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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 26 weeks ended 27 December 2020 has been prepared on a going concern basis in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 interim Financial Reporting adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The Directors consider this to be appropriate for the reasons outlined below.

The annual financial statements of the group for the 52 weeks to 27 June 2021 will be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. As required by the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 28 June 2020 which were prepared in accordance with IFRSs as adopted by the EU.

Going Concern

As a precaution against an extended lockdown, the Group increased its available banking facilities by £100m in April 2020. As a result, the Group has a £350m Revolving Credit Facility (RCF) provided by an established syndicate of six banks being Barclays Bank PLC, Lloyds Bank Plc, The Royal Bank of Scotland Plc, Santander UK PLC, HSBC UK Bank PLC and Svenska Handelsbanken AB (PUBL). This expires in December 2022 and is a committed unsecured facility. No change to the RCF covenants was made as a result of the increase to £350m. As at 10 February 2021, £350m of this facility was undrawn. It is likely that the RCF will be renewed prior to its expiry in December 2022.

In addition the Group has a further £13m of committed, unsecured facilities also expiring in December 2022 and £3m of unsecured, uncommitted facilities.

The Group also gained eligibility as an issuer for the Government’s COVID Corporate Funding Facility (CCFF) with an issuer limit of £300m. Given the timely return to work and the effectiveness of measures to protect its cash flow, the Group has not used the CCFF and our forecasts do not assume the utilisation of this facility.

The Directors have prepared forecasts including cashflow forecasts for a period of 22 months from the date of approval of these financial statements to 30 December 2022. These forecasts indicate that the Group will have sufficient funds to meet its liabilities as they fall due, taking into account the following severe but plausible downside assumptions:

  • A 20% price reduction on all unexchanged private legal completions for FY21 and a 10% price reduction on all unexchanged social legal completions for FY21;
  • A 10% price reduction on all unexchanged private legal completions for FY22 and a 5% price reduction on all unexchanged social legal completions for FY22;
  • FY23 legal completions at September 2020 forecast prices; and
  • A reduction in sales rate to 0.4 per budgeted active outlet per week from January 2021 to Sept 2021.

These downside assumptions reflect the further potential impact of COVID-19 being increased economic uncertainty, further Government lockdown restrictions and increasing rates of unemployment and consumer confidence levels.

Allowing for the above downside scenario, the model shows the Group has adequate levels of liquidity from its committed facilities and complies with all its banking covenants throughout the forecast period. The Directors therefore consider that the Group will have sufficient funds to continue to meet its liabilities as they fall due for the forecast period and have therefore adopted the going concern basis of accounting in preparing these financial statements.

Redrow plc is a public listed company, listed on the London Stock Exchange and domiciled in the UK.

The half-yearly condensed consolidated report should be read in conjunction with the annual consolidated financial statements for the 52 weeks ended 28 June 2020, 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 period ended 28 June 2020 are not the Group's statutory accounts for that financial year. Audited statutory accounts for the 52 weeks ended 28 June 2020 were approved by the Board of Directors on 15 September 2020 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 52 weeks ended 28 June 2020. The accounting policies are consistent with those followed in the preparation of the financial statements to the 52 weeks ended 28 June 2020 where there was a change in accounting in respect of Inventories. Inventories were previously stated net of cash on account (payments on account from social and private rented sector customers). These payments are now disclosed in Trade and Other payables and the 2019 comparatives have been restated.

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 52 weeks ended 28 June 2020.

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 (note 16). We have reviewed the risks pertinent to our business in the 26 weeks to 27 December 2020 and which we believe to be relevant for the remaining 26 weeks to 27 June 2021. The only material change from those outlined in our Annual Report 2020 is the considerable unknowns still remaining now the UK has left the EU. We have however not experienced any significant direct impact to date.

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 (19% (2020: 18.5%)). Deferred taxation balances have been valued at 19% being the corporation tax rate from 1 April 2020 substantively enacted on 22 July 2020.

3. Dividends

A dividend of £nil was paid in the 26 weeks ended 27 December 2020 (26 weeks to 29 December 2019: £72m).

4. Earnings Per Share

The basic earnings per share calculation for the 26 weeks ended either 27 December 2020 is based on the weighted number of shares in issue during the period of 344m (26 weeks ended either 29 December 2019: 344m) 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.

26 weeks ended 27 December 2020 (Unaudited)
Earnings
£m 
Number
of shares
millions 
Per share
pence 
Basic earnings per share  141 344 41.0
Effect of share options and SAYE  - - -
Diluted earnings per share  141 344 41.0
26 weeks ended 29 December 2019 (Unaudited)
Earnings
£m 
Number
of shares
millions 
Per share
pence 
Basic earnings per share  128 344 37.5
Effect of share options and SAYE  - 1 (0.1)
Diluted earnings per share  128 345 37.1
52 weeks ended 28 June 2020 (Audited)
Earnings
£m 
Number
of shares
millions 
Per share
pence 
Basic earnings per share  113 343 32.9
Effect of share options and SAYE  - 2 (0.1)
Diluted earnings per share  113 345 32.8

5. Pensions

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

Unaudited Unaudited Audited
26 weeks
ended
27 December
2020
£m 
26 weeks
ended
29 December
2019
£m 
52 weeks
ended
28 June 
2020
£m 
Amounts included within the consolidated income statement 
Period operating costs 
Scheme administration expenses  - - -
Net interest on defined benefit liability  - -
-
- -
-
Amounts recognised in the consolidated statement of comprehensive income 
Return on scheme assets excluding interest income  5 1
24
Actuarial movements arising from change in financial assumptions  (3) (3)
(22)
Actuarial movements arising from change in demographic assumptions  - (1)
(1)
2 (3)
1
Amounts recognised in the consolidated balance sheet 
Present value of the defined benefit obligation  (155) (134)
(151)
Fair value of the Scheme’s assets  179 151
173
Surplus in the consolidated balance sheet  24 17
22

6. Inventories

Unaudited Unaudited Audited
As at
27 December
2020
£m 
As at
29 December
2019
£m* 
As at
28 June
2020
£m 
Land for development  1,502 1,510
1,538
Work in progress  878 928
972
Stock of showhomes  74 72
75
2,454 2,510
2,585
* Restated – see note 1

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

Unaudited Unaudited Audited
As at
 27 December
2020
£m 
As at
29 December
2019
£m*
As at
28 June
2020
£m 
Due within one year 195 229
186
Due in more than one year 140 125
116
335 354
302
* Restated – see note 1

8. Analysis of Net Cash/(Debt)

Unaudited Unaudited Audited
As at
27 December
 2020
 £m 
As at
 29 December
2020
£m 
As at
28 June
2020
£m 
Cash and cash equivalents 242 89
44
Bank loans  (4) (75)
(170)
238 14
(126)

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

9. Bank Facilities

At 27 December 2020, the Group had total unsecured bank borrowing facilities of £366m (29 December 2019: £253m), representing £363m 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 29 December 2019 - 352,190,420 ordinary shares of 10.5p each (unaudited)
37
At 28 June 2020 - 352,190,420 ordinary shares of 10.5p each (audited) 37
At 27 December 2020 - 352,190,420 ordinary shares of 10.5p each (audited) 37
Number of
ordinary shares
of 10.5p each
At 28 June 2020 and 27 December 2020
352,190,420

11. Contingent Liabilities

The Company has guaranteed the bank borrowings of its subsidiaries. Performance bonds and other building or performance guarantees have been entered into in the normal course of business. Management consider the possibility of a cash outflow in settlement to be remote.

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 Unaudited Audited
26 weeks
 ended
 27 December
2020
£m 
26 weeks
 ended
29 December
2019
 £m 
52 weeks
ended
28 June
2020
£m 
Short-term employee benefits 2 3 4
Share-based payment charges 1 1 1
3 4 5

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 52 weeks to December before exceptional items as a percentage of the average of current year December and prior year December capital employed.

December
2020
£m 
December
2019
£m 
Operating Profit
26 weeks to December 2020 178 26 weeks to December 2019
159
52 weeks to June 2020 148 52 weeks to June 2019
411
26 weeks to December 2019 (159) 26 weeks to December 2018
(187)
52 weeks to December 2020 167 52 weeks to December 2019 383
Capital Employed

Total equity December 2020 1,771 Total equity December 2019
1,642
Net cash December 2020 (238) Net cash December 2019
(14)
Capital employed December 2020  1,533 Capital employed December 2019 
1,628
Total equity December 2019 1,642 Total equity December 2018
1,560
Net cash December 2019
(14) Net debt December 2018 (101)
Capital employed December 2019 1,628 Capital employed December 2018 1,459
Average capital employed 1,581 Average capital employed 1,544
ROCE % 11% ROCE % 25%

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  26 February 2021
Interim dividend payment date  9 April 2021
Announcement of results for the 52 weeks to 27 June 2021  15 September 2021
Final dividend record date  24 September 2021
Circulation of Annual Report  4 October 2021
Annual General Meeting  12 November 2021
Final dividend payment date  17 November 2021

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. 

This year has seen the added risk of distortions in the housing market due to reaction to a global pandemic together with related economic uncertainty.

The UK's exit from the EU may also lead to increased economic uncertainty.

Risk Owner

Group Chief Executive

Key Controls

  • Close monitoring of Government guidance. 
  • Delegated Crisis Committee established with Executive Board meetings a minimum of twice weekly in times of crisis.
  • 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 Help To Buy (HTB) levels.
  • 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.
  • The UK has now left the EU. We currently have not experienced any significant direct impact however it is still early days and there are considerable unknowns.
  • The risk of COVID-19 and the effect on the UK economy continues to add uncertainty.
Availability of Mortgage Finance
Developing Thriving Communities
Developing Thriving Communities

Risk

Availability of mortgage finance is a key factor 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.
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

  • 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.
Customer Service
Building Responsibly
Building Responsibly

Risk

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

This year has seen the added risk of customer technicians entering occupied homes at a time of global pandemic.

Risk Owner

Group Customer and Marketing Director

Key Controls

  • Customer and Quality Director appointed.
  • My Redrow website to support our customers purchasing their new home.
  • Increased use of digital and virtual communication tools.
  • 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.
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 Chief Executive

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.
  • 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.
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 Chief Exceutive, 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 managing data protection with multi-functional team meeting regularly.
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.
  • Focus on award winning Heritage Collection.
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.
  • 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.
  • Equality, Diversity and Inclusion working group with membership from across the business
Health and Safety/Environment
Building Responsibly
Building Responsibly

Risk

Non-compliance with regulations could put our people and the environment at risk.

Increased levels of scrutiny of the industry heightens the risk environment as does ensuring safe COVID-19 working practices are adhered to.

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.
  • Bi-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 sub-contractor selection process.
Key Supplier or Sub-Contractor 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. 

The deadline for the UK's future trading relationship with the EU being finalised is December 2020. If an agreed deal is not in place, potential tariffs may increase material costs and customs arrangements may lead to delays in the delivery of imported components within the supply chain.

Failure to secure required resources as a result of the UK leaving the EU.

Risk Owner

Group Commercial Director

Key Controls

  • Use of reputable supply chain partners with relevant experience and proven track record and maintain regular contact.
  • Monitoring of sub-contract supply chain to maintain appropriate number for each trade to identify potential shortage in skilled trades in the near future.
  • Sub-contractor 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 updated Brexit supply continuity strategies.
  • Collaborate with Supply Chain Partners in development of return to work recovery plans.
  • 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. 
  • The systems have proved resilient to increased home working.
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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