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7 Grand Canal
Grand Canal Street Lower
Dublin 2
P: +353 1 696 4600
E: info@cairnhomes.com
www.cairnhomes.com
2016
Leading the way
Cairn believes in designing and building quality
family homes and establishing a market leading
brand and reputation. Following the substantial
completion of its initial capital deployment phase,
the Company’s focus is now firmly on continuing to
scale its construction operations toward reaching its
stated target of completing in excess of 1,200 new
home sales during 2019.
2017 is a key year in this progression and the
Company will be building new homes on ten sites
by the end of 2017, seven of which are already active,
with Naas due to commence in Q2 2017.
Key highlights
FINANCIAL
OPERATING
(cid:129)
Total revenues of €40.9 million (mainly from
sales of 105 completed units).
(cid:129) Currently active on seven sites with construction
due to commence in Naas in Q2, 2017.
(cid:129) Gross profit of €7.1 million and a gross profit
(cid:129)
margin of 17.3%.
(cid:129) Operating profit, before exceptional items, of
€3.6 million.
(cid:129)
Intend to seek a primary listing on the Irish
Stock Exchange during 2017.
Forward sales of 301 units (gross sales value of
€121.2 million) as of 9 March 2017, with the
majority of these forward sales expected to
complete in 2017.
(cid:129) Strong customer response across all selling
sites, with an increase in weekly sales run rate -
up to 19.7 per week in Q1 2017 to date (09 March
2017) versus 10.0 per week in Q4 2016 and 3.5 per
week in Q3 2016.
(cid:129) Doubled build rate to over 250 units and 200
units per annum in Parkside and Ashbourne
respectively to meet this increased demand.
(cid:129)
96% of Cairn’s core land bank of 12,100 units is
either residentially zoned,
in a strategic
development zone or has a live planning
consent. Average core site cost of €53,000.
(cid:129) Post year end, successful conclusion of first joint
venture agreement with NAMA on a site
adjoining our Parkside development.
(cid:129) Supporting over 1,000 new construction jobs
across our active sites today.
CONTENTS PAGE
CONTENTS
Company Overview
Chairman’s Statement
Operations & Financial Review:
Chief Executive’s Statement
Group Finance Director’s Review
Corporate Responsibility
Company Information
Board of Directors
Directors’ Report
Corporate Governance Report
Report of the Audit and Risk Committee
Report of the Nomination Committee
Report of the Remuneration Committee
Consolidated Financial Statements
2
22
25
28
30
32
34
38
50
62
67
68
90
Company Financial Statements
148
Cairn Homes PLC
1
COMPANY OVERVIEW
About Cairn Homes
Cairn is committed to constructing high-quality,
competitively priced new homes with an emphasis
on design and innovation in attractive locations to
meet realisable market demand. We strive to
understand our customers’ needs and aspirations
by harnessing customer feedback and then bring
together the most talented designers and craftsmen
to interpret and deliver our customer influenced
vision.
The Company has substantially completed its initial
capital deployment phase during which it has
assembled a land bank of 12,100 units. This is a
mature land bank where 96% of the units are either
residentially zoned, in a strategic development zone
or have live planning consents. In line with its IPO
strategic objectives, 91% of the units within Cairn’s
core land bank are located within the Greater Dublin
Area (GDA).
We create sustainable, vibrant communities centred
around this smart design and high quality landscaped
environments.
A key part of the Group’s strategy is to strive for
excellence in all areas of its operations and we have
assembled a talented, high calibre and committed
team.
Our on-site information houses educate our customers
on the energy efficiency and build quality of our new
homes.
The Group maintains a culture focused on customer
service which seeks to make the homebuying process
as stress free as possible through a dedicated customer
service team.
Our company structure is professional and subject
to the highest corporate governance standards.
Cairn Board members have held senior positions in
successful public and private companies and bring
considerable years of experience to bear.
As well as offering homebuyers peace of mind, our
distinct approach also engenders the trust and
collaboration of planners, local authorities, regulators
and other important stakeholders in the homebuilding
industry.
The Group’s strategy is to continue to capitalise on
the recovery of the Irish residential property market
by establishing itself over the long-term as a leading
Irish homebuilder, constructing high quality and
competitively priced new homes.
The Group functions in a responsible and ethical
manner, focusing on the needs of the communities
where it builds and operating within defined
environmental limits.
Cairn’s focus is now firmly on continuing to scale its
construction operations toward reaching its stated
target of completing in excess of 1,200 new home
sales during 2019, when the business will reach
maturity. Currently, Cairn is active on seven sites in
the GDA, which will deliver 2,800 units.
The strength of the Cairn brand, the security provided
by longer duration and larger phase developments,
the prompt payment of invoices, the visible growth
prospects on foot of its long-term land bank and
line of sight over its development pipeline provides
a strong platform for Cairn to attract the best
subcontractors in Ireland.
2
Annual Report 2016
COMPANY OVERVIEW
Geographic overview
of core sites
REGIONAL - 9%
DUBLIN - 63%
REST OF GDA - 28%
Note: Active Sites - Green; Remaining Sites - Red.
Cairn Homes PLC
3
COMPANY OVERVIEW
12,100 unit core land bank composition
25%
13%
10%
MIX
20%
BUYER
PROFILE
75%
57%
Houses
Apartments
FTB
Trade Up/Down
High End
Social
4%
THE PATHWAY TO 2019 UNITS
34%
PLANNING
STATUS
35%
1,200+
850+
1400
1200
1000
800
600
400
200
0
375 - 400
105
27%
2016
2017
2018
2019
Zoned - Residential
SDZ - Effective FPP
Other
Full Planning
Permission
4
Annual Report 2016
COMPANY OVERVIEW
Churchfields, Ashbourne, August 2016.
Cairn Homes PLC
5
COMPANY OVERVIEW
Parkside
Malahide Road, Balgriffin, Dublin 13.
www.parksidehomes.ie
Construction and sales are well underway on this
market leading development of stylish three and
four bedroom A-rated family homes situated in a
superbly landscaped setting just off the Malahide
Road, Dublin 13. Only 25 minutes from the city centre
by DART, Parkside is in close proximity to the M1,
Dublin Airport, the DART station at Clongriffin and
the Quality Bus Corridor on the Malahide Road.
KEY SITE CHARACTERISTICS
Comprising 55.5 acres (22.5 hectares), Parkside is
situated between the Malahide Road and the newly
upgraded Fr. Collins Park, just 10km from Dublin city
centre. The development will total c. 504 homes
ranging in size from c.110-150 sq.m (1,189-1,615 sq.ft).
Customer reaction has been very strong with good
feedback from the first 150 families who have moved
into their new homes in Parkside.
6
Annual Report 2016
COMPANY OVERVIEW
Churchfields
Ashbourne, Co. Meath.
www.churchfields.ie
Construction and sales are underway on this brand
new development offering a superb selection of
three and four bedroom A-rated family homes in
Ashbourne. Ashbourne is Meath’s second largest
town and a traditional commuter belt location, 23km
to the north west of Dublin City Centre.
KEY SITE CHARACTERISTICS
Planning permission exists for 354 homes on a site
comprising 37 acres (15 hectares). Adjacent to
Ashbourne GAA club, Churchfields is located 1km
from Ashbourne town centre and close to the M2.
Cairn Homes PLC
7
COMPANY OVERVIEW
Marianella
Orwell Road, Rathgar, Dublin 6.
www.marianella-rathgar.com
Marianella is located in the highly sought after
residential suburb of Rathgar, easily accessible to
Dublin City Centre and the south city suburbs of
Ranelagh, Rathmines, Milltown and Clonskeagh. It is
approximately 4.2km south of St. Stephen’s Green,
which can be accessed from the nearby Cowper
LUAS station or the numerous Quality Bus Corridors
serving Rathgar.
KEY SITE CHARACTERISTICS
Construction has commenced on this 234 unit, 8 acre
(3 hectares) development, which consists predominantly
of large 2 and 3 bedroom apartments and penthouses
and, in addition, 4 and 5 bedroom houses. This
beautifully mature development will also incorporate
a one and a half acre mature landscaped park facing
onto Orwell Road. Following a highly successful pre-
sale campaign which secured forward sales of 69
units, Marianella will be formally launched for sale
from completed show units in May 2017.
8
Annual Report 2016
COMPANY OVERVIEW
Six Hanover Quay
South Docks, Dublin 2.
Situated in the heart of Dublin in an area known as
“Silicon Docks”, Hanover Quay is one of Dublin City
Centre’s most prestigious commercial and residential
addresses, in an area which is a thriving new cultural
centre in Dublin.
KEY SITE CHARACTERISTICS
Construction is underway on this 1.05 acre (0.43
hectares) site which will consist of 122 large high
spec one, two and three bedroom apartments and
penthouses with extensive roofgardens, in addition
to a 5,000 sq. ft. ground floor commercial unit
overlooking the Grand Canal Dock.
Cairn Homes PLC
9
COMPANY OVERVIEW
Glenheron
Greystones, Co. Wicklow.
www.glenheron.ie
Situated on the edge of Greystones, a thriving village
which is set in a stunning coastal location. The area
has excellent transport links with a suburban rail
link to Dublin City Centre and a wide range of
amenities in close proximity.
KEY SITE CHARACTERISTICS
Construction is underway on the first phase of this
scheme comprising 50 new 3 and 4 bedroom
detached and semi-detached family homes. The
overall site extends to 87 acres (35 hectares) and will
deliver 480 new homes to the area. Our first phase
will launch for sale in Autumn 2017.
10
Annual Report 2016
COMPANY OVERVIEW
Shackleton Park
Lucan, Dublin 20.
Located only 16km from Dublin City Centre,
Shackleton Park is on the outskirts of Lucan, a well
established Dublin residential suburb, and forms
part of the Adamstown Strategic Development Zone.
KEY SITE CHARACTERISTICS
Comprising 68 acres (27 hectares), the site is bordered
by the Dublin-Kildare railway line, complete with its
own new railway station, with both the M50 and M4
motorways nearby in close proximity. Cairn will
deliver 1,100 new homes on this development over
the coming years.
Cairn Homes PLC
11
COMPANY OVERVIEW
Naas Town Centre
Naas, Co. Kildare.
Our lands are situated 1km from Naas Town Centre,
off the Southern Ring Road. Located 31km to the
south west of Dublin City Centre, Naas is the largest
town in County Kildare. Naas has a variety of
transportation links, including the M7 which passes
to the north of the town and connects Naas with
Dublin. Nearby Sallins railway station provides direct
travel to Dublin City Centre in just 30 minutes, while
there are also numerous public and private bus
services.
KEY SITE CHARACTERISTICS
The site extends to 71 acres (29 hectares) and will
deliver in excess of 450 new residential units.
Planning permission for the first 82 units was
granted in December 2016 and construction is due
to commence in Q2 2017. The site includes 30 acres
of agricultural lands which have future development
potential, subject to rezoning.
12
Annual Report 2016
COMPANY OVERVIEW
Clonburris
Clondalkin, Dublin 22.
South Dublin County Council (SDCC) are currently
reviewing
the existing Clonburris Strategic
Development Zone. Cairn has engaged in extensive
consultations with SDCC in advance of the Draft
Planning Scheme being issued. Clondalkin is an
established residential suburb of Dublin, 11km from
Dublin City Centre.
The immediate area is well serviced by Quality Bus
Corridors and the existing train station, to the
eastern boundary of our lands, provides for a direct
train service into Dublin City Centre.
KEY SITE CHARACTERISTICS
The Cairn lands comprise 177 acres (72 hectares) and
are bounded to the south by the Grand Canal, to the
north by the main Dublin-Kildare railway line and to
the east by Fonthill Road (R113). The lands have the
capacity to deliver up to 3,000 new homes to a
suburb of Dublin underserviced by new home
development.
p
e
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80-100
27
24
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30
28
31
34
78-93
83-100
32
34
31
28
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Post primary school
site area: 2 Ha.
20
Primary school
site area: 1 Ha.
20
50
70
64
15
15
27
24
20
20
39
19
40
31
PHASE 1
30
34
24
47
34
45
308-370
410-490
Cairn Homes PLC
13
COMPANY OVERVIEW
14
Annual Report 2016
Cairn crane at Six Hanover Quay site.
COMPANY OVERVIEW
Supporting our subcontractor base
•
285 subcontractors and suppliers are employed
across our 7 active sites. We currently support
1,000 construction jobs.
• Continued sponsorship of apprenticeship
programmes.
• Advantages of the Cairn platform to our
subcontractors:
- Security provided by longer duration and larger
(average core site
phase developments
contains > 400 units) allowing them to scale
their businesses;
- Efficient sequencing of trades managed by
Cairn’s experienced site management teams;
- Regular and prompt payment of invoices;
- Visible growth prospects on foot of our long-
term land bank and line of sight over
development pipeline; and
- Bulk purchasing of materials leveraging off
fixed supplier pricing agreed directly between
Cairn and suppliers.
The Cairn Team in November 2016.
Cairn Homes PLC
15
COMPANY OVERVIEW
Key external market measures
1. Rebuilding Ireland - Action Plan on
3. Relaxation of Central Bank of Ireland
Housing and Homelessness
(CBI) Macro-Prudential Rules
Launched in July 2016, some of the key initiatives
include a €200m infrastructure fund, prioritisation
of large pathfinder sites, major planning reforms
and the potential utilisation of Government and
local authority sites.
The CBI published its review of its macro-prudential
mortgage rules in November 2016 - the modest
loosening of the rules positively impact on first time
buyers.
2. First Time Buyer Help to Buy (“HTB”)
Scheme
Incentive for first time buyers purchasing new
homes through an income tax rebate (lower of
€20,000, 5% of the purchase price of the new home
or the amount of income tax paid over the previous
four tax years) and applying to all new homes valued
up to €500,000.
This is a 3 year scheme, back-dated to 19 July 2016,
which will run to the end of 2019. Applicants must
take out a mortgage of at least 70% of the purchase
price to qualify.
IMPACT OF HTB AND CBI MORTGAGE RULE CHANGES ON DEPOSITS
€80,000
€70,000
€60,000
€50,000
€40,000
€30,000
€20,000
€10,000
€0
62%
63%
66%
64%
61%
55%
€250,000
Home
€300,000
Home
€350,000
Home
€400,000
Home
€450,000
Home
€500,000
Home
Old Deposit (pre-July 2016)
Current Deposit (CBI + HTB) (2017)
Source: CBI, Revenue.ie.
16
Annual Report 2016
COMPANY OVERVIEW
Building to the highest quality benchmark
At Cairn, build quality is at the heart of everything
we do. A Cairn home stands out because we only
work with tradespeople, designers, craftsmen and
suppliers who are experienced in their fields and
our team is fortunate to have forged longstanding
relationships with many of these people.
Our building teams take pride in delivering quality.
Their training and experience, from apprentices to
engineers to foremen, surveyors and site managers,
ensures that best-in-class standards are achieved.
Marianella, March 2017.
Cairn Homes PLC
17
COMPANY OVERVIEW
Working with the best materials
Cairn homes are solid-built homes using tried-and-
tested traditional building materials such as
non-combustible concrete block walls, engineered
roof trusses and floor joists.
Products used in Cairn developments are assessed
for compliance with EU Construction Product
Regulations and against our own performance
benchmarks before they arrive on site. Materials are
further subjected to rigorous on-site testing,
including house-by-house testing for sulphides in
the fill material we use beneath our concrete ground
floor slabs. Only when the product has passed
through this thorough and professional testing
environment will it be deemed suitable for use on a
Cairn development.
Cairn is a member of the Construction Industry
Federation (CIF) and the Construction Industry
Register Ireland (CIRI). All Cairn homes are protected
by HomeBond, the leading provider of structural
insurance, operating in Ireland since 1978.
18
Annual Report 2016
Churchfields, Ashbourne, March 2017.
COMPANY OVERVIEW
Better regulations - higher standards
Ireland’s building regulations for new homes are
continually being amended and improved to ensure
they set a high-quality benchmark fully deserving of
the homebuyer’s confidence.
The 2011 amendments to the regulations require a
further reduction in primary energy consumption
and carbon dioxide emissions. An additional
increase in the levels of insulation for walls, roofs
and floors is required, in addition to a better U value
for doors and windows, increased levels of air
tightness and an improvement in the minimum
efficiency of oil and gas boilers.
At Cairn, we construct new homes which go beyond
the current regulations. All of our homes are
designed to be airtight, fully insulated and consume
the least amount of energy possible. We set
ourselves the highest quality benchmark to ensure
that our customers can buy a Cairn home with
confidence.
Cairn Homes PLC
19
Market Outlook
The composite Irish PMI (Purchasing Managers’
Index) is currently at 57.8 and remains close to the
top end of European PMIs. This is consistent with
reported strong new orders, an increasing workforce
and optimism about growth in the year ahead, all of
which underpin continued GDP growth.
Construction spending continues to be a major contributor
to Irish economic growth. In Q4 2016, new residential
construction grew by 39% year-on-year, highlighting
increased output across the homebuilding industry.
Consumer confidence remains strong, anchored by
employment growth, upward wage pressures,
interest rate
subdued
environment. Importantly, these all contribute to
improved affordability, an important ingredient
underpinning housing demand.
inflation and a
low
While Brexit has generated some uncertainty for the
broader Irish economy, there is potential for job
relocations from London to Dublin and Cairn is
ideally positioned to benefit from any increased
demand for housing as a result of such relocations.
These strong macro-economic trends, underpinned
by external factors such as increased government
support and mortgage rule changes, all contribute
to a significant opportunity for the continued growth
of the Irish housing market.
Irish macro-economic backdrop remains
The
positive, with Ireland continuing to experience its
highest levels of consistent GDP growth since the
mid-2000s. The country continues to be one of the
fastest growing economies in the European Union.
The labour market continued to show positive
momentum during 2016, with unemployment at 6.6%
in February 2017, down from 8.8% in February 2016.
More importantly, employment growth continues its
upward trajectory, with 65,100 new jobs created in
the twelve months to December 2016, an increase of
3.3% over the period (source: CSO).
GDP increased by 5.2% in 2016 and recent forecasts
(source: Goodbody) for the Irish economy are
predicting continued GDP growth of 3.1% in 2017 and
3.2% in 2018. Crucially, this strong macro-economic
performance continues to occur without either
inflation or significant credit expansion, the
dynamics of which are similar to the strong growth
period experienced by Ireland in the 1990s.
The consumer economy remains very strong, with
3.0% growth in consumption in 2016, underpinned
by a 3.9% growth in retail sales.
20
Annual Report 2016
COMPANY OVERVIEW
MORTGAGE MARKET ENVIRONMENT
HOUSING OUTLOOK
The mortgage market continued to
improve
throughout 2016, with mortgage drawdowns during
the year increasing to €5.65 billion, which represents
an increase of 12.3% on 2015 levels. Q4 2016
drawdown values increased by 26%, which is the
largest quarterly increase seen since Q2 2007,
reflecting increased levels of activity in recent
months. First time buyers’ mortgages saw an increase
of 12% in total value across 2016, but with a
significant acceleration in Q4, with growth of 25%.
The underlying demand for new housing in Ireland
is expected to remain strong as supply is unlikely to
meet demand in the medium term. The reduced
deposit requirement for first time buyers as a result
of HTB, coupled with the effect of the relaxation in
the CBI’s macro-prudential rules, has been
impactful. Demand is more realisable as first time
buyers now have better access to mortgage finance.
The strategic bias of Cairn’s land bank towards
starter homes will continue to benefit the Company.
is
Competition amongst mortgage providers
in continued downward
increasing, resulting
pressure on standard variable and fixed interest
rates - the new drawdown average variable rate has
decreased from 4.12% in Q2 2015 to 3.4% in Q4 2016,
while average 1-3 year fixed rates decreased from
3.80% to 3.27% in the same period (source: CBI).
The Company is now active on seven separate sites,
and will commence construction on one further site
in Q2 2017 and 2 more in H2 2017.
Cairn will be making a meaningful contribution to
the much-needed supply of quality new homes in
Ireland over the coming years, as it continues to
establish itself as a homebuilder of high quality,
competitively priced new homes into the long-term.
Parkside, September 2017.
Cairn Homes PLC
21
Chairman’s
Statement
John Reynolds
“I am pleased to report that
Cairn Homes plc has made
significant progress against
its strategic and operational
objectives during the year
under review.”
Since the IPO in mid 2015, through the astute
deployment of the IPO proceeds and further
fundraisings, the Company has secured a very well
located core land bank of 12,100 units, thereby
providing it with a strong platform for multi-annual
growth in homebuilding in the Greater Dublin Area
and beyond.
This land has been secured through a well-planned
and prudently managed acquisition phase. The
focus is now firmly on the development of these
sites in an optimal manner over the coming years,
underpinned by a sustainable business model.
22
Annual Report 2016
GOVERNANCE
I would like to thank my Board colleagues for their
commitment to and interest in the business
throughout the year. The Board has played an
important role in overseeing the development of
this young business and it is beneficial to all
stakeholders to have such a depth of experience
available to management as they deliver on an
ambitious programme.
I would like to particularly thank Non-Executive
Director, Aidan O’Hogan and Group Finance Director,
Eamonn O’Kennedy. Aidan has stepped down from
the Board and Eamonn has announced his intention
to do so over the coming months. On behalf of the
Company, I express my appreciation to Aidan for his
counsel and to Eamonn for his important role in
getting the Company through a successful IPO and
for the role he has played in bringing the Company
to this point. The Board has made progress in the
recruitment process for a new Group Finance
Director to succeed Eamonn and an announcement
will be made in due course.
As is well documented, there is an acute shortage of
new houses and apartments in Ireland in general
and in Dublin in particular. Our vision is to build
quality homes on well-located sites at a range of
price points to appeal to the entire market, from first
time buyers to more mature homeowners with
changing needs. This vision is becoming a reality as
significant progress has already been made in Parkside,
(Malahide Road), Churchfields, (Ashbourne) and in
Marianella, (Rathgar). Given the work on our other
active sites, we expect to deliver sales of up to 400
units this year, 850 units in 2018 and in excess of
1,200 units in 2019.
We have the capability to achieve these commitments
through an operationally efficient delivery model.
We have assembled a talented and high calibre
team to drive planning, construction and delivery
across our sites. This team has 285 sub-contractors
involved across the active sites, currently employing
in excess of 1,000 people. The attraction of working
on large multi-phase developments which give sub-
contractors visibility of long term opportunity is
particularly helpful for labour recruitment and
retention.
However, the structural problem in the homebuilding
sector remains. Dublin requires approximately
10,000 new residential units per annum. There were
just 4,234 new home completions in 2016, which
starkly demonstrates the extent of the continued
under-supply. It is a welcome sign that residential
developers are becoming more active in Ireland in
recent months. However it will take a meaningful
and sustained increase in activity to address the
current structural imbalance.
Meanwhile Cairn will continue to deliver to plan,
scaling its business through the construction of
quality homes across our sites and we look forward
to another year of strong progress in 2017.
Cairn Homes PLC
23
RETURNS TO SHAREHOLDERS
LISTING
The Board has declared that it does not anticipate
paying a dividend in the foreseeable future as the
Company’s primary focus is to achieve capital
growth. However, in the longer term, the Board is
committed to following a progressive dividend
policy as the business is successfully scaled.
On March 9th 2017, Cairn announced that it intends
to seek a primary listing on the Irish Stock Exchange.
Given that the Company is a home builder focussed
on the Irish market, this is entirely in line with our
long-term strategy.
John Reynolds
Chairman
New homeowners in Parkside.
24
Annual Report 2016
Chief Executive’s
Statement
Michael Stanley
“We have made
significant progress
during 2016, our first
full year in operation,
both in terms of
construction activity
and sales
performance.”
At Cairn, we believe in designing and building quality
family homes and establishing a market leading
brand and reputation. Following the substantial
completion of our initial capital deployment phase,
our focus is now very firmly on continuing to scale
our construction operations toward reaching our
stated target of completing in excess of 1,200 new
home sales during 2019.
The reduced deposit requirement for first time
buyers as a result of the Help to Buy income tax
rebate scheme announced in Budget 2017, coupled
with the effect of the relaxation in the Central Bank
of Ireland’s macro-prudential rules, have been
impactful.
Demand has been strong across all of our active
sites since launch and the structural shortage of
supply, which was evident throughout 2015 and 2016,
continues to be a feature of the market.
The pick-up evident in the latter part of 2016 has
continued and has been driven by a number of
factors, but most noticeably, positive customer
feedback on the build quality and design of Cairn’s
houses and apartments, our approach to customer
service and more recently by improving mortgage
backed demand. Our well-priced and strategically
located land bank, economies of scale and efficient
capital structure are key points of differentiation
from our competitors. This enables us to bring new
homes to the market at competitive price points.
Cairn Homes PLC
25
In 2016, we acquired the Argentum business and its
six sites, in addition to sites in Hanover Quay (Dublin
City Centre), Cherrywood (South Dublin), Maynooth
(Kildare), Delgany (Wicklow), Enniskerry (Wicklow),
Cork Street (Dublin City Centre) and Blackhall Place
(Dublin City Centre). As a result of this activity and
our 2015 spend, our total investment in inventories
as at 31 December 2016 was €727.2 million
We commenced construction on three new sites
during 2016 (Marianella in Rathgar, Hanover Quay
and Ashbourne in Co. Meath) and an additional two
sites since the start of 2017 (Glenheron in Greystones
and Shackleton Park in Lucan).
We are now active on seven sites, soon to be eight
with the commencement of Naas in the second
quarter of 2017. Forward sales as at March 9th 2017
were very strong at 301 units, with an associated
gross sales value of €121.2 million. The majority of
these forward sales are expected to complete during
this calendar year. This acceleration in our rate of
sale over recent months has seen us double our
build rate to over 250 units and 200 units per annum
in Parkside and Ashbourne respectively.
Our growing and talented team, our approach to
design and building homes and the location, size
and cost of our land bank places Cairn in a very
strong position to respond to the significant
demand for new homes in Ireland. This enables us
to to provide a stable growth platform for our
subcontractors. We recruited in excess of 50 new
employees during 2016, many of whom joined Cairn
from prestigious international homebuilding and
construction companies.
In excess of 91% of our core land bank of 12,100 units
is located in the Greater Dublin Area, in line with our
original strategic objective. Given the profile of our
acquisitions to date, 35% of the core land bank has
the benefit of an existing planning consent, 34% is
in strategic development zones (which is an effective
full planning permission) and 27%
is zoned
residential.
The recently announced joint development with NAMA
on lands adjoining our Parkside site is a positive new
departure for our Company. Such joint development
opportunities with strong counterparties provide us
with an additional and alternative route to market,
through an efficient capital deployment model.
RESIDENTIAL PROPERTY MARKET
The estimated ESRI long-term requirement is for in
excess of 10,000 new homes per annum in Dublin.
The Department of Housing, Planning, Community
and Local Government measured 4,234 completions
in 2016, just 1,343 greater than in 2015.
In addition, increasing rent levels across the country,
and in Dublin in particular, are a continuing feature
of the residential housing market in recent years,
which is a direct manifestation of the worsening
supply/demand imbalance.
A recent industry report (source: Daft) highlighted
this continued rise in rents, with national rents up
13.5% and Dublin rents up close to 15% in the twelve
months to December 2016. These increased rental
levels mean that it is now more than 30% cheaper
to own a home rather than to rent a similar home
in Dublin.
The Dublin market is still a number of years away
from increasing supply to a level which will meet
annual demand levels.
Long-term demand for new homes is also directly
related to population growth and the rate of new
household formation. The population of the GDA
grew by 5.1% to 1.91 million in the five years to 2016
(source: Census 2016) and is projected to grow by a
further 15% to 2.2 million by 2031 (source: ESRI). With
a favourable economic backdrop, including wage
inflation, this will contribute to an increase in home
ownership and demand for new homes in the GDA.
26
Annual Report 2016
GOVERNMENT INITIATIVES AND
MORTGAGE RULE CHANGES
The various Government initiatives announced
during 2016 centred around “Rebuilding Ireland:
Action Plan for Housing and Homelessness” have
provided support for the industry as it continues its
rebuilding process. In particular, the first time buyer
Help to Buy income tax rebate scheme and the €200
million Local Infrastructure Housing Activation
Fund” (“LIHAF”) announced in Budget 2017 will help
to generate much needed housing supply. These
measures, coupled with the recent relaxation of the
Central Bank of
Ireland’s macro-prudential
mortgage lending rules relating to Loan to Value
ratios for first time buyers, mean that the personal
deposit requirement for a first time buyer has
reduced by up to 60%.
With an improving mortgage market environment,
demand is more realisable as first time buyers now
have better access to mortgage finance, particularly
at the starter home end of the market.
The Minister for Housing, Planning and Local
Government, Mr. Simon Coveney TD, recently
announced the allocation of an enlarged, €226
million, LIHAF package and we welcome the
inclusion of six of our core sites in this funding.
These sites are Parkside (North Dublin), Shackleton
Park, Clonburris (both West Dublin), Cherrywood,
Glenamuck Road (both South Dublin) and Douglas
(Cork). Total funding of nearly €75 million has been
approved for infrastructure works on these sites,
and whilst there are adjoining landowners on a
number of these sites who will also benefit from this
funding, there will be a tangible financial benefit to
our business. Funding was also approved for
infrastructure works on sites near four of our other
core sites in Naas (Jigginstown), Ashbourne, Kilkenny
and Maynooth. These works will have a positive
impact on our business from a delivery perspective.
ECONOMY
The
Irish macro-economic backdrop remains
positive, with Ireland continuing to experience its
highest levels of consistent GDP growth since the
mid-2000s, and it remains one of the strongest
performing economies in the European Union. The
labour market continued to show positive momentum
during 2016, and with over 200,000 new jobs created
in Ireland over the last five years, this strong
employment market is resulting in a return to wage
growth. This positive economic backdrop is key to
improving affordability, an important ingredient in
underpinning housing demand.
While Brexit has generated some uncertainty for the
broader Irish economy, there is potential for job
relocations from London to Dublin and Cairn is
ideally positioned to benefit from any increased
demand as a result of such relocations.
OUTLOOK
The overall economic environment continues to
improve in Ireland and there is realisable demand
for good quality new homes in attractive locations.
With Cairn’s scalable and flexible business model,
we are very well placed to meet this market demand.
I am very proud to lead a team that has delivered
such strong results for us in our first full year of
operations.
I look forward to another year of great progress in
2017.
Michael Stanley
Chief Executive
Cairn Homes PLC
27
Eamonn O’Kennedy
“Following on from a very
successful capital raising
period during 2015, the
Company had two further
capital events of note during
2016, a Firm Placing and
Placing and Open Offer, along
with an extension of our
banking facilities.”
CAPITAL RAISING
In April 2016, the Company undertook a Firm Placing
and Placing and Open Offer, which involved the
issuance of a further 157.6 million new ordinary
shares, raising gross proceeds of €176.5 million
(€168.4 million, net of costs). In addition, following
the satisfaction of the relevant hurdle rate during
the 2016 test period, 15,021,937 ordinary shares were
issued in August 2016 (through the conversion of
Founder Shares). As a result of the successful
placings and the Founder Share conversion in 2016,
the Company now has 689.3 million ordinary shares
in issue and a market capitalisation of approximately
€1 billion, which is more than double the initial IPO
market capitalisation and has been achieved in
under 2 years. The extension of the Group’s senior
debt facilities to €200 million, following the addition
of Ulster Bank to its banking syndicate, means that
the Company has sufficient liquidity to meet the
cost of its continued investment in sites and in work
in progress during its upcoming execution phase.
INVESTMENT
2016 was a year of continued investment for the
Group, both in terms of further site acquisitions,
including the acquisition of the Argentum business
and its 6 sites, in addition to further spend on
building up stock levels across its active sites at
Parkside (Malahide Road), Marianella (Rathgar),
Albany (Killiney) and Churchfields (Ashbourne). At 31
December 2016, the Group had total inventories of
€727.2 million, of which €37.3 million was work in
progress and €130.9 million included development
land collateral in the foreclosure process, with €43.9
million of this converting to direct ownership post
year-end.
28
Annual Report 2016
The average site cost attaching to the Group’s 12,100
core units as at 31 December 2016 was €53,000.
and commitment fees on the Group’s €200 million
term loan and revolving credit facilities.
REVENUE
Total revenue in the year ended 31 December 2016
was €40.9 million, which represents a €37.2 million
increase on 2015’s revenue of €3.7 million. €31.0
million of revenue relates to the sale of 105
completed houses across the Group’s sites in
Parkside, Albany and Ashbourne, at an average sales
price of €295,000 (€335,000, including VAT). A further
€8.7 million of revenue was earned from the sale of
various non-core completed assets and residential
property sites acquired in the Project Clear distressed
loan portfolio. In addition, the Group earned ancillary
rental income of €1.2m mainly from a temporary
school on its Parkside site and some commercial
units on its Butterly site.
OPERATING PROFIT
The Group made a gross profit of €7.1 million, which
represented a €6.4 million increase on the 2015
gross profit of €0.7 million. The Group’s gross profit
margin of 17.3% showed progression during the year,
increasing from 16.5% in H1 to 17.7% in H2. Including
administrative expenses of €7.8 million and other
income of €4.4 million, the Group made an
operating profit of €3.6 million, before exceptional
items, which compared very favourably with an
operating loss of €3.8 million, before exceptional
items, in 2015. An exceptional charge of €1.4 million
was incurred in 2016, which relates to transaction
costs incurred as part of the acquisition of the
Argentum business. This charge was considered
exceptional as it related to a business combination
which is a non-routine transaction for the Group that
is not currently expected to recur frequently.
FINANCE INCOME/COST
Net finance costs of €5.1 million were incurred
during 2016, which compared to €1.7 million, before
exceptional items, in 2015. Finance income amounted
to €0.1m, whilst finance costs were €5.2 million. The
finance costs primarily relate to the interest cost
TAXATION
A deferred taxation credit of €0.8 million was booked
during the period, which compares to a tax credit in
2015 of €0.3 million.
CASH FLOW
The operating cash outflow in the year ended 31
December 2016 amounted to €121.2 million, as a
result of the continued investment in sites and
construction work in progress during 2016. This
compared to an operating cash outflow of €491.1
million in 2015, as a result of the very significant
investment phase that took place in the period after
the IPO. An investing cash outflow of €86.5 million
in 2016 mainly related to the acquisition of the
Argentum business and its six related sites during
the year. The net cash inflow from financing
activities of €246.8 million mainly related to the net
proceeds from the April 2016 Firm Placing and
Placing and Open Offer and a debt drawdown from
the Group’s term loan facilities. The Group had a net
increase in cash and cash equivalents of €39.1
million for the twelve months ended 31 December 2016.
NET DEBT AND LIQUIDITY
As at 31 December 2016, the Group had net debt of
€76.0 million, which is comprised of drawn debt of
€148.6 million (including unamortised arrangement
fees and issue costs), available cash of €45.6 million
and €27.0 million of restricted cash, under the terms
of our senior debt facilities. Net debt at 31 December
2015 was €30.5 million. The Group had a €50.0
million undrawn revolving credit facility as at 31
December 2016. These undrawn facilities, plus the
Group’s available cash resources provide the Group
with sufficient liquidity to complete its continued
investment in sites and in work in progress across
its active sites during 2017.
Eamonn O’Kennedy
Group Finance Director
Cairn Homes PLC
29
The Group recognises its responsibilities as a
member of the communities where it conducts
business, and is committed to developing links to
those communities as the Company matures over
the coming year, through a range of charitable
initiatives supported by local staff and management.
THE CAIRN SUSTAINABILITY MODEL
At Cairn, our approach to the design and construction
of our new homes differentiates us from our
competitors.
The Irish homebuilding industry is subject to strong
regulatory oversight, and with the introduction of
such measures as Building Control and Amendment
Regulations (BCAR) and independent assigned
certification, building standards in Ireland are higher
than in any other country within the European
Union.
Cairn’s approach and business model allows the
Company to not only achieve these standards, but
to look at ways to further enhance and improve our
finished product.
Our internal planning, design and construction
teams work tirelessly with our project partners and
key external stakeholders in fostering a culture of
partnership within which Cairn can deliver socially,
environmentally and economically sustainable new
communities.
The Board recognises the importance of sustainability
in our construction activities and has adopted a
sustainability model containing four fundamental
pillars:
1. SUSTAINABLE LIVING ENVIRONMENTS
Sustainable urban design and place-making are at
the core of each of our developments where we
provide walkable, people-friendly places integrated
with public transport systems, schools and local
shops.
Our landscape designs include a high proportion of
native long-lived trees such as oaks and pines, and
we incorporate enhanced biodiversity planting,
which supports the wider urban environment.
2. SUSTAINABLE BUILDINGS
Continuous innovations inform our approach to cost
effective, sustainable building design.
Our developments incorporate water systems, which
use the latest aerated technology to reduce water
wastage and smart technology thermostats, which
allow you to control your heating or hot water
straight from your mobile device.
We recognise the importance of energy performance
and ensure our homes are built to maximise thermal
efficiency and achieve a minimum A3 BER rating.
Sustainable energy generation systems are a key
component within our developments, examples of
which include heat recovery ventilation, photo
voltaic solar panels, air-to-water heat pump systems
serving underfloor heating in our houses and
combined heat and power district heating systems
and demand controlled ventilation in our apartments.
30
Annual Report 2016
3. SUSTAINABLE BUILDING PRACTICES
Cairn achieved Safe-T Cert accreditation in May 2016,
a construction sector specific safety management
system accreditation awarded to qualifying companies
following a rigorous assessment process.
Each of our site management teams are dedicated
to safety and quality management, and Cairn quality
assurance and control practices form an inherent
part of daily operations in setting a benchmark
beyond the statutory requirements of BCAR. Our
quality performance is validated by independent
third party certification.
4. SUSTAINABLE SUPPLY CHAIN AND
WORKFORCE
An enduring supply chain and workforce are central
to our sustainable growth as we continue to scale
our business. Cairn is continuing to invest in training
programmes for our employees, while also working
with our supply chain to enhance their capabilities.
Cairn Homes PLC
31
Company
Information
Directors
John Reynolds (Non-Executive Chairman)
Michael Stanley (Chief Executive Officer)
Alan McIntosh (Executive, British)
Eamonn O’Kennedy (Group Finance Director)
Andrew Bernhardt (Non-Executive, British)
Gary Britton (Non-Executive)
Giles Davies (Non-Executive, British)
Secretary and Registered Office
Susan O’Connor
Cairn Homes plc
7 Grand Canal
Grand Canal Street Lower
Dublin 2
Registrars
Computershare Investor Services (Ireland) Limited
Heron House
Corrig Road
Sandyford Industrial Estate
Dublin 18
Auditor
KPMG
Chartered Accountants
1 Stokes Place
St. Stephens Green
Dublin 2
Website
www.cairnhomes.com
Solicitors
A&L Goodbody
IFSC
North Wall Quay
Dublin 1
Eversheds Sutherland
One Earlsfort Centre
Earlsfort Terrace
Dublin 2
Pinsent Masons LLP
30 Crown Place
Earl Street
London EC2A 4ES
Beauchamps
Riverside Two
Sir John Rogerson’s Quay
Dublin 2
Principal Bankers
Allied Irish Banks plc
Bankcentre
Ballsbridge
Dublin 4
Bank of Ireland
87-89 Pembroke Road
Ballsbridge
Dublin 4
Ulster Bank Ireland DAC
33 College Green
Dublin 2
32
Annual Report 2016
Cairn Homes PLC
33
Board of Directors
Chairman and Executive Directors
John Reynolds
Non-Executive Chairman
Age: 58
Nationality: Irish
Appointment to the Board: 28 April 2015
Committee Membership: Member of the Nomination
Committee since 29 April 2015.
John Reynolds is also the Chairman of the Nomination
Committee. He was previously Chief Executive Officer
of KBC Bank Ireland plc (2009 to 2013) and President
of the Irish Banking Federation (2012 to 2013), during
which time he was also a board member of the
European Banking Federation.
He
is currently a Non-Executive Director of
Computershare Investor Services (Ireland) Limited,
Business in the Community Limited and the National
Concert Hall.
Michael Stanley
Chief Executive Officer,
Co-Founder and Executive Director
Age: 51
Nationality: Irish
Appointment to the Board: 12 November 2014
Michael Stanley co-founded Cairn Homes plc and
was appointed Chief Executive Officer prior to the
IPO in June 2015. Michael has a strong pedigree in
residential development and the broader property
industry. He was previously Chief Executive Officer
of Stanley Holdings following its demerger from
Shannon Homes. The Stanley family founded
Shannon Homes in 1970, and the company was one
of Ireland’s largest homebuilders in the 1990s and
2000s. Michael restarted his homebuilding operation
in 2014 following the economic downturn in Ireland,
and with his business partner Alan McIntosh, this
provided the operational platform for Cairn Homes
plc. Michael also has extensive experience in the
packaging, energy, agritech and healthcare sectors
and was an original shareholder and former Non-
Executive Director (2011 to 2016) of Oneview
Healthcare, which completed a successful IPO on
the Australian Stock Exchange in March 2016.
34
Annual Report 2016
Alan McIntosh
Co-Founder & Executive Director
Age: 49
Nationality: British
Appointment to the Board: 12 November 2014
Alan McIntosh has been a principal investor and
part of successful investor groups for over 17 years.
During this time, he has had operational management
roles and been part of management teams that have
successfully grown a number of different businesses,
including Topps Tiles Plc, PizzaExpress and Centre
Parcs. Alan was a co-founder of each of Pearl Group
(now listed as Phoenix Group plc), Punch Taverns
plc, Spirit Group plc and Wellington Pub Company
Ltd.
Alan’s private investment vehicle, Emerald Investment
Partners, has interests in real estate, healthcare,
biotech and technology in Europe and North
America. He qualified as a chartered accountant
with Deloitte & Touche in 1992.
Eamonn O’Kennedy
Group Finance Director,
Executive Director
Age: 44
Nationality: Irish
Appointment to the Board: 28 April 2015
Eamonn O’Kennedy was previously Chief Financial
Officer (2012 to 2014) of Independent News & Media
plc.
Prior to this role, Eamonn held a number of senior
management roles with Independent News & Media
plc between 1999 and 2012, including Finance
Director (Ireland) and Group Finance Manager. He is
a fellow of Chartered Accountants Ireland, having
qualified with PwC in 1996.
Cairn Homes PLC
35
Board of Directors
Non-Executive Directors
Gary Britton
Non-Executive Director
Age: 62
Nationality: Irish
Andrew Bernhardt
Non-Executive Director
Age: 56
Nationality: British
Appointment to the Board: 28 April 2015
Committee Membership: Member of the Audit and
Risk Committee and the Nomination Committee
since 29 April 2015. Appointed as a Member of the
Remuneration Committee on 16 December 2016.
Gary is also Chairman of the Audit and Risk Committee.
He is currently a Non-Executive Director of The Irish
Stock Exchange plc, KBC Bank Ireland plc and Origin
Enterprises plc. He was previously a partner in KPMG
where he served in a number of senior positions,
including the firm’s Board, the Remuneration and
Risk Committees and as head of its Audit Practice.
Gary is a member of Chartered Accountants Ireland,
the Institute of Directors in Ireland and the Institute
of Banking. He is also a Certified Bank Director as
designated by the Institute of Banking.
Appointment to the Board: 28 April 2015
Committee Membership: Member of the Audit and
Risk Committee and Remuneration Committee since
29 April 2015.
Andrew currently serves on the board of ALMC, where
he was previously CEO. He is also Non-Executive
Chairman of Cedar Dean Group Ltd and Fairey
Industrial Ceramics Ltd and a Non-Executive Director
of AJ Walter Aviation Ltd.
Prior to joining ALMC, Andrew had a 29 year career
in commercial banking at Barclays Bank and GE
Capital. He was heavily involved in supporting the
growth of a number of well-known property
companies (including Canary Wharf, Hammerson,
Slough Estates and Howard de Walden Estates)
during his time at Barclays Bank.
36
Annual Report 2016
Giles Davies
Non-Executive Director
Age: 48
Nationality: British
Appointment to the Board: 28 April 2015
Committee Membership: Member of the Audit and
Risk Committee and Remuneration Committee since
29 April 2015. Appointed as a Member of the
Nomination Committee on 16 December 2016.
Giles is also Chairman of the Remuneration
Committee. Giles qualified as a chartered accountant
with PwC in London and spent five years in
management consultancy in London and New York.
He went on to found Conservation Capital, a leading
practice in the emerging field of conservation
enterprise and related investment financing.
Giles is Non-Executive Chairman of Wilderness
Scotland (Wilderness Ireland is a subsidiary) and
until recently was Non-Executive Chairman of
Capital Management & Investment plc and a Non-
Executive Director of the Algeco Scotsman group - a
leading global provider of modular space with
operations in 29 countries and revenues approaching
US$1.5 billion.
Cairn Homes PLC
37
The Directors present the Report of the Directors of Cairn Homes Public Limited Company (the “Group” or
“Company”) together with the audited financial statements for the year ended 31 December 2016. The
Chairman’s Statement, Chief Executive’s Statement, Group Finance Director’s Review, Corporate Governance
Report, Report of the Remuneration Committee and all other sections of the Report and financial statements,
to which cross reference is made, are incorporated into the Report of the Directors by reference.
Principal activity
Cairn Homes plc is one of Ireland’s leading homebuilders, constructing high-quality new homes with an
emphasis on design, innovation and customer service. At 31 December 2016, the Group consisted of the
Company, Cairn Homes plc, and a number of wholly-owned subsidiaries, which are detailed in Note 25 to
the Consolidated Financial Statements.
Review of the business
Shareholders are referred to the Chairman’s Statement, Chief Executive’s Statement and Group Finance
Director’s Review, which contain a review of operations and the financial performance of the Group for 2016,
the key performance indicators used to assess the performance of the Group and an indication of future
developments in the business. These are deemed to be incorporated in the Report of the Directors.
Results and dividends
The Group’s consolidated operating profit before exceptional items for the year ended 31 December 2016
was €3.6 million and its net loss after tax for the year was €2.1 million. There were no dividends paid or
proposed by the Company during the year. The Company’s financial statements for the year ended 31
December 2016 are set out on pages 148 to 157.
Events since the year end
Information in respect of events since the year end is contained in Note 32 to the Consolidated Financial
Statements.
38
Annual Report 2016
GOVERNANCE
Directors’ Report - continued
Share capital
The Company has four authorised classes of shares: Ordinary Shares; A Ordinary Shares; Founder Shares
and Deferred Shares. As at 31 December 2016 and 5 April 2017, the Company had 689,274,623 Ordinary Shares
in issue, all of which carry the same rights and obligations. The Company also had 84,978,063 Founder Shares
and 19,980,000 Deferred Shares in issue at the same dates.
The percentage of the total issued share capital represented by each class of shares on the above dates
was:
Ordinary Shares
Founder Shares
Deferred Shares
86.8%;
10.7%; and
2.5%
Further information on the Company’s share capital, including the rights attached to different classes of
shares, is set out in Note 18 to the Consolidated Financial Statements.
Principal risks and uncertainties
Under Irish company law, the Company is required to give a description of the principal risks and
uncertainties which it faces.
The Board recognises that there are certain risks in the structure, operation and management of the Group
and Company and acts to mitigate these risks through a close monitoring and an active management
process. The Group’s exposure to financial risk is further described in Note 28 to the Consolidated Financial
Statements.
The principal risks faced by the Group are:
Economic Conditions
Succession Planning
•
• Mortgage Availability & Affordability
• Health & Safety
• Availability & Strength of Sub-Contractors
•
• Recruitment & Retention of Key Personnel
Financial Controls Framework
•
Liquidity Management
•
Loans in Foreclosure
•
• Planning Regulations
• Programme Risk/Project Planning
Cairn Homes PLC
39
GOVERNANCE
Directors’ Report - continued
Principal risks and uncertainties (continued)
Risk Description
Mitigation
Economic Conditions
Cairn’s business is sensitive to the performance of
the wider economy and particularly changes in
interest rates, employment and general consumer
confidence. Changes in economic conditions in
Ireland (which are linked to the performance of the
broader global economy, given Ireland’s open
economy) are likely to impact on house prices and
house sales rates.
• Cairn’s business strategy reflects the cyclical
•
•
nature of the industry.
The Board and the management team closely
monitor economic indicators for indications of
weakness in the economy.
Internal systems are in place to track the margin
impact of reduction in sales prices/increased
construction costs.
• Regular site appraisal reviews are undertaken to
address any risk of impairement.
• Monitoring of potential impacts from recent Brexit
vote.
Mortgage Availability & Affordability
The availability of mortgage finance, particularly the
deposit and income requirements set by the
Regulator on mortgage lending, is fundamental to
customer demand.
•
•
The Group monitors mortgage availability,
including any impact from regulations on mortgage
lending and rates on an ongoing basis and it is a
standing item for discussion at Board meetings.
The Group also monitors volumes of first time
buyers, in order to quantify the impact of the recent
changes to the Central Bank of Ireland Loan to Value
(LTV) ratios and the recently introduced Government
Help to Buy tax rebate scheme, as this results in
more immediately realisable mortgage demand.
Health and Safety
Health and safety breaches can result in injuries to
Cairn staff or sub-contractors operating on Cairn
sites and/or result in delays in construction or
increased costs, in addition to reputational damage
and potential litigation.
•
The Health and Safety department operates
independently of the construction division and
reports directly to Head Office in order to maintain
independence. Health and Safety is also a standing
item on the Audit and Risk Committee agenda.
• Reportable and non-reportable incidents are
to
measured across sites and
management and the Board on a regular basis in
order to track trends across and within sites.
• A strong Health and Safety culture exists across
reported
the organisation.
• A formalised (industry standard) Safe-T Cert system
has been implemented, which incorporates a
robust management system and includes regular
safety audits and scoring of results.
40
Annual Report 2016
GOVERNANCE
Directors’ Report - continued
Principal risks and uncertainties (continued)
Risk Description
Mitigation
Availability and Strength of Sub-Contractors
The risk that the Group is unable to attract the right
quantity and quality of sub-contractors, which are
critical to delivery of the Group’s homes, due to the
outsourced business model applied by the Group.
Succession Planning
A risk that the loss of key staff will result in a loss of
key corporate knowledge and consequential impact
on operations.
Recruitment and Retention of Key Personnel
The risk that the Group does not have a sufficiently
robust HR strategy in place in order to ensure the
Group’s recruitment policy/plans are delivered and
that key staff are retained.
•
Supply agreements are fixed for all, or a significant
portion of each scheme, in order to ensure supply
is guaranteed.
•
• Given the size of the Group’s landbank and its
position in the marketplace, it is a very attractive
client for sub-contractors.
Senior and middle management have many years
of experience in the industry and strong relationships
with and knowledge of key suppliers.
The Group ensures payments are made on time
to key suppliers in order to maximise their liquidity
as they scale their operations in conjunction with
the Group.
•
• A panel of approved sub-contractors is in place
and circulated on all relevant tenders.
•
“9 box” succession planning methodology in place,
in order to identify succession gaps and actions
to close any gaps identified.
• Performance management process ensures
annual goal-setting and structured performance
feedback with mid-year and year-end staff ratings.
Ensuring that remuneration policy is robust
enough to meet market demands. Succession planning
actions will be directly linked to compensation
outcomes to ensure reward and retention of best talent.
•
•
•
The Group’s ambitious growth plans and plc
status make it an attractive place of employment
for high calibre staff.
The Group ensures that it has a remuneration policy
in place that is competitive in the market-place
to retain key staff. The proposed LTIP plan will further
incentivise and align staff to Group performance.
• Annual performance reviews in place to ensure
that company strategy and goals are communicated
to key staff and to provide regular feedback to
staff to ensure they are kept motivated.
The Group utilises a talent acquisition recruitment
specialist to ensure recruitment of high quality staff.
•
Cairn Homes PLC
41
GOVERNANCE
Directors’ Report - continued
Principal risks and uncertainties (continued)
Risk Description
Mitigation
Financial Controls Framework
The risk or failure to adhere to agreed policies,
procedures and processes due to a lack of financial
controls, leading to potential financial misstatement,
fraudulent behaviour or a potential financial loss to
the Company and Group.
•
Financial controls and policies in place in order
to manage risks across the key areas.
• Head Office personnel with direct site operational
knowledge in place in order to monitor site
activity and site cost.
• An internal audit function has been set up in
order to test the Group’s internal control framework
and to suggest improvements where required.
These improvements are presented to the Audit
and Risk Committee and are reviewed periodically
to assess implementation.
Liquidity Management
The risk that the Group does not maintain sufficient
liquidity headroom to ensure that it can always meet
its working capital requirements as they fall due. Risk
that slower than expected sales impact on the
Group’s liquidity position.
•
The Group will ensure that it always has sufficient
liquidity in place to meet its cash flow requirements
for the next 3 years.
The Group prepares regular forecasts that look at
both its short-term and longer-term requirements.
• Regular monitoring, forecasting and reporting of
•
The risk that failure to comply with the Group’s banking
covenants results in the withdrawal of funding lines.
•
banking covenants.
Speed of delivery on individual schemes takes
account of sales absorption rates across each
individual scheme.
Loans in Foreclosure
The risk that the Group does not adequately manage
the remaining debtor relationships it has acquired
through the acquisition of the Ulster Bank Project
Clear loan portfolio, which could have legal,
operational and/or financial implications for the
Group.
• An unforeseen stretch in liquidity can be managed
through a reduction in the pace of build on one
or more sites if necessary.
• At 31 December 2016, the Group has just €130.9
million remaining in the loans in foreclosure
category, of which €43.9m was converted to direct
ownership in March 2017.
The Group has business plans in place to ensure
that it deals appropriately with each individual debtor.
• Hudson Advisors, an approved loan servicing
agent, remain in place, to manage the relationship
with all relevant debtors.
•
• Regular meetings with the Group’s loan service
agent and all relevant advisors in order to ensure
that the Group is fully briefed on all interaction
with debtors and on the implementation of its
loan to own strategy.
42
Annual Report 2016
GOVERNANCE
Directors’ Report - continued
Principal risks and uncertainties (continued)
Risk Description
Mitigation
Planning Regulations
Inability to adhere to the complex and stringent
regulatory environment that applies to the building
industry. Risk that the Government will introduce new
legislation that results in material cost, or time
delays for the Group.
• Group monitors all policy changes through its
planning department and the experienced team
is well placed to interpret regulatory changes.
The Group uses external advisors who advise on
any changes to relevant legislation.
•
• Rigorous design standards in place for the homes
Programme Risk/Project Planning
The risk that the Group incurs costs which are higher
than expected or experiences delays in construction
due to poor project planning.
that the Group develops.
• Participation in industry advocacy groups.
•
The recent proposed changes to the planning
regime (involving a one step process with An Bord
Pleanála), which is due to be enacted shortly, will
ensure that the time to obtaining planning
permission on larger pathfinder sites is reduced.
• Robust project plans and controls are in place.
• Monthly reporting of all project costs, with
in
variances and explanations highlighted
monthly reports and discussed at monthly
meetings. The construction programme is linked
clearly to the sales programme, with regular
analysis by site comparing sales status with
forecast completion dates.
• Key oversight personnel in place across all projects.
Cairn Homes PLC
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GOVERNANCE
Directors’ Report - continued
Going concern
The Group’s activities, strategy and performance are explained in the Chief Executive’s Statement and the
Group Finance Director’s Review on pages 25 to 29 of this Report. Further detail on the financial performance
and financial position of the Group is provided in the financial statements. In addition, Note 28 to the
Consolidated Financial Statements includes details on the Group’s financial risk management and
exposures.
Having assessed the relevant business risks, the Directors believe that the Company is well-placed to
manage these risks successfully, and they have a reasonable expectation that the Company, and the Group
as a whole, have adequate resources to continue in operational existence for the foreseeable future. For
this reason, they have prepared the financial statements on a going concern basis.
Viability Statement
The Directors have assessed the prospects of the business and its ability to meet its liabilities as they fall
due and have concluded that three years is an appropriate period for assessment as this is a key period in
the Company’s strategic planning, as it progresses toward maturity and the delivery of 1,200 units in 2019.
The Company has developed a financial model, which is regularly tested and assessed by the Board. The
model includes financing requirements over the period. The model takes account of the potential impact
of some of the principal risks of the Group and Company as set out in this report. Having carried out the
assessment, the Directors confirm that they have a reasonable expectation that the Group and Company
will continue to operate and meet its liabilities as they fall due over the aforementioned three year period.
Directors’ Compliance Statement
The Directors, in accordance with Section 225(2) of the Companies Act 2014, acknowledge that they are
responsible for securing the Company’s compliance with certain obligations specified in that section arising
from the Companies Act 2014 and, where applicable, the Market Abuse (Directive 2003/6/EC) Regulations
2005, the Prospectus (Directive 2003/71/EC) Regulations 2005, the Transparency (Directive 2004/109EC)
Regulations 2007, and Tax laws (‘relevant obligations’).
The directors confirm that:
•
•
•
a compliance policy statement has been drawn up setting out the Company’s policies that in their opinion
are appropriate with regard to such compliance;
appropriate arrangements and structures have been put in place that, in their opinion, are designed to
provide reasonable assurance of compliance in all material respects with those relevant obligations;
and
a review has been conducted, during the financial year, of those arrangements and structures.
44
Annual Report 2016
GOVERNANCE
Directors’ Report - continued
Board of Directors and Company Secretary
The Directors of the Company, their biographical details and details of the dates of their appointments are
detailed on pages 34 to 37.
Mr Aidan O’Hogan resigned as a Director on 13 December 2016. Ms Susan O’Connor was appointed as
Company Secretary on 20 February 2017 in place of Mr Andrew Donagher who retired on the same date.
Unless otherwise determined by the Company in a general meeting, the number of Directors shall not be
more than ten nor less than two.
In line with the provisions contained in the UK Code, all Directors retired at the Annual General Meeting of
the Company on 10 May 2016 and, being eligible, offered themselves for re-election, and all were re-elected
to the Board on the same day.
Any Director appointed to the Board by the Directors will be subject to election by the shareholders at the
first Annual General Meeting held following his/her appointment. Furthermore, under the Company’s
Constitution, one third of all Directors must retire by rotation at each Annual General Meeting and may seek
re-election. However, in accordance with the provisions of the UK Code, the Board has decided that all
Directors seeking re-election should retire at the 2017 Annual General Meeting and offer themselves for re-
election.
Directors’ and Secretary’s interests
The interests of the Directors and Company Secretary (together with their respective family interests) who
held office at 31 December 2016 in the share capital of the Company are set out in the Report of the
Remuneration Committee on pages 86 to 88.
Cairn Homes PLC
45
GOVERNANCE
Directors’ Report - continued
Share dealing
The Company has in place a share dealing code which gives guidance to the Directors and certain employees
of the Group to be followed when dealing in the shares of the Company or any other type of securities
issued by or related to the Company. It is designed to ensure that these individuals neither abuse, nor set
themselves under suspicion of abusing, information about the Group which is not in the public domain. It
is also designed to ensure compliance with the EU Market Abuse Regulation (596/2014) which came into
effect on 3 July 2016.
Substantial shareholdings
As at 31 December 2016 and 5 April 2017, details of interests of over 3% in the ordinary share capital carrying
voting rights which have been notified to the Company are:
Name
FIL Limited
Wellington Management Group LLP
Lansdowne Partners International Ltd
FMR LLC
Coltrane Master Fund, L.P.
J O Hambro Capital Management Limited
Emerald Everleigh Limited Partnership*
Henderson Group plc
Oppenheimer Funds Inc
BlackRock Inc
Invesco Limited
Notified holding
31 December 2016
64,386,554
25,910,591
47,907,734
65,780,477
28,000,059
26,721,051
24,439,582
24,252,393
23,197,940
-
%
9.34
3.76
6.95
9.54
4.06
3.88
3.55
3.52
3.37
-
Notified holding
5 April 2017
64,386,554
48,489,870
47,907,734
35,890,970
28,000,059
26,721,051
24,439,582
24,252,393
23,197,940
21,799,575
%
9.34
7.03
6.95
5.21
4.06
3.88
3.55
3.52
3.37
3.16
21,106,929
3.06
21,106,929
3.06
* Emerald Everleigh Limited Partnership (the ‘LP’) is the registered holder of the interests described above.
The LP is ultimately owned by Prime Developments Limited (’PDL’). The shares in PDL are held in trust for a
discretionary trust (constituted under English and Welsh law) and Alan McIntosh (Executive Director of Cairn)
and his spouse are the beneficiaries of that trust.
Other than these holdings, the Company has not been notified as at 5 April 2017 of any interest of 3% or
more in its ordinary share capital.
46
Annual Report 2016
GOVERNANCE
Directors’ Report - continued
Audit Committee
The Group has an established Audit and Risk Committee comprising of three independent non-executive
directors. Details of the Committee and its activities are set out on pages 62 to 66.
Relevant audit information
The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they
are each aware, there is no relevant information of which the Group’s auditors are unaware and each Director
has taken all the steps that they ought to have taken as Directors to make themselves aware of any relevant
audit information and to establish that the Group’s auditors are aware of that information.
Political contributions
No political contributions were made by the Company during the year that require disclosure in accordance
with the Electoral Acts 1997 to 2002 and the Electoral Political Funding Act 2012.
Accounting records
The Directors are responsible for ensuring that adequate accounting records are maintained by the Company
as required by Sections 281-285 of the Companies Act, 2014. The Directors believe that they have complied
with this requirement through the employment of suitably qualified accounting personnel and the
maintenance of appropriate accounting systems. The accounting records of the Company are maintained
at 7 Grand Canal, Grand Canal Street Lower, Dublin 2, D02 KW81.
European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006
The information on share capital on page 39, substantial shareholdings on page 46, and the disclosures on
Directors’ remuneration and interests in the Report of the Remuneration Committee on pages 68 to 89
address the information required for the purposes of Regulation 21 of the European Communities (Takeover
Bids (Directive 2004/25/EC)) Regulations 2006.
Cairn Homes PLC
47
GOVERNANCE
Directors’ Report - continued
Transparency (Directive 2004/109/EC) Regulations 2007
For the purposes of information required by Statutory Instrument 277/2007 ‘Transparency (Directive
2004/109/EC) Regulations 2007’ concerning the development and performance of the Company, the following
sections of this Annual Report shall be treated as forming part of this report:
1. The Chairman’s Statement on pages 22 to 24, the Chief Executive’s Statement on pages 25 to 27 and the
Group Finance Director’s Review on pages 28 and 29.
2. The Corporate Governance Report on pages 50 to 61.
3. The principal risks and uncertainties on pages 39 to 43.
4. Details of earnings per share on page 133.
5. Details of the capital structure of the Company on pages 124 to 126.
Section 1373 of the Companies Act 2014
For the purpose of Section 1373 of the Companies Act 2014, the Corporate Governance Report on pages 50
to 61 is deemed to be incorporated in the Directors’ Report.
Auditor
In accordance with Section 383(2) of the Companies Act 2014, the auditor, KPMG, will continue in office and
a resolution authorising the directors to fix their remuneration will be proposed at the forthcoming AGM.
Approval of Financial Statements
The Financial Statements were approved by the Board on 6 April 2017.
Signed on behalf of the Board
J Reynolds
Chairman
6 April 2017
G Britton
Director
48
Annual Report 2016
Cairn Homes PLC
49
Introduction
Cairn Homes Limited was incorporated on 12 November 2014 and was re-registered as Cairn Homes Public
Limited Company (the “Company”) on 19 May 2015. The Company completed an initial public offering on 10
June 2015 and its shares were admitted to trading on the London Stock Exchange, with a Standard Listing,
on 15 June 2015.
The Board is committed to maintaining the highest standards of corporate governance and to continue to
revise current procedures in the context of evolving best practice. Whilst the Company has a Standard Listing
on the London Stock Exchange and is therefore not required to report under the UK Corporate Governance
Code (the “UK Code”), the Board has committed to reporting under and complying with the requirements of
the UK Code. The Board believes that the Company has, throughout the accounting period, complied with
all relevant provisions set out in the UK Code.
This section, including the Report of the Audit and Risk Committee and the Report of the Remuneration
Committee, details how the Company has applied the principles and provisions of the UK Code. A copy of
the UK Code is available on the Financial Reporting Council’s website www.frc.org.uk.
The Board of Directors and its Role
The Company has a strong Board comprising Board members who have held senior positions in a number
of public and private companies, bringing a wealth of property, construction and public company experience,
with a majority of independent Directors (including, upon appointment, the Chairman) in compliance with
the UK Code. The Board is responsible for the leadership, control and overall strategy of the Company. This
includes establishing goals for management and monitoring the achievement of these goals.
The Board has a formal schedule of matters specifically reserved to it for decision, including:
• Approval of significant acquisitions or disposals;
• Approval of material contracts;
• Approval of interim and full year financial statements;
• Approval of annual budgets;
• Risk management;
•
•
Terms of reference of Chairman, Chief Executive and other Executive Directors; and
Terms of reference and membership of Board Committees.
50
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GOVERNANCE
Corporate Governance Report - continued
The Board of Directors and its Role (continued)
Board Composition and Independence
The Board comprises of four Non-Executive Directors (including the Chairman) and three Executive Directors
and the biographies of these directors are set out on pages 34 to 37. The Board considers that Non-Executive
Directors, A Bernhardt, G Britton and G Davies are independent. The composition of the Board will be
reviewed on a regular basis with due regard for the benefits of diversity on the Board, including gender, to
ensure the appropriate balance of skills is maintained. While all appointments to the Board will have due
regard to diversity, they will be made on merit, ensuring that the skills, experience and traits noted by the
Board as being of particular relevance at any time are present on the Board and included in any planned
refreshment. Throughout 2016, and as at the date of this report, the Board comprised an appropriate mix of
the necessary business skills, knowledge and experience required to provide leadership, control and
oversight of the management of the business and to contribute to the development and advancement of
business strategy.
Information and support
All Directors are furnished with information necessary to assist them in the performance of their duties.
The Board holds at least eight scheduled meetings each calendar year and meets on an ad-hoc basis as
otherwise required. Prior to all meetings taking place, an agenda and board papers are circulated to the
Directors so that they are adequately prepared for the meetings. The Company Secretary is responsible for
the procedural aspects of the Board meetings and all Directors have access to the Company Secretary for
advice and assistance as necessary. Directors are, where appropriate, entitled to have access to independent
professional advice at the expense of the Company.
Induction and training
An induction procedure for new Directors has been established. Directors engage with the executive and
senior management on an ongoing basis to aid their understanding of the business. The Board considers
on an ongoing basis the need for additional training in respect of any matters relevant to the development
and operation of the Board or any of its Committees.
The Company has an insurance policy in place which insures the Directors in respect of legal action taken
against them in respect of their reasonable actions as officers of the Company.
Subject to the provisions of, and so far as may be permitted by the Companies Act 2014 and the Company’s
Constitution, every Director, Secretary or other officer of the Company is entitled to be indemnified by the
Company against all costs, charges, losses, expenses and liabilities incurred by them in the execution and
discharge of their duties.
Cairn Homes PLC
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GOVERNANCE
Corporate Governance Report - continued
Directors’ Terms of Appointment
The Executive Directors have service agreements with the Company which have notice periods of 12 months
or less. The Non-Executive Directors have letters of appointment which set out their terms of appointment.
The initial period of appointment is three years and any term renewal is subject to the approval of the
Board and appointments are terminable on one month’s notice.
Under the Company’s Constitution, one third of all Directors must retire by rotation at each Annual General
Meeting and may seek re-election. However, in keeping with best corporate governance practice, the Board
has decided that all Directors will seek annual re-election. Accordingly, all Directors seeking re-election will
retire at the Annual General Meeting on 17 May 2017 and, being eligible, will offer themselves for re-election.
The Board is satisfied that the Company benefits greatly from the services of all Directors and accordingly,
the Board recommends the re-election of all the Directors.
As announced on 11 January 2017, Eamonn O’Kennedy has confirmed his intention to leave the Group once
a replacement Group Finance Director is appointed. It is proposed that he be eligible for re-election as a
Director pending such appointment being made.
Directors’ Remuneration
Details of Directors’ remuneration are set out in the Report of the Remuneration Committee on pages 68 to
89 and in Note 10 to the Consolidated Financial Statements on page 117.
52
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Directors’ attendance at Board and Committee meetings
A schedule of Board and Committee meetings and the Directors’ attendance for the year ended 31 December
2016 is disclosed below:
Board
A
8
8
8
8
8
8
8
8
B
8
8
8
8
8
8
8
6
Continuing Directors
M Stanley
E O’Kennedy
A McIntosh
J Reynolds
A Bernhardt
G Britton
G Davies
Former Director
A O’Hogan
Audit and Risk
Committee
Remuneration
Committee
A
B
A
B
Nomination
Committee
A
B
8
8
8
8
8
7
10
10
10
10
10
9
1
1
1
1
1
1
The attendance details are outlined in the format “A/B” where “A” represents the total number of meetings
held during the period for which the Director was in place and “B” represents the number of meetings
attended by the Director. Mr Aidan O’Hogan resigned as a Director with effect from 13 December 2016.
Board performance evaluation
The UK Code requires that the Board should undertake a formal and rigorous annual evaluation of its own
performance and that of its Committees and individual Directors. The Board considered that a self-evaluation
process was appropriate at this stage. To facilitate this a Board Evaluation Questionnaire was completed by
each Director for the year ended 31 December 2016. The questionnaire included the following areas:
• Review of the performance of the Board;
• Review of the performance of the Chairman;
• Review of the performance of the Directors; and
• Review of the independence of Directors.
The Chairman considered the results of the completed questionnaires and reported to the Board.
The Board is committed to having its own performance and the performance of individual Directors
externally evaluated at least every three years.
During the year, the Chairman met with the Non-Executive Directors without the Executive Directors present.
The Non-Executive Directors, led by the Senior Independent Director, met without the Chairman present to
review the performance of the Chairman.
Cairn Homes PLC
53
GOVERNANCE
Corporate Governance Report - continued
Key roles and responsibilities
The Chairman’s role and the CEO’s role.
John Reynolds was appointed as Chairman on 29 April 2015. The Chairman is responsible for the effective
working of the Board and the Chief Executive Officer is responsible for the day-to-day running of the
business. The roles of Chairman and Chief Executive Officer are separately held and the Chairman was
considered independent as at the date of his appointment. The Chairman is responsible for the effective
conduct of the Board and shareholder meetings and for ensuring that each Director contributes to effective
decision-making. The Chief Executive Officer has day-to-day executive responsibility for the running of the
Company’s businesses and his role is to develop and deliver the strategy to enable the Company to meet
its objectives. The Chairman ensures that the Board is provided with the information necessary to discharge
its duties. The Chairman holds other non-executive directorships and the Board considers that these do
not interfere with the discharge of his duties to the Company.
Senior Independent Director
The Board has appointed Giles Davies as the Senior Independent Director. The role of the Senior
Independent Director is mainly to:
• provide a sounding board for the Chairman and to serve as an intermediary for the other Directors when
•
•
•
necessary;
facilitate shareholders if they have concerns which contact through the normal channels of Chairman,
or Executive Directors has failed to resolve or for which such contact is inappropriate;
to hold a meeting with Non-Executive Directors at least annually (and on such other occasions as are
deemed appropriate) to appraise the Chairman’s performance, taking into account the views of Executive
Directors; and
to attend sufficient meetings with a range of major shareholders to listen to their views in order to help
develop a balanced understanding of the issues and concerns of major shareholders.
Company Secretary
The Directors have access to the advice and services of the Company Secretary who advises the Board on
governance matters. The Company’s Constitution and Schedule of Matters reserved for the Board provide
that the appointment or removal of the Company Secretary is a matter for the full Board.
Committees of the Board
The Board has established three committees with formal terms of reference: the Audit and Risk Committee,
the Nomination Committee and the Remuneration Committee. The duties and responsibilities of each of
these committees are set out clearly in written terms of reference, which have been approved by the Board
and are available on the Company’s website at www.cairnhomes.com or from the Company Secretary.
54
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Key roles and responsibilities (continued)
Audit and Risk Committee
Membership: G Britton (Chair), A Bernhardt and G Davies.
The Audit and Risk Committee is chaired by Gary Britton, who is also an independent Non-Executive Director
and is considered by the Board to have sufficient financial experience and sufficient understanding of
financial reporting and accounting principles. All members of the Audit and Risk Committee are independent
Non-Executive Directors and the Audit and Risk Committee is constituted in compliance with the UK Code.
The Audit and Risk Committee is responsible for monitoring and reviewing the financial reporting and
accounting policies of the Group, reviewing the adequacy of internal controls in respect of risk management,
reviewing the activities of the Group’s internal audit activities and overseeing the overall relationship with
the external auditor.
There were eight meetings of the Committee during the year and attendance details of each of the members
of the Committee are set out on page 53 of this report. The report of the Committee is set out on pages 62
to 66 of this report.
Nomination Committee
Membership: J Reynolds (Chair), G Britton and G Davies.
The Nomination Committee is responsible for reviewing, within the agreed terms of reference, the structure,
size and composition of the Board, undertaking succession planning, leading the process for new Board
appointments and making recommendations to the Board on all new appointments and the re-appointments
of existing directors.
In line with its terms of reference the Nomination Committee meets at least once per year and as otherwise
required.
There was one meeting of the Committee during the year and attendance details of each of the members
of the Committee are set out on page 53 of this report. The report of the Committee is set out on page 67 of
this report.
Mr Aidan O’Hogan resigned as a member of the Nomination Committee on 13 December 2016 and Mr Giles
Davies was appointed to the Committee on 16 December 2016.
Cairn Homes PLC
55
GOVERNANCE
Corporate Governance Report - continued
Key roles and responsibilities (continued)
Remuneration Committee
Membership: G Davies (Chair), A Bernhardt and G Britton.
The Remuneration Committee has responsibility for determining, within its agreed Terms of Reference, the
Group’s policy on the remuneration of senior executives and specific remuneration packages for the
Executive Directors and the Non-Executive Chairman, including pension rights and compensation payments.
It is also responsible for making recommendations for grants of options and performance shares under
share-based schemes for Group employees. The remuneration of the Non-Executive Directors is a matter
for the Board. No Director may be involved with any discussions as to their own remuneration.
There were ten meetings of the Committee during the year and attendance details of each of the members
of the Committee are set out on page 53 of this report. The report of the Committee is set out on pages 68
to 89 of this report.
Mr Aidan O’Hogan resigned as a member of the Remuneration Committee on 13 December 2016 and Mr Gary
Britton was appointed to the Committee on 16 December 2016.
56
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Corporate Governance Report - continued
Internal control
The Board has overall responsibility for the Company’s system of internal control, for reviewing its
effectiveness and for confirming that there is an ongoing process in place for identifying, evaluating and
managing the significant risks facing the Company. The process was in place throughout the year under
review and up to the date of approval of the Annual Report and Financial Statements. The Board has
reviewed the effectiveness of the Company’s internal control systems, with the assistance of the Audit and
Risk Committee. Effective risk management is critical to the achievement of the Company’s strategic
objectives. Risk management controls are in place across the business. The Group’s risk framework continues
to evolve, with some risk mitigants only in existence for a short period of time. The Group will continue to
monitor and improve its risk management framework.
The Company has documented its financial policies, processes and controls which will be reviewed and
updated on an ongoing basis. The key elements of the system of internal control include the following:
• Clearly defined organisation structure and lines of authority;
• Company policies for financial reporting, treasury management, information technology and security
and project appraisal;
• Annual budgets and business plans; and
• Monitoring performance against budget.
The preparation and issue of financial reports is managed by the Company finance department.
The financial reporting process is controlled using the Company’s accounting policies and reporting system.
The financial information is reviewed by the Group Finance Director and the Chief Executive Officer.
The interim and preliminary results and the Annual Report and Financial Statements are reviewed by the
Audit and Risk Committee on behalf of the Board.
Risk management
The Company considers risk management to be of paramount importance. The Board, together with the senior
management, deals with risk management on behalf of the Company as part of its regular monitoring of the
business. The Board and the Audit and Risk Committee have put in place procedures designed to ensure that all
applicable risks pertaining to the Company can be identified, monitored and managed at all times.
The Board has carried out a robust assessment of the principal risks of the Group. The Board has considered,
approved and maintains on an ongoing basis a Risk Register in which the risks pertaining to the Group are
identified and assessed. The Board considers the appropriateness of risk mitigation measures and any gaps
identified in such measures are addressed. The Risk Register is updated and reviewed by the Board and the
Audit and Risk Committee at least annually or more frequently if specifically required. The Board has reviewed
the effectiveness of the risk management systems and is satisfied that the Group’s risk management function
has the necessary authority, resources, expertise and access to relevant information to fulfil its role. Further
information on the principal risks applicable to the Group is given on pages 39 to 43.
Cairn Homes PLC
57
GOVERNANCE
Corporate Governance Report - continued
Financial risk management
The financial risk management objectives and policies of the Company are set out in Note 28 to the
Consolidated Financial Statements.
Shareholder engagement
The Company attaches considerable importance to shareholder communication. There is regular dialogue
with institutional shareholders, including detailed presentations and roadshows after the announcement
of interim and full year results. The Executive Directors meet with institutional investors during the year
and participate in broker/investor conferences.
The Executive Directors report regularly to the Board on their contacts with shareholders.
The Chairman, Chief Executive and other Directors will be available at the Annual General Meeting to answer
shareholder questions. The Annual Report for 2016 will be made available 20 working days prior to the
Annual General Meeting.
General meetings
The Company holds a general meeting each year as its annual general meeting in addition to any other
meeting in that year. Not more than 15 months shall elapse between the date of one Annual General Meeting
and that of the next. The Board is responsible for the convening of general meetings. Information is
distributed to shareholders at least 20 business days prior to the Annual General Meeting.
Voting Rights
(a) Votes of Members: Votes may be given either personally or by proxy. Subject to any rights or restrictions
for the time being attached to any class or classes of shares, on a show of hands every member present
in person and every proxy shall have one vote, so, however, that no individual shall have more than
one vote, and on a poll every member shall have one vote for every share carrying voting rights of which
he is the holder. The Chairman shall be entitled to a casting vote where there is an equality of votes.
(b) Resolutions: Resolutions are categorised as either ordinary or special resolutions. The essential
difference between an ordinary resolution and a special resolution is that a bare majority of more than
50% of the votes cast by members voting on the relevant resolution is required for the passing of an
ordinary resolution, whereas a qualified majority of more than 75% of the votes cast by members voting
on the relevant resolution is required in order to pass a special resolution. Matters requiring a special
resolution include for example:
• altering the Objects of the Company;
• altering the Constitution of the Company; and
• approving a change of the Company's name.
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General meetings (continued)
Other
The Company discloses information to the market as required by the Listing Rules of the London Stock
Exchange and Financial Conduct Authority, including inter alia:
(a) periodic financial information such as annual and half yearly results;
(b) price-sensitive information, which might be a significant change in the Company’s financial position or
outlook, unless there is a reason not to disclose such information (e.g. prejudicing commercial
negotiations);
information regarding major developments in the Company’s activities;
information regarding dividend decisions;
(c)
(d)
(e) any changes to the Board must be announced immediately once a decision has been made, and
(f )
information in relation to any significant changes notified to the Company of shares held by a
substantial shareholder.
The Company will make an announcement if it has reason to believe that a leak may have occurred about
any ongoing negotiations of a price-sensitive nature. Any decisions by the Board which might influence the
share price must be announced before the start of trading the next day. Information relayed at a
shareholders’ meeting, which could be price-sensitive, must be announced no later than the time the
information is delivered at the meeting.
In relation to any uncertainty regarding the communication of a particular matter, advice will be sought
from the Company’s sponsors and/or legal advisor(s).
Cairn Homes PLC
59
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Corporate Governance Report - continued
Health and Safety policy
It is the policy of the Company and its subsidiaries to comply with the following legislation as a minimum
standard for all work activities:
Safety, Health and Welfare at Work Act, 2005;
the Safety, Health and Welfare at Work (General Application) Regulations, 2007;
the Safety Health and Welfare at Work (Construction) Regulations, 2013 and all amendments to date; and
•
•
•
• All codes of practice applicable to the work undertaken by the Company or its subsidiaries.
In complying with the statutory requirements and implementing our safety management system the
Company ensures so far as reasonably practicable the safety, health and welfare of all employees, while at
work, and provides such information, training and supervision as is required for this purpose.
It is the policy of the Company to protect, so far as is reasonably practicable, persons not employed by this
organisation who may be affected by our activities.
It is the policy of the Company to ensure that adequate consultation takes place between management,
employees, contractors and others on all health and safety related matters and employees are encouraged
to notify management of identified hazards in the work place.
All employees have the responsibility to co-operate with supervisors and management to achieve a healthy
and safe work place and to take reasonable care of themselves and others.
The policy is to be available at all work locations for consultation and review by all employees. The policy
will be kept up to date and amended as necessary to meet changes in the nature and size of the business.
The policy is communicated to the employees at commencement of their employment and on an annual
basis thereafter as the safety statement review is carried out.
The Company will strive to work for the ongoing integration of health and safety into all of its activities, with
the objective of attaining high standards of health and safety performance. The Company seeks the full co-
operation of all concerned in the carrying through of its commitment.
60
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Corporate Governance Report - continued
Annual General Meeting
The Annual General Meeting of the Company is to be held at The Westbury Hotel, Grafton Street, Dublin 2,
D02 CH66, at 11.00am on 17 May 2017. The Notice of the Annual General Meeting will be circulated separately
to this report and will be available to download from the Company’s website. The Notice contains a
description of the business to be transacted at the Annual General Meeting.
Every shareholder has the right to attend and vote at the Annual General Meeting and to ask questions
related to the items on the agenda of the Annual General Meeting.
Cairn Homes PLC
61
Dear Shareholder,
As Chairman of Cairn Homes plc Audit and Risk Committee, I am pleased to present the Committee’s Report
for the year ended 31 December 2016.
The Audit Committee comprises of three Independent Non-Executive Directors. The members are G Britton
(Chairman), G Davies and A Bernhardt. There were eight meetings of the Committee and details of the
members’ attendance are set out on page 53.
The key responsibilities of the Audit and Risk Committee as set out in its terms of reference are as follows:
Financial Reporting
Monitoring the integrity of the financial statements of the Company, including its annual and half-yearly
reports and accounts and any other formal announcement relating to its financial performance.
The Audit and Risk Committee also reviews and reports to the Board on summary financial statements,
significant financial returns to regulators and any financial information contained in certain other
documents, such as announcements of a price sensitive nature.
In particular, the Audit and Risk Committee reviews and challenges where necessary:
(a)
(b)
the consistency of, and any changes to, accounting policies both on a year on year basis and across
the Company/Group;
the methods used to account for significant or unusual transactions, where different approaches are
possible;
(c) whether the Company has followed appropriate accounting standards and made appropriate estimates
(d)
and judgements, taking into account the views of the Auditor;
the clarity and completeness of disclosures in the Company's financial reports and the context in which
statements are made; and
(e) all material information presented with the financial statements, such as the operating and financial
reviews and the corporate governance statement (insofar as it relates to the audit and risk management).
The Audit and Risk Committee also reviews the content of the Annual Report and advises the Board on
whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business model and strategy.
62
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Report of the Audit and Risk Committee - continued
Internal Controls and Risk Management Systems
The Audit and Risk Committee keeps under review the categorisation, monitoring and overall effectiveness
of the Company's risk assessment and internal control processes, including the methodology adopted. It
sets a standard for the accurate and timely monitoring of large exposures and certain risk types of critical
importance, in order to allow for a reviewing framework that focuses on material potential risks and those
outside of agreed tolerance levels. The Audit and Risk Committee also reviews and approves any statements
to be included in the Company's Annual Report concerning internal controls and risk management.
Whistleblowing and Fraud Prevention
The Audit and Risk Committee reviews the adequacy and security of the Group’s arrangements for its
employees and contractors to raise concerns in confidence about possible wrongdoing in the Company in
terms of financial reporting or other areas. The Audit and Risk Committee ensures that these arrangements
allow proportionate and independent investigation of such matters and appropriate follow up action.
The Audit and Risk Committee also reviews the following:
(a)
(b)
(c)
the Company's procedures for detecting fraud;
the Company's systems and controls for the prevention of bribery; and
the adequacy and effectiveness of the Company's compliance function.
Internal Audit
Towards the end of 2015, the Company developed an outsourced internal audit function. The Committee
approved the internal audit plan for 2016 and monitored progress against the plan throughout the year.
Internal Audit reports were reviewed by the Committee after each audit and the Committee, where necessary,
monitored progress against actions identified in these reports.
During the year, the Committee reviewed the adequacy of the current arrangement in relation to internal
audit and the Committee was satisfied that the arrangement is satisfactory. The Committee will continue to
keep the arrangement under review.
Cairn Homes PLC
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Report of the Audit and Risk Committee - continued
External Audit
The Audit and Risk Committee considers and makes recommendations to the Board, to be put to
shareholders for approval at the AGM, in relation to the appointment, re-appointment or removal of the
Auditor.
The Audit and Risk Committee oversees the relationship with the Auditor, including Auditor independence
and meets regularly with the Auditor, including at least once at the planning stage before the audit and at
least once after the audit at the reporting stage. The Audit and Risk Committee also meets the Auditor at
least once a year, without executive management being present, to discuss their remit and any issues arising
from the audit.
The Audit and Risk Committee reviews and approves the annual external audit plan and ensures that it is
consistent with the scope of the audit engagement and reviews the findings of the audit with the Auditor.
The review of the findings of the audit includes the following:
(a) a discussion of any major issues which arose during the audit;
(b) any significant or material accounting estimates and audit judgements;
(c)
(d)
levels of errors identified during the audit; and
the effectiveness of the audit process.
Matters considered at the meetings during the year included:
•
•
•
•
•
•
the year-end and interim financial statements;
the reports and findings of the Auditor on the year-end and interim financial statements;
fees payable to the Auditor;
independence of the Auditor;
the external audit plan; and
the provision of non-audit services by the Auditor.
The Committee has approved a policy on the engagement of the external auditor to provide non-audit
services. In considering any proposal for the provision of non-audit services by the external auditor the
Committee will consider a number of matters including:
•
Threats to independence and objectivity resulting from the provision of such services and any safeguards
in place to eliminate or reduce these threats to a level where they would not compromise the auditor’s
integrity and objectivity;
The nature of the non-audit services;
•
• Whether the skills and experience of the external audit firm make it the most suitable supplier of the
•
non-audit services;
The fees incurred, or to be incurred, for non-audit services both for individual services and in aggregate,
relative to the audit fee; and
• Any relevant legislation.
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Report of the Audit and Risk Committee - continued
External Audit (continued)
The Policy provides that the approval of the Committee must be obtained prior to engagement of the
external auditor for any non-audit fees exceeding 40% of the total annual audit fee in aggregate in any year.
The engagement of the external auditor for the provision of routine services including regular taxation
advice does not require pre-approval by the Committee. The auditors described how auditor independence
is managed in their firm and also confirmed that they complied with all regulatory and ethical guidelines
in this matter. The Committee was satisfied with the explanations received.
During the year ended 31 December 2016, non-audit fees paid to the external auditor exceeded audit fees.
The breakdown is set out in Note 10 to the consolidated financial statements. The Committee considered
the nature and scale of these fees in the context of the assessment of external auditor independence. The
Committee is satisfied that the services were best provided by the external auditor given the nature of the
work, which primarily related to additional fundraising on capital markets and related due diligence projects.
The Committee is conscious of the relationship between audit and non-audit fees and expects the
relationship to move to a more normal level of less than 1:1 as the business matures.
Financial Statements including significant judgements
In accordance with the reporting requirements of the UK Code, the Audit and Risk Committee confirms to
the Board that, in our view, the Annual Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the Company’s performance, business model
and strategy. As part of this work, the Committee considered whether the financial statements are consistent
with the operating and financial reviews elsewhere in the Annual Report and, in particular, whether the
financial statements contain any significant matters that are not addressed in those reviews. The Committee
reviewed and approved the Group’s policy in respect of the arrangements in place to ensure that the Annual
Report is fair, balanced and understandable. The key areas of judgement considered by the Committee in
relation to the financial statements for the year ended 31 December 2016 and how these were addressed
are outlined below. In addition, each of these areas received particular focus from the external auditor, who
provided detailed analysis and assessment of the matter in their report to the Committee.
Key Areas
Carrying Value of Inventories and Profit Recognition
The Group has continued to invest significant capital in development land during 2016 and the work in
progress carrying values have also increased as the business continues to scale its construction activities.
Consequently, the carrying value of inventories is a critical area in terms of judgement from a management
and audit perspective. The Group engaged in a detailed annual impairment test during 2016, to ensure that
the investment in such development land and the related work in progress is not impaired. The impairment
exercise was conducted with input from the relevant stakeholders across the business and external input,
where appropriate. The annual impairment test looks at all aspects of site performance on a site by site
basis, in order to determine the net realisable value of the individual site. This involves assessing the number
of units that can be achieved on each individual site, together with a full assessment of the likely sales
prices of those individual units, which are then compared to a third party sales agent assessment of the
sales value of those units.
Cairn Homes PLC
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Report of the Audit and Risk Committee - continued
Financial Statements including significant judgements (continued)
Carrying Value of Inventories and Profit Recognition (continued)
All costs associated with the development are assessed and updated on a regular basis as new information
becomes available, based on actual experience. In the event that the net realisable value is lower than the
cost of any particular site, the individual site would be considered impaired and it would be written down
to its net realisable value. This process is reviewed by senior management and is also tested extensively as
part of the annual audit process. The annual impairment test did not show any evidence of impairment on
a site by site basis.
The Group recognises its gross profit on each sale, based on the particular unit sold and the total cost
attaching to that unit.
As the build cost on the site can take place over a number of reporting periods the determination of the
cost of sale to release on each individual unit sale is dependent on up to date cost forecasting and expected
profit margins across the scheme. There is a risk that one or all of the assumptions could be inaccurate,
with a resulting impact on the carrying value of inventory or the amount of profit recognised. This risk is
managed through ongoing site profitability reforecasting, with any necessary adjustments being accounted
for in the relevant reporting period.
The Committee considered the evidence from impairment reviews and profit forecasting models across the
various sites and discussed the results with management and is satisfied with the carrying values of
inventories (development land and work in progress) and with the methodology for the release of costs on
the sale of individual houses.
Accounting Treatment for the Acquisition of the Argentum group
On 21 April 2016, the Company acquired the Argentum group and its related sites for €91.2m. This acquisition
has been treated as a business combination in accordance with IFRS 3. In addition to acquiring its
development sites, the Company also acquired the existing business processes of the Argentum group,
which was a key factor in determining the correct accounting treatment to follow. In concluding on the
correct allocation of the purchase price to the fair values of the development land inventories and other
identifiable assets and liabilities acquired, consideration was given to the financial and other information
of the Argentum group and the Company’s plans for the acquired business. As a consequence of this
assessment, it was concluded that no goodwill arose on the acquisition.
The Committee is satisfied that the acquisition has been correctly treated as a business combination and
has been appropriately accounted for in accordance with IFRS 3 in the financial statements.
G Britton
Chairman, Audit and Risk Committee
66
Annual Report 2016
Dear Shareholder,
As Chairman of Cairn Homes plc Nomination Committee, I am pleased to present the Committee’s Report
for the year under review.
The Nomination Committee comprises of the Group Chairman and two Independent Non-Executive Directors.
The members are J Reynolds (Chairman), G Britton and G Davies. There was one meeting of the Committee
during the year and details of the members’ attendance are set out on page 53.
The Nomination Committee reviews the structure, size and composition (including the skills knowledge,
experience and diversity) required of the Board and makes recommendations to the Board with regard to
any changes. It assesses the effectiveness and performance of the Board and each of its committees,
including consideration of the balance of skills, experience, independence and knowledge on the Board, its
diversity, including gender, how the Board works together as a unit, and other factors.
The Nomination Committee gives full consideration to succession planning for the Company on behalf of
the Board, taking into account the challenges and opportunities facing the Company and the skills and
expertise that will be needed in the future to address these to ensure the continued ability of the Company
to compete effectively in the marketplace. The Nominations Committee is responsible for identifying and
nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise.
The Nominations Committee shall also make recommendations to the Board concerning the re-appointment
of any Non-Executive Director at the conclusion of his or her specified term of office and the re-election by
shareholders of Directors having due regard to their performance and ability to continue to contribute to the
Board in light of the knowledge, skills and experience required and the need for progressive refreshing of the Board.
No external recruitment consultants were used in the recruitment of the current Board who were all
appointed while the Company was still a private limited company and prior to the establishment of the
Nomination Committee and the listing of the Company. A Non-Executive position has arisen with the
departure of Aidan O’Hogan from the Board. Processes of Board selection and recruitment will be
undertaken in respect of the Non-Executive Director vacancy and the Group Finance Director position and
the outcome of these processes will be announced in due course.
J Reynolds
Chairman, Nomination Committee
Cairn Homes PLC
67
Dear Shareholder,
As Chairman of Cairn Homes plc Remuneration Committee, I am pleased to present our Remuneration Report
for the year ended 31 December 2016.
The Remuneration Committee comprises three independent Non-Executive Directors. The members of the
Remuneration Committee are Giles Davies (Chairman), Andrew Bernhardt and Gary Britton. Biographical
details for the members of the Remuneration Committee are set out on pages 34 to 37.
The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013
(the ‘UK Regulations’) are in effect in the UK. While Cairn Homes, as an Irish incorporated company, is not
subject to these regulations, we recognise that they represent best practice in remuneration reporting and
we have accordingly, substantially applied the UK Regulations to this Remuneration Report on a voluntary
basis.
The Remuneration Policy and the Annual Report on Remuneration, as set out on pages 71 to 85, will therefore
be put to a non-binding advisory vote by shareholders at the 2017 Annual General Meeting.
Review of LTIP and revised Remuneration Policy
Last year’s Report of the Remuneration Committee stated that once the Committee considers that the
Company has completed its initial development phase, it would put in place a new share-based long-term
incentive scheme to steer the business in its next stage of development. The Company has completed its
initial development stage, delivered its business plan and is now scaling its operations. Therefore over the
last few months the Committee has undertaken a review of possible long-term incentives. This
comprehensive review took into account all elements of long-term incentive design and the Company’s
business needs, alignment with shareholders as well as typical practice at comparators, in addition to
institutional shareholder guidelines.
The results of our review have led to the development of the Cairn Homes plc Long-Term Incentive Plan
(LTIP) which replaces the current use of market priced options. The LTIP provides for annual awards of
performance shares vesting on the achievement of 3-year EPS and Total Shareholder Return (TSR) targets,
with a 2-year post-vest holding period for the most senior participants, with first awards under the LTIP
being eligible for grant following the 2017 AGM. The design features of the LTIP align with the remuneration
principles used by the Committee for all aspects of remuneration decisions. Further details on this plan are
set out on pages 74 to 75 in the Remuneration Policy.
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Report of the Remuneration Committee - continued
Review of LTIP and revised Remuneration Policy (continued)
Those Executives who already hold Founder Shares will not receive an award under the LTIP for the duration
of the performance period relating to their Founder Shares. This includes the Chief Executive Officer, Michael
Stanley; Executive Director, Alan McIntosh; and MD Corporate Development, Kevin Stanley. Therefore, the only
Executive Directors who can participate in the proposed LTIP will be the new Group Finance Director and any
other future new hires.
The proposed LTIP will be put to shareholders for their advisory vote at the 2017 AGM.
The Committee has also decided to implement share ownership guidelines from 2017 of 300% of salary for
the Chief Executive Officer and 100% of salary for his direct reports. Executives will be required to hold 50%
of any vested shares until the applicable ownership level is achieved.
The Committee has decided to increase the upper limit of pension contribution that can be paid to Executive
Directors from 10% of salary to 25% of salary. This change has been made to rebalance the pay structure to
be made consistent with the market. No changes have been made to current pension arrangements. No
other major changes have been made to the Remuneration Policy from last year. Minor changes have been
made to the Policy to improve alignment to market.
Performance in 2016
The Committee reviewed the performance of the Executive Directors and other Executives for 2016. In
conducting this review the Committee considered the progress made during the year and in particular:
•
•
•
•
•
Total revenue of €40.9m delivered;
The commencement of construction on three additional sites, Marianella, Ashbourne and Hanover Quay;
The acquisition of the Argentum group of companies, which gave the Company access to six development
sites in the greater Dublin area;
The acquisition of 7 separate sites, including sites at Cherrywood in South Dublin, Hanover Quay in
Dublin City Centre and Maynooth in Kildare;
The successful completion of a Firm Placing and Placing and Open Offer of approximately €176.5
million, before costs;
105 completed house sales;
Excellent progress in securing critical talent to scale the business; and
•
•
• Operating profit which significantly exceeded budget.
The Committee considered how the Executive Directors had performed against the Company’s objectives
and how each of them had contributed to the overall performance of the Company and the attainment of
personal objectives. As a result, annual incentive payments earned by the Executive Directors in respect of
the year ended 31 December 2016 range from 75% to 105% of salary. Further detail in relation to the Executive
Directors’ remuneration is set out on page 83.
Cairn Homes PLC
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Report of the Remuneration Committee - continued
Role and Responsibilities
The role and responsibilities of the Committee which are set out in detail in its Terms of Reference include
the following:
•
•
•
•
•
•
•
•
To determine and agree with the Board the policy for the remuneration of the Chief Executive Officer,
the Group Finance Director and certain other Executives (as determined by the Committee);
To determine the remuneration packages of the Chairman, Chief Executive Officer, Group Finance Director
and certain other Executives, including salary, annual incentive, pension rights and compensation
payments;
To oversee remuneration structures for other Company and subsidiary senior management and to
oversee any major changes in employee benefits structures throughout the Group;
To nominate Executives for inclusion in the Company’s LTIP, to grant awards under the LTIP, to determine
whether the criteria for the vesting of awards have been met and to make any necessary amendments
to the rules of the Plan;
To ensure that contractual terms on termination or redundancy, and any payments made, are fair to the
individual and the Company;
To be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the
terms of reference for any remuneration consultants who advise the Committee;
To obtain up to date information about remuneration in other companies of comparable scale and
complexity; and
To agree the policy for authorising claims for expenses from the Directors.
Remuneration in 2017
It is our intention that remuneration arrangements for 2017 operate in line with the approved Remuneration
Policy, which has been further strengthened to ensure market alignment, best practice and as appropriate
to deliver performance and retain our best people over the long term.
A key change in our remuneration strategy for 2017 will be the inclusion of the proposed LTIP, which is being
presented to shareholders for their advisory vote. The context and timing of this plan is important as we
have acquired a significant strategic landbank and are now focused on achieving core operational excellence
and scale over the next three years. We chose EPS as the primary performance metric for the LTIP in order
to clearly focus participants on execution and profitable, quality led delivery. We have also included a TSR
secondary measure, which is further strengthened by the Founders alignment on TSR outcomes. We feel
that this balances organisational focus on both controllable factors for participants and also ensures
shareholder alignment.
We will continue our practice of rigorous benchmarking of compensation to ensure appropriate market
alignment and value for shareholders.
We welcome and will consider any shareholder feedback on the Remuneration Policy and Annual Report
on Remuneration.
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Report of the Remuneration Committee - continued
Remuneration Policy
Cairn Homes’ Remuneration Policy (‘the Policy’) is set out below. This Policy will be subject to an advisory
vote at the 2017 AGM and will be applicable from the 2017 AGM onwards.
Through the implementation of the Policy, the Board seeks to align the interests of Executive Directors and
other Executives with those of shareholders, within the framework set out in the UK Corporate Governance
Code. Central to this policy is the Company’s commitment to long-term, performance based incentivisation
and the encouragement of share ownership.
The basic objective under the Policy is to have overall remuneration reflect business performance and
personal contribution, while having basic salary rates and the short term element of incentive payments at
the median of an appropriate comparator group.
Through the operation of the Policy, the Committee seeks to ensure:
•
•
•
•
•
that the Company will attract, motivate and retain individuals of the highest calibre;
that Executives are rewarded in a fair and balanced way which promotes the long term success of the
Company;
that Executives receive a level of remuneration that is appropriate to their scale of responsibility and
individual performance;
that the overall approach to remuneration has regard to the sectors and geographies within which the
Company operates and the markets from which it draws its Executives; and
that risk is properly considered in setting remuneration policy and in determining remuneration packages.
The Policy requires well-designed incentive plans that reward the creation of shareholder value through
organic and acquisition growth, while maintaining high returns on capital employed, strong cash generation
and a focus on good risk management. The elements of the remuneration package for the Executive Directors
and other Executives are annual salary, retirement benefits and allowances, annual performance related
incentives and participation in a long term incentive plan, which promotes the creation of sustainable
shareholder value.
The Committee takes external advice from remuneration consultants (Mercer), to help ensure that the
remuneration structure continues to support the key remuneration objectives, the Company’s business
priorities and suitably takes into account market practice.
Cairn Homes PLC
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Report of the Remuneration Committee - continued
Remuneration Policy (continued)
The key elements of the remuneration for Executive Directors and other Executives under the Policy are set
out in the table below.
Element and link to
Remuneration Policy
Salary
Attract and retain skilled and
experienced Executives.
Approach
Maximum Opportunity
The target position for salaries will
be generally market median. Any
annual salary increases will be
considered in that context.
Annual salaries are reviewed
annually. The factors taken into
account in the review include:
• Role and experience;
• Company performance;
• Personal performance;
• Competitive market practice;
and
• Benchmarking against an
appropriate comparator
group.
When setting salaries, account is
taken of movements in salaries
generally across the Company.
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Report of the Remuneration Committee - continued
Remuneration Policy (continued)
Element and link to
Remuneration Policy
Annual Incentives
Reward
annual performance targets.
the achievement of
Approach
Maximum Opportunity
The target and maximum awards,
as a percentage of annual salary,
for the Executive Directors are as
follows:
Target
70%
Max.
105%
50%
75%
Chief Executive
Officer
Other Executive
Directors
and
Annual Incentive payments to
Executive Directors and other
Executives are based on (a)
meeting the Company’s financial
objectives and (b) the overall
contribution and attainment of
personal objectives.
The contribution and personal
targets are focused on areas
such as delivery on strategy,
organisational development, risk
management
talent
development/succession planning.
The measures, their weighting
and the objectives are reviewed
on an annual basis.
The Committee
can apply
appropriate discretion in specific
circumstances
in respect of
determining the incentive payment
to be awarded.
A formal clawback policy is in
place for the Executive Directors
(and other Executives), under
which Annual Incentive payments
are subject to clawback for a
period of three years in the event
of a material restatement of
financial statements or other
specified events. Further details
on the clawback policy are set
out on page 76.
Cairn Homes PLC
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Report of the Remuneration Committee - continued
Remuneration Policy (continued)
Element and link to
Remuneration Policy
Approach
Maximum Opportunity
Cairn Homes plc Long-Term Incentive Plan (‘LTIP’)
Align the interests of Executive
Directors and Executives with those
of the Company’s shareholders
and reflect the Company’s policy
of long term performance-based
incentivisation.
Annual awards of Performance
Shares of up to 100% of salary can
be made. In exceptional circumstances,
such as recruitment, awards of up
to 200% of salary can be made.
The actual grant size will be
dependent on individual performance
and potential.
No more than 5% of the issued
ordinary share capital may be
issued or reserved for issuance
under the LTIP over any ten year
period.
3-year
The LTIP provides for annual awards
of Performance Shares. It is the
Committee’s intention that the
incentive
long-term
primary
vehicle will be made through
regular awards of Performance
Shares. Holders of Founder
Shares will be excluded from
participation in the LTIP for the
duration of the performance
period relating to their Founder
Shares.
Performance Share awards vest
based on
financial
performance. For the first cycle, to
be granted in 2017, the vesting
condition will be based 80% on
cumulative EPS and 20% on Total
Shareholder Return. The Committee
will consider the appropriate
measures and targets for each
subsequent cycle depending on
strategic priorities.
Performance Shares will vest after
3 years, with awards made to the
Executive Directors and other
senior Executives subject also to
an additional two-year holding
period after vesting.
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Report of the Remuneration Committee - continued
Remuneration Policy (continued)
Element and link to
Remuneration Policy
Approach
Maximum Opportunity
Cairn Homes plc Long-Term Incentive Plan (‘LTIP’) - continued
Retirement Benefits
Reward sustained contribution.
A formal clawback policy is in
place for the Executive Directors
(and other Executives), under
which LTIP awards are subject to
clawback for a period of three
years from the vesting date in the
event of a material restatement of
financial statements or other
specified events. Further details
on the clawback policy are set out
on page 76. Any unvested awards
will also be subject to malus.
Executive Directors and Executives
participate in a defined contribution
pension scheme or receive cash
in lieu of a pension. The pension
scheme gives the Company full
discretion to pay appropriate
contribution levels. The Committee
takes account of market and
benchmarking data for pension
contributions for each employee
group.
For the Executive Directors the
pension contribution is set at a
maximum of 25% of salary.
Cairn Homes PLC
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Report of the Remuneration Committee - continued
Remuneration Policy (continued)
Element and link to
Remuneration Policy
Allowances
Provide market competitive
benefit.
Existing Arrangements
Approach
Maximum Opportunity
The main benefit is a car allowance.
The Committee reviews market
and benchmarking data in relation
to allowances.
Maximum levels have not been set
as payments depend on the
individual Executive’s circumstances.
Subject to the achievement of the applicable performance conditions, certain Executives participate in
arrangements made prior to the approval and implementation of the Remuneration Policy detailed in this
report. This includes awards made under the previous LTIP (share option plan) to the Group Finance Director
(see page 87).
Clawback Policy
Incentive payments made to the Executive Directors and other Executives may be subject to clawback for a
period of three years from date of payment in certain circumstances including:
a material restatement of the Company’s audited financial statements;
•
• business or reputational damage to the Company or a subsidiary arising from a criminal offence, serious
misconduct or gross negligence by the individual Executive; or
a material breach of applicable health and safety regulations by the individual Executive.
•
The rules of the LTIP also allow for the giving of discretion to the Committee to reduce or impose further
conditions on awards prior to or subsequent to vesting in the circumstances outlined above. Malus
conditions will also apply to any unvested LTIP awards and will be applicable for the same circumstances.
Share ownership guidelines
To encourage general share ownership and ensure alignment of Executive interests with those of
shareholders, the Chief Executive Officer is required to hold shares equivalent to 300% of base salary while
his direct reports are required to hold 100% of base salary calculated by reference to the value of their
shares held at the then market value on the acquisition date. Executives will be required to hold 50% of any
vested shares, until the applicable ownership level is achieved.
76
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Remuneration Policy for Recruitment of New Executives
In determining the remuneration package for new Executives, the Committee will be guided by the principle
of offering such remuneration as is required to attract, retain and motivate a candidate with the particular
skills and experience required for a role. The Remuneration Committee will generally set a remuneration
package which is in accordance with the terms of the approved Remuneration Policy in force at the time of
the appointment, though the Committee may make payments outside of the Policy if required in the
particular circumstances and if in the best interests of the Company and its shareholders. Any such
payments which relate to the buyout of variable pay (annual incentives or long-term incentive awards) from
a previous employer will be based on matching the estimated fair value of that variable pay and will take
account of the performance conditions and the time until vesting of that variable pay.
For an internal appointment, any variable pay element awarded in respect of the prior role and any other
ongoing remuneration obligations existing prior to the appointment will be honoured.
Remuneration Policy for Other Employees
While the Committee’s specific oversight of individual Executive remuneration packages extends only to the
Executive Directors and a number of Executives, it aims to create a broad policy framework, to be applied
by management to Executives throughout the Company, through its oversight of remuneration structures
for other Company and subsidiary senior management and of any major changes in employee benefits
structures throughout the Company. For example, senior managers are eligible to participate in the LTIP at
the Committee’s discretion.
Consultation with Shareholders
When determining remuneration, the Committee takes into account the views of representative investor
bodies and shareholder views. The Committee is committed to engaging with major shareholders on any
material changes to the remuneration policy, and recently consulted major shareholders on the structure
of the LTIP.
The Committee acknowledges that shareholders have a right to have a ‘say on pay’ by putting the
Remuneration Policy and the Annual Report on Remuneration as well as the new LTIP to advisory votes at
the Annual General Meeting.
Cairn Homes PLC
77
GOVERNANCE
Report of the Remuneration Committee - continued
Policy for “Leavers”
The provisions for “leavers” in respect of each of the elements of remuneration are as follows:
Salary and Benefits
Payments are made in respect of annual salary and benefits for the relevant notice period. The notice period
for the Chief Executive Officer is 12 months and for the other Executive Directors the notice period is a
maximum of 12 months. In all cases, the notice period applies to both the Company and the Executive.
Annual Incentive
The Committee can apply appropriate discretion in respect of determining the annual incentives, if any, to
be awarded based on actual achieved performance and the period of employment during the financial year.
The Committee’s consideration will include the individual’s performance and contribution in the year in
which they leave as well as the basis on which they are leaving the Company.
LTIP
The Committee would normally exercise its discretion when dealing with a participant who ceases to be an
employee by reason of certain exceptional circumstances e.g. death, injury or disability, redundancy,
retirement or any other exceptional circumstances. In such circumstances, any shares that have not already
vested on the participant’s cessation date would be eligible for vesting on the normal vest date or other
date determined by the Committee. The number of shares vesting would be determined by the Committee,
although the default position would be to pro-rate for the proportion of the vesting period elapsed at
cessation and to continue to apply the performance conditions.
In the event that a participant ceases to be an employee due to resignation or by reason of a termination
for serious misconduct, share awards held by the participant, whether or not vested, would lapse
immediately on the service of notice of such termination, unless the Committee in its sole discretion
determines otherwise.
78
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Policy for Non-Executive Directors
Element and link to strategy
Operation
Maximum Opportunity
Fees
The fees paid to Non-Executive
Directors reflect their experience
and ability and the time demands
of their Board and Board Committee
duties.
A basic fee is paid for Board
membership. Additional fees are
payable to the Chairman, Chairman
of the Audit and Risk Committee
and the Senior Independent
Director.
Additional fees may be paid for
membership of a Board Committee.
The remuneration of the Chairman
is determined by the Remuneration
Committee for approval by the
Board.
No prescribed maximum annual
increase but benchmarking and
market practice will determine any
change in fees.
Directors
The remuneration of the other
Non-Executive
is
determined by the Chairman and
the Chief Executive Officer for
approval by the Board.
in
Non-Executive Directors do not
participate
the Company’s
Annual Incentive and LTIP and do
not receive any retirement benefits
from the Company.
The fees are reviewed from time
to time, taking account of any
changes in responsibilities and
market practice.
Non-Executive Directors Letters of Appointment
Non-Executive Directors have letters of appointment which set out their duties and responsibilities. The
appointments are initially for a three year term but are terminable on one month’s notice.
Policy on External Board Appointments
Executive Directors may accept external non-executive directorships with the prior approval of the Board.
The fees received for such roles may be retained by the Executive Directors.
The Board recognises the benefits that such appointments can bring both to the Company and to the
Executive Director in terms of broadening their knowledge and experience.
Cairn Homes PLC
79
GOVERNANCE
Report of the Remuneration Committee - continued
Annual Report on Remuneration
This section of the Remuneration Report sets out the basis of how Cairn Homes’ Remuneration Policy will
operate in the year to 31 December 2017 (subject to shareholder approval), gives details of remuneration
outcomes for the year ended 31 December 2016 and explains how the Remuneration Committee works.
Remuneration in 2017
We have included the remuneration arrangements for the Group Finance Director, Eamonn O’Kennedy
because at the date of publishing this report, he was still in position and his leaving date had not been
confirmed. Until he leaves, he will be entitled to a salary, benefits and pensions in line with the
implementation of the Remuneration Policy. Eamonn will receive his performance bonus on a pro-rata basis,
for the duration of his notice period in line with his contractual entitlement. He will not receive an award
under the proposed new LTIP.
Salary
The salaries of the Executive Directors for 2017 are set out below. Salaries are unchanged from 2016.
Michael Stanley
Alan McIntosh
Eamonn O’Kennedy
From 1 January
2017 €
425,000
325,000
250,000
80
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Annual Incentive
The annual incentive opportunity for the Executive Directors for 2017 is as follows:
Michael Stanley
Alan McIntosh
Eamonn O’Kennedy
Target Incentive
(% of salary)
Maximum Incentive
(% of salary)
70%
50%
50%
105%
75%
75%
The annual incentive will be based 70% on financial performance (primarily on EPS) and 30% on the
achievement of individual performance objectives (linked to leadership and operational targets).
The Committee will disclose the performance targets used for the 2017 annual incentive within 3 years
following the end of the performance period subject to their being considered no longer commercially
sensitive.
Retirement Benefits
The Executive Directors will continue to participate in the Defined Contribution Pension Scheme or receive
a cash supplement in lieu of pension as detailed in the Remuneration Policy.
Cairn Homes PLC
81
GOVERNANCE
Report of the Remuneration Committee - continued
Long Term Incentives
The purpose of the LTIP is to align the Executive Directors and other eligible Executives with shareholder
interests, to deliver exceptional performance. LTIP awards will be subject to performance targets set over a
3 year period, with an additional 2 year holding period for other senior Executives as defined by the Company,
based on their role and contribution to the business.
2017 LTIP awards will vest 80% on 3-year cumulative EPS and 20% on 3 year Total Shareholder Return covering
the financial years 2017-2019, as follows:
Cumulative EPS
Less than 16.7c
16.7c
Vesting of EPS-based award
0%
25%
Between 16.7c and 18.6c
Straight line basis between 25% and 40%
18.6c
40%
Between 18.6c and 26.0c
Straight line basis between 40% and 100%
26.0c or above
100%
Total Shareholder Return
Vesting of TSR-based award
Less than 8% p.a.
8% p.a.
0%
25%
Between 8% p.a. and 12.5% p.a.
Straight-line basis between 25% and 100%
12.5% p.a.
100%
The Committee considers the performance ranges above to be stretching but achievable and reinforce
performance which is consistent with our key strategic objectives as well as consistency with the Founder
Share performance condition. The performance orientation of the grant policy will ensure that the LTIP is
focused appropriately on those who can make the most impact, regardless of their seniority, therefore
ensuring that we penetrate down to ensure succession and performance of the business.
82
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Remuneration outcomes for the period ended 31 December 2016
The table below sets out the details of the remuneration payable to the Executive Directors for the year
ended 31 December 2016, with comparatives for the prior period from 12 November 2014 to 31 December
2015.
Salary
Annual
Incentive
Retirement
Benefit
Car
Allowance
Total
2016
2015
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
2016
2016
2016
2016
2015
2015
2015
2015
Michael
Stanley
Alan
McIntosh
Eamonn
O’Kennedy
425
455
446
212
325
343
244
162
Total
1,000
1,028
250
230
187
877
185
559
43
27
25
95
46
29
23
98
10
10
10
30
6
6
9
21
924
719
606
540
472
447
2,002
1,706
Notes:
1 The table above does not include 12,768,646 ordinary shares which were issued to Michael Stanley and Alan McIntosh during 2016
through the conversion of Founder Shares in their capacity as holders of Founder Shares.
2 The annual incentive paid to Eamonn O’Kennedy in 2015 includes a one off bonus of €40,000 as outlined in the Prospectus for the
Initial Public Offering and which was determined to be payable by the Remuneration Committee.
3 The remuneration for Michael Stanley and Alan McIntosh in 2015 is from the date of incorporation of the Company (12 November 2014)
and in the case of Eamonn O’Kennedy is from the date of his appointment.
2016 Annual Incentive outcomes
The 2016 Annual Incentive for the Executive Directors was based on a range of performance objectives as
outlined on page 69.
The Remuneration Committee assessed performance against these objectives and determined the bonuses
to be paid to the Executive Directors would be €877,000.
Retirement Benefit
A McIntosh received his retirement benefits for 2016 and 2015 as cash in lieu of pension contributions.
LTIP awards
No LTIP awards were granted in 2016 to the Executive Directors.
Cairn Homes PLC
83
GOVERNANCE
Report of the Remuneration Committee - continued
Performance graph
The following graph shows the cumulative Total Shareholder Return of the Company over the period since
IPO relative to the (FTSE 250) Index (excluding Investment Trusts), an index considered by the Remuneration
Committee to be an appropriate benchmark for comparison as it represents a broad equity market index of
companies of similar market capitalisation to Cairn.
TOTAL SHAREHOLDER RETURN
i
g
n
d
l
o
h
0
0
1
£
l
a
c
i
t
e
h
t
o
p
y
h
f
o
e
u
l
a
V
140
130
120
110
100
90
80
70
60
11/06/2015
31/12/2015
30/06/2016
31/12/2016
Cairn Homes
FTSE 250 xIT
84
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Non-Executive Directors’ Remuneration Details
The Chairman receives a fee of €100,000 per annum and the Non-Executive Directors are paid a basic fee
of €50,000 per annum, with additional fees payable to the Chairman of the Audit and Risk Committee of
€15,000 per annum and to the Senior Independent Director of €10,000 per annum.
The fees paid to Non-Executive Directors in respect of the year ended 31 December 2016 and the period
ended 31 December 2015 are set out below:
Non- Executive Directors1
John Reynolds (Chairman)
Andrew Bernhardt
Gary Britton (Chairman of
Audit and Risk Committee)
Giles Davies (Senior Independent Director)
Aidan O’Hogan2
Total
Basic Fee
Additional
Fees
Total
2016
€’000
2015
€’000
2016
€’000
2015
€’000
2016
€’000
2015
€’000
100
50
50
50
50
56
35
35
35
32
300
193
-
-
15
10
-
25
-
-
-
7
-
7
100
50
65
60
50
56
35
35
42
32
325
200
1 2015 fees are from dates of appointment.
2 Aidan O’ Hogan resigned with effect from 13 December 2016.
Cairn Homes PLC
85
GOVERNANCE
Report of the Remuneration Committee - continued
Executive and Non-Executive Directors’ and Company Secretary’s Interests
The interests of the Directors and Company Secretary who held office at 31 December 2016 in the issued
ordinary share capital of the Company are set out in the table below. The interests disclosed below include
both direct and indirect interests in shares.
Directors
Michael Stanley
Alan McIntosh
Eamonn O’Kennedy
Gary Britton
Giles Davies
John Reynolds
Andrew Bernhardt
Andrew Donagher (Company Secretary)
Total
No. of Ordinary Shares
at 31 December 2016
No. of Ordinary Shares
at 31 December 2015
8,364,546
24,439,582
50,000
50,000
50,000
-
-
-
32,954,128
3,106,868
16,928,614
50,000
50,000
50,000
-
-
-
20,185,482
All of the above interests were beneficially owned. Apart from the interests disclosed above and the Founder
Shares and Deferred Shares held by the Founder Directors - see page 87, the Directors and the Company
Secretary had no interests in the share capital of the Company or any other Company undertaking at 31
December 2016.
There were no changes in the above Directors and Secretary’s interests between 31 December 2016 and 5
April 2017. Susan O’Connor was appointed as Company Secretary on 20 February 2017 in place of Andrew
Donagher, and as at 5 April 2017, she did not hold any shares in the Company.
The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’
shareholdings and share options.
The Company has a policy on dealing in shares that applies to all Directors. Under this policy, Directors are
required to obtain clearance from the Company before dealing in Cairn Homes plc shares during designated
close periods and at any other time when they are in possession of Inside Information (as defined by the
Market Abuse Regulation).
86
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Executive and Non-Executive Directors’ and Company Secretary’s Interests (continued)
The interests of Directors in Share Options as at 31 December 2016 is as follows:
Issued
Balance at
31 December 2016
Exercise
Price
Balance at
31 December 2015
Eamonn O’Kennedy
500,000
500,000
€1.00 each
500,000
The options were granted on 9 June 2015. 250,000 options will vest on the 3rd anniversary of the date of the
admission of the shares on a regulated market and 250,000 options will vest on the 4th anniversary. The
shares were admitted to trading on 15 June 2015. The expiry date of the options is 8 June 2025.
The market price of Ordinary Shares of €0.001 each was €1.35 at 31 December 2016 and ranged from €0.88
to €1.35 during the year ended 31 December 2016.
Additional interests of Founder Shareholders who are Founder Directors
In addition to the shareholdings noted above, the Founder Directors have the following additional interests:
No. of Deferred
Shares at
31 December 2016
No. of Founder
Shares at
31 December 2016
No. of Deferred
Shares at
31 December 2015
No. of Founder
Shares at
31 December 2015
Founder
Directors
Michael Stanley
Alan McIntosh
Total
9,990,000
9,990,000
19,980,000
29,742,322
42,489,032
72,231,354
9,990,000
9,990,000
19,980,000
35,000,000
50,000,000
85,000,000
The total number of Founder Shares in issue at 31 December 2016 is 84,978,063 (100,000,000 at 31 December
2015).
The Founder Shares are convertible into Ordinary Shares subject to the Performance Condition, which is
the achievement of a compound annual rate of return of 12.5% in the Company’s share price.
The Founder Shares do not carry a right to a dividend or voting rights. The Performance Condition was tested
initially over the first Test Period in 2016 (the first test period was 1 March 2016 to 30 June 2016), and is tested
again over the six subsequent Test Periods (from 1 March to 30 June).
The Performance Condition is that for a period of 15 or more consecutive Business Days during the relevant
Test Period, the Closing Price exceeds such price as is derived by increasing the Adjusted Issue Price by
12.5% for each Test Period, starting with the first in 2016 and ending with the last in 2022, such increase to
be on a compound basis.
Cairn Homes PLC
87
GOVERNANCE
Report of the Remuneration Committee - continued
Additional interests of Founder Directors (continued)
In calculating whether the Performance Condition is satisfied during any Test Period, any dividends declared
in the 12 months ending at the end of the relevant Test Period are added to the Closing Price.
If the Performance Condition is satisfied, the Company may elect within 20 Business Days of the date on
which the satisfaction of the Performance Condition was notified to the holders of Founder Shares, to
convert Founder Shares into such number of Ordinary Shares which, at the Highest Average Closing Price of
an Ordinary Share during the Test Period, have an aggregate value equal to the Founder Share Value. The
“Founder Share Value” shall be calculated as 20% of the Total Shareholder Return in the periods described
below.
The Total Shareholder Return is calculated as the sum of the increase in market capitalisation, plus dividends
or other distributions in each case in the relevant period, being (i) the first time the Performance Condition
is satisfied, the period from Admission to the Test Period in which the Performance Condition is first satisfied;
and (ii) for subsequent Test Periods, the period from the end of the previous Test Period in respect of which
Founder Shares were last converted or redeemed to the Test Period in which the Performance condition is
next satisfied. In each Test Period, the increase in market capitalisation is calculated by reference to the
Highest Average Closing Price.
The effect of this is that the calculation of Total Shareholder Return rebases to a “high watermark” equal to
the market capitalisation used to calculate the most recent conversion or redemption of Founder Shares,
so that the holders of Founders Shares only receive 20 per cent. of the incremental increase in Total
Shareholder Return since the previous conversion or redemption (or, in respect of the first time the
Performance Condition is satisfied, since Admission).
The calculation of Founder Share Value is made without reference to the 12.5% per annum hurdle so that
once the Performance Condition is satisfied, the holders of Founder Shares are entitled to share in 20% of
the Total Shareholder Return, not just that element of Total Shareholder Return above the hurdle contained
in the Performance Condition.
Rather than convert the Founder Shares into Ordinary Shares, the Board may elect (subject to compliance
with the Companies Act 2014 and provided the Company has sufficient distributable reserves) to redeem
such Founder Shares for payment of a cash equivalent to that holder of Founder Shares.
Following the completion of the first Test Period, the Board confirms that the Founder Share Value in respect
of the Founder Directors was satisfied by way of conversion of Founder Shares into 12,768,646 Ordinary
Shares of €0.001 each ("New Ordinary Shares"). All New Ordinary Shares issued in respect of the conversion
of Founder Shares are subject to a 1 year lock-up period, with 50% of the New Ordinary Shares remaining
subject to a further 1 year lock-up period thereafter.
The holders of Deferred Shares do not have any voting rights and are not entitled to receive dividends other
than the right to receive €1 in aggregate for every €100,000,000,000 paid to the holders of ordinary shares.
The Deferred Shares are not listed.
88
Annual Report 2016
GOVERNANCE
Report of the Remuneration Committee - continued
Governance
Meetings
The Committee met ten times during the year ended 31 December 2016. The main agenda items included
determining the annual incentives payable for 2016, remuneration policy and the LTIP review, remuneration
trends and market practice, the remuneration packages of Executive Directors and Executives, pension
matters and approval of the Remuneration Report.
The Company Chairman, the Chief Executive Officer and the Group Finance Director may be invited to attend
meetings of the Committee, except when their own remuneration is being discussed. No Director is involved
in consideration of his or her own remuneration. The Company Secretary acts as secretary to the
Remuneration Committee.
Reporting
The Chairman of the Remuneration Committee reports to the Board on the activities of the Committee, and
attends the Annual General Meeting to answer questions on the report, on the Committee’s activities and
matters within the scope of the Committee’s responsibilities.
External Advice
The Committee seeks independent advice when necessary from external consultants. Mercer acted as
independent remuneration advisors to the Committee and have provided advice in relation to market trends,
competitive positioning and developments in remuneration policy and practice. Mercer is a signatory to the
Remuneration Consultants Group Code of Conduct and any advice was provided in accordance with this
code. In light of this, and the level and nature of the service received, the Committee remains satisfied that
the advice is objective and independent.
G Davies
Chairman, Remuneration Committee
Cairn Homes PLC
89
FINANCIAL STATEMENTS
Consolidated Financial Statements
For the year ended 31 December 2016
CONTENTS
Statement of Directors’ Responsibilities
in respect of the Annual Report and
the Financial Statements
Independent Auditor’s Report
Consolidated Statement of Profit
or Loss and Other Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated
Financial Statements
91
93
99
100
101
103
104
90
Annual Report 2016
The Directors are responsible for preparing the Annual Report and the consolidated and company financial
statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare consolidated and company financial statements each year.
Under that law, the Directors are required to prepare the consolidated financial statements in accordance
with IFRS as adopted by the European Union and have elected to prepare the company financial statements
in accordance with IFRS as adopted by the European Union, as applied in accordance with the provisions of
Companies Act 2014.
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 assets, liabilities and financial position of the Group and Company and
of the profit or loss of the Group for that year. In preparing each of the consolidated and company financial
statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and estimates that are reasonable and prudent;
•
state that the financial statements comply with IFRS as adopted by the European Union, and as regards
the Company, as applied in accordance with the Companies Act 2014; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Group and the Company will continue in business.
The Directors are also required by the Transparency (Directive 2004/109/EC) Regulations 2007 and the
Transparency Rules of the Central Bank of Ireland to include a management report containing a fair review
of the business and a description of the principal risks and uncertainties facing the Group.
The Directors are responsible for keeping adequate accounting records which disclose with reasonable
accuracy at any time the assets, liabilities, financial position and profit or loss of the Group and Company,
and which enable them to ensure that the financial statements of the Company comply with the provisions
of the Companies Acts 2014. The Directors are also responsible for taking all reasonable steps to ensure
such records are kept by the Company’s subsidiaries, which enable them to ensure that the financial
statements of the Group comply with the provisions of the Companies Act 2014. They are also responsible
for safeguarding the assets of the Company and the Group, 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 corporate and financial information included
on the Group’s and Company’s website www.cairnhomes.com. Legislation in the Republic of Ireland concerning
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Cairn Homes PLC
91
FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities - continued
Responsibility Statement as required by the Transparency Directive and UK Corporate Governance Code
Each of the Directors, whose names and functions are listed on pages 34 to 37 of this Annual Report, confirm
that, to the best of each person’s knowledge and belief:
•
•
•
The consolidated financial statements, prepared in accordance with IFRS as adopted by the European
Union, and the company financial statements, prepared in accordance with IFRS as adopted by the
European Union as applied in accordance with the provisions of the Companies Act 2014, give a true and
fair view of the assets, liabilities and financial position of the Group and Company at 31 December 2016
and of the loss of the Group for the year then ended;
The Directors’ Report contained in the Annual Report includes a fair review of the development and
performance of the business and the position of the Group and Company, together with a description of
the principal risks and uncertainties that they face; and
The Annual Report and financial statements, taken as a whole, provide the information necessary to
assess the Group’s position and performance, business model and strategy and is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
On behalf of the Board.
J Reynolds
Chairman
6 April 2017
G Britton
Director
92
Annual Report 2016
to the members of Cairn Homes plc
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Cairn Homes plc for the year ended 31 December 2016 which
comprise the consolidated statement of profit or loss and other comprehensive income, the consolidated
and company statements of financial position, the consolidated and company statements of changes in
equity, the consolidated and company statements of cash flows and the related notes. The financial
reporting framework that has been applied in their preparation is Irish law and International Financial
Reporting Standards (IFRS) as adopted by the European Union, and, as regards the company financial
statements, as applied in accordance with the provisions of the Companies Act 2014. Our audit was
conducted in accordance with International Standards on Auditing (ISAs) (UK & Ireland).
In our opinion:
•
•
•
•
•
the consolidated financial statements give a true and fair view of the assets, liabilities and financial
position of the Group as at 31 December 2016 and of its loss for the year then ended;
the company statement of financial position gives a true and fair view of the assets, liabilities and
financial position of the Company as at 31 December 2016;
the consolidated financial statements have been properly prepared in accordance with IFRS as adopted
by the European Union;
the company financial statements have been properly prepared in accordance with IFRS as adopted by
the European Union as applied in accordance with the provisions of the Companies Act 2014; and
the company financial statements and consolidated financial statements have been properly prepared
in accordance with the requirements of the Companies Act 2014 and, as regards the consolidated financial
statements, Article 4 of the IAS Regulation.
Cairn Homes PLC
93
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of
Cairn Homes plc - continued
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the consolidated financial statements the risks of material
misstatement that had the greatest effect on our group audit were as follows:
Carrying values of inventories and profit recognition
Refer to pages 65 to 66 (Report of the Audit and Risk Committee), page 108 (accounting policy for inventories)
and Note 15 to the consolidated financial statements (financial disclosures - inventories).
The risk - Inventory represents the costs of land, materials, design and related production and site
development costs to date. The Group has commenced construction on a number of its development sites
and during 2016 sales of completed residential units were recorded from three of those sites. The carrying
value of development land and work in progress depends on key assumptions relating to forecast selling
prices, site planning (including planning consent), build costs and other direct cost recoveries, all of which
contain an element of judgement and uncertainty.
The Group recognises profit on each sale, based on the particular unit sold, by reference to the overall
expected site margin. As site development and the resulting sale of residential units can take place over a
number of reporting periods the determination of profit is dependent on the accuracy of the forecasts about
future selling prices, build costs and other direct costs. There is a risk that one or all of the assumptions
could be inaccurate with a resulting impact on the carrying value of inventory or the amount of profit
recognised.
Our response - In this area our audit procedures included:
• We tested the controls over the accuracy and completeness of the assumptions made in the Group’s
financial models supporting the carrying value of development land and work in progress and the
allocation of costs to completed residential units. This involved checking approvals over reviewing and
updating selling prices and cost forecasts and the authorising and recording of costs.
•
• We examined management’s detailed year-end assessments of the net realisable value of development
sites. These were primarily based on residual value calculations whereby the estimated costs of the
development were deducted from forecast sales proceeds. We agreed forecast residential unit sales
prices to estimates from independent property consultants. We tested a sample of forecast costs to
supplier agreements/tenders and, for sites not yet in development, considered the consistency of
estimates for the major cost categories with the estimates for sites in development. We evaluated the
assumptions in relation to forecast unit numbers based on appropriate documentary support.
For sites in development, we compared actual revenues and costs to estimates to ensure that net
realisable values were updated and that the overall expected sales margin was adjusted. We evaluated
the sensitivity of the margin to a change in sales prices and costs and considered whether this indicated
a risk of impairment of the inventory balance.
For new land acquisitions in the year, we inspected purchase contracts to agree the costs of acquisition
including related purchase costs. We agreed amounts paid to corroborating documentary evidence. We
agreed a sample of additions to construction work in progress during the period to invoices / payment
certificates and examined whether these additions had been accordingly recorded as part of the costs
of the relevant site.
•
94
Annual Report 2016
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of
Cairn Homes plc - continued
2. Our assessment of risks of material misstatement (continued)
•
For completed sales in the year, we tested the accuracy of the release from inventory to cost of sales
recorded in the general ledger for consistency with the financial cost models for the relevant sites.
• We considered the adequacy of the Group’s disclosures regarding the carrying value of development
land and work in progress.
Acquisitions in the year
Refer to page 66 (Report of the Audit and Risk Committee), page 106 (accounting policy for basis of
consolidation) and Note 27 to the consolidated financial statements (financial disclosures - business
combination).
The risk - A number of significant transactions were completed during the year ended 31 December 2016,
including the acquisition of Argentum Property Holdco Limited and certain development sites. This gives
rise to a risk of material misstatement if these acquisitions are not accounted for in accordance with relevant
accounting standards. In particular for business combinations the consideration paid, the costs incurred,
the fair value of the assets and liabilities acquired and goodwill arising, if any, must all be identified,
measured and recorded appropriately.
Our response - Our audit procedures included, among others, inspecting acquisition agreements and related
documentation, and considering whether the acquisitions were business combinations or asset purchases
and accordingly whether the relevant accounting standards for each had been applied.
For the one business combination in the period, we evaluated the identification of, and allocation of the
purchase price to, the fair values of the development land inventories and other identifiable assets and
liabilities acquired, and accordingly we evaluated whether any goodwill arose on the acquisition. We did
this by considering the financial and other information pertaining to the acquisition and related documents,
and the Group’s plans for the acquired business. We agreed the date of commencement of control, and
therefore of inclusion in the Group’s results, of the acquired business to documentary evidence. We agreed
the costs incurred in relation to this business combination to relevant supporting documentation and
assessed whether they had been expensed. We also considered the adequacy of the Group’s disclosures in
relation to the business combination in the year.
For significant development site asset purchases in the year, we vouched their accounting treatment as
inventory additions to appropriate documentary evidence, considering such matters as the substance of
the transaction, legal agreements, support for the price payable including direct costs, and the timing of
recognition / evidence of completion of the transactions.
Cairn Homes PLC
95
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of
Cairn Homes plc - continued
3. Our application of materiality and an overview of the scope of our audit
The materiality for the consolidated financial statements as a whole was set at €4.1m (2015: €2.9m). This
has been calculated with reference to a benchmark of total assets. Materiality represents approximately
0.5% of this benchmark, which we consider to be one of the principal considerations for members of the
Company in assessing the financial performance of the Group for the year, given that the principal focus of
the Group to date has been in relation to asset acquisition and the commencement of residential
developments and sales on some of the sites it has acquired to date. We reported to the Audit and Risk
Committee all corrected and uncorrected misstatements we identified through our audit with a value in
excess of €0.2m (2015: €0.12m), in addition to other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
We subjected all of the Group’s reporting components to audits for group reporting purposes. The work on
all components was performed by the Group audit team.
4. We have nothing to report on the disclosures of principal risks
Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention
to in relation to:
•
the directors’ statements on Risk Management on pages 39 to 43 and pages 57 to 58, concerning the
principal risks, their management, and, based on that, the directors’ assessment and expectations of the
Group’s continuing in operation over the three years to 31 December 2019; or
the disclosures in Note 1 of the consolidated financial statements concerning the use of the going
concern basis of accounting.
•
5. We have nothing to report in respect of the matters on which we are required to report by exception
ISAs (UK & Ireland) require that we report to you if, based on the knowledge we acquired during our audit,
we have identified information in the Annual Report that contains a material inconsistency with either that
knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified any inconsistencies between the knowledge we acquired during our audit and the
directors’ statement that they consider the Annual Report and financial statements as a whole is fair,
balanced and understandable and provides information necessary for shareholders to assess the entity’s
position and performance, business model and strategy; or
the Report of the Audit and Risk Committee does not appropriately disclose those matters that we
communicated to the Audit and Risk Committee.
•
The terms of our engagement require us to review:
•
•
the directors’ statements, set out on page 44, in relation to going concern and longer-term viability;
the part of the Corporate Governance Report on pages 50 to 61 relating to the Company’s compliance
with the provisions of the UK Corporate Governance Code specified for our review; and
certain elements of disclosures in the report to shareholders by the Board of Directors’ Remuneration
Committee.
•
In addition, the Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’
remuneration and transactions specified by law are not made.
96
Annual Report 2016
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of
Cairn Homes plc - continued
6. Our conclusions on other matters on which we are required to report by the Companies Act 2014 are
set out below
We have obtained all the information and explanations which we consider necessary for the purposes of
our audit.
In our opinion the accounting records of the Company were sufficient to permit the financial statements to
be readily and properly audited and the financial statements are in agreement with the accounting records.
In our opinion the information given in the Directors’ Report is consistent with the financial statements and
the description in the Corporate Governance Report of the main features of the internal control and risk
management systems in relation to the process for preparing the consolidated financial statements is
consistent with the consolidated financial statements.
In addition we report, in relation to information given in the Corporate Governance Report on pages 50 to
61, that:
• based on knowledge and understanding of the Company and its environment obtained in the course of
our audit, no material misstatements in the information identified above have come to our attention;
• based on the work undertaken in the course of our audit, in our opinion:
- the description of the main features of the internal control and risk management systems in relation
to the process for preparing the Group financial statements, and information relating to voting rights
and other matters required by the European Communities (Takeover Bids (Directive 2004/25/EC))
Regulations 2006 and specified by the Companies Act 2014 for our consideration, are consistent with
the financial statements and have been prepared in accordance with the Companies Act 2014; and
- the Corporate Governance Report contains the information required by the Companies Act 2014.
Cairn Homes PLC
97
FINANCIAL STATEMENTS
Independent Auditor’s Report to the members of
Cairn Homes plc - continued
Basis of our report, responsibilities and restrictions on use
As explained more fully in the Statement of Directors’ Responsibilities set out on pages 91 to 92, the Directors
are responsible for the preparation of the financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an opinion on the consolidated and company
financial statements in accordance with applicable law and International Standards on Auditing (ISAs) (UK
& Ireland). Those standards require us to comply with the Financial Reporting Council’s Ethical Standards
for Auditors.
An audit undertaken in accordance with ISAs (UK & Ireland) involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates
made by the Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material
inconsistencies with the audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Whilst an audit conducted in accordance with ISAs (UK & Ireland) is designed to provide reasonable
assurance of identifying material misstatements or omissions it is not guaranteed to do so. Rather the
auditor plans the audit to determine the extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements does not exceed materiality
for the financial statements as a whole. This testing requires us to conduct significant audit work on a broad
range of assets, liabilities, income and expense as well as devoting significant time of the most experienced
members of the audit team, in particular the engagement partner responsible for the audit, to subjective
areas of the accounting and reporting.
Our report is made solely to the Company’s members, as a body, in accordance with section 391 of the
Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Sean O’Keefe
for and on behalf of
KPMG, Chartered Accountants, Statutory Audit Firm
1 Stokes Place, St. Stephen’s Green, Dublin 2
6 April 2017
98
Annual Report 2016
FINANCIAL STATEMENTS
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 31 December 2016
Year ended 31 December 2016 Period from incorporation on
12 Nov 2014 to 31 December 2015
Before Exceptional Total Before Exceptional Total
Exceptional Items Exceptional Items
Items Items
Note €’000 €’000 €’000 €’000 €’000 €’000
Continuing operations
Revenue 6 40,906 - 40,906 3,717 - 3,717
Cost of sales (33,844) - (33,844) (3,015) - (3,015)
Gross profit 7,062 - 7,062 702 - 702
Other income 7 4,425 - 4,425 - - -
Administrative expenses 8 (7,841) (1,356) (9,197) (4,492) (1,086) (5,578)
Fair value charge relating to
Founder Shares 19 - - - - (29,100) (29,100)
Operating profit/(loss) 3,646 (1,356) 2,290 (3,790) (30,186) (33,976)
Finance income 9 89 - 89 114 - 114
Finance costs 9 (5,194) - (5,194) (1,800) (1,858) (3,658)
Loss before taxation (1,459) (1,356) (2,815) (5,476) (32,044) (37,520)
Income tax credit 11 752 312
Loss for the year/period
attributable to owners of
the Company (2,063) (37,208)
Other comprehensive income - -
Total comprehensive loss for
the year/period attributable to
owners of the Company (2,063) (37,208)
Basic loss per share 26 0.3 cents 15.9 cents
Diluted loss per share 26 0.3 cents 15.9 cents
Cairn Homes PLC
99
FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
At 31 December 2016
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Restricted cash
Current assets
Loan assets
Inventories
Deposits paid
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Share-based payment reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Loans and borrowings
Derivative liability
Deferred taxation
Current liabilities
Trade and other payables
Total liabilities
Note
2016
€’000
2015
€’000
12
13
17
14
15
27
16
17
18
18
19
20
28
21
22
894
485
27,000
28,379
16,000
727,223
-
17,015
45,645
130
130
27,000
27,260
382,951
149,331
5,000
2,962
6,551
805,883
546,795
834,262
574,055
794
697,733
24,779
(58,935)
637
521,390
29,118
(53,155)
664,371
497,990
148,631
-
5,490
154,121
15,770
169,891
63,543
514
815
64,872
11,193
76,065
Total equity and liabilities
834,262
574,055
On behalf of the Board:
J Reynolds
Chairman
G Britton
Director
100
Annual Report 2016
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Share Capital
Ordinary A Ordinary Deferred Founder Share Share- Retained Total
shares shares shares shares premium based earnings
payment
reserve
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
As at
1 January 2016 517 - 20 100 521,390 29,118 (53,155) 497,990
Total
comprehensive
loss for the year
Loss for the year - - - - - - (2,063) (2,063)
- - - - - - (2,063) (2,063)
Transactions with
owners of the
Company
Issue of ordinary
shares for cash 157 - - - 176,343 - - 176,500
Share issue costs - - - - - - (8,088) (8,088)
Conversion of founder
shares to ordinary
shares 15 - - (15) - (4,371) 4,371 -
Equity-settled
share-based
payments - - - - - 32 - 32
172 - - (15) 176,343 (4,339) (3,717) 168,444
As at 31
December 2016 689 - 20 85 697,733 24,779 (58,935) 664,371
Cairn Homes PLC 101
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the period from incorporation on 12 November 2014 to 31 December 2015
Share Capital
Ordinary A Ordinary Deferred Founder Share Share- Retained Total
shares shares shares shares premium based earnings
payment
reserve
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
As at
12 November 2014 - - - - - - - -
Total
comprehensive
loss for the period
Loss for the period - - - - - - (37,208) (37,208)
- - - - - - (37,208) (37,208)
Transactions with
owners of the
Company
Issue of ordinary
shares for cash 490 - - - 494,660 - - 495,150
Share issue costs - - - - - - (15,947) (15,947)
Issue of founder
shares for cash - - - 100 100 - - 200
Issue of ordinary
shares for business
combination 27 - - - 26,630 - - 26,657
Issue of A
ordinary shares
for cash - 20 - - - - - 20
Conversion of A
ordinary
shares to
deferred shares - (20) 20 - - - - -
Equity-settled
share-based
payments - - - - - 29,118 - 29,118
517 - 20 100 521,390 29,118 (15,947) 535,198
As at 31
December 2015 517 - 20 100 521,390 29,118 (53,155) 497,990
102
Annual Report 2016
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
For the year ended 31 December 2016
Year ended
Period from incorporation on
31 December 2016 12 Nov 2014 to 31 December 2015
€’000
€’000
Cash flows from operating activities
Loss for the period
Adjustments for:
Share-based payments expense
Non-cash expense in relation to the acquisition of
Emerley Holdings Limited
Other finance costs
Finance income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Taxation
Increase in inventories
Decrease/(increase) in loan assets
Increase in deposits paid
Increase in trade and other receivables
Increase in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Acquisition of Argentum
Cash acquired on acquisition of Argentum
Cash acquired on acquisition of Emerley Holdings Limited
Purchases of property, plant and equipment
Purchases of intangible assets
Interest received
Transfer to restricted cash
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital, net of issue costs paid
Proceeds from borrowings
Repayment of loans
Interest paid
Net cash from financing activities
Net increase in cash and cash equivalents in the year/period
Cash and cash equivalents at beginning of year/period
Cash and cash equivalents at end of year/period
(2,063)
32
-
5,194
(89)
112
32
(752)
2,466
(151,105)
26,768
-
(3,796)
4,464
(121,203)
(86,074)
818
-
(876)
(434)
89
-
(86,477)
167,716
99,285
(15,500)
(4,727)
246,774
39,094
6,551
45,645
(37,208)
29,118
2,944
1,800
(114)
-
-
(312)
(3,772)
(105,521)
(382,951)
(5,000)
(2,048)
8,186
(491,106)
-
-
1,963
(130)
(83)
114
(27,000)
(25,136)
480,174
64,375
(18,130)
(3,626)
522,793
6,551
-
6,551
Cairn Homes PLC 103
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
1. Basis of Preparation
(a) Reporting entity
Cairn Homes plc (“the Company”) is a company domiciled in Ireland. The Company’s registered office
is 7 Grand Canal, Grand Canal Street Lower, Dublin 2. These consolidated financial statements cover the
year ended 31 December 2016 for the Company and its subsidiaries (together referred to as “the Group”).
The comparative period was for the period from incorporation on 12 November 2014 to 31 December
2015. The Group is predominantly involved in the development of residential property for sale.
(b) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and their interpretations approved by the International Accounting
Standards Board (IASB), as adopted by the European Union (EU), and those parts of the Companies Act
2014 applicable to companies reporting under IFRS and Article 4 of the IAS Regulation.
(c) New standards and interpretations
A number of new standards, amendments to standards and interpretations are effective for financial
periods beginning on various dates after 1 January 2017, and have not been applied in preparing these
financial statements. The Group does not plan to adopt these standards early; instead it intends to
apply them from their effective dates as determined by their dates of EU endorsement.
The following standards are not yet endorsed by the EU and the potential impact of these standards
on the Group is under review:
•
IFRS 14 Regulatory Deferral Accounts. The EU has decided not to launch the endorsement process
of this interim standard.
Sale or contribution of assets between an investor and its associate or joint venture (September
2014) (Amendments to IFRS 10 and IAS 28). Endorsement postponed indefinitely.
•
• Recognition of Deferred Tax Assets for Unrealised Losses (January 2016) (Amendments to IAS 12).
Expected to be endorsed Q2 2017.
• Disclosure Initiative (January 2016) (Amendments to IAS 7). Endorsement expected Q2 2017.
• Clarifications to revenue from contracts with customers (April 2016) (Clarifications to IFRS 15).
Expected to be endorsed Q2 2017.
• Classification and Measurement of Share-based Payment Transactions (June 2016) (Amendments to
IFRS 2). Expected to be endorsed Q3 2017.
• Annual Improvements to IFRS Standards 2014-2016 Cycle (December 2016). Expected to be endorsed
•
•
Q3 2017.
Foreign Currency Transactions and Advance Consideration (December 2016) (IFRIC Interpretation 22).
Expected to be endorsed Q3 2017.
Transfers of Investment Property (December 2016) (Amendments to IAS 40). Expected to be endorsed
Q3 2017.
104
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
1. Basis of Preparation (continued)
From an initial consideration of upcoming endorsed and unendorsed standards and amendments, the
Directors have determined that the following in particular may have an effect on the consolidated
financial statements of the Group. The potential impact of these standards on the Group is under review.
IFRS 15: Revenue from contracts with
customers (May 2014) including
amendments to IFRS 15:
Effective date of IFRS 15 (September 2015)
IFRS 16 Leases (January 2016)
EU effective date
(periods beginning)
IASB effective date
(periods beginning)
1 January 2018
1 January 2018
Not endorsed at time of
approval.
1 January 2019
IFRS 9 Financial Instruments (July 2014)
1 January 2018
1 January 2018
(d) Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the functional currency of the
Company and presentation currency of the Group, rounded to the nearest thousand.
(e) Basis of accounting
The Directors consider that it is appropriate that the financial statements have been prepared on the
going concern basis, which assumes that the Group will continue to be able to meet its liabilities as
they fall due for the foreseeable future.
The significant accounting policies applied in the preparation of these financial statements are set out
in Note 3.
2. Key Judgements and Estimates
The preparation of consolidated financial statements requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets, liabilities, income
and expenses. Actual results could differ materially from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
The key judgements and estimates impacting these financial statements are:
•
•
•
carrying value of inventories and allocations from inventories to cost of sales (See Notes 3(f ) and 15);
accounting for acquisitions, including allocation of fair value of consideration (Note 27); and
transfer of loan assets to development land collateral within inventories (Notes 14 and 15).
Cairn Homes PLC 105
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies
The accounting policies set out below have been applied in these financial statements.
(a) Basis of consolidation
The consolidated financial statements include the results of Cairn Homes plc and all its subsidiary
undertakings for the year ended 31 December 2016. The financial statements of the subsidiary
undertakings are consolidated from the date when control passes to the Group using the acquisition
method of accounting and up to the date control ceases.
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred
to the Group. The consideration transferred in the acquisition is generally measured at fair value, as
are the identifiable net assets acquired. Goodwill arising on consolidation represents the excess of the
fair value of the consideration over the fair value of the separately identifiable net assets and liabilities
acquired. Any goodwill that arises is capitalised and tested annually for impairment. Any gain on a
bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred,
except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing
relationships. Such amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to
pay contingent consideration that meets the definition of a financial instrument is classified as equity,
then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes
in the fair value of the contingent consideration are recognised in profit or loss.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control commences until the date on which
control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-
group transactions, are eliminated.
106
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
(b) Property, plant and equipment
Property, plant and equipment are initially recognised at cost. Depreciation is provided using the
straight-line method to write off the cost less any residual value over the estimated useful life of the
asset on the following basis:
Leasehold Improvements 7 years
Computers & Equipment 3-7 years
The assets’ useful economic lives and residual values are reviewed and adjusted, if appropriate, at each
financial reporting date. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount.
(c) Leases
Lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over
the term of the lease. Lease incentives received are recognised as an integral part of the total lease
expense, over the term of the lease.
(d)
Intangible Assets
Computer Software
Acquired computer software is capitalised as intangible assets on the basis of the costs incurred to
acquire and bring to use the specific software.
Costs that are directly attributable to the production of identifiable and unique software products
controlled by the Group, and that will probably generate economic benefits exceeding costs beyond
one year, are recognised as intangible assets.
Computer software costs are amortised over their estimated useful lives from seven to ten years for
specialised software which is expected to provide benefits over those periods. Other costs in respect
of computer software are recognised as an expense as incurred.
The assets’ useful economic lives and residual values are reviewed and adjusted, if appropriate, at each
financial reporting date. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount.
Cairn Homes PLC 107
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
(e) Revenue
Revenue represents the fair value of consideration received or receivable, net of value-added tax.
Revenue is recognised once the value of the transaction can be reliably measured and the significant
risks and rewards of ownership have been transferred. Revenue is recognised on residential property
sales at legal completion.
Booking and contract deposits on units sold by the Group are held by the Group’s legal advisors,
externally to the Group, until legal completion of the sale, at which point all such deposits are paid to
the Group and recognised as revenue. Where a contract, on which a contract deposit has been paid, is
not completed, the Group will recognise the forfeited deposit (arising in accordance with the contract’s
terms) as revenue.
Rental income is recognised on a straight-line basis over the life of the operating lease. This income
principally arises from existing rental properties on acquired development sites which will be
demolished or vacated (see policy (f )).
(f)
Inventories
Units in the course of development and completed units are valued at the lower of cost and net
realisable value. Cost includes the cost of land, raw materials, stamp duty, direct labour and
development costs, but excludes indirect overheads. Land purchased for development, including land
in the course of development, is initially recorded at cost. For development property acquired through
business combinations, cost is the sum of the fair value at acquisition plus subsequent direct costs.
The Group’s developments can take place over several reporting periods and the Group has to allocate
site-wide development costs between units built in the current year and in future years. It also has to
estimate the costs to completion of such developments. In making these assessments, which impact
on estimating the appropriate amounts from inventory to be recognised as cost of sales on units sold,
there is a degree of inherent uncertainty.
Inventories are carried at the lower of cost and net realisable value, such that provision is made, where
appropriate, to reduce the value of inventories and work in progress to their net realisable value.
Where a site has commenced selling houses, the Group compares the margin recognised on a site in the
year to the forecast margin on a site over the life of the development, taking account of updated sales
prices and cost estimates. Where a site has not yet commenced selling, the Group compares the most
recent forecast to prior forecasts for that site. The Group assesses whether any such updated margin
forecasts indicate that the inventory balance needs to be adjusted to reflect the net realisable value.
Where a site purchased for redevelopment includes existing rental properties which will be demolished or
vacated as part of the planned redevelopment of the site, the full cost of the site is classified within inventory.
Contract deposits for purchases of development property are recognised as deposits when paid and
are transferred to inventory on legal completion of the contract when the remainder of the contract
price is paid.
108
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
(g) Share-based payments
The Group has issued equity-settled share-based payments to certain employees (share options) and
founders (founder shares).
The grant-date fair value of equity-settled share-based payment awards granted to employees is
generally recognised as an expense, with a corresponding increase in equity over the vesting period of
the awards. The amounts recognised as an expense are adjusted to reflect the number of awards for
which the related service and non-market performance conditions are expected to be met, such that
the amount ultimately recognised is based on the number of awards that meet the related service and
non-market performance conditions, where applicable at the vesting date. For share-based payment
awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured
to reflect such conditions and there is no true-up for differences between expected and actual
outcomes.
(h) Taxation
Income tax comprises current tax and deferred tax. Income tax is recognised in profit or loss except to
the extent that it relates to a business combination or items recognised in other comprehensive income
or equity.
Current tax is the expected tax payable on taxable profit or loss for the period and any adjustment to
tax payable in respect of previous periods. It is measured using tax rates that have been enacted or
substantively enacted at the reporting date.
Deferred tax is recognised in respect of temporary timing differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised for:
•
•
•
temporary differences on the initial recognition of assets or liabilities in a transaction that is not
a business combination and that affects neither accounting nor taxable profit or loss;
temporary differences relating to investments in subsidiaries to the extent that the Group is able
to control the timing of the reversal of the temporary differences and it is probable that they will
not reverse in the foreseeable future; and
taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which
they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent
that it is no longer probable that the related tax benefit will be realised; such reductions are reversed
when the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent
that it has become probable that future taxable profits will be available against which they can be used.
Cairn Homes PLC 109
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when
they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in
which the Group expects, at the reporting date, to recover or settle the carrying amounts of its assets
and liabilities.
(i) Pensions
The Group operates defined contribution schemes for all employees. The Group’s contributions to the
schemes are charged to profit or loss in the period in which the contributions fall due.
(j) Cash and cash equivalents and restricted cash
Cash and cash equivalents include cash and bank balances in bank accounts with no notice or on short-
term deposits which are subject to insignificant risk of changes in value.
Cash and bank balances that are not available for use by the Group are presented as restricted cash.
Amounts of restricted cash which are restricted from being exchanged or used to settle a liability for
at least 12 months after the end of the reporting period are classified as non-current assets.
(k) Provisions
Provisions are recognised in the statement of financial position when the Group has a present legal or
constructive obligation as a result of a past event and it is probable that an outflow of economic
benefits will be required to settle the obligation, and the amount can be reliably estimated.
(l) Ordinary shares
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are
recognised as a deduction from equity through retained earnings.
(m) Exceptional items
Items that are material in size and unusual or infrequent are presented as exceptional items in the
statement of profit or loss and other comprehensive income. The Directors are of the opinion that the
separate presentation of exceptional items provides helpful information about the Group’s underlying
business performance.
(n) Segmental reporting
Operating segments are reported in a manner consistent with the internal organisational and
management structure and the internal reporting information provided to the Chief Operating Decision
Maker (designated as the Board of Directors), who is responsible for allocating resources and assessing
the performance of operating segments.
110
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
(o) Finance income and costs
Interest income and expense is recognised using the effective interest method. The effective interest
method is a method of calculating the amortised cost of a financial asset or financial liability (or group
of financial assets or financial liabilities) and of allocating the interest income, interest expense and
fees paid and received over the relevant period.
Commitment fees in relation to undrawn loan facilities are accounted for on the accruals basis, within
finance costs.
(p) Financial instruments
The Group classifies non-derivative financial assets into the categories: (1) financial assets at fair value
through profit or loss; (2) held to maturity financial assets, (3) loans and receivables; and (4) available-
for-sale financial assets. The Group classifies non-derivative financial liabilities into the following
categories: (5) financial liabilities at fair value through profit or loss and (6) other financial liabilities.
During the year, the Group held no financial instruments in the following categories, (1), (2), (4) and (5),
as referred to above.
(i) Non-derivative financial assets and financial liabilities - recognition and derecognition
The Group initially recognises loans and receivables and borrowings on the date when they are
originated. All other financial assets and financial liabilities are initially recognised on the trade date
when the entity becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which
substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither
transfers nor retains substantially all of the risks and rewards of ownership and does not retain control
over the transferred asset. Any interest in such derecognised financial assets that is created or retained
by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled,
or expire.
Financial assets and financial liabilities are offset and the net amount presented in the statement of
financial position when, and only when, the Group currently has a legally enforceable right to offset
the amounts and intends either to settle them on a net basis or to realise the asset and settle the
liability simultaneously.
(ii) Non-derivative financial assets - measurement
Loans and receivables
These assets are initially measured at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at amortised cost using the effective interest
method, as adjusted for any impairments.
Cairn Homes PLC
111
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
3. Significant Accounting Policies (continued)
(iii) Non-derivative financial liabilities - measurement
Non-derivative financial liabilities are initially measured at fair value less directly attributable
transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost
using the effective interest method.
For interest-bearing borrowings any difference between initial carrying amount and redemption value
is recognised in profit or loss over the period of the borrowings on an effective interest basis.
(iv) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
are subsequently remeasured at their fair value. Any directly attributable transaction costs are
recognised in profit or loss as incurred.
Embedded derivatives are separated from the host contract and accounted for at fair value through
profit or loss if certain criteria are met.
(q)
Impairment of financial assets
An impairment loss is calculated as the difference between an asset’s carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses
are recognised in profit or loss when they occur and are reflected in an allowance account. When the
Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts
are written off. If the amount of impairment loss subsequently decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, then the previously
recognised impairment is reversed through profit or loss.
112
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
4. Measurement of Fair Values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for
both financial and non-financial assets and liabilities. Fair value is defined in IFRS 13, Fair Value
Measurement, as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When measuring the fair value of an
asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised
into different levels in a fair value hierarchy based on the inputs used in the valuation techniques, as follows:
•
•
•
Level 1: quoted prices, (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value
hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period
during which the change has occurred.
Further disclosure about the assumptions made in measuring fair values is included in the following notes:
• Note 14 - Loan assets;
• Note 16 - Trade and other receivables;
• Note 17 - Restricted cash and cash and cash equivalents;
• Note 20 - Loans and borrowings;
• Note 22 - Trade and other payables;
• Note 27 - Business combination; and
• Note 28 - Financial instruments and risk management.
Cairn Homes PLC
113
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
5. Segmental Information
Segmental information is presented on the same basis as that used for internal reporting purposes.
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief
Operating Decision Maker (‘CODM’). The CODM has been identified as the Board of Directors of the Company.
Having considered the criteria in IFRS 8 Operating Segments and considering how the Group manages its
business and allocates resources, the Group has determined that it has one reportable segment. In
particular, the Group is managed as a single business unit, building and property development.
Management of the loan receivables acquired in December 2015 (Note 14) forms an integral part of the single
reportable segment as the value of these loans was primarily derived from the underlying value of
development properties on which they were secured.
As the Group operates in a single geographic market, Ireland, no geographical segmentation is provided.
6. Revenue
Year ended Period from
31 Dec 2016 incorporation on 12 Nov
2014 to 31 Dec 2015
€’000 €’000
Residential property sales 35,540 3,401
Residential site sales 4,205 -
Income from property rental 1,161 316
40,906 3,717
Residential property sales include €4.5 million from the sale of residential properties acquired in Project
Clear (Note 14).
114
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
7. Other Income
Year ended Period from
31 Dec 2016 incorporation on 12 Nov
2014 to 31 Dec 2015
€’000 €’000
Loan income 2,643 -
Other gains 1,782 -
4,425 -
During the year, loan income of €2.6 million arose on accrued income on and the settlement of certain
loans acquired in the Project Clear distressed loan portfolio (Note 14), relating to development sites which
the Group will not develop itself.
Other gains mainly relate to the release of liabilities which had been assumed for certain expected payments
to third parties, arising on the Project Clear distressed loans acquisition, that are no longer payable.
8. Administrative Expenses
Year ended 31 Dec 2016 Period from incorporation
on 12 Nov 2014 to 31 Dec 2015
Before Exceptional Total Before Exceptional Total
Exceptional Items Exceptional Items
Items Items
€’000 €’000 €’000 €’000 €’000 €’000
Employee benefits expense
(Note 10) 5,126 - 5,126 3,003 - 3,003
Other expenses 2,715 1,356 4,071 1,489 1,086 2,575
7,841 1,356 9,197 4,492 1,086 5,578
Costs of €1.4 million treated as exceptional relate to costs incurred as part of the acquisition of Argentum
during 2016, see Note 27.
In the prior period, costs of €1.1 million were treated as exceptional, which related to costs assumed as part
of the acquisition of Emerley Holdings, see Note 27.
Cairn Homes PLC
115
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
9. Finance Income and Finance Costs
Period from incorporation on
12 Nov 2014 to 31 Dec 2015
Year ended Before Exceptional Total
31 Dec 2016 Exceptional Items
Items
€’000 €’000 €’000 €’000
Finance income
Interest income on short term deposits 89 114 - 114
Finance costs
Interest expense on financial liabilities
measured at amortised cost (5,067) (1,927) (1,858) (3,785)
Other finance costs (127) 127 - 127
(5,194) (1,800) (1,858) (3,658)
The interest expense for the year ended 31 December 2016 relates to interest on the drawn Term Loan and
Revolving Credit Facility (Note 20), amortised finance costs and transaction costs, plus commitment fees on
the undrawn facility during the year. Other finance costs in 2016 represent the reversal of a fair value gain
on a derivative recognised in December 2015 (see Note 28).
Exceptional items charged within finance costs in the prior period amounted to €1.9 million, which related
to the pre-exisiting interest cost of Emerley Holdings Limited prior to its acquisition by the Group, that the
Group assumed on acquisition of Emerley Holdings Limited as part of the Group’s Initial Public Offering
process (see Note 27).
116
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
10. Statutory and Other Information
(i) Employees
The average number of persons employed by the Group (including executive directors) during the period was:
2016 2015
Number of employees 38 14
Year ended Period from
31 Dec 2016 incorporation on 12 Nov
2014 to 31 Dec 2015
€’000 €’000
The aggregate payroll costs of these employees were:
Wages and salaries 5,443 2,884
Social welfare costs 545 277
Pension costs - defined contribution schemes 260 170
Other 35 33
6,283 3,364
Amounts capitalised into inventories (1,157) (361)
Employee benefit expense 5,126 3,003
(ii) Other Information
€’000
€’000
Operating lease rental expense 409 36
Net foreign currency losses/(gains) recognised in profit or loss 18 (8)
Auditor’s remuneration
Audit of Group, Company and subsidiary financial statements* 170 138
Other assurance services 11 -
Tax advisory services 143 72
Other non-audit services 398 339
722 549
Directors’ remuneration**
Salaries, fees and other emoluments 2,663 2,193
Pension contribution - defined contribution schemes 90 93
2,753 2,286
* Inclusive of review of interim financial statements.
** Includes remuneration of connected persons as defined by Companies Act 2014.
15,021,937 ordinary shares were issued to directors and connected persons during 2016 through the
conversion of Founder Shares (Note 18).
Cairn Homes PLC
117
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
11. Taxation
Year ended Period from
31 Dec 2016 incorporation on 12 Nov
2014 to 31 Dec 2015
€’000 €’000
Current tax charge for the period - -
Deferred tax credit for the period (752) (312)
Total income tax credit (752) (312)
The tax assessed for the period differs from the standard rate of tax in Ireland for the period. The differences
are explained below
Year ended Period from
31 Dec 2016 incorporation on 12 Nov
2014 to 31 Dec 2015
€’000 €’000
Loss before tax (2,815) (37,520)
Tax credit at standard Irish income tax rate of 12.5% (352) (4,690)
Effects of:
Income taxed/expenses deductible at the higher rate of
corporation tax 399 (423)
Expenses not deductible for tax purposes 14 3,781
Unused tax losses not recognised as deferred tax assets - 1,020
Losses not recognised in prior period* (813) -
Total income tax credit (752) (312)
* Relates to certain prior period unused tax losses which were not recognised as a deferred tax asset at 31 December
2015.
118
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
12. Property, Plant and Equipment
Leasehold Computers & 2016
Improvements Equipment Total
€’000 €’000 €’000
Cost
At 1 January 2016 67 63 130
Additions 393 483 876
At 31 December 2016 460 546 1,006
Accumulated Depreciation
At 1 January 2016 - - -
Depreciation (66) (46) (112)
At 31 December 2016 (66) (46) (112)
Net Book Value
At 31 December 2016 394 500 894
Leasehold Computers & 2015
Improvements Equipment Total
€’000 €’000 €’000
Cost
At 12 November 2014 - - -
Additions 67 63 130
At 31 December 2015 67 63 130
Accumulated Depreciation
At 12 November 2014 - - -
Depreciation - - -
At 31 December 2015 - - -
Net Book Value
At 31 December 2015 67 63 130
Cairn Homes PLC 119
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
13. Intangible Assets
2016
Software €’000
Cost
At 1 January 2016 130
Additions 387
At 31 December 2016 517
Accumulated Amortisation
At 1 January 2016 -
Amortisation (32)
At 31 December 2016 (32)
Net Book Value
At 31 December 2016 485
2015
Software €’000
Cost
At 12 November 2014 -
Additions 130
At 31 December 2015 130
Accumulated Amortisation
At 12 November 2014 -
Amortisation -
At 31 December 2015 -
Net Book Value
At 31 December 2015 130
120
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
14. Loan Assets
2016 2015
€’000 €’000
Loan receivables 16,000 378,681
Construction bonds - 4,270
Total loan assets 16,000 382,951
The loan receivables were acquired in December 2015 (Project Clear) at a substantial discount to their
nominal value reflecting their distressed state at the time of acquisition. The fair value of the loan
receivables at acquisition was based on the value of the secured real estate collateral. Direct transaction
costs incurred relating to the acquisition of these loans were capitalised.
During the year ended 31 December 2016, the Group realised gross proceeds of €28.2 million from the
settlement of loans. At 31 December 2016, a loan with a carrying value of €16.0 million is expected to be
repaid. Net gains on loan settlements and accrued income of €2.6 million arose in the year (Note 7).
The key risk in relation to the remaining loan at 31 December 2016 is credit risk. In the event that the loan
cannot be repaid, as the underlying collateral to this loan is a residential development site, its recoverability
would be directly linked to movements in residential property prices. In that event, given the Group’s
business, the assessment and measurement of risks relating to residential property prices forms part of its
ongoing risk management framework, as outlined in the principal risks and uncertainties section of the
Directors’ Report. The Directors believe that a five per cent reduction in property prices would not negatively
impact on the carrying value of the underlying site collateral and hence the loan receivable balance.
In February 2016, following the end of the sub-participation period, the Group commenced the foreclosure
process, whereby the substantial majority of loans are recovered by obtaining the underlying collateral.
Accordingly, the loans in foreclosure were derecognised as financial assets, and the related collateral assets
were transferred to inventory, as detailed further in Note 15, which reflects the substance of these assets.
As a consequence, the related construction bonds and sundry receivables (amounts due from appointed
receivers) associated with the underlying collateral have been transferred to trade and other receivables
(Note 16). The carrying value of construction bonds and sundry receivables originating from the Project
Clear acquisition as at 31 December 2016 was €3.4 million and €2.8 million respectively.
Cairn Homes PLC
121
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
15. Inventories
2016 2015
€’000 €’000
Land held for development 559,032 132,074
Construction work in progress 37,277 17,257
Development land collateral (for loans in the foreclosure process) 130,914 -
727,223 149,331
The Directors consider that all inventories are essentially current in nature although the Group’s operational
cycle is such that a considerable proportion of inventories will not be realised within 12 months. It is not
possible to determine with accuracy when specific inventories will be realised as this will be subject to a
number of factors, such as consumer demand and the timing of planning permissions.
Having considered the current market conditions and development potential, the directors do not consider
there to be any factors that give rise to concern in relation to the net realisable value of the Group’s
inventories as at 31 December 2016. Consequently, the Directors believe that the carrying value of inventories
is stated at the lower of cost and net realisable value.
Following the end of the sub-participation period in February 2016, as further detailed in Note 14, the Group
commenced the foreclosure process of transferring development land collateral into its direct ownership.
Consequently, the cost of the development land collateral attaching to the relevant Project Clear distressed
loan assets is now shown within inventories. The carrying value of collateral property (where the final steps
in the foreclosure process will be completed in 2017) at 31 December 2016 was €130.9 million, with a further
€43.9 million transfered to direct ownership subsequent to the year-end.
During the year assets attached to 15 of the original distressed loans acquired, with a total cost of €201.1
million, transferred from development land collateral to directly owned land held for development. In
addition, the Group realised proceeds of €4.5 million from the sale of residential properties and €4.2 million
from the sale of residential sites acquired as collateral properties in Project Clear, which are included in
revenue (Note 6).
The total amount charged to cost of sales from inventories during the year was €33.7 million (2015: €3.0
million).
122
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
16. Trade and Other Receivables
2016 2015
€’000 €’000
VAT recoverable 6,888 2,101
Construction bonds 4,440 -
Other receivables 5,687 861
17,015 2,962
Other receivables mainly represent amounts due from appointed receivers in relation to Project Clear assets
and accrued loan income.
The carrying value of all trade and other receivables is approximate to their fair value.
17. Restricted Cash and Cash and Cash Equivalents
2016 2015
€’000 €’000
Non-current
Restricted cash 27,000 27,000
€27 million of restricted cash is required to be maintained in an interest-bearing blocked deposit account
for the duration of the Group’s senior debt facilities (Note 20), as part of the collateral for those facilities.
The estimated fair value of restricted cash at 31 December 2016 is its carrying value.
2016 2015
€’000 €’000
Current
Cash and cash equivalents 45,645 6,551
Cash deposits are made for varying short-term periods, depending on the immediate cash requirements of
the Group. All deposits can be withdrawn without significant changes in value and accordingly the fair value
of current cash and cash equivalents is identical to the carrying value.
Cairn Homes PLC 123
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
18. Share Capital and Share Premium
2016 2015
Authorised Number €’000 Number €’000
Ordinary Shares of €0.001 each 1,000,000,000 1,000 1,000,000,000 1,000
Founder Shares of €0.001 each 100,000,000 100 100,000,000 100
Deferred Shares of €0.001 each 120,000,000 120 120,000,000 120
A Ordinary Shares of €1.00 each 20,000 20 20,000 20
Total authorised share capital 1,240 1,240
Share Share Total
Issued and fully paid Capital Premium
As at 31 Dec 2016 Number €’000 €’000 €’000
Ordinary Shares of €0.001 each 689,274,623 689 697,648 698,337
Founder Shares of €0.001 each 84,978,063 85 85 170
Deferred Shares of €0.001 each 19,980,000 20 - 20
A Ordinary Shares of €1.00 each - - - -
Total issued and fully paid 794 697,733 698,527
Share Share Total
Issued and fully paid Capital Premium
As at 31 Dec 2015 Number €’000 €’000 €’000
Ordinary Shares of €0.001 each 516,663,977 517 521,290 521,807
Founder Shares of €0.001 each 100,000,000 100 100 200
Deferred Shares of €0.001 each 19,980,000 20 - 20
A Ordinary Shares of €1.00 each - - - -
Total issued and fully paid 637 521,390 522,027
The Company has four authorised classes of shares: Ordinary Shares; A Ordinary Shares; Founder Shares;
and Deferred Shares.
The holders of Ordinary Shares are entitled to receive dividends as declared from time to time, and are
entitled to one vote per Ordinary Share at meetings of the Company.
124
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
18. Share Capital and Share Premium (continued)
The holders of Founder Shares are not entitled to receive dividends and do not have voting rights at
meetings of the Company save in relation to a resolution to wind up the Company or to authorise the
directors to issue further Founder Shares. Founder Shares entitle New Emerald LP (the sole limited partner
and economic beneficiary of which is the Emerald QIAIF, the ultimate beneficiaries of which are Alan
McIntosh, a director, and his spouse), Michael Stanley and Kevin Stanley to receive 20% of the Total
Shareholder Return (which is the increase in the market capitalisation of the Company, plus dividends or
distributions in the relevant periods), over the seven years following Admission of the Company’s Ordinary
Shares to the London Stock Exchange, subject to the satisfaction of the Performance Condition, being the
achievement of a compound rate of return of 12.5% per annum in the Company’s share price, as adjusted
for any dividends paid in the period. The Founder Shares will be converted into Ordinary Shares or paid out
in cash, at the option of the Company, in an amount equal to the return earned by the Founders, if any.
The holders of Deferred Shares do not have voting rights at meetings and are not entitled to receive
dividends except for the right to receive €1 in aggregate for every €100,000,000,000 paid to the holders of
Ordinary Shares.
The holders of A Ordinary Shares are not entitled to receive dividends and do not have voting rights at
meetings of the Company.
Share Issues
Year ended 31 December 2016
On 19 April 2016, the Company issued 46,875,000 Ordinary Shares at €1.12 each through a Firm Placing and
110,713,709 Ordinary Shares at €1.12 each through a Placing and Open Offer, raising gross proceeds of €176.5
million.
On 16 August 2016, the Company issued 15,021,937 Ordinary Shares (through the conversion of 15,021,937
Founder Shares) to the Founder Group of Michael Stanley, Alan McIntosh and Kevin Stanley.
Share issue costs of €8.1 million in 2016 were charged directly in equity to retained earnings.
Period ended 31 December 2015
On incorporation, on 12 November 2014, the Company issued 100 Ordinary Shares for cash consideration of
€100.
On 2 April 2015, the Company passed a resolution whereby every one Ordinary Share of €1 each was sub-
divided into 1,000 Ordinary Shares of €0.001 each.
On 2 April 2015, the Company issued 100 Ordinary Shares for cash consideration of €100,000.
On 2 April 2015, 20,000 A Ordinary Shares were issued for cash consideration of €20,000.
On 2 April 2015, 100,000,000 Founder Shares of €0.001 each were issued for cash consideration of €200,000.
Cairn Homes PLC 125
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
18. Share Capital and Share Premium (continued)
On 4 May 2015, the Company issued 4 Ordinary Shares for cash consideration of €0.04.
On 9 June 2015, 20,000 A Ordinary Shares were converted to 20,000 Ordinary Shares of €0.001 each and
19,980,000 Deferred Shares of €0.001 each.
On 10 June 2015, the Company issued 400,000,000 Ordinary Shares at €1.00 each by way of an Initial Public
Offering, raising gross proceeds of €400 million.
On 10 June 2015, the Company issued 26,657,224 Ordinary Shares at €1.00 each in consideration for the
transfer to the Company of the entire share capital of Emerley Holdings Limited (See Note 27).
On 10 June 2015, the Company issued 2,579,900 Ordinary Shares at €1.00 each as part of the Admission
Founders Subscription, raising proceeds of €2,579,900.
On 10 June 2015, the Company issued 380,000 Ordinary Shares at €1.00 each as part of the Additional Persons
Subscription, raising proceeds of €380,000.
On 23 June 2015, the Company issued 40,000,000 Ordinary Shares at €1.00 each by way of the exercise of an
Over-Allotment Option, raising gross proceeds of €40 million.
On 2 December 2015, the Company issued 46,926,749 Ordinary Shares at €1.11 each by way of a Share Placing,
raising gross proceeds of €52.1 million.
Issue costs of €15.9 million in relation to Ordinary Shares issued in 2015 were charged directly in equity to
retained earnings.
The proceeds of share issues were or will be used to acquire assets to develop the Group’s business of
property development and construction of residential units and for general corporate purposes.
126
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
19. Share-Based Payments
Founder Shares
A valuation exercise was undertaken to fair value the Founder Shares (the terms of which are outlined in
Note 18), which resulted in a non-cash charge in the period to 31 December 2015 of €29.1 million, with a
corresponding increase in the share-based payment reserve in equity such that there was no overall impact
on total equity. This non-cash charge to profit or loss for the period ended 31 December 2015 was for the
full fair value of the award relating to the Founder Shares, all of which was required to be recognised up
front under the terms and conditions of the Founder Share agreement. No charge will be recognised in
subsequent years.
Share price volatility of 25% per annum, based on a basket of comparative UK listed entities;
The valuation exercise was completed using the “Monte Carlo” simulation methodology and the following
key assumptions:
•
• Risk free rate of 0.1% per annum;
• Dividend yield of 3% per annum, effective from 2018;
•
15% discount based on restrictions on sale once Founder Shares convert to Ordinary Shares.
As detailed in Note 18, during the year ended 31 December 2016, 15,021,937 Founder Shares (15.02% of the
total) were converted to ordinary shares and a proportionate amount of the €29.1 million amount referred
to above, totalling €4.4 million, was transferred from the share-based payment reserve to retained earnings.
Share Options
500,000 ordinary share options were issued in the period ended 31 December 2015, to a director. 250,000 of
these options vest during 2018 and the remaining 250,000 vest during 2019. The exercise price of each
ordinary share option is €1.00. At grant date, the fair value of the options that vest during 2018 was
calculated at €0.219 per share while the fair value of options that vest in 2019 was calculated at €0.220 per
share. The valuation exercise undertaken to fair value the share options resulted in a non-cash charge in
administrative expenses in the year ended 31 December 2016 of €0.032 million (2015: €0.018 million), with
a corresponding increase in the share-based payment reserve in equity.
Cairn Homes PLC
127
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
20. Loans and Borrowings
2016 2015
€’000 €’000
Non-current liabilities
Bank loans
Repayable as follows:
Between two and five years (repayable in December 2019) 148,631 63,543
148,631 63,543
On 8 February 2016, €42 million was drawn down on the Term Loan by the Group. A further €8 million was
drawn on 11 March 2016, with a further €50 million drawn on 3 May 2016, in line with the terms of the Term
Loan.
On 9 June 2016, the Group repaid the Revolving Credit Facility of €15.5 million. The Group has an undrawn
Revolving Credit Facility of €50 million available as at 31 December 2016.
The amount presented in the financial statements is net of related unamortised arrangement fees and
transaction costs.
The loan facilities are repayable by 11 December 2019 and are secured by way of a floating charge over the
assets of the Company and its subsidiaries. The Directors confirm that all covenants have been complied
with and are kept under regular review. The key covenants under the Facility Agreement include that the
Group must convert 60% of all loan assets into direct site ownership within 12 months of acquisition, which
it successfully completed. In addition, loan assets must not represent greater than 70% of the Gross Asset
Value (as defined in the Facility Agreement) of the Group during year 1 of the Facilities, 35% during year 2
and 20% during year 3. In addition, Total Debt (as defined in the Facility Agreement) must not exceed 40%
of Gross Asset Value and in the event that Senior Debt (i.e. the amount due under the Facility Agreement)
exceeds 30% of Gross Asset Value, the Group must achieve defined EBITDA hurdles in each of 2017, 2018 and
2019.
128
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
21. Deferred Taxation
Movements in deferred tax/liability:
2016 2015
€’000 €’000
Opening balance 815 -
Liability on acquisition of Emerley Holdings Limited (Note 27) - 1,127
Liability on acquisition of Argentum (Note 27) 5,427 -
Credited to profit or loss (752) (312)
As at year/period end 5,490 815
Deferred tax arises from temporary differences relating to:
Deferred tax Deferred tax Net deferred
assets liabilities tax liability
2016 €’000 €’000 €’000
Opening balance 1,546 (2,361) (815)
Acquired in business combinations
- land held for development - (6,564) (6,564)
- tax losses 1,137 - 1,137
Recognised in profit or loss 130 622 752
Closing balance 2,813 (8,303) (5,490)
Deferred tax Deferred tax Net deferred
assets liabilities tax liability
2015 €’000 €’000 €’000
Opening balance - - -
Acquired in business combinations
- land held for development - (2,361) (2,361)
- tax losses 1,234 - 1,234
Recognised in profit or loss 312 - 312
Closing balance 1,546 (2,361) (815)
There are no unrecognised deferred tax assets at 31 December 2016. In the prior period, potential deferred
tax assets of €1.0 million were not recognised as at 31 December 2015.
Cairn Homes PLC 129
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
22. Trade and Other Payables
2016 2015
€’000 €’000
Trade payables 7,659 583
Accruals 6,945 10,233
Other creditors 1,166 377
15,770 11,193
Other creditors represents amounts due for payroll taxes and Relevant Contracts Tax.
The carrying value of all trade and other payables is approximate to their fair value.
23. Dividends
There were no dividends declared and paid by the Company during the year and there were no dividends
proposed by the Directors in respect of the year up to the date of authorisation of these financial statements.
24. Related Party Transactions
For the year ended 31 December 2016, the following related party transactions have taken place requiring
disclosure:
•
Edward Square Limited, an entity directly owned by Alan McIntosh, a director, recharged €0.105 million
in the period to the Group for professional services and expenses incurred on behalf of the Group.
• Compensation (as defined by IAS 24 “Related Party Disclosures”) of key management personnel (which
comprise the Board of Directors of the Company) was as follows:
2016 2015
€’000 €’000
Short-term employee benefits 2,259 1,837
Post-employment benefits
(pension contributions - defined contribution schemes) 68 69
Share-based payment expense - share options 32 18
Total remuneration of key management personnel 2,359 1,924
Share-based payment expense - fair value charge relating to Founder Shares
of key management personnel (Note 19) - 24,735
130
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
24. Related Party Transactions (continued)
Period ended 31 December 2015
For the period from incorporation on 12 November 2014 to 31 December 2015, the following related party
transactions took place which required disclosure:
• On 15 June 2015, 100% of the share capital of Emerley Holdings Limited, subsequently renamed Cairn
Homes Holdings Limited, was acquired by the Company from Everleigh Investment Partners Limited (an
entity, in which the ultimate beneficiaries are Alan McIntosh, a director, and his spouse) and Stanbro
Property Holdings Limited (a company, of which over 96 per cent. of the ultimate beneficial interest is
held by Michael Stanley, a director, together with family members) for €26.7 million, the consideration
for which was satisfied by the issue of 26,657,224 Ordinary Shares of €0.001 each in the Company (see
Note 27);
• As part of the acquisition of Emerley Holdings Limited, subsequently renamed Cairn Homes Holdings
Limited, a loan of €18.1 million (“the Emerley Properties Loan”) due to Northern Trust Fiduciary Services
Ireland Limited (acting in its capacity as trustee to the Emerald QIAIF, the ultimate beneficiaries of which
are Alan McIntosh, a director, and his spouse) was acquired. The loan was secured by a fixed and floating
charge over the assets of Emerley Properties Limited, subsequently renamed Cairn Homes Properties
Limited. If all of any part of the loan were repaid by 31 December 2015, a minimum interest amount of
€3.6 million was payable and thereafter interest would accrue at a rate of 20 per cent per annum. This
loan was repaid in full by 31 December 2015, incurring the minimum interest charge of €3.6 million which
was paid on 3 December 2015.
• Butterly Business Park, Kilmore Road, Artane, Dublin 5 was acquired by Cairn Homes Butterly Limited, a
100% subsidiary of the Company, from Butterly Capital Investments Limited, an entity in which the
ultimate economic interest is indirectly held by Alan McIntosh, a director, and his spouse, for cash
consideration of €9.3 million. In addition, Cairn Homes Butterly Limited was charged management fees
of €0.1 million in the period by Butterly Capital Investments Limited in respect of the Butterly Business Park;
• Development land at Letteragh Road, Rahoon, Galway was acquired by Cairn Homes Galway Limited, a
100% subsidiary of the Company, from Emerald Opportunity Investment (Galway) Limited, an entity in
which the ultimate economic interest is indirectly held by Alan McIntosh and his spouse, for cash
consideration of €4.9 million;
• Development land at Albany House, Shanganagh Road, Ballybrack, Co. Dublin was acquired by Cairn
Homes Killiney Limited, a 100% subsidiary of the Company, from Albany House Investments Limited, an
entity in which the ultimate economic interest is indirectly held by Alan McIntosh and his spouse, for
cash consideration of €5.7 million;
• Development land at Moathill, Navan, Co Meath was agreed to be conditionally acquired by Cairn Homes
Navan Limited, a 100% subsidiary of the Company, from Sonbrook Property Moathill Limited, an entity in
which the ultimate economic interest is held by Kevin Stanley, a member of the management team, and
his spouse. Given the size of this site (approximately 100 units) relative to the average site size that the
Group has acquired, the Group have decided not to acquire the Moathill site.
Edward Square Limited, an entity directly held by Alan McIntosh, a director, recharged €0.35 million in
the period to the Group for professional services and expenses incurred on its behalf.
Emerald Opportunity Investment Fund, an entity indirectly held by Alan McIntosh, a director, recharged
€0.2 million in the period Group for professional services incurred on its behalf.
•
•
Cairn Homes PLC
131
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
25. Group Entities
The Company’s subsidiaries are set out below. All of the Company’s subsidiaries are resident in Ireland, with
their registered address at 7 Grand Canal, Grand Canal Street Lower, Dublin 2. All Group companies operate
in Ireland only.
Group Company
Principal Activity
Company's holding
as at 31 December 2016
Direct
Indirect
Cairn Homes Holdings Limited
Holding company
100%
Cairn Homes Properties Limited
Holding of property
Cairn Homes Construction Limited
Construction company
Cairn Homes Butterly Limited
Cairn Homes Galway Limited
Cairn Homes Killiney Limited
Holding of property
Holding of property
Holding of property
Cairn Homes Navan Limited
No activity in period
Cairn Homes Finance
Designated Activity Company
Financing activities and
acquisition/management of loan assets
-
-
100%
100%
100%
100%
100%
Balgriffin Cells P13-P15
Designated Activity Company
No activity in period
100%
Cairn Homes Property Holdco Limited
(formerly Argentum Property Holdco Limited)
Holding company
Cairn Homes Property Management Limited
(formerly Argentum Property
Management Limited)
Cairn Homes Property Holding One Limited
(formerly Argentum Property Holding
One Limited)
Cairn Homes Property Holding Two Limited
(formerly Argentum Property Holding
Two Limited)
Cairn Homes Property Holding Three Limited
(formerly Argentum Property Holding
Three Limited)
Cairn Homes Property Holding Four Limited
(formerly Argentum Property Holding
Four Limited)
Management company
Holding of property
Holding of property
Holding of property
Holding of property
-
-
-
-
-
-
-
100%
100%
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
132
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
25. Group Entities (continued)
Group Company
Principal Activity
Cairn Homes Property Holding Five Limited
(formerly Argentum Property Holding
Five Limited)
Cairn Homes Property Holding Six Limited
(formerly Argentum Property Holding
Six Limited)
Cairn Homes Property Holding Seven Limited
(formerly Argentum Property Holding
Seven Limited)
Cairn Homes Property Holding Eight Limited
(formerly Argentum Property Holding
Eight Limited)
26. Earnings Per Share
Holding of property
Holding of property
Holding of property
Holding of property
Company's holding
as at 31 December 2016
Direct
Indirect
-
-
-
-
100%
100%
100%
100%
The basic loss per share for the year ended 31 December 2016 is based on the loss attributable to ordinary
shareholders of €2.1 million and the weighted average number of ordinary shares outstanding for the year.
There is no difference between basic and diluted loss per share. The potential ordinary shares to be issued
relating to share-based payment arrangements are not dilutive in view of the loss made in the period.
2016 2015
Loss for the year/period attributable to ordinary shareholders (€’000) (2,063) (37,208)
Weighted average number of ordinary shares for year/period 632,830,319 233,546,612
Basic and diluted loss per share 0.3 cents 15.9 cents
Cairn Homes PLC 133
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
27. Business Combination
On 21 April 2016, the Company acquired 100% of the share capital of Argentum Property Holdco Limited
(“Argentum”) for a consideration of €91.2 million. This acquisition had been conditional on the successful
completion of the Company’s Firm Placing and Placing and Open Offer (Note 18). The purpose of the
acquisition was to acquire Argentum’s business of the development of residential properties at Ashbourne,
Naas, Greystones, Griffith Avenue, Dollymount and Swords.
The fair value of recognised amounts of assets acquired and liabilities assumed were as follows:
2016
€’000
Inventories 94,324
Receivables 1,050
Deposit paid 1,600
Cash and cash equivalents 818
Current liabilities (1,178)
Deferred tax liability (5,427)
Total fair values of net assets acquired 91,187
Consideration satisfied by:
Cash paid to date (including €5 million deposit paid in 2015) 91,074
To be paid 113
Consideration fair value 91,187
The total fair value of assets acquired was €91.2 million, which has been satisfied by the cash consideration
of €91.2 million, consisting of a deposit of €5 million paid in 2015 and a payment of €86.1 million in 2016,
with €0.1 million payable in 2017. The fair value of contingent consideration was assessed as nil by the
Directors at the acquisition date. The maximum amount of contingent consideration payable is €8.75 million
(see Note 30).
Inventories of €94.3 million reflect the fair value, as at the date of acquisition, of development properties
owned by Argentum and a conditional purchase contract to acquire the Greystones site. The purchase of
the Greystones site completed at a cost of €14.4 million on August 24 2016, which was paid to the vendors
of the Greystones site and is separate from the business combination. The combined total of the
consideration for the Argentum business and the payment to complete the Greystones site purchase was
€105.6 million.
134
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
27. Business Combination (continued)
Transaction costs relating to the business combination of €1.4 million have been charged to profit or loss
in accordance with IFRS 3. As the acquisition of a business (as opposed to site purchases) is a non-routine
transaction for the Group which is not currently expected to recur frequently, these have been classified as
an exceptional item.
From the acquisition date to 31 December 2016, this acquisition contributed revenue of €0.3 million and
profit of nil to the consolidated results of the Group. If the acquisition had occurred with effect from the
beginning of the period, it would have contributed revenue of €0.3 million and profit of nil to the
consolidated results of the Group for the period.
Prior period business combination
On 15 June 2015, the Company acquired 100% of the share capital of Emerley Holdings Limited (subsequently
renamed Cairn Homes Holdings Limited), for a consideration of €26.7 million, all of which was satisfied by
the issue of 26,657,224 ordinary shares in the Company (Note 18). This acquisition had been conditional on
the successful completion of the Company’s IPO. The fair value of the consideration was €26.7 million based
on the Company’s IPO share issue price of €1.00 per share. The purpose of the acquisition was to acquire
Emerley Holdings Limited’s business of the development of residential property at Parkside, Dublin.
The fair value of recognised amounts of assets acquired and liabilities assumed were as follows:
2015
€’000
Inventories 43,810
Cash and cash equivalents 1,963
VAT recoverable 369
Other receivables 546
Trade payables (60)
Accruals (3,658)
Borrowings (18,130)
Deferred tax liability (1,127)
Total fair value at net assets acquired 23,713
Charge to profit or loss - exceptional items 2,944
Consideration - fair value of shares issued 26,657
Cairn Homes PLC 135
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
27. Business Combination (continued)
The fair value of consideration exceeded the fair value of net assets and liabilities acquired by €2.94 million.
The Directors believed that certain expenses incurred directly by Emerley Holdings Limited in advance of
the acquisition were incurred for the benefit of the Company and its shareholders and the Group assumed
these pre-existing costs at its own expense. The costs assumed were as follows:
• €0.94 million of certain costs relating to the restructuring of the Emerley Holdings Limited Group prior
to its acquisition by the Group as part of the Initial Public Offering and €0.15 million of other
administrative expenses;
• €1.86 million in accrued interest in relation to the Emerley Properties Loan (see Notes 9 and 24);
The above costs were expensed to profit or loss and disclosed as exceptional items in 2015 (see Notes 8
and 9).
From the acquisition date to 31 December 2015, this acquisition contributed revenue of €3.6 million and a
loss of €1.9 million to the consolidated results of the Group. If the acquisition had occurred with effect from
the beginning of the period, it would have contributed revenue of €3.6 million and a loss of €4.8 million to
the consolidated results of the Group for the period (including the impact of the €2.9 million exceptional
costs noted above).
28. Financial Instruments and Risk Management
The Group has exposure to the following risks arising from financial instruments:
•
•
• market risk.
credit risk;
liquidity risk; and
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives,
policies and processes for measuring and managing risk, and the Group’s management of capital.
(a) Risk management framework
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the
Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the
Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions and
the Group’s activities.
The Group Audit and Risk Committee keeps under review the adequacy and effectiveness of the Group’s
internal financial controls and the internal control and risk management systems.
136
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(b) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s loan assets,
trade and other receivables and cash and cash equivalents. The carrying amount of financial assets
represents the maximum credit exposure.
Exposure to credit risk
The Group's main financial assets are loan receivables and cash and cash equivalents (including
restricted cash).
Loan receivables, which totalled €16 million (Note 14) at 31 December 2016 and are secured on real
estate collateral in Ireland, are expected to be repaid. As at 31 December 2016, the Directors estimate
that in the event of non-repayment, the value of real estate collateral less costs that would be incurred
in acquiring underlying properties approximates to the carrying value of loan receivables and accrued
loan income.
As at 31 December 2015, based on the nature of the loan receivables, there was a concentration of risk
in these assets which related to the value of development property in Ireland and the achievability of
future profitable development of such property. As the substantial majority of loan assets were
recovered through transfer to inventories during 2016, risks in relation to development of such property
now attach to inventories (Note 15).
Group management in conjunction with the Board manage risk associated with cash and cash
equivalents and restricted cash by depositing funds with a number of Irish financial institutions and
AAA rated international institutions. At 31 December 2016, the Group’s deposits were held in three Irish
financial institutions with a minimum credit rating of BBB-.
The maximum amount of credit exposure is therefore:
2016 2015
€’000 €’000
Loan receivables (Note 14) 16,000 378,681
Construction bonds and other receivables 10,127 5,131
Restricted cash - non-current 27,000 27,000
Cash and cash equivalents - current 45,645 6,551
98,772 417,363
Construction bonds and other receivables of €10.1 million at 31 December 2016 were all neither past
due nor impaired.
Cairn Homes PLC 137
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(b) Credit risk (continued)
At 31 December 2016, the aging of loan receivables was as follows:
2016 2015
€’000 €’000
Neither past due nor impaired - -
Past due, in default and not impaired 16,000 378,681
Total loan receivables 16,000 378,681
As described in Note 14, the Group purchased these loan receivables, which are all in default, in
December 2015 for their fair value, plus directly attributable transaction costs. Based on the value of
collateral held and discussions to date with the borrowers, the Directors are satisfied that the carrying
value of these assets is not impaired as at 31 December 2016.
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or other financial assets. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity
to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Group monitors the level of expected cash inflows on trade and other receivables together with
expected cash outflows on trade and other payables and commitments. All trade and other payables
at 31 December 2016 are considered current, with the expected cash outflow equivalent to their carrying
value.
Management monitors the adequacy of the Group’s liquidity reserves (comprising undrawn borrowing
facilities as detailed in Note 20 and cash and cash equivalents as detailed in Note 17) against rolling
cash flow forecasts. In addition, the Group’s liquidity risk management policy involves monitoring short
term and long term cash flow forecasts.
138
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(c) Liquidity risk (continued)
2016 2015
€’000 €’000
Liabilities due in less than one year
Trade and other payables 15,770 11,193
Total liabilities due in less than one year 15,770 11,193
Liabilities due after more than one year
Borrowings 148,631 63,543
Derivative liability - 514
Total liabilities due after more than one year 148,631 64,057
Total funds available:
Cash and cash equivalents (excluding restricted cash) 45,645 6,551
Revolving credit facility undrawn 50,000 34,500
Term loan facility undrawn - 50,000
Total funds available 95,645 91,051
During the year ended 31 December 2015, an embedded interest-rate floor in the Group’s loan
agreement was recognised as a derivative liability and its value at 31 December 2015 was estimated at
€0.5 million. Following further guidance issued in 2016 by the IFRS Interpretations Committee, it is no
longer considered appropriate to treat this as a derivative. Accordingly the carrying value of the
derivative of €0.5 million at 31 December 2015 was reclassified to borrowings with effect from 1 January
2016 and a gain of €0.1 million recorded in 2015 was reversed in 2016 (Note 9).
The Board has reviewed the Group financial forecasts and associated risks for the period beyond one
year from the date of approval of the financial statements. The forecasts reflect key assumptions, based
on information available to the Directors at the time of the preparation of this financial information.
These forecasts are based on:
• detailed monthly forecasting by site for the period 2017-2019, reflecting trends experienced up to
•
the date of preparation; and
future revenues for 2017-2019 based on management’s assessment of trends across principal
development sites.
Cairn Homes PLC 139
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(c) Liquidity risk (continued)
The critical assumptions underlying the forecasts were then stress-tested to ensure sufficient financial
covenant headroom exists to cope with a reasonable level of negative movement in the key
assumptions.
Having completed this forecasting process, the Directors expect that the Group will meet the covenants
under its bank facilities and consider that there is sufficient liquidity available to the Group for the
period beyond one year from the date of approval of these financial statements.
The following are the remaining contractual maturities of financial liabilities at the reporting date. The
amounts are gross and undiscounted and include contractual interest payments.
31 December 2016
Contractual cash flows
Carrying Total 6 months 6-12 months 1-2 years 2-5 years
Amount or less
€’000 €’000 €’000 €’000 €’000 €’000
Non-derivative
financial liabilities
Trade payables
and accruals 14,604 (14,604) (14,604) - - -
Loans and
borrowings 148,631 (164,867) (2,529) (2,571) (5,100) (154,667)
163,235 (179,471) (17,133) (2,571) (5,100) (154,667)
140
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(c) Liquidity risk (continued)
31 December 2015
Contractual cash flows
Carrying Total 6 months 6-12 months 1-2 years 2-5 years
Amount or less
€’000 €’000 €’000 €’000 €’000 €’000
Non-derivative
financial liabilities
Trade payables
and accruals 10,816 (10,816) (10,816) - - -
Loans and
borrowings 63,543 (73,868) (977) (1,009) (2,180) (69,702)
74,359 (84,684) (11,793) (1,009) (2,180) (69,702)
Derivative financial
liabilities
Embedded interest-
rate floor 514 (514) (48) (68) (144) (254)
(d) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and
equity prices will affect the Group’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimising the return.
(i) Currency risk
The Group is not exposed to currency risk. The Group operates only in the Republic of Ireland.
Cairn Homes PLC 141
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(d) Market risk (continued)
(ii) Interest rate risk
At 31 December 2016, the Group had Term Loan and Revolving Credit facilities with AIB and Ulster Bank
that had a principal drawn balance of €150 million, with a variable interest rate of Euribor (with a 0%
floor), plus a margin of 3%. The Group has an exposure to cashflow interest rate risk where there are
changes in Euribor rates. On 17 August 2016, the Group amended the interest rate terms in its loan
agreements such that interest on €70 million of its Term Loan was fixed at an interest rate of 0%
(benchmark) plus a margin of 3%, which is fixed until the loan matures in December 2019.
Cash flow sensitivity analysis for variable-rate instruments
A reasonably possible change of 100 basis points in interest rates at the reporting date would have
increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other
variables remain constant and the rate change is only applied to the portion of the Term Loan that is
exposed to movements in Euribor.
Profit or loss Equity
100 bp 100 bp 100 bp 100 bp
increase decrease increase decrease
€’000 €’000 €’000 €’000
31 December 2016
Variable-rate instruments - borrowings (700) 700 (700) 700
Cash flow sensitivity (net) (700) 700 (700) 700
Profit or loss Equity
100 bp 100 bp 100 bp 100 bp
increase decrease increase decrease
€’000 €’000 €’000 €’000
31 December 2015
Variable-rate instruments - borrowings (36) 36 (36) 36
Cash flow sensitivity (net) (36) 36 (36) 36
The Group is also exposed to interest rate risk on its cash and cash equivalents. These balances attract
low interest rates and therefore a reasonably possible relative increase or decrease in their interest
rates could not have a material effect on profit or loss.
142
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(e) Capital management
The Board’s policy is to maintain a strong capital base (defined as shareholders’ equity) so as to
maintain investor, creditor and market confidence and to sustain the future development of the
business. The Group takes a conservative approach to bank financing and the debt to total asset value
ratio was 18% at 31 December 2016.
(f) Fair value of financial assets and financial liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on
the degree to which inputs to the fair value measurements are observable and the significance of the
inputs to the fair value measurement in its entirety, which are described as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: valuation techniques for which the lowest level of inputs that have a significant effect on the
recorded fair value are observable, either directly or indirectly; and
Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the
recorded fair value are not based on observable market data.
The following table shows the Group’s financial assets and liabilities and the methods used to calculate fair value.
Asset/Liability
Carrying
value
Loan assets
as at 31 Dec 2016
Amortised
cost
Loan assets
as at 31 Dec 2015
Amortised
cost
Borrowings
Amortised
cost
Level
Method
Assumptions
2
3
2
Discounted
Cash Flow
Assessed in
relation to
collateral value
Discounted
Cash Flow
Valuation based on discounted cash
flows from expected settlement
proceeds.
Valuation of collateral is subjective
based on agents’ guide sales prices
and market observation of similar
property sales where available,
expected scale of development, and
development costs assumptions.
Valuation based on future repayment
and interest cashflows discounted
at a year-end market interest rate.
The method for estimating the fair value of loan assets changed from December 2015 to December 2016
as the majority of loan assets at 31 December 2015 have transferred into direct ownership, or are
currently in the foreclosure process, and therefore are no longer recognised as loan assets at 31
December 2016. The remaining loan assets at 31 December 2016 are expected to be repaid and the fair
value estimate is now classified as Level 2.
Cairn Homes PLC 143
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
28. Financial Instruments and Risk Management (continued)
(f) Fair value of financial assets and financial liabilities (continued)
The following table shows the carrying values of financial assets and liabilities, including their values in the
fair value hierarchy. The table does not include fair value information for certain financial assets and
liabilities not measured at fair value where the carrying amount is a reasonable approximation of fair value.
2016 Fair Value
Carrying Value Level 1 Level 2 Level 3
€’000 €’000 €’000 €’000
Financial assets measured at amortised cost
Loan assets 16,000 16,000
Other receivables 10,127
Cash and cash equivalents - current 45,645
Restricted cash - non-current 27,000
98,772
Financial liabilities measured at amortised cost
Trade payables and accruals 14,604
Borrowings 148,631 148,631
163,235
2015 Fair Value
Carrying Value Level 1 Level 2 Level 3
€’000 €’000 €’000 €’000
Financial assets measured at amortised cost
Loan assets 382,951 382,951
Other receivables 861
Cash and cash equivalents - current 6,551
Restricted cash - non-current 27,000
417,363
Financial liabilities measured at amortised cost
Trade payables and accruals 10,816
Borrowings 63,543 63,543
74,539
Financial liabilities measured at fair value
Derivative liability 514 514
514
144
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
29. Operating Lease Commitments
The Group’s operating lease commitments relate to the lease of its Head Office property.
At the year/period end, the Group had outstanding commitments under this non-cancellable operating
lease which fall due as follows:
2016 2015
€’000 €’000
Less than one year 389 389
Later than one and no later than five years 1,558 1,558
Later than five years 400 789
2,347 2,736
Cairn Homes PLC 145
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
30. Other Commitments and Contingent Liabilities
Pursuant to the provisions of Section 357, Companies Act 2014, the Company has guaranteed the liabilities
of its subsidiary undertakings for their financial years ending 31 December 2016 and as a result such
subsidiary undertakings have been exempted from the filing provisions of the Companies Act 2014. The
subsidiary undertakings are listed in Note 25.
The Group has a conditional contract to acquire a directly adjoining lot to its Cherrywood site at a cost of
€9.2 million, on the grant of planning consent for that site.
The Group has contracted to pay the vendors a further €8.75 million in the event that the Swords site
(acquired as part of the Argentum transaction) (Note 27), is successfully rezoned as residential by 31
December 2018.
The Group has also contractually committed to acquiring the remainder of a site in Delgany, Co. Wicklow in
May 2018 at a cost of €14.25 million.
The Group is not aware of any other commitments and contingent liabilities that should be disclosed in
these financial statements.
Capital commitments
2016 2015
€’000 €’000
Contracted not provided for - 150
Authorised not contracted for - -
- 150
146
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements - continued
For the year ended 31 December 2016
31. Profit/(Loss) of the Parent Company
The parent company of the Group is Cairn Homes plc. In accordance with Section 304 of the Companies Act
2014, the Company is availing of the exemption from presenting its individual statement of profit or loss
and other comprehensive income to the Annual General Meeting and from filing it with the Registrar of
Companies. The Company’s profit after tax for the year ended 31 December 2016, determined in accordance
with IFRS as adopted by the EU, is €2.8m.
32. Events After the Reporting Period
Subsequent to year end, development land collateral for loans in the foreclosure process with a total value
of €43.9 million transferred into the Group’s direct ownership.
Subsequent to year end, an agreement was entered into with the National Asset Management Agency (NAMA)
to jointly develop a site adjoining the Group’s Parkside site. The Group has a 65% controlling shareholding
in this venture.
33. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 6 April 2017.
Cairn Homes PLC 147
FINANCIAL STATEMENTS
Company Financial Statements
For the year ended 31 December 2016
CONTENTS
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
149
150
152
Notes to the Company Financial Statements
153
148
Annual Report 2016
FINANCIAL STATEMENTS
Company Statement of Financial Position
At 31 December 2016
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Deferred tax asset
Current assets
Amounts due from subsidiary undertakings
Inventories
Deposits paid
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Share-based payment reserve
Retained earnings
Total equity
Liabilities
Current liabilities
Trade and other payables
Total liabilities
Note
2
3
4
5
6
7
8
8
9
10
2016
€’000
515
485
26,657
118
27,775
610,106
-
-
1,318
37,075
648,499
676,274
794
697,733
24,779
(49,674)
673,632
2,642
2,642
2015
€’000
75
130
26,657
-
26,862
394,712
72,899
5,000
990
4,506
478,107
504,969
637
521,390
29,118
(48,732)
502,413
2,556
2,556
Total equity and liabilities
676,274
504,969
On behalf of the Board:
J Reynolds
Chairman
G Britton
Director
Cairn Homes PLC 149
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
For the year ended 31 December 2016
Share Capital
Ordinary A Ordinary Deferred Founder Share Share- Retained Total
shares shares shares shares premium based earnings
payment
reserve
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
As at
1 January 2016 517 - 20 100 521,390 29,118 (48,732) 502,413
Total
comprehensive
income for the year
Profit for the year - - - - - - 2,775 2,775
- - - - - - 2,775 2,775
Transactions with
owners of the
company
Issue of ordinary
shares for cash 157 - - - 176,343 - - 176,500
Share issue costs - - - - - - (8,088) (8,088)
Conversion of
founder shares to
ordinary shares 15 - - (15) - (4,371) 4,371 -
Equity-settled
share-based
payments - - - - - 32 - 32
172 - - (15) 176,343 (4,339) (3,717) 168,444
As at 31
December 2016 689 - 20 85 697,733 24,779 (49,674) 673,632
150
Annual Report 2016
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
For the period from incorporation on 12 November 2014 to 31 December 2015
Share Capital
Ordinary A Ordinary Deferred Founder Share Share- Retained Total
shares shares shares shares premium based earnings
payment
reserve
€’000 €’000 €’000 €’000 €’000 €’000 €’000 €’000
As at
12 November 2014 - - - - - - - -
Total
comprehensive
loss for the period
Loss for the period - - - - - - (32,785) (32,785)
- - - - - - (32,785) (32,785)
Transactions with
owners of the
company
Issue of ordinary
shares for cash 490 - - - 494,660 - - 495,150
Share issue costs - - - - - - (15,947) (15,947)
Issue of founder
shares for cash - - - 100 100 - - 200
Issue of ordinary
shares for business
combination 27 - - - 26,630 - - 26,657
Issue of A ordinary
shares for cash - 20 - - - - - 20
Conversion of A
ordinary shares to
deferred shares - (20) 20 - - - - -
Equity-settled
share-based
payments - - - - - 29,118 - 29,118
517 - 20 100 521,390 29,118 (15,947) 535,198
As at 31
December 2015 517 - 20 100 521,390 29,118 (48,732) 502,413
Cairn Homes PLC
151
FINANCIAL STATEMENTS
Company Statement of Cash Flows
For the year ended 31 December 2016
Cash flows from operating activities
Profit/(loss) for the period
Adjustments for:
Share-based payments expense
Finance income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Taxation
Decrease/(increase) in inventories
Increase in amounts due from group undertakings
Increase in deposits paid
Increase in trade and other receivables
Increase in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Acquisition of Argentum
Cash acquired on acquisition of Argentum
Purchases of property, plant and equipment
Purchases of intangible assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital, net of issue costs paid
Net cash from financing activities
Net increase in cash and cash equivalents in the year/period
Cash and cash equivalents at beginning of year/period
Cash and cash equivalents at end of year/period
Year ended
31 December 2016
€’000
Period from
incorporation
on 12 Nov 2014 to
31 December 2015
€’000
2,775
(32,785)
32
(89)
95
32
(118)
2,727
72,899
(124,320)
-
(328)
829
(48,193)
(86,074)
-
(535)
(434)
89
(86,954)
167,716
167,716
32,569
4,506
37,075
29,118
(114)
-
-
-
(3,781)
(72,899)
(394,712)
(5,000)
(990)
1,758
(475,624)
-
-
(75)
(83)
114
(44)
480,174
480,174
4,506
-
4,506
152
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Company Financial Statements
For the year ended 31 December 2016
1. Significant Accounting Policies
The individual financial statements of the Company have been prepared in accordance with IFRS, as adopted
by the EU and as applied in accordance with the Companies Act 2014. As described in Note 31 of the
consolidated financial statements, the Company has availed of the exemption from presenting its individual
statement of profit or loss and other comprehensive income. The Company’s profit after tax for the year
ended 31 December 2016 is €2.8 million.
The significant accounting policies applicable to these individual company financial statements, which are
not reflected within the accounting policies for the consolidated financial statements, are detailed below.
(a)
(b)
Investments in subsidiaries
Investments in subsidiaries are accounted for in these individual financial statements on the basis of
the direct equity interest, rather than on the basis of the reported results and net assets of investees.
Investments in subsidiaries are carried at cost less impairment.
Intra-group guarantees
The Company has given guarantees in respect of borrowings and other liabilities arising in the ordinary
course of business of the Company and its subsidiaries. The Company considers these guarantees to
be insurance contracts and accounts for them as such. These guarantees are treated as contingent
liabilities until such time as it becomes probable that a payment will be required under such
guarantees.
Cairn Homes PLC 153
FINANCIAL STATEMENTS
Notes to the Company Financial Statements - continued
For the year ended 31 December 2016
2. Property, Plant and Equipment
Leasehold Computers & 2016
Improvements Equipment Total
€’000 €’000 €’000
Cost
At 1 January 2016 67 8 75
Additions 393 142 535
At 31 December 2016 460 150 610
Accumulated Depreciation
At 1 January 2016 - - -
Depreciation (66) (29) (95)
At 31 December 2016 (66) (29) (95)
Net Book Value
At 31 December 2016 394 121 515
Leasehold Computers & 2015
Improvements Equipment Total
€’000 €’000 €’000
Cost
At 12 November 2014 - - -
Additions 67 8 75
At 31 December 2015 67 8 75
Accumulated Depreciation
At 12 November 2014 - - -
Depreciation - - -
At 31 December 2015 - - -
Net Book Value
At 31 December 2015 67 8 75
154
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Company Financial Statements - continued
For the year ended 31 December 2016
3. Intangible Assets
For further information on Intangible Assets refer to Note 13 of the consolidated financial statements.
4. Investment in Subsidiaries
2016 2015
Shares in subsidiary undertakings €’000 €’000
At beginning of year/period 26,657 26,657
Additions during the year/period 91,187 -
Transfer to group undertaking (91,187) -
At end of year/period 26,657 26,657
Details of subsidiary undertakings are given in Note 25 of the consolidated financial statements.
On 21 April 2016, the Company acquired 100% of the share capital of Argentum Property Holdco Limited
(“Argentum”) for a consideration of €91.2 million. See Note 27 of the consolidated financial statements for
further information.
During the year, as part of an internal group reorganisation, the Company sold its shares in Argentum to a
subsidiary entity within the Group.
5. Amounts due from Subsidiary Undertakings
Amounts due from subsidiary undertakings are repayable on demand.
6. Inventories
2016 2015
€’000 €’000
Land held for development - 72,899
During the year, land held for development was sold by the Company to a subsidiary entity within the Group
with the consideration satisfied by way of an intercompany loan.
Cairn Homes PLC 155
FINANCIAL STATEMENTS
Notes to the Company Financial Statements - continued
For the year ended 31 December 2016
7. Trade and Other Receivables
2016 2015
€’000 €’000
VAT recoverable 773 792
Other receivables 545 198
1,318 990
8. Share Capital and Share Premium
For further information on Share Capital and Share Premium refer to Note 18 of the consolidated financial
statements.
9. Share-Based Payments
For further information on Share-Based Payments refer to Note 19 of the consolidated financial statements.
10. Trade and Other Payables
2016 2015
€’000 €’000
Trade payables 428 248
Accruals 1,250 1,986
Other creditors 964 322
2,642 2,556
11. Financial Instruments
The carrying value of the Company’s financial assets and liabilities, comprising amounts due from subsidiary
undertakings, other receivables, cash and cash equivalents, trade payables and accruals, are a reasonable
approximation of their fair value. Relevant disclosures on Group financial instruments and risk management
are given in Note 28 of the consolidated financial statements.
156
Annual Report 2016
FINANCIAL STATEMENTS
Notes to the Company Financial Statements - continued
For the year ended 31 December 2016
12. Related Party Transactions
Under IAS 24, Related Party Disclosures, the Company has related party relationships with key management
and with its subsidiary undertakings (see Note 25 of the consolidated financial statements).
Key management compensation is set out in Note 24 of the consolidated financial statements.
For the year ended 31 December 2016, the following related party transactions have taken place requiring
disclosure:
•
Edward Square Limited, an entity directly owned by Alan McIntosh, a director, recharged €0.105 million
in the period to the Company for professional services and expenses incurred on behalf of the Company.
Period ended 31 December 2015
For the period from incorporation on 12 November 2014 to 31 December 2015, the following related party
transactions took place which required disclosure:
• On 15 June 2015, 100% of the share capital of Emerley Holdings Limited, subsequently renamed Cairn
Homes Holdings Limited, was acquired by the Company from Everleigh Investment Partners Limited (an
entity, in which the ultimate beneficiaries are Alan McIntosh, a director, and his spouse) and Stanbro
Property Holdings Limited (a company, of which over 96 per cent of the ultimate beneficial interest is
held by Michael Stanley, a Director, together with family members) for €26.7 million, the consideration
for which was satisfied by the issue of 26,657,224 Ordinary Shares of €0.001 each in the Company (see
Note 27 of the consolidated financial statements);
Edward Square Limited, an entity directly held by Alan McIntosh, a Director, recharged €0.35 million in
the period to the Company for professional services and expenses incurred on its behalf; and
Emerald Opportunity Investment Fund, an entity indirectly held by Alan McIntosh, a Director, recharged
€0.2 million in the period to the Company for professional services.
•
•
13. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 6 April 2017.
Cairn Homes PLC 157
NOTES
158
Annual Report 2016
NOTES
Cairn Homes PLC 159
NOTES
160
Annual Report 2016
Leading the way
Cairn believes in designing and building quality
family homes and establishing a market leading
brand and reputation. Following the substantial
completion of its initial capital deployment phase,
the Company’s focus is now firmly on continuing to
scale its construction operations toward reaching its
stated target of completing in excess of 1,200 new
home sales during 2019.
2017 is a key year in this progression and the
Company will be building new homes on ten sites
by the end of 2017, seven of which are already active,
with Naas due to commence in Q2 2017.
Key highlights
FINANCIAL
OPERATING
(cid:129)
Total revenues of €40.9 million (mainly from
sales of 105 completed units).
(cid:129) Currently active on seven sites with construction
due to commence in Naas in Q2, 2017.
(cid:129) Gross profit of €7.1 million and a gross profit
(cid:129)
margin of 17.3%.
(cid:129) Operating profit, before exceptional items, of
€3.6 million.
(cid:129)
Intend to seek a primary listing on the Irish
Stock Exchange during 2017.
Forward sales of 301 units (gross sales value of
€121.2 million) as of 9 March 2017, with the
majority of these forward sales expected to
complete in 2017.
(cid:129) Strong customer response across all selling
sites, with an increase in weekly sales run rate -
up to 19.7 per week in Q1 2017 to date (09 March
2017) versus 10.0 per week in Q4 2016 and 3.5 per
week in Q3 2016.
(cid:129) Doubled build rate to over 250 units and 200
units per annum in Parkside and Ashbourne
respectively to meet this increased demand.
(cid:129)
96% of Cairn’s core land bank of 12,100 units is
either residentially zoned,
in a strategic
development zone or has a live planning
consent. Average core site cost of €53,000.
(cid:129) Post year end, successful conclusion of first joint
venture agreement with NAMA on a site
adjoining our Parkside development.
(cid:129) Supporting over 1,000 new construction jobs
across our active sites today.
C
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M
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S
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P
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2
0
1
6
7 Grand Canal
Grand Canal Street Lower
Dublin 2
P: +353 1 696 4600
E: info@cairnhomes.com
www.cairnhomes.com
2016