposed changes across the Group through the Executive Management Team.
- Proactive approach to managing data protection with multi-functional team meeting regularly.
- Effective engagement with local authorities to understand the extent of their policies relating to climate change.
Risk Movement
Example Key Risk Indicators
- Government consultations
- Planning approval statistics
- Proposed Government legislation
Risk
Failure of the Group's IT systems and the security of our internal systems, data and our websites can have significant impact to our business.
Risk Owners
Chief Information Officer
Key Controls and Mitigating Strategies
- Cyber Awareness campaigns.
- Communication of IT policy and procedures to all employees.
- Regular systems back up and storage of data offsite.
- Internal IT security specialists.
- Use of third party entity to test the Group's cyber security systems and other proactive approach for cyber security including Cyber Essentials Plus accreditation.
- Compulsory GDPR and IT security online training to all employees within our business.
- The systems have proved resilient to increased home working.
- Cyber Insurance.
Risk Movement
Example Key Risk Indicators
- Level of instances reported in the media
- Penetration test results
Risk
The ability to purchase land suitable for our products and the timing of future land purchases are fundamental to the Group’s future performance.
Risk Owners
Group Chief Executive
Key Controls and Mitigating Strategies
- Proactive monitoring of the market conditions to implement a clear defined strategy at both Group and divisional level.
- Experienced and knowledgeable personnel in our land, planning and technical teams.
- Appropriate investment in strategic land programme supported by specialist Group team.
- Effective use of our Land Bank Management system to support the land acquisition process.
- Close monitoring of progress of relevant Local Plans.
- Peer review by Legal Directors and use of third party legal resources for larger site acquisitions to reduce risk.
- Monitoring of emerging legislation to inform land assessments and purchase terms.
Risk Movement
Example Key Risk Indicators
Risk
A significant fraud or uninsured loss could damage the financial performance of our business.
Risk Owners
Group Finance Director
Key Controls and Mitigating Strategies
- Systems, policies and procedures in place which are designed to segregate duties and minimise any opportunity for fraud.
- Regular Business Process Reviews undertaken to ensure compliance with procedure and policies followed by formal action plans.
- Timely management reporting.
- Insurance strategy driven by business risks including Cyber Insurance.
- Fraud awareness training.
Risk Movement
Example Key Risk Indicators
- Business Process Review outcomes
- Insurance Review outcomes
Risk
Availability of mortgage finance is a key factor in the current environment.
This risk has decreased slightly in the year due to a reduction in the uncertainty around the impact of Help To Buy changes.
Risk Owners
Group Finance Director
Key Controls and Mitigating Strategies
- Proactively engage with the Government, Lenders and Insurers to support the housing market.
- Expert New Build Mortgage Specialists provide updates on and monitoring of regulatory change.
Risk Movement
Example Key Risk Indicators
- Loan to value metrics
- Number of mortgage products readily available
Risk
The loss of key staff and/or our failure to attract high quality employees will inhibit our ability to achieve our business objectives.
Risk Owners
Group Human Resources Director
Key Controls and Mitigating Strategies
- In-house training offering blended learning to all employees.
- Suite of development programmes for identified talent from first line manager to Director.
- Move to agile working practices embracing use of remote working.
- Graduate training, Undergraduate placements and Apprentice training programmes to aid succession planning.
- Bespoke housebuilding degree course in conjunction with Liverpool John Moores University and Coleg Cambria.
- Remuneration strategy in order to attract and retain talent within the business is reviewed regularly and benchmarked.
- Engagement Team and continued refinement of internal communications platform in addition to annual employee survey to create framework for strong, two-way communication.
- Flexible Working Policy.
Risk Movement
Example Key Risk Indicators
- Employee turnover levels (see pages 10 to 11)
- Employee engagement score (see pages 10 to 11)
Risk
The Group requires appropriate facilities for its short-term liquidity and long-term funding.
Risk Owners
Group Finance Director
Key Controls and Mitigating Strategies
- Medium term committed banking facilities sufficient for a major market breakdown.
- Regular communication with our investors and relationship banks, including visits to developments as appropriate.
- Regular review of our banking covenants appropriateness and design and capital structure.
- Ensuring our future cash flow is sustainable through detailed budgeting process and reviews and scenario modelling.
- Strong forecasting and budgeting process.
- Monitor requirements for future bonds in emerging planning agreements.
Risk Movement
Example Key Risk Indicators
- Cash conversion
- Forecast undrawn committed facilities
Risk
The failure to design and build a desirable product for our customers at the appropriate price may undermine our ability to fulfil our business objectives.
This risk has increased in the year due to the greater likelihood of additional regulatory requirements.
Risk Owners
Group Design and Technical Director
Key Controls and Mitigating Strategies
- Regular review and product updates in response to the demand in the market and assessment of our customer needs.
- Design focused on high quality build and flexibility to planning changes.
- Regular site visits and implementation of product changes to respond to demands.
- Focus on award winning Heritage Collection.
- Regular design and technical seminars.
- Monitor Government emerging legislation.
Risk Movement
Example Key Risk Indicators
- Customer satisfaction metrics (see pages 8 to 9)
- Focus Group feedback
- Emerging planning regulation
Going Concern and Viability Statement
An assessment of going concern is included in the Basis of Preparation section of Accounting Policies on page 184.
viability
In accordance with Provision 31 of the UK Corporate Governance Code 2018, the Directors have assessed the prospects and viability of the Group.
The Directors’ assessment has made reference to our current position, the potential impact of the principal risks facing the Group, including the economic uncertainty arising from the COVID-19 global pandemic and the Group’s risk and risk management attitudes and processes.
The Directors have selected a three year timeframe over which to assess the viability of the Group from 28th June 2021 to 30 June 2024. This timeframe was selected as it corresponds with the Board’s three year planning horizon.
On an annual basis, the Directors formally review the financial forecasts for the Group. These incorporate assumptions about the timing of legal completions of new homes and land purchases, selling prices, profitability, working capital requirements and cashflows.
The three year plan has been stress tested taking into account the following robust downside assumptions:
- a 10% price reduction on all unexchanged private and social legal completions for FY2022 and FY2023 compared to base case Board approved budgeted prices;
-
a 15% volume reduction for FY2022 and FY2023 compared to base case Board approved budgeted volumes;
- a 4% build cost increase on budgeted cost from Q1 FY2023 onwards; and
- FY2024 legal completions at budgeted prices and volumes.
No mitigation has been applied.
The Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period ending 30 June 2024.