REG - Redrow PLC - Final Results

RedrowAnnouncement

16/09/2020 07:01

RNS Number : 0906Z
  
Redrow PLC
  
16 September 2020
  
 

 
 
Wednesday 16 September 2020
 
 
Redrow plc
 
Final results for the year to 28 June 2020
 
 
ENTERED THE NEW FINANCIAL YEAR IN A POSITION OF STRENGTH
 
 
John Tutte, Executive Chairman of Redrow, said:
 
"I am immensely proud of the way our team and the wider workforce responded to the crisis and continue to do so.  I am also grateful to everyone associated with Redrow for their willingness to embrace our new ways of working that prioritise the health and wellbeing of our customers, employees, subcontractors and suppliers.
 
"The COVID-19 pandemic had a profound impact upon the Group's performance in the 2020 financial year but we entered the new financial year in a position of strength. We have a record order book and brought forward very high levels of work in progress. This was due in part, to increased investment earlier in the year in anticipation of strong demand for the Help to Buy scheme ahead of changes to the scheme next year.
 
"We brought forward an order book of £1.42bn: up 39%, and reservations, in terms of value, in the first eleven weeks of the new financial year, are 12% ahead.
 
"The Group is well-placed to deliver a robust performance. We have completed substantially more homes in the first few weeks of the new financial year than during the same comparable period last year whilst maintaining a record order book.
 
"This, combined with reduced investment in London, will deliver strong operating cash flow over the coming months to support our regional growth plans and, subject to market conditions, allow dividend payments to resume in 2021".
 
Highlights
 



 


2020


2019




Legal Completions


4,032


6,443




Revenue


£1.34bn


£2.11bn




Profit before tax


£140m


£406m




EPS


32.9p


92.3p




Debt/cash


£126m net debt


£124m net cash




Total order book


£1.42bn


£1.02bn




Reservations to financial year week 11


£416m


£372m*



                                                                                                                                       * excluding PRS
 
·   Legal completions down 37% due to COVID-19
·   Revenue down 37%
·   Profit before tax down 66% due to COVID-19 and costs and impairments in connection with the scaling-back of the London business.
·   EPS down 64%
·   Debt tightly managed as part of measures to protect cash flow.
·   Record Order Book supported by a strong work in progress position.
·   Encouraging trading since start of financial new year with reservations 12% ahead.
 
 Enquiries:
 



Redrow plc
John Tutte, Executive Chairman
Barbara Richmond, Group Finance Director
Matthew Pratt, Group Chief Executive


 
01244 527411
01244 527411
01244 527411




 


 




Instinctif Partners
Mark Garraway
Rosie Driscoll


0207 457 2020
07771 860938
07891 564641



 
A webcast and slide presentation of our results will be available at 7.00 am on http://investors.redrowplc.co.uk/.
 
Participants can also dial in to hear the presentation at 7.00 am on +44 (0)20 3936 2999 or
UK Toll Free on 0800 640 6441; participant access code 901043.
 
Playback will be available by phone from 8.00am for the next 7 days +44 (0)20 3936 3001 followed by
Access Code 619788.
 
There will also be an analyst Q&A conference call with management at 9.00 am and an audiocast of this call will be available on http://investors.redrowplc.co.uk/reports-and-presentations this afternoon.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LEI Number:

2138008WJZBBA7EYEL28
 
Announcement Classification:

1.1: Annual financial and audit reports
 
 
 
Chairman's Statement
 
I am immensely proud of the way our team and the wider workforce responded to the COVID-19 crisis and continue to do so. I am also grateful to everyone associated with Redrow for their willingness to embrace our new ways of working that prioritise the health and wellbeing of our customers, employees, subcontractors and suppliers.
 
Our immediate response to the pandemic in March was to temporarily close all our sales centres and construction sites. An orderly and phased return to construction only began in May when it was safe to do so following the development and implementation of robust COVID-19 protocols. Sales centres in England also re-opened in May for customers on an appointment only basis with stringent safeguarding measures in place, and fully opened in mid-June as non-essential retail restrictions were relaxed. Sales offices in Wales opened later in June as restrictions there were lifted.
 
As a precaution against the risk of an extended lockdown, the Group acted decisively to put in place measures to protect its cash flow and arrangements to increase its banking facilities. The Revolving Credit Facility was increased by £100m to £350m and the Group gained eligibility as an issuer for the Government's COVID Corporate Funding Facility (CCFF) with an insurer limit of £300m. Given the timely return to work and the effectiveness of measures to protect its cash flow, the Group has not drawn on the CCFF.
 
As part of its measures to protect cash flow, the Group furloughed around 80% of its employees and the entire directorate volunteered to take a 20% cut in salary and the Executive team also waived their 2020 bonus entitlement. The Group's advanced and robust IT systems support remote working and, whilst divisional offices have re-opened, many colleagues continue to work effectively from home on a full or part-time basis. All furloughed employees returned to work by the end of June and, as a result of the Group's resilient cash flow, we decided not to utilise the Government's Job Retention Scheme and returned all payments received under the Scheme.
 
The COVID-19 pandemic had a profound impact upon the Group's performance in the 2020 financial year but we have entered the new financial year in a position of considerable strength. We have a record order book of £1.42bn (2019: £1.02bn) and brought forward very high levels of work in progress. This was due in part, to increased investment earlier in the year in anticipation of strong demand for Help to Buy ahead of changes to the scheme next year. Our robust COVID-19 protocols are operating well across the business and, as the workforce have adjusted to the new ways of working, build output is progressively returning to pre-COVID levels commensurate with reducing work in progress. We expect, and have planned for, our protocols to remain in place for many months to come.
 
Financial Results
 
The Group's results were significantly affected by COVID-19 in a financial year that was budgeted to be disproportionately weighted to the final quarter. The temporary closure of sites and adapting to new ways of working, resulted in only 264 completions in the final quarter of the year compared to 2,345 in 2019. As a consequence, turnover for the year was down by 37% to £1.34bn (2019: £2.11bn).
 
The significantly reduced turnover combined with substantial costs attributable to COVID-19 and impairments associated with the decision to scale back the London business, resulted in a loss in the second half and pre-tax profits reducing to £140m (2019: £406m) for the year.
 
Despite the reduction in turnover in the second half, the measures taken to protect cash flow resulted in the Group ending the financial year with £126m of net debt (2019: £124m net cash).
 
Strategy
 
The housing market is entering a period of change. The COVID-19 pandemic will have an enduring impact upon the market as the economy recovers and consumer experiences during lockdown influence future preferences and priorities. The successful Help to Buy scheme is also scheduled to change at the end of March 2021 and end in March 2023. The scheme has supported thousands of buyers since its inception in 2013 across a wide range of homes and locations.
 
Redrow's reputation for placemaking to create great places to live, and its established award winning Heritage Collection of homes, position the business to meet changing customer priorities. The Collection appeals to a broad range of buyers across new and second hand markets and has proved remarkably adaptable over the years as it has evolved in response to changing customer and regulatory demands. The Collection achieves high levels of customer satisfaction with a five star rating in the HBF Annual Customer Satisfaction Survey.
 
The Heritage Collection is well established across all our regional businesses and our teams are accustomed to plotting the product to consistently achieve superior returns compared to bespoke designs. There remains considerable scope to further utilise the Heritage Collection to grow the regional divisions and expand into new geographical areas. We have therefore decided, following a detailed review, the Group should focus on this core strength together with a continuing emphasis on quality, service, addressing climate change and improving biodiversity - putting customers and the environment at the heart of our strategy. 
 
As part of this strategy, the Group announced at the end of June it is scaling back its London business. Our plan is to principally limit the Group's London activities to the successful Colindale Gardens development. The significant impairments and related costs totalling £35m associated with scaling back the London business have been fully provided for in the 2020 accounts.
 
Board Changes
 
Matthew Pratt was appointed Group Chief Executive on 1st July 2020. Matthew has extensive operational experience in the industry and has worked for Redrow for over 17 years. His career has progressed through all senior management levels within the Group and prior to his appointment as Chief Executive, he was Chief Operating Officer.
 
My intention was to step back to Non-Executive Chairman at the end of June to coincide with Matthew's appointment and to retire from the business ahead of the 2021 AGM. However, in response to the ongoing challenges due to COVID-19, and at the request of the Board, I have agreed to continue in an executive capacity to support Matthew and the senior management team until November 2020. I will then continue as Non-Executive Chairman until a replacement is appointed ahead of the AGM in 2021 for which a search has already commenced.
 
I was delighted to welcome Nicky Dulieu to the board as a Non-Executive Director during the year. Nicky has extensive board experience and considerable knowledge of the retail sector.
 
Vanda Murray has decided to step down from the Board due to work commitments. I am grateful for Vanda's valuable contribution during her tenure and wish her every success for the future. Nicky Dulieu will replace Vanda as Chair of the Remuneration Committee following the close of this year's AGM.
 
Trading and Outlook
 
The Group secured 4,222 private reservations in the year with a value of £1.61bn (2019: £1.67bn). As a result of the Group's strong sales performance earlier in the year, and the significant shortfall in legal completions due to the COVID-19 lockdown, the Group entered the new financial year with a record order book of £1.42bn (2019: £1.02bn).
 
Since sales centres re-opened in May, the Group has seen strong demand, especially from buyers wanting to use the Help to Buy scheme ahead of next year's changes and those wishing to benefit from the Stamp Duty Land Tax (SDLT) holiday. However, whilst the Group is well positioned it is also conscious of a number of factors that could adversely affect the market in the medium term. In particular, the ongoing impact of the COVID-19 pandemic, the possibility of a no-deal exit from the EU and the ending of the SDLT holiday.
 
Whilst there remains a significant under-supply of new homes, the demand for open-market housing is very dependent upon the strength of the economy and in particular, the availability and affordability of mortgages and buyers being able to fund deposits. Low interest rates continue to keep mortgages at historically affordable levels, however, the recent reduction in the availability of high loan to value products will affect some buyers, particularly those that will not qualify for the Help to Buy scheme next year.
 
We broadly welcome the Government's 'Planning for the Future Consultation' which, in time, proposes to streamline and modernise the planning process and improve the supply and delivery of new homes. The immediate priority however, must be to support the demand-side through this period of economic uncertainty. The impact of the SDLT holiday expiring in March to coincide with the changes to the Help to Buy scheme could disrupt a sustainable recovery. We would therefore urge government to consider taking steps to avoid a hiatus in the market, including a long-term reform of SDLT to free-up more cash for deposits at a time when the high loan to value mortgage market is constrained. The SDLT holiday is clearly demonstrating that cutting rates is a highly effective way to stimulate the entire housing market and help revitalise the wider economy.
 
Although there remains uncertainty on the horizon, the Group is well placed to deliver a robust performance. We have completed substantially more homes in the first few weeks of the new financial year than during the comparable period last year whilst maintaining a record order book as a result of keen demand for our Heritage Collection homes.
 
This, combined with reduced investment in London, will deliver strong operating cash flow over the coming months to support our regional growth plans and we expect to be cash positive at the end of the financial year. As a result, and subject to market conditions, we expect to resume dividend payments in 2021.
 
The Group's resilience in these challenging times is testament to the dedication and commitment of the whole Redrow team and, as ever, I am hugely grateful for their ongoing support.
 
John Tutte
Executive Chairman




 
Group Chief Executive's Statement
Our order book represents a strong foundation to underpin the business in 2021.
 
Introduction
 
The onset of COVID-19 had a significant impact on the business in the financial year under review. Total legal completions (including JV) reduced to 4,032 compared to 6,443 in the previous year with revenues falling to £1.34bn (2019: £2.11bn).
 
We ended the financial year with a record forward order book of £1.42bn (2019: £1.02bn) of which 70% was already exchanged. This represents a strong foundation to underpin the business in 2021, particularly in terms of cash generation through what might be an uncertain trading period.
 
This is an extraordinary time for the business, and indeed the nation. I'm exceptionally proud of our teams and how they have and continue to respond to the challenge. Our colleagues, suppliers, and subcontractors are tirelessly working together to deliver the best possible outcomes for our customers. This close collaboration is also helping to prepare the business for the long-term changes being driven by COVID-19.
 
As everyone adapts to the impact of the pandemic, customers are naturally reassessing what is important to them. Our strategy of delivering high quality, predominantly detached homes - combined with our strong placemaking principles - are now more desirable than ever before to homebuyers searching for more space and 'a better way to live'.  
 
This strategy gives us a high level of differentiation, and together with disciplined cost control, means Redrow is well positioned to navigate all market conditions. Our average private selling price of £386,700 (2019: £389,500) combined with a strong rate of sale, delivers industry-leading revenues on an outlet basis for a typical housing development.
 
Last year our average private house floor area was 1,294sqft and the desirability of Heritage homes which already account for over 80% of turnover is further increasing as customers realise how important the space and layout of their home is when potentially faced with having to spend more time at home. As we continue to build in prime locations many of our homes are within reach of families aspiring to a larger home.
 
Taking these facts and trends into account my aim is to evolve, rather than revolutionise, our successful strategy. At the same time we will drive forward our market advantage in areas such as digital and online services.
 
Following a strategic review of our London operations we made the decision to exit from all sites over time, with the exception of our Colindale Gardens development.
 
Making acceptable returns in London has become increasingly more difficult in recent years. There remains downward pressure on the London market created by weak overseas demand, shifting social trends, which suggest many buyers are now looking to live and work outside the Capital, and a convoluted two-tier planning system that has not responded to any of these changes.
 
We will however continue with our Colindale Gardens development, on the site of the old Hendon Police Training College and on the outskirts of the Capital. During the year we received a planning resolution for a further 1,200 plots, which will result in the development delivering c.4,000 homes and continuing to account for the majority of our London-associated revenue. The size of the scheme has allowed us to integrate many of our Redrow placemaking principles, which will ensure this will be a desirable location long after we have finished construction.
 
Our well established divisional network across England and Wales has the capacity to offset the reduction in London and maintain overall growth whilst still continuing to satisfy strong consumer demand for our core Heritage product.
 
Following lockdown our sales rate has remained strong highlighting the demand for our quality homes and places.
 
In anticipation of the strong demand for Help to Buy ahead of the planned changes to the scheme next year, we have entered the year with a very strong WIP position. We have increased the number of plots under construction by 13%. This, together with advanced build stages results in the equivalent units work in progress being 48% ahead of the previous year.
 
Ensuring the safety of all personnel remains our priority and, as trades have become more familiar with revised working practices, productivity has continued to improve. Meanwhile, our strong opening WIP position is compensating for reduced productivity until we fully return to pre-COVID-19 levels.
 
Investing in Places
 
Prior to the COVID-19 pandemic the Group added 3,614 plots to the current land bank and, after taking into account legal completions, land sales, re-plans and our London review, our owned and contracted land holdings with planning totalled 27,000 plots (2019: 28,566 plots). Pull through from Forward Land accounted for 1,721 of the plots added.
 
We temporarily postponed the purchase of new land as part of measures to protect cash flow at the onset of COVID-19 and also renegotiated favourable deferment terms on our existing obligations. 
 
Post lockdown we have returned to the market, taking a sensible and balanced view with regard to land acquisition. Land agreements will be made on a case by case basis, with preference given to those deals which are either at strong margins or alternatively are subject to planning with walk away provisions should we see any material changes in the market.
 
Our cautious and selective approach to the land market will inevitably have an impact upon outlet growth in the next financial year. We do however, continue to target moderate growth and we will accelerate our land buying activities when the time is right.
 
As part of our strategy to create better places to live, we are progressing our work to address climate change and improve biodiversity. We have been awarded a gold level status in this year's NextGeneration Benchmark, retaining third place for the fourth year in a row. The NextGeneration Benchmark assesses and ranks the sustainability performance of the UK's 25 largest housebuilders.
 
This success follows us receiving the 2019 NextGeneration Innovation Award in June, which is awarded to a homebuilder that has demonstrated initiatives that go far beyond the criteria used for the benchmark.
 
We were recognised for our commitment to supporting healthy communities by developing a unique social value calculator.
 
From guaranteeing that 99.9% of our timber was responsibly secured to ensuring 97.7% of our waste was diverted from landfill in 2019, we have continued to fulfil our company ethos of building responsibly and protecting the environment.
 
We have also teamed up with The Wildlife Trusts to develop a robust group-wide wildlife strategy for all of our sites, and we are also partners with the Bumblebee Conservation Trust, which has seen us introduce a variety of pollinator-friendly measures, resulting in the implementation of hedgehog highway networks, bat bricks and bird boxes to encourage local wildlife.
 
People
 
At the beginning of COVID-19 we took immediate steps to protect the business, whilst supporting customers, colleagues and front-line workers.
 
We were proud to support the NHS during the crisis with a number of initiatives, including offering our Show Homes on a site near Basildon for doctors and nurses to sleep between shifts; donating personal protection equipment to NHS Hospitals across the country and supporting colleagues who selflessly decided to volunteer whilst on furlough.
 
The Health & Wellbeing of our people remains a priority. We have now trained over 200 Mental Health First aiders and earlier this year we supported the 'Time to Talk' day aimed at raising awareness of mental health issues. Notwithstanding this, colleagues, subcontractors and their families will still have access to a 24-hour confidential phone line externally manned by professionals to help in times of need.
 
Health, Safety & Environmental
 
Early on in the COVID-19 outbreak, our teams began to plan for return to work protocols and liaised closely with industry bodies to develop best practice.
 
Our construction, sales centre and customer service videos received thousands of views both from within, and outside, the housebuilding industry. We were proud not just to support our own colleagues, but to help others, in particular, SME's without the resources to develop and promote protocols.
 
All our workplaces are COVID-19 secure and we helped to shape the co-produced Government and Home Builders Federation charter on safe working practice with regard to COVID-19 safety protocols.
 
Reflecting our commitment to Health, Safety & Environmental, three of our site managers have received 'Highly Commended' awards at the NHBC's annual Health and Safety Awards. Now in their tenth year, the awards are given to site managers who demonstrate an outstanding level of health and safety management from planning through to execution.
 
Customers & Quality
 
Once again, we were proud to secure a number of top customer service accolades.
 
We were again a HBF Five Star Customer Excellence Award winner, with our score trending above the majority of the major homebuilders with a recommendation score of 91.9%.
 
Throughout the year, we were continually rated as 'Excellent' on Trustpilot and it was particularly pleasing to see the many positive customer comments about colleagues across the business, working in sales, construction and customer service.
 
Twenty one of our site managers were awarded NHBC Pride in the Job awards recognising their dedication to quality and will now go forward to the next stage of the awards.
 
This customer service performance is underpinned by our iPad quality inspection tool which enables site managers to take before and after pictures of every build stage. This industry leading technology is the foundation of our customer service performance and we are already beginning to see the benefits in further improved quality and efficiencies.
 
We remain the only major homebuilder to be a member of the Institute of Customer Service (ICS), sponsoring a number of colleagues on its industry accreditation scheme and sharing best practice.
 
In response to the COVID-19 pandemic we expanded our customer experience, including introducing zoom calls for potential homebuyers and virtual Hard Hat tours by site teams to guide customers around their homes at pre-plaster stage. Our inspection apps were also adapted to enable customers to complete their own Home Preview tours whilst maintaining social distancing.  
 
Market Outlook and Current Trading
 
The government has recognised that the home building industry has a big role to play in the country's economic recovery. It is committed to tackling the chronic housing shortage and meeting its 300,000 new homes per year target by the mid 2020's.
 
We welcome both the introduction of the stamp duty holiday and the extension of Help to Buy to ensure prospective homeowners aren't disadvantaged by changes to build schedules caused by COVID-19.
 
Once again, I would like to thank the Redrow team, customers, shareholders and all partners for their support, dedication and understanding during the last few months.  
 
It is likely there will be a level of market uncertainty for the foreseeable future. However, Redrow is very well placed to navigate all market conditions. Our level of differentiation, combined with social trends towards customers desiring quality family homes in great places, has resulted in an encouraging sales rate following the business' re-start. For the first 11 weeks of the current financial year our sales rate has been very strong at 0.84 (2019: 0.68). We currently have a record forward order book of £1.53bn (2019: £1.33bn), which provides further certainty going forward. Overall, we have an excellent platform to continue delivering and evolving Redrow's successful strategy in the future. 
 
Matthew Pratt
Group Chief Executive




FINANCIAL REVIEW
 
Profitability
 
This year the Group's results have been significantly adversely impacted by the COVID-19 pandemic which resulted in a very limited number of legal completions in the final quarter of the financial year.
 
Total Group revenue was £1.3bn (2019: £2.1bn), a reduction of 37%. Homes revenue was £1.3bn (2019: £2.1bn) from the completion of 4,032 new homes (2019: 6,443) and other revenue from land sales was £7m (2019: £21m).
 
As we reported in February, the first half of the financial year had seen strong trading with revenue of £870m and pre-tax profit of £157m. In the second half, the dramatic reduction in revenue in quarter four, combined with the provision for scaling down our London business resulted in a pre-tax loss in the half of £17m.
 
Average selling price increased by 2% to £330,400 (2019: £324,500) due to a reduction in the level of affordable housing output in the year to a more normal 23% of legal completion volumes compared to 27% in the previous year. Private average selling price at £386,700 was 1% lower than last year (2019: £389,500), however our Heritage Collection private average selling price increased slightly to £388,700 (2019: £387,500).
 
As a result of the 37% reduction in legal completions and therefore revenue, ongoing site related and sales and marketing costs from the temporary closure of our developments and £35m of impairment costs arising from the strategic decision to scale back our London operations, gross profit for the year reduced to £242m (2019: £504m).
 
Administrative expenses increased slightly to £94m in the year (2019: £93m). Whilst the Group furloughed c 80% of employees during the height of the lockdown, we decided not use the Government Job Retention Scheme due to the resilience of our liquidity position. Administrative expenses naturally increased as a percentage of revenue to 7.0% (2019:4.4%).
 
The Group therefore delivered an operating profit of £148m (2019: £411m) in the year at an operating profit margin of 11.1% (2019: 19.5%).
 
Net financing costs at £8m were £3m higher than the prior year due to the levels of net debt during the latter part of the year and the cost of increasing our facilities and obtaining access to the CCFF. We had an average monthly net cash balance of £2m for the whole year compared to £80m during the previous year.
 
As a result, the Group delivered a profit before tax of £140m (2019: £406m) for the year with basic earnings per share down 64% at 32.9p (2019: 92.3p). 
 
Tax
 
The corporation tax charge for the year was £27m (2019: £77m). The Group's tax rate for 2020 was 19% in line with 2019. This had previously been expected to be 18.5% based on the rates substantively enacted at 4 September 2019. However, in the Chancellor's Budget on 11 March 2020, it was confirmed that the rate of corporation tax will remain at 19% from April 2020 and for the following year. The normalised rate of tax for the year ending 30 June 2021 is therefore projected to be 19% based on rates which are substantively enacted currently.
 
The Group paid £64m of corporation tax in the year (2019: £77m). For the financial year ending 28 June 2020 the new legislation for corporation tax payments by very large companies took effect. This brings instalments for financial year 2020 onwards forward by four months and, for the financial year ending June 2020 only, results in Redrow paying six instalments.
 
Dividends
 
As announced on 24 March 2020, the Board took the decision to cancel the 10.5p interim dividend which was due to be paid on 9 April 2020 due to the uncertainty around the impact of the COVID-19 pandemic on the business. Due to the ongoing uncertainty the Board is not recommending the payment of a final dividend for the year at the 2020 Annual General Meeting. However, based on trading to date and the forward order book, we expect to resume dividend payments in 2021.
 
In the previous financial year, the Group distributed to shareholders £218m including the B shares during the year being a total cash return to shareholders of 60.5p per share.
 
Returns
 
Net assets at 28 June 2020 were £1,626m (2019: £1,585m), a 3% increase.  Capital employed at the same date was £1,751m (2019: £1,461m) up 20% due to the increased level of work in progress and reduced land creditors at June 2020. Our return on capital employed was 9.2% (2019: 28.5%) (See note 15f). Return on equity also reduced to 8.7% from 26.5%. (See note 23). We will be working to increase our ROCE to our 25% target again over the medium term.
 
Inventories
 
Our gross investment in land decreased slightly by £9m to £1,538m (2019: £1,547m)  reflecting our cautious approach to land purchases in the second half of the financial year, partly offset by lower land eliminations as a result of the reduced levels of legal completions in the year. Approximately 48% of our current land bank additions in 2020 came from our forward land holdings, slightly higher than the five year average contribution.
 
As expected, land creditors decreased by £136m to £302m at June 2020 (2019: £438m) representing 20% of gross land value (2019: 28%) due to timing of deferred land payments.
 
Our owned plot cost has increased by £4,000 per plot to £78,000 at June 2020 (2019: £74,000), increasing slightly to 20% of the average selling price of private legal completions in the year (2019: 19%).
 
Our gross investment in work in progress (WIP) has increased significantly by £190m to £1,047m (2019: £857m). This is a consequence of both a planned build up of WIP in preparation for higher demand in the run up to the changes in the Help to Buy Scheme and the impact of legally completing only 264 homes in the final quarter of the financial year due to the constraints of the COVID-19 pandemic. Net of payments on account, as a percentage of the significantly reduced Homes turnover it increased to 69% from 37% last year.
 
Receivables
 
Trade receivables decreased by £12m at June 2020 to £25m (2019: £37m) due primarily to the timing of Help to Buy and Housing Association receipts. Other receivables decreased from £19m to £8m partly due to the timing of the recovery of VAT on land payments.
 
Payables
 
Trade payables, customer deposits, social customer payments on account and accruals were £55m higher than 2019 levels at £604m (2019: £549m) with trade payables reducing and customer deposits, social customer payments on account and accruals increasing mainly due to levels of activity in the final quarter of the financial year.
 
Cash flow and Net Debt
 
There was a cash outflow generated from operations of £80m in the year (2019: cash inflow of £371m). This reflected the impact of the 37% reduction in legal completions and hence revenue and cash receipts in the fourth quarter. Although we closed the year with net debt of £126m compared to a net cash balance at June 2019 of £124m, we still achieved an average monthly positive cash balance during the year of £2m (2019: £80m).
 
Given the ongoing strength of the sales market since we re-opened, we expect to be cash positive in December 2020 and June 2021.
 
Financing and Treasury Management
 
In April 2020 we increased our committed unsecured syndicated loan facility by £100m to £350m. This matures in December 2022. We also added £13m of committed, unsecured bilateral facilities in May 2020.
 
The Group also gained eligibility as an issuer for the Government's CCFF with an insurer limit of £300m. Given the timely return to work and the effectiveness of measures to protect its cash flow, the Group has not drawn on the CCFF and is unlikely to do so.
 
Redrow remains a UK based housebuilder and therefore the main focus of its financial risk management surrounds the management of liquidity and interest rate risk. Financial management at Redrow is conducted centrally using policies approved by the Board.
 
(i)         Liquidity
 
            The Group regularly prepares and reviews its cash flow forecasts and stress tests them. These are used to manage liquidity risks in conjunction with the maintenance of appropriate committed banking facilities to ensure we maintain medium term committed banking facilities sufficient for a major market breakdown.
 
            Facilities are kept under regular review and the Group maintains regular contact with its banks and other financial institutions; this ensures Redrow remains attuned to new developments and opportunities and that our facilities remain aligned to our strategic and operational objectives and market conditions.
 
            Our current banking syndicate comprises six banks and in addition to our committed facilities, Redrow also has further uncommitted bank facilities which are used to assist day to day cash management.
 
(ii)        Interest rate risk
 
            The Group is exposed to interest rate risk as it borrows money at floating rates.  Redrow occasionally uses simple risk management products, notably sterling denominated interest rate swaps, as appropriate to manage this risk.  Such products are not used for speculative or trading purposes. Redrow regularly reviews its hedging requirements.  No hedging was undertaken in the year or the previous financial year and no interest rate swaps are held currently (2019: nil). 
 
Pensions
 
As at June 2020, the Group's financial statements showed a £22m surplus (2019: £18m surplus) in respect of the defined benefits section of The Redrow Staff Pension Scheme (which closed to future accrual with effect from 1 March 2012). The £4m increase is mainly due to the return on scheme assets outpacing the impact on defined benefit obligations of reduced discount rates.
 
Barbara Richmond
Group Finance Director




 
Consolidated Income Statement
 



52 weeks ended 






28 June 2020


30 June 2019








Note


£m 


£m 




Revenue






1,339


2,112 




Cost of sales






(1,097)


 (1,608)




Gross profit






242


504 




Administrative expenses






(94)


 (93)




Operating profit






148


411 




Financial income






2


3 




Financial costs






(10)


 (8)




Net financing costs






(8)


 (5)




Share of profit of joint ventures after interest and taxation






-


- 




Profit before tax






140


406 




Income tax expense


2


(27)


 (77)




Profit for the year






113


329 




Earnings per share - basic


4


32.9p


92.3p




                             - diluted


4


32.8p


92.0p



 
 
Statement of Comprehensive Income
 



52 weeks ended






28 June 2020


30 June 2019












£m 


£m 




Profit for the year






113


329 




Other comprehensive income/(expense)
















Items that will not be reclassified to profit or loss
















Remeasurements of post-employment benefit obligations






1


 (7)




Deferred tax on actuarial losses/(gains) taken directly to equity






-


1 




Other comprehensive income/(expense) for the year net of tax


1


 (6)




Total comprehensive income for the year






114


323 



 
 
 




Balance Sheet











As at 












28 June 2020


30 June 2019








Note


£m 


£m 




Assets
















Intangible assets






2


2 




Property, plant and equipment






19


16 




Lease right of use assets






7


-




Investments






9


6 




Deferred tax assets






1


4 




Retirement benefit surplus






22


18 




Trade and other receivables






-


9 




Total non-current assets






60


55 




Inventories


5


2,585


2,404 




Trade and other receivables






38


48 




Current corporation tax






7


-




Cash and cash equivalents


8


44


204 




Total current assets






2,674


2,656






















Total assets






2,734


2,711 






















Equity
















Retained earnings at 1 July 2019/2 July 2018






1,481


1,379 




Profit for the year






113


329 




Other comprehensive income/(expense) for the year






1


 (6)




Dividend Paid






(72)


 (218)




Movement in LTIP/SAYE






(1)


 (3)




Retained earnings at 28 June 2020/30 June 2019






1,522


1,481 




Share capital


9


37


37 




Share premium account






59


59 




Other reserves 






8


8 




Total equity






1,626


1,585 






















Liabilities
















Bank loans


8


170


80 




Trade and other payables


6


120


167 




Deferred tax liabilities






5


4 




Long-term provisions






8


8 




Total non-current liabilities






303


259 






















Trade and other payables


6


805


833 




Current income tax liabilities






-


34 




Total current liabilities






805


867 






















Total liabilities






1,108


1,126 




Total equity and liabilities






2,734


2,711 






















Redrow plc Registered no. 2877315



















Statement of Changes in Equity



52 weeks ended






28 June 2020


30 June 2019




£m 


£m 




Profit for the year






113


329 




Other comprehensive income/(expense) for the year






1


 (6)




Total comprehensive income relating to the year (net)






114


323 




Dividend paid






(72)


 (218)




Movement in LTIP/SAYE






(1)


 (3)




Net increase in equity






41


102 




Opening equity






1,585


1,483 




Closing equity






1,626


1,585 



 
Statement of Cash Flows



52 weeks ended






28 June 2020 


30 June 2019




Cash flows from operating activities


Note


£m 


£m 




Profit for the year






113


329




Depreciation and amortisation






7


3 




Financial income






(2)


 (3)




Financial costs






10


8




Income tax expense






27


77




Adjustment for non-cash items






1


 (7)




Decrease/(increase) in trade and other receivables






20


 (6)




Increase in inventories






(181)


 (113)




(Decrease)/increase in trade and other payables






(75)


84 




(Decrease) in provisions 






-


 (1)




Cash (outflow)/inflow generated from operations






(80)


371 






















Interest paid






(5)


 (2)




Tax paid






(64)


 (77)




Net cash (outflow)/inflow from operating activities






(149)


292 






















Cash flows from investing activities
















Acquisition of software, property, plant and equipment






(7)


 (4)




Interest received


-


1 




Payments to joint ventures 


(3)


- 




Net cash (outflow) from investing activities






(10)


 (3)






















Cash flows from financing activities
















Issue of bank borrowings


7


170


80 




Repayment of bank borrowings


7


(80)


 (5)




Payment of lease liabilities






(3)


- 




Purchase of own shares






(16)


 (10)




Dividend paid


3


(72)


 (218)




Net cash (outflow) from financing activities






(1)


 (153)






















(Decrease)/increase in net cash and cash equivalents






(160)


136 




Net cash and cash equivalents at the beginning of the year






204


68 




Net cash and cash equivalents at the end of the year


8


44


204 



 
NOTES 
 
1.         Basis of preparation
 
The above results and the accompanying notes do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.



The Auditors have reported on the Group's statutory accounts for the year ended 28 June 2020 under s495 of the Companies Act 2006, which do not contain a statement under s498 (2) or s498 (3) of the Companies Act 2006 and are unqualified. The statutory accounts for the year ended 30 June 2019 have been delivered to the Registrar of Companies and the statutory accounts for the year ended 28 June 2020 will be filed with the Registrar in due course.
 
The audited consolidated financial statements from which these results are extracted have been prepared under the historical cost convention and in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
 
Going concern
 
The financial statements have been prepared on a going concern basis which the Directors consider to be appropriate for the reasons outlined below.
 
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) (2019: £250m) 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 15 September 2020, £260m 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.
 
In the interests of cash conservation the Board took the decision not to pay the interim dividend due to be paid in April 2020 and no final dividend for financial year 2020 will be paid.
 
The Directors have prepared forecasts including cashflow forecasts for a period of 26 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 May 2020 budgeted prices; and
·     A reduction in sales rate to 0.4 per budgeted active outlet per week from July 2020 to Sept 2021, representing a 43% reduction from average rates over the last three years.
 
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 has adequate resources in place for the forecast period and have therefore adopted the going concern basis of accounting in preparing these financial statements.
 
The principal accounting policies have been applied consistently in the periods other than for the effect of applying new standards and a change in presentation in respect of payments on account from social and private rented sector customers. These payments were previously netted off inventories but are now disclosed within Trade and other payables. The 2019 comparatives have been restated.
 



2.      Income Tax expense




















2020


2019












£m 


£m 




Current year
















UK Corporation Tax 






23


77 






















Deferred tax
















Origination and reversal of temporary differences






4


- 




Total income tax charge in income statement






27


77 






















Reconciliation of tax charge for the year
















Profit before tax






140


406 






















Tax calculated at UK Corporation Tax Rate at 19.0% (2019: 19.0%)


27


77 




Tax charge for the year






27


77 



 
3.         Dividends
 
The following dividends were paid by the Group:











2020


2019












£m 


£m 




Prior year final dividend per share of 20.5p (2019: 19.0p); 
















current year interim dividend per share of nil pence (2019: 10.0p)






72


107 




B share dividend nil pence (2019: 30.15 p)






-


111 












72


218 



 
4.         Earnings per ordinary share
 
The basic earnings per share calculation for the year ended 28 June 2020 is based on the weighted average number of shares in issue during the period of 343m (2019: 356m) excluding those held in trust under the Redrow Long Term Incentive Plan (9m shares (2019: 9m shares)), 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.
 
For the 52 weeks ended 28 June 2020







Earnings


No. of shares


Per share








£m


millions


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



 
For the 52 weeks ended 30 June 2019







Earnings


No. of shares


 Per share 








£m


Millions


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.         Inventories

























2020


2019












£m 


£m 




Land for development






1,538


1,547




Work in progress






972


790 




Stock of showhomes






75


67 












2,585


2,404 



 
Inventories of £1,027m were expensed in the year (2019: £1,526m). Work in progress includes £1m (2019: £3m) in respect of part exchange properties.
 
 
6.         Land Creditors         
            (included in trade and other payables)

























2020


2019












£m 


£m 




Due within one year






186


271 




Due in more than one year






116


167 












302


438 



 
7.         Borrowings and loans



 
 




















2020


2019












£m 


£m 




Opening net book amount






80


5 




Issue of bank borrowings






170


80 




Repayment of bank borrowings






(80)


 (5)




Closing net book amount






170


80 



 
At 28 June 2020 the Group had total unsecured bank borrowing facilities of £366m representing £363m committed facilities and £3m uncommitted facilities.
 
8.         Analysis of net (debt)/cash



 
 




















2020


2019












£m 


£m 




Cash and cash equivalents






44


204 




Bank loans






(170)


 (80)












(126)


124 



 
9.         Share capital



 
 




















2020


2019












£m 


£m 




Issued and fully paid






37


37 



 











Number of ordinary












shares






















As at 1 July 2019 and 28 June 2020 (ordinary shares of 10.5p each)


352,190,420



 
10.       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
 
11.       Annual General Meeting
 
The Annual General Meeting of Redrow plc will be held on 6 November 2020 and the Notice of Meeting, together with explanatory notes, will be sent to shareholders in due course.
 
A copy of this statement is available for inspection at the registered office.
 
 
 
 

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