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Notes to the Half-Yearly Financial Information

1. Accounting Policies

BASIS OF PREPARATION

The condensed consolidated half-yearly financial information for the half-year ended 31 December 2019 has been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS34, ‘Interim financial reporting’ as adopted by the European Union. The half-yearly condensed consolidated report should be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2019, which have been prepared in accordance with IFRSs as adopted by the European Union.

This half-yearly financial information does not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. This condensed half-yearly financial information has been reviewed, not audited. The comparative figures for the financial year ended 30 June 2019 are not the Group's statutory accounts for that financial year. Audited statutory accounts for the year ended 30 June 2019 were approved by the Board of Directors on 4 September 2019 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph, and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The principal accounting policies adopted in the preparation of this condensed half-yearly financial information are included in the annual consolidated financial statements for the year ended 30 June 2019. The accounting policies are consistent with those followed in the preparation of the financial statements to the year ended 30 June 2019 with the exception of one main new accounting standard which has been adopted by the Group from 1 July 2019.

IFRS 16, 'leases' is the standard that has replaced the guidance in IAS 17. Under IAS 17, the Group did not have any finance leases only operating leases which were off balance sheet. IFRS 16 requires lessees to recognise a lease liability reflecting future lease payments and a lease right of use asset for virtually all lease contracts. Under IFRS 16, a contract is, or contains a lease, if the contract conveys the right to control the use of the identified asset in exchange for consideration. This standard is effective for the Group for the year ending 30 June 2020.

The Group has a number of leases in relation to cars, photocopiers and some office properties which have been brought onto the balance sheet as a result of the adoption of IFRS 16. The Group has used the modified retrospective method to implement IFRS 16. Under this approach, comparative information is not restated. Rather at 1 July 2019, the Group recognised the accumulative effect of the initial application as an adjustment to the opening balance sheet, increasing both fixed assets and liabilities by £8m. Discount rates are used in the calculation of the lease liability. For photocopier leases, the discount rates implicit in the lease have been used. For cars, the discount rate has been estimated across the asset type based on a sample of implicit rates provided by the lessor. For the office property leases an estimate has been used based on adjusted borrowing rates.

As at 31 December 2019, lease right of use assets on the balance sheet were £8m.

There were no other key judgements or estimates made in assessing the impact of IFRS 16 on the Group.

The preparation of condensed half-yearly financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may subsequently differ from these estimates. In preparing this condensed half-yearly financial information, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements for the year ended 30 June 2019.

After making due enquiries and in accordance with the FRC’s ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’, the Directors have a reasonable expectation that the Group has adequate resources to continue trading for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the condensed consolidated half-yearly financial information.

The main operation of the Group is focused on housebuilding. As it operates entirely within the United Kingdom, the Group has only one reportable business and geographic segment. After considering the requirements of IFRS 15 to present disaggregated revenue, the Group does not believe there is any disaggregation criteria applicable to its one reportable business and geographic segment. There is no material difference between any assets or liabilities held at cost and their fair value.

PRINCIPAL RISKS AND UNCERTAINTIES

As with any business, Redrow plc faces a number of risks and uncertainties in the course of its day to day operations.

The principal risks and uncertainties facing the Group are outlined within our half-yearly report 2020. We have reviewed the risks pertinent to our business in the six months to 31 December 2019 and which we believe to be relevant for the remaining six months to 30 June 2020. The only material change from those outlined in our Annual Report 2019 is the political uncertainty around Brexit which has decreased following the recent election.

2. Income Taxes

Income tax charge is recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year (18.5% (2019: 19.0%)). Deferred taxation balances have been valued at 17% being the corporation tax rate from 1 April 2020 substantively enacted on 6 September 2016.

3. Dividends

A dividend of £72m was paid in the six months to 31 December 2019 (six months to 31 December 2018: £70m).

4. Earnings Per Share

The basic earnings per share calculation for the six months ended 31 December 2019 is based on the weighted number of shares in issue during the period of 344m (31 December 2018: 362m) excluding those held in trust under the Redrow Long Term Incentive Plan, 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.

6 months ended 31 December 2019 (Unaudited)
Earnings
£m 
Number
of shares
millions 
Per share
pence 
Basic earnings per share  128 344 37.2
Effect of share options and SAYE  - 1 (0.1)
Diluted earnings per share  128 345 37.1
6 months ended 31 December 2018 (Unaudited)
Earnings
£m 
Number
of shares
millions 
Per share
pence 
Basic earnings per share  150 362 41.5
Effect of share options and SAYE  - 1 (0.1)
Diluted earnings per share  150 363 41.4
12 months ended 30 June 2019 (Audited)
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

5. Pensions

The amounts recognised in respect of the defined benefit section of the Group’s Pension Scheme are as follows:

Unaudited Audited
6 months
ended
31 December 
12 months
ended
30 June 
2019
£m 
2018
£m 
2019
£m 
Amounts included within the consolidated income statement 
Period operating costs 
Scheme administration expenses  - 1 (1)
Net interest on defined benefit liability  - - 1
- 1 -
Amounts recognised in the consolidated statement of comprehensive income 
Return on scheme assets excluding interest income  1 (5) 13
Actuarial gains arising from change in financial assumptions  (3) - (20)
Actuarial gains arising from change in demographic assumptions  (1) - -
Actuarial gains arising from experience adjustments - - -
(3) (5) (7)
Amounts recognised in the consolidated balance sheet 
Present value of the defined benefit obligation  (134) (112) (130)
Fair value of the Scheme’s assets  151 128 148
Surplus in the consolidated balance sheet  17 16 18

6. Inventories

Unaudited Audited
As at
31 December
As at
30 June
2019
£m 
2018
£m 
2019
£m 
Land for development  1,464 1,460 1,515
Work in progress  814 723 715
Stock of showhomes  72 75 67
2,350 2,258 2,297

7. Land Creditors (Included in Trade and Other Payables)

Unaudited Audited
As at
31 December
As at
30 June
2019
£m 
2018
£m 
2019
£m 
Due within one year 229 244 271
Due in more than one year 125 143 167
354 387 438

8. Analysis of Net Cash/(Debt)

Unaudited Audited
As at
31 December
As at
30 June
2019
£m 
2018
£m 
2019
£m 
Cash and cash equivalents 89 102 204
Bank overdrafts - - -
Net cash and cash equivalents  89 102 204
Bank loans  (75) (1) (80)
14 101 124

Net cash excludes land creditors and lease liabilities arising under IFRS 16.

9. Bank Facilities

At 31 December 2019, the Group had total unsecured bank borrowing facilities of £253m, representing £250m committed facilities and £3m uncommitted facilities.

The Group's syndicated loan facility matures in December 2022.

10. Issued Share Capital

Allotted, called up and fully paid
£m
At 31 December 2018 – 369,799,938 ordinary shares of 10p each (unaudited)
37
At 30 June 2019 – 352,190,420 ordinary shares of 10.5p each (audited) 37
At 31 December 2019 - 352,190,420 ordinary shares of 10.5p each (unaudited) 37
Number of
ordinary shares
of 10.5p each
At 1 July 2019 and 31 December 2019 352,190,420

11. Contingent Liabilities

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.

 

12. Related Parties

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:

Unaudited Audited
6 months ended
31 December
12 months
ended 30 June
2019
£m 
2018
£m 
2019
£m 
Short-term employee benefits 3 3 5
Share-based payment charges 1 1 2
4 4 7

The Group did not undertake any material transactions with Menta Redrow Limited or Menta Redrow (II) Limited. The Group's loans to its joint ventures are summarised below:

Unaudited Audited
As at
31 December
As at
30 June
2019
£m 
2018
£m 
2019
£m 
Loans to joint ventures 7 4 4

13. Alternative Performance Measures

Redrow uses return on capital employed (ROCE) as one of its financial measures. The Directors consider this to be an important indicator of whether the Group is achieving appropriate returns on its invested capital. As this is not defined or specified by IFRSs, a definition and calculation is provided below:

Capital employed is defined as total equity plus net debt or minus net cash. 

ROCE - at half year end, this is calculated as operating profit for the 12 months to December before exceptional items as a percentage of the average of current year December and prior year December capital employed.

December
2019
£m 
December
2018
£m 
Operating Profit
6 months to December 2019 159 6 months to December 2018 187
12 months to June 2019 411 12 months to June 2018 382
6 months to December 2018 (187) 6 months to December 2017 (175)
12 months to December 2019 383 12 months to December 2018 394
Capital Employed

Total equity December 2019 1,642
Total equity December 2018 1,560
Net cash December 2019 (14) Net cash December 2018 (101)
Capital employed December 2019  1,628 Capital employed December 2018 1,459
Total equity December 2018 1560 Total equity December 2017 1,343
Net cash December 2018 (101) Net debt December 2017 35
Capital employed December 2018 1,459 Capital employed December 2017 1,378
Average capital employed 1,544 Average capital employed 1,419
ROCE % 25% ROCE % 28%

14. General Information

Redrow plc is a public limited company incorporated and domiciled in the UK and has its primary listing on the London Stock Exchange.

The registered office address is Redrow House, St David's Park, Flintshire, CH5 3RX

Financial Calendar 
Interim dividend record date  6 March 2020
Interim dividend payment date  9 April 2020
Announcement of results for the year to 30 June 2020  9 September 2020
Final dividend record date  25 September 2020
Circulation of Annual Report  28 September 2020
Annual General Meeting  6 November 2020
Final dividend payment date  13 November 2020

15. Shareholder Enquiries

The Registrar is Computershare Investor Services PLC. Shareholder enquiries should be addressed to the Registrar at the following address:

Registrars Department
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Shareholder helpline: 0370 707 1257

16. Risks and Risk Management

Housing Market
Developing Thriving Communities
Developing Thriving Communities

Risk

The UK housing market conditions have a direct impact on our business performance.

Risk Owner

Chief Operating Officer

Key Controls

  • Market conditions and trends are being closely monitored allowing management to identify and respond to any sudden changes or movements.
  • With underlying build costs continuing to rise and house price inflation remaining relatively subdued we maintain tight controls on costs and continue to build our relationships with key suppliers and broaden our supplier base.
  • Weekly review of sales at Group, divisional and site level.
  • Ensuring strong relationships with lenders and valuers to ensure they recognise our premium product.
  • Ongoing and regular monitoring of Government policy and lobbying as appropriate.
  • Following the recent election delivering a strong majority, there is a clearer view of the direction of Brexit. Although clear guidance is a benefit to the economy there remain considerable unknowns surrounding the UK leaving the EU.
Availability of Mortgage Finance
Developing Thriving Communities
Developing Thriving Communities

Risk

Availability of mortgage finance and increased lending criteria requirements are key factors in the current environment.

Risk Owner

Group Finance Director

Key Controls

  • 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.
  • The threat of early withdrawal of Help to Buy dissipated.
Liquidity and Funding
Building Responsibly
Building Responsibly

Risk

The Group requires appropriate facilities for its short-term liquidity and long-term funding.

Risk Owner

Group Finance Director

Key Controls

  • Suitable committed banking facilities with covenants and headroom.
  • Regular communication with our investors and relationship banks, including visits to developments.
  • Regular review of our banking covenants and capital structure.
  • Ensuring our future cash flow is sustainable through detailed budgeting process and reviews.
  • Strong forecasting and budgeting process.
Customer Service
Building Responsibly
Building Responsibly

Risk

Failure of our customer service could lead to relative under performance of our business.

Risk Owner

Group Customer and Marketing Director

Key Controls

  • My Redrow website to support our customers purchasing their new home.
  • Hard Hat Tours for customers of their new home at an appropriate stage of production.
  • Regular review of our marketing and communications policy at both Group and divisional level.
Land Procurement
Building Responsibly
Building Responsibly

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 Owner

Group Development Director

Key Controls

  • 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.
  • Effective use of our Land Bank Management system to support the land acquisition process and monitor opportunities has led to the risk decreasing overall.
  • Peer review by Legal Directors and use of third party legal resources for larger site acquisitions to reduce risk.
Planning and Regulatory Environment
Building Responsibly
Building Responsibly

Risk

The inability to adapt to changes within the planning and regulatory environment could adversely impact on our ability to comply with regulatory requirements.

Risk Owner

Group Development Director, Group Human Resources Director and Group Company Secretary

Key Controls

  • 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 the introduction of GDPR with a broad based project team defining and implementing new policies and procedures.
Appropriateness of Product
Developing Thriving Communities
Developing Thriving Communities

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.

Risk Owner

Group Design and Technical Director

Key Controls

  • 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.
  • Introduction of Internal Product Review Panel.
Attracting and Retaining Staff
Valuing People
Valuing People

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 Owner

Group Human Resources Director

Key Controls

  • Personal Development Programmes supported by National training centres at four locations.
  • Graduate training, Undergraduate placements and Apprentice training programmes to aid succession planning.
  • Development of a 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.
Health and Safety/Environment
Building Responsibly
Building Responsibly

Risk

Instances of noncompliance with Health & Safety standards and Environmental regulations could put our people and the environment at risk, ultimately damaging our reputation.

Increased levels of scrutiny of the housebuilding industry heightens the risk environment.

Risk Owner

Group Health and Safety and Environmental Director

Key Controls

  • Dedicated in-house team operating across the Group to ensure compliance of appropriate Health and Safety standards supported by external professional expertise.
  • Separate focus on Assurance visits to site and proactive management support to develop planning and processes.
  • Monthly Divisional H, S & E Leadership meetings.
  • Tri-annual Group 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.
  • CDM competency accreditation requirement as a minimum for contractor selection process.
Key Supplier or Subcontractor Failure
Building Responsibly
Building Responsibly

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.

Risk Owner

Group Commercial Director

Key Controls

  • Use of reputable supply chain partners with relevant experience and proven track record.
  • 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.
  • Group Monthly Product Development meetings to identify and monitor changes in the regulatory environment.
Cyber Security
Building Responsibly
Building Responsibly

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. 

The introduction of GDPR has increased the requirements for the control of personal data.

Risk Owner

Chief Information Officer

Key Controls

  • 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.
Fraud/Uninsured Loss
Building Responsibly
Building Responsibly

Risk

A significant fraud or uninsured loss could damage the financial performance of our business.

Risk Owner

Group Finance Director

Key Controls

  • 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.
  • Fraud awareness training
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