Company Announcements

FOR IMMEDIATE RELEASE

Thursday 9 February 2023

REDROW plc

INTERIM RESULTS FOR THE

26 WEEKS tO 1 JANUARY 2023

FIRST HALF RESULTS IN LINE WITH H1 2022 RECORD

Financial Results

Summary

·    Revenue similar to record first half last year at £1.031bn (2022: £1.052bn)

·    Operating margin of 19.3% (2022: 19.5%)

·    Profit before tax comparable to H1 2022 at £198m (2022: £203m)

·    Interim dividend maintained at 10p (2022: 10p)

·    Economic and political uncertainty led to sales rate of 0.38 private reservations per outlet per week for H1 (2022: 0.64)

·    Encouraging start to the second half with the volume of private reservations per outlet per week for the 5 weeks to 5 February of 0.51

·    Air source heat pumps and underfloor heating on the ground floor will in future be standard in detached homes on new developments

·    Continue to be a 5 star builder

·    Founding signatory to the New Homes Code of Practice

·    Long Form Agreement with Government on Fire Safety now in final form

2023 Guidance

Due to the recent change in market conditions the Company has withdrawn its guidance for 2024.

Commenting on the results Matthew Pratt, Group Chief Executive said:

"Redrow's proven business model has played an important role during a time of significant political and economic uncertainty. We have award-winning homes and places, a strong forward order book, land acquired in the last few years at good margins, and current cash reserves of £107m. This is despite completing a £100m share buyback exercise on 13^th January 2023, just after the financial half-year under review.

We have experienced a positive start to second half trading. Whilst 2023 will be a challenging year as the market resets, early indications are better than anticipated and the market appears to be finding a new, natural level.

Redrow's sustainability strategy is integrated throughout the business via our long standing three strategic themes - Building Responsibly, Valuing People and Thriving Communities. In this way we bring to life our 'Better way to live' core purpose for the benefit of our customers and communities.

Redrow has become the first large housebuilder to begin selling homes which will incorporate air source heat pumps as standard. Underfloor heating will also be provided as standard on the ground floor in our detached homes. The approach has been shaped by customer trials, research and the work of our own in-house design & innovation team.

Our environmental social and governance approach was recently validated with approval of our Scope 1, 2 & 3 near term targets from the Science Based Targets Initiative. This marks a key step on our road to net-zero carbon.

Building Responsibly is a key pillar of our strategy and we were in the first select group of home builders to sign up for the New Homes Code of Practice, which is overseen by the independent New Homes Quality Board.

We welcome its introduction and the enhanced peace of mind it will provide our customers. We remain one of a handful of volume homebuilders to have implemented the new code.

Furthermore we are, once again, tracking at a Five Star level of customer satisfaction and we remain 'excellent' on Trustpilot with a TrustScore of 4.5.

We entered the second half with a total order book of £1.1bn, of which £0.8bn was private. Our net private reservation rate for the first 5 weeks of the second half was an encouraging 0.51 compared to 0.38 in the first half. We therefore expect to achieve revenue of around £2.05bn for the full financial year, with an operating margin in the region of 18% to 18.5%."

A webcast and slide presentation of our results will be available at 7.00 am on https://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 hear the Q&A live at 9.30 am on +44 (0) 20 3936 2999 or

UK Toll Free 0800 640 6441; access code 462719.

LEI Number:

2138008WJZBBA7EYEL28

Announcement Classification:

1.2: Half yearly financial report and audit reports/limited reviews

Group Chief Executive's Statement

Overview

Redrow's proven business model has played an important role during a time of significant political and economic uncertainty. We have award-winning homes and places, a strong forward order book, land acquired in the last few years at good margins, and current cash reserves of £107m. This is despite completing a £100m share buyback exercise on 13^th January 2023, just after the financial half-year under review. 

These strengths are all underpinned by our experienced team who have a track record of creating quality homes and successfully managing through similar cycles in the market. This includes closely monitoring work in progress, along with a very selective approach to land opportunities. 

Over the second quarter of our financial year, the new homes market found itself in the eye of the storm. The Government's disastrous mini-budget drove significant increases in mortgage rates during an existing cost of living crisis. Inevitably, consumer confidence was badly affected.

Cancellations were elevated, driven higher by those customers who reserved prior to the mini-budget and who'd not secured a mortgage offer in advance of mortgage rate rises. All these factors combined to bring forward the traditional Christmas slowdown to October.

As the political and economic picture has stabilised, and mortgage rates continue to reduce from their elevated levels, consumer confidence has begun to show early signs of returning. Unique visitors to our website were up 17% during January 2023 compared with the previous year.

The first five weeks of the second half have seen a net reservation position of 0.51 per outlet per week.

I am very pleased that Geeta Nanda is joining the Board as an independent non-executive director on 1 May 2023. Geeta has held a number of senior executive and non-executive roles and will add valuable additional experience to the Redrow Board.

Financial Overview

Group revenue was similar to the same period last year at £1.03bn (2022: £1.05bn). Total home legal completions in the first half were 2,485 (2022: 2,749).

Profit before tax was also comparable to the same period last year at £198m (2022: £203m). This was achieved with an operating margin of 19.3% (2022: 19.5%) for the first six months.

Our earnings per share for the first half is 45.4p, compared to 48.1p for the comparative period last year. This is in part due to the higher Corporation Tax and Residential Property Developer Tax rates at 24.5% versus 19% in 2022.

Our Return on Capital Employed is 23.2% (2022: 21.5%). We ended the first half with net cash of £107m (June 2022: £288m) and our average net monthly cash was broadly in line with the first half last year at £248m (H1 2022: £257m), even after taking account of the share buyback.

As a result of this strong performance the Board has declared an interim dividend of 10p, in line with the prior year (2022: 10p). The dividend will be paid on 6 April 2023 to shareholders on the register at the close of business on 24 February 2023. For the full year the company intends to maintain its payout ratio of 33%.

We are still experiencing build cost increases across materials as energy inflation, in particular, continues to have an impact. We expect cost inflation of c7% for the full financial year. Over time we expect the current market to drive more competition and to mitigate build cost inflation amongst our suppliers and subcontractors.  

This strong financial performance was delivered in the context of a broken planning system. At a time when the Government is trying to achieve growth, it remains a major barrier.

Planning permissions are taking a record amount of time - well in excess of the statutory timescale of 13 weeks for reserved matters. This means a huge missed opportunity for the country in lost school places, infrastructure, employment and social mobility. We continue to call on the Government to revisit its housing and planning strategy to help the country deliver growth and the homes it so badly needs to address the chronic housing shortage.

At the time of writing we are reviewing the Government's Long Form Agreement. It aims to legally formalise the industry-wide Building Safety Pledge, which Redrow signed in April 2022. This new document also widens builders' responsibilities with regard to potential remediation work, which may need to be undertaken. Although this would mean an increase to our Building Safety provision, we don't foresee this increase as being substantial. Regardless of the Long Form Agreement formalities, we are proceeding with the remediation of buildings we've identified as part of the pledge commitment.

We currently have 28,020 (2022: 29,600) plots in our current land holdings, with 37,800 plots in our strategic land bank. Given current trading conditions we are focused on obtaining planning permissions for our current land.

A Better Way to Live

Redrow's sustainability strategy is integrated throughout the business via our long standing three strategic themes - Building Responsibly, Valuing People and Thriving Communities. In this way we bring to life our 'Better way to live' core purpose for the benefit of our customers and communities.

Redrow has become the first large housebuilder to begin selling homes which will incorporate air source heat pumps as standard. Underfloor heating will also be provided as standard on the ground floor in our detached homes. The approach has been shaped by customer trials, research and the work of our own in-house design & innovation team. 

These steps are all being taken in advance of the Government's proposals to make all new build properties gas-free from 2025. Currently, Redrow homes benefit from a 10% reduction in heat loss compared to our previous builds and are 63% more efficient than second hand homes built in the 1970s.

Redrow designs, which typically have a larger square footage than other new builds, work seamlessly with heat pump technology and allow ground floor underfloor heating to complement our open-plan layouts. As well as being desirable for customers, the lack of ground floor radiators also gives home owners even more space. This forms an important part of our efforts to support the goal of limiting global warming to 1.5c.

These efforts were further validated recently with the approval from the Science Based Targets Initiative of our Scope 1, 2 & 3 near term targets. This marks a key step on our road to net-zero carbon.

Building Responsibly is a key pillar of our strategy and we were in the first select group of home builders to sign up for the New Homes Code of Practice, which is overseen by the independent New Homes Quality Board.

We welcome its introduction and the enhanced peace of mind it will provide our customers. We remain one of a handful of volume homebuilders to have implemented the new code.

Furthermore we are, once again, tracking at a Five Star level of customer satisfaction and we remain 'excellent' on Trustpilot with a TrustScore of 4.5.

Securing a pipeline of future talent is a central part of our Valuing People pillar and it was positive to see a record intake of graduates last year. Our new partnership with Nottingham Trent University looks to build on our existing initiatives, including our apprenticeship degree programme.

We'll be working long-term with the university's School of Architecture, Design and the Built Environment to engage with undergraduates throughout their degree courses.

We also continue to make progress on matters of equality, diversity and inclusivity and it was pleasing to see this recognised with our inclusion in the Financial Times' ranking of Europe's Diversity Leaders 2023.

Current Trading & Outlook

During the uncertain times of the second quarter it was clear that maintaining a reasonable sales rate would be difficult. Therefore, we reduced our marketing spend and focused on preparing our new year campaign, ensuring the appropriate messaging and incentives to increase both footfall and reservations. This campaign has to date achieved our objective.

We have experienced a positive start to sales in the second half. Our net private reservation rate per outlet per week over the first five weeks of calendar year 2023 was 0.51 compared to 0.38 for the first half of the financial year. We also entered the second half with a total order book of £1.1bn, of which £0.8bn was private. We therefore expect to achieve revenue of around £2.05bn for the full financial year, with an operating margin in the region of 18% to 18.5%.

Despite economic turbulence over recent times, unemployment is still low, inflation is forecast to decrease and mortgage rates have improved for fixed rate products.

Our Heritage collection is uniquely positioned to capture the second hand market and our approach to energy efficiency will further cement our distinct market advantage.

Whilst 2023 will be a challenging year as the market resets, early indications are better than anticipated and the market appears to be finding a new, natural level.

We are well positioned to manage any changes in the market because of the Redrow team and our loyal subcontractor and supplier partners. They continue to deliver quality homes and places for thousands of families across England & Wales and I'd like to thank them again for all their efforts.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

NOTES (Unaudited)

1.       Accounting policies

Basis of preparation

The condensed consolidated half-yearly financial information for the 26 weeks ended 1 January 2023 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, as adopted by the United Kingdom. The Directors consider this to be appropriate for the reasons outlined below.

The condensed consolidated financial statements are unaudited. A copy of the audited statutory accounts for year

ended 3 July 2022 has been delivered to the Registrar of Companies.

The annual financial statements of the group for the 52 weeks to 2 July 2023 will be prepared in accordance with UK adopted international accounting standards (IFRS) 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 53 weeks ended 3 July 2022 which were prepared in accordance with applicable IFRSs.

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.

The Group renewed its available banking facilities in March 2021. As a result, the Group has a £350m Revolving Credit Facility (RCF) (2022: £350m) provided by an established syndicate of six banks being Barclays Bank PLC, Lloyds Bank Plc, The Royal Bank of Scotland Group Plc, Santander, HSBC and Svenska. This expires in September 2025 and is a committed unsecured facility. No change to the RCF covenants was made as a result of the renewal. As at 8 February 2023, £350m of this facility was undrawn. It is likely that the RCF will be renewed prior to its expiry in September 2025. In addition, the Group is in a net cash position at 1 January 2023 and 7 February 2023 and also has £3m of unsecured, uncommitted facilities.

The Directors have prepared forecasts including cashflow forecasts for a period of at least 12 months from the date of signing of these financial statements (the going concern assessment period). 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 10% price reduction on all unexchanged private and social legal completions for the going concern assessment period compared to the base case Board approved budgeted prices;

•   A 20% volume reduction for the going concern assessment period compared to the base case Board approved budgeted volumes; and

•   A 7% build cost increase on budgeted costs in FY23 and a 3% increase on budgeted costs in FY24.

These downside assumptions reflect the potential impact of increased economic uncertainty, the further potential impact of the war in Ukraine, disruption in the energy and fuel market, inflation pressure, increasing rates of unemployment and the impact on 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 53 weeks ended 3 July 2022, which have been prepared in accordance with UK adopted international accounting standards.

This half-yearly financial information does not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. The comparative figures for the financial period ended 3 July 2022 are not the Group's statutory accounts for that financial year. Audited statutory accounts for the 53 weeks ended 3 July 2022 were approved by the Board of Directors on 13 September 2022 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 53 weeks ended 3 July 2022. The accounting policies are consistent with those followed in the preparation of the financial statements to the 53 weeks ended 3 July 2022.

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 53 weeks ended 3 July 2022.

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 2023 (note 18). We have reviewed the risks pertinent to our business in the 26 weeks to 1 January 2023 and which we believe to be relevant for the remaining 26 weeks to 2 July 2023.

2.          Income Tax expense

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 (24.5% (2022: 20%)) based on substantively enacted corporation tax and Residential Property Developer Tax (RPDT) rates. Deferred taxation balances have been valued at 29% (2022: 25%) being the corporation tax rate from 1 April 2023 substantively enacted on 24 May 2021 plus 4% RPDT with the exception of the deferred tax liability on employee benefits which has been calculated at 35% (2022: 35%).

3.          Dividends

A dividend of £76m was paid in the 26 weeks to 1 January 2023 (27 weeks ended 2 January 2022: £65m).

4.         Earnings per share

The basic earnings per share calculation for the 26 weeks ended 1 January 2023 is based on the weighted number of shares in issue during the period of 330m (27 weeks ended 2 January 2022: 341m) excluding treasury shares held by the company and 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 1 January 2023 (Unaudited)

27 weeks ended 2 January 2022 (Unaudited)

53 weeks ended 3 July 2022 (Audited)

5.          Pensions

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

On 27 January 2023 the Trustees of the Redrow Staff Pension Scheme (the "Scheme") entered into a bulk annuity buy-in contract with Standard Life. As part of this process, the Trustees made an investment strategy decision that culminated in them agreeing to exchange the assets of the Scheme for an insurance policy, which exactly matches the projected cashflows for all future pension benefits. This change in investment strategy eliminates significant risks associated with the Scheme. However, by the Trustees entering into this contract, the Company has not agreed to a full buy-out of the Scheme, which would pass the obligations of the Scheme to the insurer. Therefore the Company retains responsibility for all its obligations in relation to the Scheme.

6.             Inventories

7.          Land Creditors        

             (included in trade and other payables)

8.         Analysis of Net Cash

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

9.         Bank facilities

At 1 January 2023, the Group had total unsecured bank borrowing facilities of £353m (2 January 2022: £353m), representing £350m committed facilities and £3m uncommitted facilities. The Group's syndicated loan facility matures on 30 September 2025.

10.        Provisions

Legacy fire safety provision

Redrow is predominantly a housebuilder, however the Group historically built a small number of high rise buildings, mostly on a design and build basis by main contractors. The Group signed the Government's Building Safety Pledge in April 2022 and is committed to funding the remediation of life critical fire safety issues on buildings over 11 metres in which the Group was involved going back 30 years. The Legacy fire safety provision reflects the estimated cost of works outstanding to complete the remediation of life critical fire safety issues on all identified buildings within scope. In estimating the cost of the works, Management has used relevant Building Safety Fund cost information and other external information as the basis of its estimates and classified buildings identified as in scope on the basis of a high level risk assessment including their EWS1 (External Wall Fire Review) status. However, these estimates are inherently uncertain as this is a highly complex area involving bespoke buildings for which investigations and assessments will be ongoing for some time. It is expected that £113m of the remaining provision will be utilised in the next 12 months and the remainder over the following three years although these timescales are subject to the completion of negotiations with relevant stakeholders. Provisions are discounted to net present value where the effect is material.

11.        Issued Share capital

Allotted, called up and fully paid.

As part of the £100m share buyback programme announced on 14 July 2022, in addition to the 12,404,382 ordinary shares purchased and cancelled, a further 8,269,586 ordinary shares were purchased and are held as treasury shares at 1 January 2023. Post half year end, the Company completed its share buyback programme with the purchase of 746,207 further ordinary shares of which 447,724 were cancelled and 298,483 held as treasury shares. This is a non-adjusting post balance sheet event.

12.        Retained Earnings

Included in retained earnings of £1,815m at 1 January 2023 is £38m in respect of treasury shares held by the Company (at 2 January 2022 : £nil)

13.        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.

14.        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:

15.        Alternative performance measures

Redrow uses a variety of Alternative Performance Measures (APMs) which are not defined or specified by IFRSs but which the Directors believe are pertinent to reviewing and understanding the broader performance of the Group, in conjunction with IFRS defined measures.

Interim dividend per share

Interim dividend per share declared in respect of financial year.

Legal completions

The number of homes legally completed in the half year.

Order Book

The value of reserved and exchanged sales which had not legally completed at the half year end.

Return on capital employed

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 1 January 2023 and 53 weeks to 2

January 2022 before exceptional items as a percentage of the average of current year 1 January 2023 and prior year

2 January 2022 capital employed.

16.        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

17.        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

18.        Risks and Risk Management

Responsibility Statement

We confirm that to the best of our knowledge:

·    the condensed set of financial statements has been prepared in accordance with the UK adopted International Interim Financial Reporting Accounting Standard 34, and

·    the interim management report includes a fair review of the information required by:

a)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)    DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The Directors of Redrow plc as at the date of this statement are:

Richard Akers

Matthew Pratt

Barbara Richmond

Nicky Dulieu

Oliver Tant

By order of the Board

Graham Cope

Company Secretary

8 February 2023

Redrow plc

Redrow House

St David's Park

Flintshire
CH5 3RX