Redrow plc (LON:RDW) has announced its final results for the 52 weeks to 2 July 2023.
Financial Results
| Unaudited 2023 | 2022 | Var | Var % | |
| Legal Completions | 5,436 | 5,715 | (279) | (5) |
| Revenue | £2.13bn | £2.14bn | £(0.01bn) | – |
| Underlying profit before tax1 | £395m | £410m | £(15m) | (4) |
| Statutory profit before tax | £395m | £246m | £149m | 61 |
| Underlying EPS1 | 91.2p | 96.0p | (4.8p) | (5) |
| Statutory EPS | 91.2p | 57.7p | 33.5 | 58 |
| Final dividend per share (DPS) | 20.0p | 22.0p | (2.0p) | (9) |
| Underlying ROCE1 | 23.1% | 24.5% | (1.4ppts) | (6) |
| Total order book1 | £0.85bn | £1.44bn | £(0.59bn) | (41) |
Highlights
· Revenue in line with the prior year at £2.13bn (2022: £2.14bn)
· Underlying profit before tax of £395m (2022: £410m)
· Statutory profit before tax of £395m (2022: £246m)
· Strong operating cash generation with year end net cash of £235m (2022: £288m) after dividend and £100m share buyback
· Underlying Return on Capital Employed of 23.1% (2022: 24.5%)
· Final dividend of 20.0p making 30.0p for the year (2022: 32.0p)
· Founding signatory to the New Homes Code of Practice
· Continue to be a 5 star builder and rated excellent on Trustpilot
· Air source heat pumps and ground floor underfloor heating as standard in detached homes on new developments
2024 Guidance update
The company is re-introducing its 2024 guidance based on a sales rate in line with FY 2023 of 0.46 per outlet per week:
| Revenue | £1.65bn – £1.7bn |
| PBT | £180m – £200m |
| EPS | c41p |
| DPS | c14p |
| Average outlets | 117 |
Footnote:
1 Redrow uses a variety of statutory performance measures and alternative performance measures when reviewing the performance of the Group. Underlying is defined as any statutory or alternative performance measure pre exceptional items. See note 10 for an explanation and reconciliation of these alternative performance measures.
Commenting on the results Matthew Pratt, CEO of Redrow, said:
“Despite continuing political and economic headwinds, I’m pleased to report that the Group has delivered another strong set of results. During the year under review, we have taken several important strategic decisions to maximise sustainable value for our stakeholders, while delivering 5,436 homes (2022: 5,715).
Cost of living and mortgage affordability continue to have a negative impact on the market. Where appropriate, we’ve used targeted sales incentives to convert buyer interest into reservations. Following several consecutive Bank of England base rate increases, we remain hopeful that, as inflation eases, we will see some stability in mortgage rates. The reduction in mortgage volatility will enable potential customers to progress the purchase of their home with financial certainty. Reflecting the macro-economic picture and the tougher sales market, our average private reservation rate per week for the year was 0.46 compared to 0.68 in 2022.
As expected, the sales market over the summer has been challenging. This has resulted in sales per outlet per week for the first 10 weeks of the new financial year of 0.34 (2023: 0.61).
Despite these difficult market conditions our strategy remains the right one, and this was clearly demonstrated during the financial year under review. Our Heritage Collection serves different parts of the market: from downsizers who want character with energy efficiency, to aspirational home movers who desire quality and space.”
A webcast and slide presentation of our results will be available at 7.00 am on www.redrowplc.co.uk.
There will be an analyst Q&A meeting with management at 9.30 am at The London Stock Exchange,
10 Paternoster Square, London, EC4M 7LS. Coffee will be served from 9.00 am.
A live audio webcast of this event will be available at 9.30 am on www.redrowplc.co.uk.
Participants can also dial in to the Q&A live at 9.30 am on +44 (0) 33 0551 0200 or UK Toll Free 0808 109 0700; Password: Redrow.
A recording will be available on www.redrowplc.co.uk shortly after the event.
CHAIRMAN’S STATEMENT
The last financial year proved to be one of considerable uncertainty for the housing sector. The market almost came to a standstill in the second quarter of our financial year due to the steep rise in mortgage rates as a result of political uncertainty. Whilst the market did partially recover in spring 2023, the further rise in mortgage rates combined with the cost of living crisis means the market remained subdued. The Board have worked hard to deal with the emerging risks, and regulatory and policy uncertainty, to ensure that our strategy remains fit for purpose in this environment.
Financial Results
We completed 5,436 homes in the year. Whilst this was a 5% reduction on the 2022 financial year (2022: 5,715), revenue was stable due to the increase in average selling price that was already embedded in the order book. This reflects the demand for our Heritage range of family homes in primary locations and our focus on placemaking and enabling thriving communities to develop.
Profit before tax was £395m, which was 4% below the underlying profit for 2022, primarily due to cost inflation exceeding house price inflation in the year.
Shareholder Returns
Our underlying earnings per share of 91.2p were 5% below the previous financial year (2022: 96.0p). In addition to the lower profit before tax this reduction is also due to higher Corporation Tax and Residential Property Development Tax effective rates totalling 24.5% versus 20% last year.
Our underlying Return on Capital Employed was 23.1% (2022: 24.5%) and underlying Return on Equity was 19.9% (2022: 21.5%). We ended the year with net cash excluding lease liabilities of £235m (2022: £288m). The average monthly net cash balance was £196m, only £54m below the prior year, despite the £100m share buyback completed in January 2023.
As a result of this strong financial performance and in line with the company’s policy of three times dividend cover, the Board is proposing a final dividend of 20.0p making a total of 30.0p for the year (2022: 32.0p). Subject to shareholder approval at the Annual General Meeting on 10 November 2023, this will be paid on 16 November 2023 to all shareholders on the register at 22 September 2023.
Purpose and Strategy
Our purpose of Creating a Better Place to Live is deeply embedded within the company. The Pillars on which this is built of Thriving Communities, Building Responsibly and Valuing People are the basis of our sustainability agenda. We have made great progress in developing our metrics and commitment to sustainability in the knowledge that it is built on creating developments which will stand the test of time.
The Group has completed its withdrawal from the London market, other than the ongoing Colindale development. Outside London our product is primarily our Heritage Range which has proven to be resilient and popular through the changing market conditions. Despite this, the company found it necessary to undertake a restructuring in July, including the closure of two offices.
Fire Safety
We have continued to make progress in the area of legacy fire safety. We signed the UK Government’s Self Remediation Contract and the Welsh Government’s Pledge in the year concerning the remediation of life critical fire safety in buildings over 11m that we developed in the last 30 years. Remediation works are either progressing or being planned for all the buildings concerned.
People
I am very pleased that Geeta Nanda joined the Board as an independent non-executive director on 1 May 2023. Geeta has spent almost the entirety of her career in housing associations and is currently Chief Executive of Metropolitan Thames Valley Housing Association. She will add valuable additional experience of the housing sector to the Redrow Board. Nick Hewson retired at the AGM in November 2022 after nearly ten years of service, and we thank him for the valuable contribution he has made over that time. His roles of Senior Independent Director and Audit Chair have been taken up by Nicky Dulieu and Oliver Tant respectively.
The excellent long-term performance of the business is due to the ongoing commitment and hard work of everyone at Redrow, together with our subcontractors and suppliers, and I would like to thank them all for their efforts in these uncertain times.
Trading and outlook
Following the macroeconomic volatility of the last financial year, as we go into 2024 the market remains challenging and uncertain. However, we believe we are well positioned to respond to the market as it develops. We have the land, people, designs and quality to deliver the homes and communities our customers want.
Richard Akers
Non-Executive Chairman
GROUP CHIEF EXECUTIVE’S REVIEW
Despite continuing political and economic headwinds, I’m pleased to report that the Group has delivered another strong set of results. During the year under review, we have taken several important strategic decisions to maximise sustainable value for our stakeholders, while delivering 5,436 completions (2022: 5,715).
Our Heritage Collection remains at the centre of our strategy, differentiating us from both new-build competitors and the much larger second-hand market. We continue to offer a unique proposition to homebuyers: the character of older homes combined with quality, energy efficiency and modern open plan interiors. These selling points appeal to those moving to larger homes as well as those who are downsizing. Once again, we saw the evidence of this with cash buyers representing 35.7% (2022: 33%) of all private reservations.
In January 2023, we became the first large housebuilder to announce that we would be installing air source heat pumps into all our homes on upcoming developments. Having listened to customers, we saw the opportunity to give our homes a significant further advantage over others on the market. Combining the heat pump with underfloor heating as standard across the ground floor of all our detached homes further enhanced the desirability and lifestyle benefits of our houses for customers.
Cost of living and mortgage affordability continue to have a negative impact on the market. Where appropriate, we’ve used targeted sales incentives to convert buyer interest into reservations. Following several consecutive Bank of England base rate increases, we remain hopeful that, as inflation eases, we will see some stability in mortgage rates. The reduction in mortgage volatility will enable potential customers to progress the purchase of their home with financial certainty. Reflecting the macro-economic picture and the tougher sales market, our average private reservation rate per week for the year was 0.46 compared to 0.68 in 2022 (excluding bulk deals 0.45 and 0.66).
Given housebuilders’ strong forward order books during the financial year under review, both materials and sub-contract labour were stretched, with build cost inflation of up to 8% in some instances. These pressures have since eased as the macro-economic picture has become more uncertain, with build cost inflation beginning to return to more sensible levels. Going forward, in the new financial year, we expect build cost inflation to be circa 4%.
We ended the financial year with a total order book of £0.85bn (2022: £1.44bn) of which 65% (2022: 76%) was exchanged. We are continuing to be very selective on land buying and focused on bringing forward strategic land. This was demonstrated by the purchase of only 1,906 plots of current land. This is against the backdrop of our substantial land investment in 2021 when we added over £3bn of Gross Development Value (GDV) to our land holdings with planning at good margins. This activity secured the medium-term land bank.
As a result of our land investment in 2021 we increased the number of average outlets over the financial year to 117 and we expect to maintain this position during the 2024 financial year. We remain in a strong positive cash position, ending the financial year with £235m net cash excluding lease liabilities (2022: £288m). This is despite the fact we have returned £100m to shareholders in the form of a share buyback programme during the period from July 2022 to January 2023.
Sustainability is fundamental to our purpose, our business model, our culture, and strategy. We’ve made good progress across our operational KPI’s and environmental, social and governance (ESG) metrics. We also exceeded industry averages for sustainability in the FTSE4Good Index and sustained high customer satisfaction ratings from the National House Building Council (NHBC) surveys and Trustpilot.
In order to embed this integrated approach throughout our business, we’ve refreshed our operational framework which is built around our long-standing sustainable business pillars: Building Responsibly, Thriving Communities and Valuing People. This strengthens Redrow’s resilience in the face of evolving ESG risks, including regulation and industry standards, such as the Future Homes Standard, National Model Design Code and the New Homes Quality Board Code of Practice, as well as upcoming Biodiversity Net Gain legislation and the Nutrient Mitigation Scheme. It also leaves us well placed to take competitive advantage of sustainable opportunities, such as delivering energy and water-efficient homes for customers. Across the framework, we highlight how these activities contribute to the UN Sustainable Development Goals (SDG’s).
Thriving Communities is about more than building homes. We apply our audited Redrow 8 placemaking principals to all our developments to ensure we deliver beautiful, nature rich, sustainable places for communities to enjoy. We bring extensive and lasting socio-economic value for local communities by investing in infrastructure like schools, health centres, shops, parks and green spaces, as well as affordable homes. These Redrow 8 placemaking principles and our Nature for People commitments ensure that our developments stand the test of time. Our research shows they’re at the heart of community cohesion many years down the line.
Building Responsibly affirms our commitment to upholding the highest standards of health, safety and environmental responsibility. I’m pleased to report positive progress against targets in this area. Our 2030 net zero carbon targets have been validated by the Science-Based Targets Initiative and we’re also establishing a science-based roadmap to 2050 that covers the entire value chain, where the majority of our emissions arise. Quality remains one of the top material issues for our stakeholders and we’ve earned our reputation for consistently delivering homes to a superior standard, as evidenced in ‘Excellent’ Trustpilot ratings and five-star HBF ratings for five years’ running.
We invested further in people and systems to uphold quality and service standards, ensuring we rapidly rectified and learned from any defect reports. Our investments in apprenticeships, work placements, graduate programmes and university and schools’ partnerships have been more important than ever, along with prioritising the work/life balance, professional growth, and physical and mental wellbeing of our colleagues.
Operating in an environment where there is a complete absence of any coherent housing policy from central government, is very challenging for all parts of the sector. The housing market invests for the long-term, yet the government is not providing the framework for this level of financial commitment. There is a fundamental disparity between the country’s population growth and the number of homes built.
We continue to call for a long-term plan that enables the industry to invest and build the homes the country so desperately needs. The introduction of a national, independent body that could identify housing need and accelerate development in those areas would be a significant positive step. It would also generate a positive direct and indirect economic benefit across areas such as education, health, and infrastructure.
We have made positive progress in tackling issues of legacy fire safety. We signed the UK Government’s Self Remediation Contract Long Form Agreement (LFA) and the Welsh Government’s Pledge Deed of Bilateral Contract regarding the remediation of life critical fire safety issues in buildings over 11m that we developed in the past 30 years. And we believe we were the first large house builder to sign the Government’s Responsible Actors Scheme.
We are actively progressing 46 of the 51 buildings with known or likely external works. All 18m plus buildings are in progress, which aligns with the Government’s prioritisation advice. We are on-site at 18 of these buildings, with 14 at pre-contract stage.
The industry now has an additional requirement to consider the internal common parts. We are in the process of assessing the 109 buildings expected to require works, however we don’t expect this to result in a change to our overall provision.
Outlook
The impact of a record number of consecutive interest rate increases in a short space of time and the general rise in the cost of living, continues to make this a challenging housing market.
As a result of this operating environment, we took the difficult decision in July 2023 to reshape the business, closing two of our smaller divisional offices: Thames Valley and Southern. Our outlets were unaffected by this change, and they are now managed by other local divisions. We also reduced a number of roles across our wider teams to reflect market conditions. We have worked closely with affected colleagues to support them throughout this time.
There are signs of economic stability, particularly with mortgage rates, following a sharp and painful period of adjustment for the country.
The strong fundamentals underpinning the new homes market remain the same. There is a chronic shortage of new homes to keep pace with the country’s current and future needs.
In the first ten weeks of trading for the current financial year the reservation per outlet per week was 0.34 (2023: 0.61).
Despite these difficult market conditions our strategy remains the right one, and this was clearly demonstrated during the financial year under review. Our Heritage Collection serves different parts of the market: from downsizers who want character with energy efficiency, to aspirational home movers who desire quality and space.
I’d like to close by placing on record my thanks to all Redrow colleagues and our partners in the wider supply chain for their hard work and dedication this past year. We have once again provided high quality homes and places for thousands of families across the country. We look forward to carrying on this proud track record as we head into our 50th anniversary year in 2024.
Matthew Pratt
Group Chief Executive
FINANCIAL REVIEW
Underlying Performance
This year the Group has delivered a strong financial performance given market conditions. We generated operating profit of £399m (2022: underlying £414m1) and a return on capital employed of 23.11% (2022: 24.54%). We successfully completed the share buyback we launched in July 2022, returning £100m cash to shareholders and ended the year with net cash excluding lease liabilities of £235m (2022: £288m). FY23 was a 52 week year compared to FY22 which was a 53 week year.
Revenue, legal completions and outlets
Total Group revenue was £2.1bn (2022: £2.1bn). Homes revenue was broadly maintained at £2.1bn (2022: £2.1bn) from the completion of 5,436 new homes, a 5% reduction on the prior year (2022: 5,715). The average selling price of our private home completions increased by 8% and that of our affordable homes by 5% on those in 2022 due to house price inflation and product mix. Other revenue from land sales was higher than in the prior year at £44m due to two significant land sales on larger sites (2022: £21m).
Homes Revenue grew in our North and Central regions and reduced in the South and Colindale. The Central region achieved sales growth of 15% and benefitted from both improved product availability due to an increase in outlets and an improvement in geographical and product mix. Revenue in the South reduced by just under 8% due to lower volumes and a change in mix, with a greater proportion of private apartment completions and affordable homes. As a result, Homes Revenue for the ongoing business was £2,038m, 1% lower than the prior year (£2,067m) from 5% fewer legal completions.
Revenue from private houses decreased by 2% to £1.6bn (2022: £1.7bn) on 11% lower volumes whilst revenue from private apartments decreased by 22% to £181m (2022: £232m) on 14% lower volumes. This was a result of completing the run down of our London business (excluding Colindale) and higher sales of apartments in the South East outside London which are of a lower average selling price than those in London.
Our Heritage Collection contributed 90% of private revenue in the year up from 88% last year. The average selling price of our Heritage homes increased by 9% to £473,300 (2022: £433,300). This continues to reflect the strategic shift towards quality family detached homes in primary regional locations, focusing on the home mover segment.
Affordable revenue increased 25% to £258m (2022: £207m) due to the timing of legal completions. It represented 12% of Homes Revenue (2022: 10%). In terms of volumes, affordable homes represented 27% of the 5,436 legal completions we delivered in FY23 (2022: 22% of 5,715).
Average active outlets increased to 117 (2022: 111) which was 3 below the guidance we issued, primarily due to planning delays. Our guidance for the 2024 financial year is for average active outlets to remain at 117 due to continuing delays in the planning system and a slower sales market.
Reservations and Order Book
The Group secured £1.3bn of net private reservations in the 52 weeks to 2 July 2023 compared to £1.82bn for the 53 weeks in the previous year. We ended the financial year with a private order book of £0.6bn (2022: £1.1bn) and a total order book of £0.9bn, compared to £1.4bn last year. The reduction in reservations started with the negative impact of the Government’s mini-Budget at the end of September 2022 which caused a spike in interest rates and not only a reduction in new reservations but also a very high number of cancellations. Whilst the housing market did pick up in the 2023 calendar year it did not return to normal levels of activity, with the sales rate averaging 0.53 per outlet per week for the second half of the financial year (2022: 0.71). This is due to the increases in mortgage rates. The sales rate reduced again in June as further mortgage rate rises were introduced by the major lenders.
Profitability
Gross profit was £508m, a £8m reduction on the prior year (2022: underlying £516m1). This represents a gross margin of 23.9% (2022: 24.1%1). The 20 basis point reduction in margin reflects build cost inflation which was not fully offset by house price inflation and also a higher proportion of affordable housing revenue due to the timing of legal completions.
Administrative expenses increased by £7m to £109m (2022: £102m) due mainly to cost inflation and ongoing IT investment. Administrative expenses were 5.1% of revenue, an increase on the previous year levels (2022: 4.8%).
The Group therefore delivered an operating profit of £399m (2022: underlying £414m1) in the year at an operating margin of 18.76% (2022: 19.3%1).
Net financing costs at £4m were in line with the prior year with bank interest payable and receivable increasing reflecting increases in base rate. We had an average monthly net cash balance of £196m for the year compared to £250m the previous year.
As a result, the Group delivered a profit before tax of £395m (2022: underlying £410m1) for the year with basic earnings per share of 91.2p (2022: underlying 96.0p1).
Last year an additional £164m legacy fire safety provision was created and charged to cost of sales in April 2022 in respect of the buildings the Group agreed to remediate solely as a result of signing the voluntary Building Safety Pledge. This was treated as exceptional as it is outside the normal course of business, non-recurring and material by size and nature. On 13 March 2023 Redrow signed the Self Remediation Terms (SRT) contract with DLUHC which follows on from the Building Safety Pledge and the equivalent Welsh version on 18 April 2023. The SRT widens builders’ responsibilities regarding potential remedial work which may need to be undertaken and led to a further £32m of costs to be provided as a result of this scope change. This was offset by a reduction in the estimated costs of the necessary works for the external wall systems provided for in 2022. There is therefore no exceptional item in FY23.
Statutory Performance
As statutory performance last year was impaired by an exceptional item in respect of the legacy fire safety provision, the review of performance above has been of underlying performance i.e pre-exceptional. From a statutory perspective gross profit of £508m was £156m higher than the £352m delivered in the prior year. Operating profit was £399m (2022: £250m) and profit before tax of £395m was a £149m increase on the £246m achieved in 2022.
Tax
The corporation tax charge for the year was £97m (2022: £49m). The Group’s tax rate for 2023 was 24.5% (2022: 20%). This increase in the effective rate is a result of an increase in the corporation tax rate to 25% from 1 April 2023 and a full year of Residential Property Developers Tax (RPDT) at the rate of 4% which was introduced by HMRC from 1 April 2022. The normalised rate of corporation tax for the year ending 30 June 2024 is projected to increase to 29% based on corporation tax and RPDT rates which are substantively enacted currently.
The Group paid £82m of corporation tax in the year (2022: £55m), in four instalments.
Dividends
The Board has proposed a 2023 final dividend of 20.0p per share which will be paid on 16 November 2023 to Shareholders on the register on 22 September 2023, subject to Shareholder approval at the 2023 Annual General Meeting. This gives a full year dividend of 30.0p (2022: 32.0p) on earnings per share of 91.2p (2022: underlying 96.0p1), a payout ratio of 33% of underlying earnings, in line with our stated policy.
Returns
Net assets at 2 July 2023 were £2,026m (2022: £1,950m), a 4% increase representing a NAV per share of £6.13 following the £100m share buyback and cancellation of 21,420,175 10.5p shares (2022: £5.54). Capital employed at the same date was £1,791m (2022: £1,662m) due to increased levels of work in progress and a reduction in land creditors. Our return on capital employed decreased to 23.11% (2022: 24.54%) due to the lower profit and higher capital employed. Return on equity also reduced to 19.9% (2022: 21.5%). (See note 10).
Land
Our gross investment in land at £1,684m (2022: £1,710m) reduced slightly as a result of our cautious approach to the land market in the light of the uncertain economic conditions. Our land holdings owned with planning amounted to approximately 4.8 years output (2022: 5.2 years). A review of the net realisable value of our land holdings at 2 July 2023 resulted in a net £4m increase in the net realisable value provision to £26m.
Our land buying expertise, placemaking and design abilities and strong balance sheet assist us when we are in the market to secure quality land holdings in primary locations. During the financial year the Group only added c1,900 plots with planning permission to our current (owned and contracted) land holdings (2022: c6,000) due to ongoing economic uncertainty. We closed the year with 26,070 plots in the current land holdings, a 3,530 decrease on the prior year (2022: c29,600 plots).
Approximately 58% of our current land holding additions in FY23 came from our forward land holdings. This is higher than the prior year, reflecting our reduced activity in the current land market together with securing implementable planning permissions on a small number of strategic sites in the year (2022: 27%). We closed the year with 36,100 forward land holdings (2022: 37,800 plots).
Land creditors decreased by £104m to £272m at 2 July 2023 (2022: £376m) representing 16.2% of gross land value (2022: 22.0%). This is due to the timing of land creditors maturing and the reduction in land purchases.
Our owned plot cost has increased by £7,000 to £88,000 (2022: £81,000) whilst still representing 19% (2022: 19%) of the average selling price of private legal completions in the year. This reflects the geographic mix of our land purchases in the year.
Work in progress
Our investment in work in progress has increased by £56m to £1,086m (2022: £1,030m) as a result of build cost inflation and increased outlets. As a percentage of Homes Revenue it increased to 52% from 49% last year.
Receivables
Trade receivables and contract assets decreased by £21m at 2 July 2023 to £24m (2022: £45m) due primarily to the timing of PRS and affordable housing receipts. Other receivables decreased from £25m to £13m mainly due to the timing of the recovery of VAT on land purchases.
Payables
Trade payables, customer deposits and accruals were £52m lower than 2022 levels at £561m (2022: £613m) with trade payables increasing and customer deposits and accruals decreasing reflecting timing and levels of activity.
Provisions
Provisions reduced by £12m overall during the year to £195m (2022: £207m). This was due to expenditure on the legacy fire safety provision. We expect £107m of this to be utilised in FY24. Our expenditure in FY23 was lower than the £97m expected due to requests for payments to the Building Safety Fund not being received in the timeframe anticipated.
Cash flow and Net Cash
There was a cash inflow generated from operations of £244m in the year (2022: £318m). This is lower than the previous year mainly due to the decrease in land purchases and reduction in land creditors already mentioned. This reduced our cash conversion percentage (see note 10) to 61% compared to 125% in the prior year. We successfully completed the £100m share buyback we announced in July 2022 in the year. As a result, we closed the year with net cash excluding lease liabilities of £235m (2022: £288m).
Financing and Treasury Management
Our unsecured £350m syndicated loan facility was extended in March 2021 and is due to mature in September 2025.
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 (2022: nil).
Pensions
On 27 January 2023, the Trustees of the Redrow Staff Pension Scheme entered into a bulk annuity buy-in contract with Standard Life. This transaction is part of the Trustees strategy to reduce the Scheme’s exposure to risk with the Trustees agreeing to exchange the assets of the Scheme for an insurance policy which exactly matches the projected cashflows for all future pension benefits. Thus under the bulk annuity the Trustees will receive payments from Standard Life which they will use to pay pension benefits under the Scheme.
The buy-in reduces future pension and funding risk from a Company perspective. However, the Trustees making the strategic investment decision and entering into the bulk annuity buy-in contract does not impact the Company’s obligations in relation to the Scheme e.g. to ensure the employee benefits are paid when they fall due. Therefore, as the Company retains responsibility for all its obligations in relation to the Scheme, it continues to treat the Scheme as a defined benefit plan as permitted by IAS 19 with £34m charged to Other Comprehensive Income in the period.
As a result, at 2 July 2023, the Group’s financial statements showed a £5m surplus (2022: £39m 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).
Barbara Richmond
Group Finance Director
