TIDMCSP
RNS Number : 8916W
Countryside Properties PLC
13 December 2019
13 December 2019
COUNTRYSIDE PROPERTIES PLC (THE "COMPANY")
ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 AND NOTICE OF
ANNUAL GENERAL MEETING 2020
The following documents have today been posted or otherwise made
available to shareholders:
-- Annual Report 2019
-- Notice of Annual General Meeting
-- Proxy Form
In accordance with Listing Rule 9.6.1R, a copy of each of these
documents has been uploaded to the National Storage Mechanism and
will be available for viewing shortly at
http://www.morningstar.co.uk/uk/NSM.
The above documents may also be viewed online at
-- investors.countrysideproperties.com; and
--
investors.countrysideproperties.com/shareholder-information/meetings-and-voting
respectively.
A condensed set of the Company's financial statements and
information on important events that have occurred during the
financial year and their impact on the financial statements were
included in the Company's Preliminary Results Announcement on 21
November 2019. That information together with the information set
out below, which is extracted from the Annual Report 2019,
constitute the material required by Disclosure Guidance and
Transparency Rule 6.3.5R which is required to be communicated to
the media in full unedited text through a Regulatory Information
Service. This announcement is not a substitute for reading the full
Annual Report 2019. Page and note references in the text below
refer to page numbers in the Annual Report 2019. To view the
preliminary announcement, slides of the results presentation and
the webcast please visit
investors.countrysideproperties.com/results-reports-and-presentations.
Enquiries: Tel: +44 (0) 1277 260 000
Ian Sutcliffe - Group Chief Executive
Mike Scott - Group Chief Financial Officer
Victoria Prior - IR and Strategy Director
OPTIMISING OUR RISK MANAGEMENT PROCESS
This section describes how Countryside determines its appetite
for risk, how risks are identified and quantified, and how they are
managed and mitigated appropriately in order to deliver the Group's
strategic objectives. It describes Countryside's policies and
procedures for the timely identification, assessment and
prioritisation of the Group's material risks and uncertainties.
How we manage risk
The Board oversees risk management within Countryside. At its
March 2019 Strategy Day, it determined the Group's overall risk
profile and appetite for risk, the results of which have been
implemented through the conduct and decisions of the Board and
Executive Committee. In July 2019, the Board carried out its annual
assessment of risks and it routinely considers individual risks at
each of its Board Meetings.
Risk identification and management is built into every aspect of
Countryside's daily operations, ranging from the appraisal of new
sites, assessment of the prospects of planning success, building
safely and selling effectively to achieve long-term success through
the property market cycle. Risk management is built into
standardised processes for each part of the business at every stage
of the housebuilding process. Financial risk is managed centrally
through maintenance of a strong balance sheet, forward selling new
homes and the careful allocation of funds to the right projects, at
the right time and in the right locations. Risk management also
includes the internal controls described within the Corporate
Governance Report on pages 62 to 66.
The Risk Management Committee ("RMC") meets at least four times
a year and provides a focal point for the co-ordination of the
Group's risk management efforts. Its membership comprises all
members of the Executive Committee and the Director of Audit and
Risk Assurance and it is chaired by the Group Chief Executive.
The standing business of the RMC includes reviewing:
-- the Group risk register, mitigation plans and internal controls;
-- for each risk, the assessment of gross and net risk versus
risk appetite, risk progression and adequacy of mitigating
actions;
-- the Internal Audit plan, reports and progress against recommendations;
-- the management of claims and litigation;
-- reports of whistleblowing and fraud;
-- the forecast impact and preparation for proposed and new legislation;
-- key policies and risk mitigation documentation (e.g. start on
site or land acquisition checklists); and
-- total cost of risk against insurance and bond requirements.
At each RMC meeting, a different "principal risk" is also
reviewed in depth. A description of the key areas of risk
considered during 2019 is set out below.
Meetings of the management boards of each regional business are
held regularly and review all operational risks. All such regional
board meetings are attended by the relevant Divisional CEO, who in
turn feeds back any matters requiring consideration by the RMC.
The Group's risk register is maintained to record all principal
risks and uncertainties identified in each part of the business.
The most appropriate member of the Executive Committee is allocated
as the "risk owner" for each risk. The risk owners call upon the
appropriate expertise to conduct an analysis of each risk,
according to a defined set of assessment criteria which
includes:
-- How does the risk relate to the Group's business model and/or strategy?
-- What is the likelihood of the risk occurring?
-- What is the potential impact were the risk to occur?
-- Would the consequences be short, medium or long-term?
-- What mitigating actions are available and which are cost effective?
-- What is the degree of residual risk and is it within the Group's risk appetite parameters?
-- Has the risk assessment changed and what is expected to change going forward?
The RMC reviews the assessments made, compares them to the
Group's appetite for each risk, reviews the current level of
preparedness and determines whether further actions or resource are
required. In reviewing and agreeing the mitigating actions, the RMC
considers the impact of risks individually and in combination, in
both the short and the longer term.
Our approach to risk
The Board - Role and responsibilities
-- Sets the Group strategy
-- Determines the Group's risk policy, overall appetite for risk
and the procedures that are put in place
-- Regularly monitors Group risks and their progression in
comparison to the agreed appetite for each risk
-- Reviews the effectiveness of the Group's risk management and internal control procedures.
Audit Committee - Role and responsibilities
-- Has delegated responsibility from the Board to oversee risk
management and internal financial controls
-- Monitors the integrity of the Group's financial reporting process
-- Monitors the effectiveness of the Internal Audit function and
the independence of the external audit
Internal Audit - Role and responsibilities
-- Undertakes independent reviews of the effectiveness of internal control procedures
-- Reports on the effectiveness of management actions
-- Provides assurance to the Audit Committee
Risk Management Committee - Role and responsibilities
-- Manages the Group's risk register and assessment of net risk versus risk appetite
-- Determines the appropriate controls for the timely identification and management of risk
-- Monitors the effective implementation of action plans
-- Reviews reports from the Internal Audit function
-- Reviews principal claims and litigation
-- Reviews the annual renewal of Group insurance cover
Executive Committee - Role and responsibilities
-- Responsible for the identification of operational and strategic risks
-- Responsible for the ownership and control of specific risks
-- Responsible for establishing and managing the implementation of appropriate action plans
Key areas of focus during 2019
Market
Given that Countryside continues to grow, there has been renewed
focus during 2019 on the Group's mixed-tenure approach to both
improve the quality of returns and maintain resilience in the event
of a market downturn. Improvements have been made to the timely
reporting of key sales data to enable management to monitor and
react appropriately to any changes in market activity. With the
opening of the Warrington modular panel factory in April 2019, we
are committed to embracing innovation to reduce reliance on
sub-contract labour, secure the supply chain and achieve on-site
efficiencies. Increasing off-site production will further improve
product quality and drive improvements in customer
satisfaction.
Government policy and regulatory change
Whilst the current Government backed Help to Buy scheme
arrangements will end in 2021, the Government has announced that a
revised Help to Buy scheme will extend to spring 2023. During the
extension period, regional caps (set at 1.5 times the current
average first-time buyer price in each region) will apply. Measures
have been introduced so that all new site proposals reviewed by
management and the Board for approval take account of the
availability of Help to Buy funding when determining product
mix.
Following Government consultation after the Grenfell Tower
tragedy and in light of recommendations made by Dame Judith
Hackitt's final report on building regulations and fire safety, an
amendment to Approved Document B of the Building Regulations was
issued in December 2018. The amendment bans the use of combustible
materials in the external walls of high rise residential buildings
and bans the use of assessments in lieu of testing (so-called
desktop studies). Measures are in place to ensure all ongoing and
future building projects fully comply with the amended regulations.
A Technical Standards Fire Committee, made up of the technical
directors from each division, representatives of health and safety
and legal and chaired by the Divisional CEO of Partnerships South,
has been established to ensure uniform compliance across the Group
with the revised regulations and any advice issued by Government,
such as the June 2019 advice relating to buildings with
balconies.
Following concerns raised by homeowners about the leasehold
tenure of their property or the terms of their ground rent
escalation clause, the Government has launched two consultations
into leasehold properties and potential reform. The proposals
include a ban on the sale of leasehold houses and plans to lower
future ground rents to a nominal fee. Countryside now longer sells
leasehold houses and has signed the Public Pledge for Leaseholders
(https://www.gov.uk/government/publications/leaseholder-pledge/public-pledge-for-leaseholders).
In June 2019, the Competition & Markets Authority commenced
an investigation into the sale of leasehold properties and in July
2019, the Government published its response to the Housing,
Communities and Local Government Select Committee report on
Leasehold Reform. Countryside is working closely with industry
peers, the HBF and other stakeholders to prepare for and address
any required changes.
Brexit
Since the result of the referendum vote to leave the European
Union ("EU") in June 2016 ("Brexit"), management and the Board have
developed and maintained detailed reviews on Countryside's exposure
to risks that may flow from the United Kingdom's departure from the
EU. Key risks has been identified, such as the supply of materials
and labour, the availability of capital and potential changes to
Government regulation and policy, and mitigating actions and plans
are in place to address the challenges should they arise.
Most of our building supplies are manufactured in the UK and are
not at risk from Brexit. Where possible, we endeavour to purchase
key supplies in bulk via national agreements and have preferred
partnerships with many of our suppliers. Those products that have
an element imported from the EU are mainly sourced through a
network of UK-based suppliers. In the event of a worst case no-deal
Brexit outcome, there is a risk that our supplier network may
experience delays in their own
supply chain and we are working closely with these distributors
to understand any issues they may face. We have conducted a
thorough analysis of this risk, including reviewing all such first
and second tier material origins, fixed price duration, World Trade
Organisation ("WTO") tariff impact and logistical restrictions.
Where appropriate, we have worked with supply chain partners who
have increased stock levels and, where necessary, the quantum of
stock held at sites has been increased to secure critical
EU-sourced goods
The Government has published details of the UK's temporary
tariff regime in the event of a worse case no-deal Brexit. The
tariff regime is designed to minimise costs to business and its
effect would be that the bulk of Countryside's EU imports would be
eligible for tariff-free access. The only commodity that appears to
impact our business is ceramics. We have worked with relevant
suppliers to ensure we can access materials from outside the EU to
mitigate this risk where required.
We are working with our workforce and suppliers to monitor any
trends, but to date have not experienced material changes that
might affect production. The introduction of the Government's
"settled status" scheme is reasonably expected to materially
mitigate the risk that large numbers of EU workers would otherwise
be required to leave the UK.
Our internal auditor, KPMG, has recently tested Countryside's
resilience in areas of business continuity and disaster recovery,
including in the event of a no-deal Brexit. Actions have been taken
to address all potential areas identified for improvement.
Attracting and retaining talent
Recruiting, retaining and developing highly skilled, competent
people at all levels of the organisation remains a key challenge
whilst the competition for talent in a growing homebuilding
industry remains fierce. During 2019 considerable effort has been
made to ensure that Countryside is able to participate and win in
the competition for talent. The roll-out of extended flexible
benefits has proven very successful, along with improved study
support, enhanced maternity and paternity policies, personal and
professional development and training, enlarged graduate and
apprenticeship schemes, additional recruitment resources and the
determination to implement feedback obtained from employee
engagement (as described on pages 38 to 40).
Westleigh acquisition
Following the acquisition of Westleigh in 2018, its integration
into the Countryside Group and its compliance with Countryside's
policies and procedures is now complete. This has resulted in
considerable strengthening of a number of Westleigh's compliance
functions, including health and safety, legal, environmental and
quality. In November 2018, all Westleigh branding was replaced with
the Countryside brand name.
Improving assurance and standardisation
As Countryside continues to grow, both organically and through
the acquisition of Westleigh, ensuring that processes, procedures
and risk mitigation actions are implemented, standardised and
uniformly applied is critical. Countryside's investment in audit
and assurance has been increased to address this ongoing
requirement, leading in June 2019 to the appointment of a new
Director of Audit and Risk Assurance.
Board, Audit Committee and Risk Management Committee
responsibility
The Audit Committee reviewed the Group's risk register and the
assessment of the Group's principal risks and uncertainties
prepared by the Risk Management Committee at its meetings in July
and October 2019. The Audit Committee also considered the
effectiveness of the Group's systems and has taken this into
account in preparing the Viability Statement on the previous
page.
The Audit Committee reported on its findings at the Board's July
and October 2019 meetings, in order to support it in making its
confirmation that it had carried out a robust assessment of the
principal risks.
Principal risks and uncertainties
The Group's principal risks are monitored by the Risk Management
Committee, the Audit Committee and the Board. The table below sets
out the Group's principal risks and uncertainties and
mitigation.
Risk and impacts How we monitor and manage the risk
1 Adverse macroeconomic conditions* (Responsible Executive:
Group Chief Executive)
(Impact on strategy-Growth/Returns) (risk change-no change)
A decline in macroeconomic
conditions, or conditions * Funds are allocated between the Housebuilding and
in the UK residential property Partnerships businesses.
market, can reduce the propensity
to buy homes. Higher unemployment,
interest rates and inflation * In Housebuilding, land is purchased based on planning
can affect consumer confidence prospects, forecast demand and market resilience.
and reduce demand for new
homes. Constraints on mortgage
availability, or higher costs * In Partnerships, contracts are phased and, where
of mortgage funding, may possible, subject to viability testing.
make it more difficult to
sell homes.
* In all cases, forward sales, cash flow and work in
progress are carefully monitored to give the Group
time to react to changing market conditions.
2 Adverse changes to Government policy and regulation* (Responsible
Executive: Group Company Secretary and General Counsel)
(Impact on strategy - Growth/Returns/Resilience) (risk change-risk
increased)
Adverse changes to Government
policy in areas such as tax, * The potential impact of changes in Government policy
housing, the environment and new laws and regulations are monitored and
and building regulations communicated throughout the business.
may result in increased costs
and/or delays. Failure to
comply with laws and regulations * Detailed policies and procedures are in place to
could expose the Group to address the prevailing regulations.
penalties and reputational
damage.
3 Constraints on construction resources* (Responsible Executive:
Chief Executive, Partnerships North)
(Impact on strategy-Growth/Returns) (risk change-no change)
Costs may increase beyond
budget due to the reduced * Optimise use of standard house types and design to
availability of skilled labour maximise buying power.
or shortages of sub-contractors
or building materials at
competitive prices to support * Use of strategic suppliers to leverage volume price
the Group's growth ambitions. reductions and minimise unforeseen disruption.
The Group's strategic geographic
expansion may be at risk
if new supply chains cannot * Robust contract terms to control costs.
be established.
* Modular panel factory.
4 Programme delay (rising project complexity) (Responsible Executive:
Chief Executive, Partnerships South)
(Impact on strategy-Growth/Returns) (risk change-no change)
Failure to secure timely
planning permission on economically * The budgeted programme for each site is approved by
viable terms or poor project the Divisional Board before acquisition.
forecasting, unforeseen operational
delays due to technical issues,
disputes with third-party * Sites are managed as a portfolio to control overall
contractors or suppliers, Group delivery risk.
bad weather or changes in
purchaser requirements may
cause delay or potentially * Weekly monitoring at both divisional and Group level.
termination of project.
5 Inability to source and develop suitable land (Responsible
Executive: Chief Executive, Housebuilding
(Impact on strategy-Growth/Returns) (risk change-no change)
Competition or poor planning
may result in a failure to * A robust land appraisal process ensures each project
procure land in the right is financially viable and consistent with the Group's
location, at the right price strategy.
and at the right time.
6 Inability to attract and retain talented employees* (Responsible
Executive: Group HR Director
(Impact on strategy-Growth/Returns/Resilience) (risk change-no
change)
----------------------------------------------------------------------------------------------------
Inability to attract and
retain highly skilled, competent * Remuneration packages are regularly benchmarked
people at all levels could against industry standards to ensure competitiveness.
adversely affect the Group's
results, prospects and financial
condition. * Succession plans are in place for all key roles
within the Group.
* Exit interviews are used to identify any areas for
improvement.
------------------------------------- -------------------------------------------------------------
7 Inadequate health, safety and environmental procedures (Responsible
Executive: Group Company Secretary and General Counsel)
(Impact on strategy-Returns) (risk change-no change)
A deterioration in the Group's
health, safety and environmental * Procedures, training and reporting are all carefully
standards could put the Group's monitored to ensure that high standards are
employees, contractors or maintained.
the general public at risk
of injury or death and could
lead to litigation or penalties * An environmental risk assessment is carried out prior
or damage the Group's reputation. to any land acquisition.
* Appropriate insurance is in place to cover the risks
associated with housebuilding.
* The Board's review of risk, including the principal risks,
takes into account the known and forecast developments flowing
from plans being made for Brexit. Brexit affects many of the
principal risks, but particularly those marked with an asterisk.
RELATED PARTY TRANSACTIONS
Transactions with joint ventures and associate
Joint ventures Associate
---------------------------------------------- ----------------- --------------
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
---------------------------------------------- ------- -------- ------ ------
Sales during the year 29.8 20.2 2.4 1.7
---------------------------------------------- ------- -------- ------ ------
Net advances to joint ventures and associate 56.1 67.6 - -
at 1 October
Net repayments during the year (6.8) (11.5) - -
---------------------------------------------- ------- -------- ------ ------
Net advances to joint ventures and associate
at 30 September 49.3 56.1 - -
---------------------------------------------- ------- -------- ------ ------
The transactions noted above are between the Group and its joint
ventures and associate, the details of which are described in Note
15 and Note 16 respectively.
Sales of goods and services to related parties related
principally to the provision of services to the joint ventures and
associate at contractually agreed prices. No purchases were made by
the Group from its joint ventures or associate. The amounts
outstanding ordinarily bear no interest and will be settled in
cash.
Remuneration of key management personnel
Key management personnel are deemed to be the Executive
Committee, along with other Directors of the Company, including the
Non-Executive Directors. The aggregate remuneration of these
personnel during the year was GBP11.0m (2018: GBP8.8m).
Transactions with key management personnel
In 2014, properties were sold at market value by the Group to a
company of which Graham Cherry is a Director and shareholder. The
Group leased back these properties incurring rental expenses of
GBP21,000 in the prior financial year. The Group no longer leases
these properties and therefore payments during the year ended 30
September 2019 were GBPNil.
During the prior financial year, a close family member of Ian
Sutcliffe and a close family member of Graham Cherry were employed
by a subsidiary of the Group. During the year ended 30 September
2019, two close family members of Phillip Lyons were also employed
by a subsidiary of the Group. All of these individuals were
recruited through the normal interview process and are employed at
salaries commensurate with their experience and roles. The combined
annual salary and benefits of these individuals is less than
GBP190,000 (2018: less than GBP110,000).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards ("IFRSs") as adopted by
the European Union and parent company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 102
"The Financial Reporting Standard applicable in the UK and Republic
of Ireland", and applicable law). Under company law the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and parent company and of the profit or loss of the Group and
parent company for that period. In preparing the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements and
United Kingdom Accounting Standards, comprising FRS 102, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and parent
company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
parent company's transactions and disclose with reasonable accuracy
at any time the financial position of the Group and parent company
and enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and parent company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the parent company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and
parent company's performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Board of Directors section, confirms that, to the best of their
knowledge:
-- the parent company financial statements, which have been
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland", and applicable law), give a true
and fair view of the assets, liabilities, financial position and
loss of the Company;
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
Group and parent company, together with a description of the
principal risks and uncertainties that it faces.
This information is provided by RNS, the news service of the
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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