As with any business, we face risks and uncertainties in the course of our day-to-day activities and it is only by effectively identifying and managing these risks that we can deliver our strategy.

Risk management framework

The Executive Directors are heavily involved in the day-to-day running of the business and risks are discussed on a daily basis as part of their decision-making processes. This regular consideration of risks allows management to respond quickly to changes in circumstances.

Senior management report regularly to the Executive Directors in a number of areas:

  • legal;
  • sales and marketing;
  • planning;
  • environmental;
  • construction; and
  • financial.

This reporting frequently involves the use of external consultants. For example, during the due diligence carried out before the acquisition of each site, planning consultants are normally engaged for their specialist knowledge and outside perspective to challenge our assumptions and ensure that we have a full understanding of the site and its market.

By assessing all the information in the reports from Senior Management, Executive Directors can determine the risks present in each area of the business.

While the Executive Directors have some autonomy, full Board approval is required for certain actions, such as the acquisition of land over a set value. The Non-executive Directors challenge the Executive Directors to ensure that the level of risk being taken is appropriate.

The Audit Committee supports the Board in ensuring that the financial performance of the Group is properly reported and monitored. The Audit Committee consider any control weaknesses that are highlighted by the external Auditor during the course of the external audit.

Board of Directors

Audit Committee

Executive Directors

External Consultants

Senior Management

Potential impact

The UK continues to negotiate the terms of its exit from the European Union and there remains a degree of uncertainty on the outlook for the UK economy. Ongoing economic uncertainty may reduce consumer confidence and impact on demand and pricing for new homes and affect revenues, profits, cash flows and asset values. Potential legislative changes on freedom of movement may also restrict the availability of skilled construction workers and impact on costs and delay build activity. In addition, potential further devaluation of the UK currency as a result of Brexit could increase costs of materials.

Mitigation

We continue to closely monitor the impact of the increased uncertainty on the UK economy and the housing market through the review of external information and changes in the behaviour of our customer base. The overall shortage of supply of housing in the UK may provide a degree of support to the housing market should these circumstances arise. Action taken by the Government to adjust policy to support UK economic performance may provide further mitigation, as might any response with respect to interest rates by the Bank of England.

Rating

HIGH

Change since last year

Potential impact

Government policy has the potential to influence various aspects of our strategy, operations and overall performance.

Potential changes in Government policy, such as changes to the planning system, changes in the tax regime, or the amendment of the Help to Buy scheme could have an adverse effect on revenues, margins and asset values. Government initiatives to encourage housebuilding through social housing or the SME sector could also increase the demand for, and costs of, scarce material and labour resources. As all elements of the anticipated changes from the Housing White Paper are clarified, and if the terms of the Help to Buy scheme are amended, this could have a disruptive effect on the planning system, revenues and customer behaviour.

The Hackitt Review, instigated following the Grenfell fire tragedy in June 2017, is expected to deliver its final report in the near future. While focused on high-rise buildings, the review is wide-ranging, examining the regulatory system around residential buildings.

Obtaining timely planning permissions and achieving other regulatory requirements and permits is key to starting on site as soon as possible. There remains a risk of delayed or refused planning applications, increased timescales to the discharge of planning conditions and greater complexity around Section 106 since the introduction of the Community Infrastructure Levy (CIL).

Mitigation

We monitor Government policy in relation to housebuilding very closely and continually review changes to Building Regulations and supporting guidance.

The Group undertakes extensive pre-acquisition due diligence on planning and technical issues.

The Group has considerable in-house technical and planning expertise focused on complying with regulations and achieving implementable planning consents that meet local requirements. For more detail see the Corporate and Social Responsibility section.

The Group is focused on acquiring housing sites already identified in Councils' Local Plans.

In addition to actively engaging with industry bodies on potential changes, we regularly review and assess our land portfolio to accurately forecast likelihood of planning consent and associated commencement dates.

Both major political parties in the UK continue to support the Help to Buy scheme which received additional funding in 2017 and is scheduled to remain in place until 2021. Recent changes in stamp duty for first-time buyers should also support activity levels in the market.

Rating

MEDIUM/HIGH

Change since last year

Potential impact

he housing market is sensitive to changes in unemployment, interest rates and consumer confidence. Any deterioration in economic conditions may decrease demand and pricing for new homes, which could have a material effect on our revenues, margins and profits and result in the impairment of land and property values and an inability to realise maximum value in a timely fashion.

Mitigation

We carry out extensive due diligence prior to our land investment decisions and ensure that all sites are in locations

with healthy levels of demand. We continually monitor key indicators on the direction of the UK housing market so as to manage our exposure to any future market disruption.

Rating

HIGH

Change since last year

Potential impact

The cost of servicing a mortgage continues to be at historic lows. However, a change in business confidence, employment opportunities or significant changes in the Bank of England base rate that is not combined with wage growth could impact the demand for housing, which may also lead to lower selling prices. The ability of first time buyers to purchase homes is constrained by changes in mortgage availability at higher loan-to-value levels. Sustained growth in interest rates and low wage inflation could challenge mortgage affordability.

Mitigation

We select our site locations that best meet the needs of the local community and customer demand now and in the future. The Government-backed Help to Buy supports customers to gain access to the housing market with competitive mortgage rates and funded home deposits. £10 billion additional funding was announced at the Conservative Party Conference in 2017 to support the Help to Buy scheme until its currently forecast end in 2021. However, there is potential for change to the scheme rules and potentially its discontinuation.

We continue to promote this scheme and our customers demonstrate strong demand for it.

The Group continues to monitor the lending criteria of the key financial institutions.

The Group offers a high level of sales support to customers and this includes assistance with obtaining mortgages at a suitable interest rate.

Rating

HIGH

Change since last year

Potential impact

Land is a valuable resource for the Group. The purchase of land of poor quality, at too high a price, or incorrect timing in relation to the economic cycle could impact future profitability.

Acquiring insufficient land would reduce our ability to actively manage our land portfolio and create value for shareholders.

Mitigation

The Group has an experienced management team with a strong track record in the industry which ensures that there is disciplined purchasing of land of the appropriate quality, on attractive terms and at the right time and scale in the economic cycle.

Understanding the markets in which we operate is central to our strategy and, consequently, land acquisition is focused on our core markets in the South and South-East of England.

All potential land acquisitions are subject to a formal appraisal process.

Rating

LOW

Change since last year

Potential impact

Having an appropriately skilled workforce is a key requirement for the Group to facilitate the growth of the business in the highly competitive market in which it operates.

Mitigation

The Group maintains good morale in the workplace and sets remuneration packages at attractive levels.

Rating

LOW

Change since last year

Potential impact

A deterioration in the Group's health, safety and environmental standards could put the Group's employees, contractors or the general public at risk of injury or death and could lead to litigation or penalties or damage the Group's reputation. A lack of adequate procedures and systems to reduce the dangers inherent in the construction process increases the risk of accidents or site-related catastrophes.

Mitigation

Overseen by our head of Health and Safety, procedures, training and reporting are all carefully monitored to ensure that high standards are maintained.

The assessment of environmental risk is an important element of the due diligence undertaken prior to any purchase of land. The Group uses reputable environmental consultancy firms to assist in this area.

Rating

MEDIUM

Change since last year

Potential impact

The expansion in UK housebuilding has driven an increase in demand for materials which may continue to cause availability constraints and/or costs to increase. Prices for key materials may also be affected by currency movements as the Brexit process continues.

Shortages or increased costs of materials or the inability to secure supplies upon appropriate credit terms could increase costs and delay construction.

Mitigation

We closely monitor our build programmes and our supply chain enabling us to manage and react to any supply chain issues. We build good relationships with suppliers to ensure consistency of supply and cost efficiency.

Rating

MEDIUM

Change since last year

Potential impact

A continued increase in housing production may further strain the already reduced availability of skilled sub-contractors. In addition, leaving the EU could impact on the availability of skilled workers given the relatively large proportion of the labour force, particularly in the South-East, that is from Eastern Europe. Together, this could result in build programme and completion delays. The majority of work performed on our sites is sub-contracted to various trades, providing flexibility. If the availability of sub-contractors is insufficient to meet demand, this could lead to longer build times and increased costs, thereby reducing profitability. Lack of skilled sub-contractors could also result in higher levels of waste being produced from our sites and lower build quality.

Shortages of skilled labour or the failure of a key supplier could increase costs and delay construction.

Mitigation

When selecting our sub-contractors, we consider competencies particularly in relation to health and safety, quality, previous performance and financial stability.

We seek to establish and maintain long term supplier and sub-contractor partnerships.

Our build programmes are monitored closely which enables us to manage our labour requirements effectively. We maintain regular contact with our sub-contractors and provide high-level and site-specific programme information to them to aid with demand planning

Rating

MEDIUM

Change since last year

Potential impact

A lack of project oversight can lead to unforeseen cost increases and erode margins, increasing pressure to contain costs and potentially reduce quality.

Mitigation

The Group has built strong relationships with principal contractors which increases communication and facilitates early notification of issues. We provide advance notice of our site plans and build programmes to sub-contractors. This helps them to plan and builds confidence to expand the workforce to meet the requirements of our projects.

We regularly review the progress and cost forecasts for each of our projects to ensure that any impact is minimised.

Rating

LOW

Change since last year

Potential impact

The lack of sufficient borrowing facilities could impact on the Group's ability to implement its current strategy. An increase in interest rates would lead to increased borrowing costs and thus have a detrimental effect on profit..

Mitigation

At the year end, the Group has £72.5m of cash and headroom on its existing facilities. We have excellent relationships with existing and other lenders and continue to seek finance from alternative lending sources to further improve the Group's liquidity.

The Group mitigates any adverse exposure to interest rate changes by controlling its gearing and, if necessary, by using hedging instruments.

Rating

MEDIUM

Change since last year

Potential impact

The Group places significant reliance upon the availability, accuracy and security of all of its underlying operating systems and the data contained therein. The Group could suffer significant financial and reputational damage because of the corruption, loss or theft of data, whether inadvertent or via a deliberate, targeted cyber attack.

Mitigation

The Group has a fully-tested disaster recovery system which is tested annually as part of a third party supplier contract.There is a boundary firewall at each of our locations with a fixed internet line. All emails are encrypted by Transport Layer Security Protocols and every workstation is protected by centrally managed corporate Anti-Virus systems as well as by a firewall.

Rating

MEDIUM

Change since last year