Designed forlivingBuilt for lifeCairn Homes plcAnnual Report 2017Cairn Homes plc • Annual Report 20177 Grand CanalGrand Canal Street LowerDublin 2P: +353 1 696 4600E: info@cairnhomes.comwww.cairnhomes.com In This ReportKey Highlights 02Our Business at a Glance 07Chairman’s Statement 18Chief Executive Offi cer’s Statement 22Cairn Management Team 28Strategy 30Business Model 32Risk Management 38Market Overview 44Group Finance Director’s Review 48Corporate Responsibility 52Board of Directors 56Corporate Governance Report 58Audit and Risk Committee Report 65Nomination Committee Report 69Remuneration Committee Report 71Directors’ Report 85Company Information 146Financial Calendar 147Location of 2018 Annual General Meeting 147Notes 148Statement of Directors’ Responsibilities in respectof the Annual Report and the Financial Statements 90Independent Auditor’s Report 91Consolidated Statement of Profi t or Lossand Other Comprehensive Income 96Consolidated Statement of Financial Position 97Consolidated Statement of Changes in Equity 98Consolidated Statement of Cash Flows 100Notes to the Consolidated Financial Statements 101Company Statement of Financial Position 137Company Statement of Changes in Equity 138Company Statement of Cash Flows 140Notes to the Company Financial Statements 14101–54Strategic Report89–145Financial Statements55–88Corporate Governance146–148Additional Informationsourcedesign.ie 1
What we do
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 across all of our new home
schemes.
Strategic Report 2
Cairn Homes plc — Annual Report 2017
Key Highlights
Financial
Revenue:
€149.5 million
(2016: €40.9 million)
Gross Profit:
€27.1 million
(2016: €7.1 million)
Operating Profit*:
€15.0 million
(2016: €3.6 million)
418 sale completions (average selling
price “ASP” – €315k) up from 105 sale
completions (ASP – €295k) in 2016
(all ex. VAT).
Inventories:
€911 million
(2016: €727 million)
34 individual sites containing c. 14,100
residential units.
€807 million development land.
€104 million construction work in
progress.
Gross margin 18.2%
(2016: 17.3%).
* Pre-exceptional items of €0.5 million
(2016: €1.4 million).
Forward Sales:*
383 units
Revenue
Outlook
Forward sales pipeline of 383 units
(sales value €143.2 million) at an ASP
of €374k (all ex. VAT) as at 5 March 2018
with an expected gross margin of 19%.
Forecast total revenue in excess of
€350 million (including c. 800+ sales
completions) and a gross profit margin
of c. 20% in 2018.
Four additional sales launches
in H1 2018.
* defined as a sale with a booking
deposit paid, contract issued or
contract exchanged.
We also expect our medium-term
run-rate to deliver total revenue of
c. €500 million from between 1,300 and
1,400 sales completions annually from
2020 (IPO target was 1,000 unit sales
completions).
3
Strategic Report
Key Highlights (continued)
Operational
Land
Acquisitions
Enhancing Value in
Unique Land Bank
Six Hanover
Quay
Cairn’s well located land bank has been
acquired at a cost of 16% of estimated
net development value* (ex. house
price inflation), comfortably ahead of
IPO target of 20%.
2017 acquisitions were targeted
towards specific central city
apartment sites.
* defined as the estimated total
revenue from all of the units in the
Cairn land bank (ex. house price
inflation and ex. VAT).
1,997 units granted planning
permission since the start of 2017.
c. 1,900 incremental units granted
planning permission or expected to
be gained on existing sites through
increased densities.
Due to the significant demand
from international capital, we have
commenced a formal sales process to
sell the entire development.
Construction well advanced with an
expected transaction close date at the
start of 2019, assuming a successful
sales process.
Shares Dual
Listed
Customer –
Product
11 Active Sites
8 Selling Sites
Primary listing on the Irish Stock
Exchange on 26 July 2017.
Added to FTSE Global Small Cap Index
in Q3 2017 and the ISEQ-20 Index
in Q4 2017.
Business has been aligned
operationally to manage the three
elements of our construction activities
– housing, apartments and student
apartments – more efficiently.
Cairn today has a highly experienced
and committed team of people to
deliver our vision of building great
homes and great places where our
customers will love to live.
Active on 11 developments (5 at the end
of 2016), which will deliver in excess of
3,650 new homes.
3 new site commencements
planned for 2018.
Scale of land bank and planning
maturity presents numerous site
commencement options going forward.
4
Cairn Homes plc — Annual Report 2017
Marianella, Rathgar, April 2018
5
Strategic Report
Delivering
quality homes
Our building teams take pride in delivering
quality homes; from apprentices to engineers
to foremen to site managers, we handpick our
teams based on their training and experience
to ensure the very best-in-class standards
are achieved.
6
Six Hanover Quay, April 2018
Cairn Homes plc — Annual Report 2017 7
Our Business at a Glance
We look forward with confidence to the next phase of
our growth and expect our medium-term run-rate to
deliver revenue of c. €500 million from 1,300 to 1,400
sales completions annually from 2020.
€822 millionCapitalDeployedc. 14,100Core LandBank UnitsCore land bank acquisition dates€’m450400350300250200150100500units16,00014,00012,00010,0008,0006,0004,00002,000H1 2015H2 2015H1 2016H2 2016H1 2017H2 2017Acquisitions in PeriodCumulative Units Acquired75%of core land bank capital deployed in 2015 and early 201690%of core land bank units acquiredwithin 1 year of IPOStrategic Report 8
Our Business at a Glance (continued)
Core Land Bank
Capital allocation
by geographical location
Targeted
Capital
Allocation
Focused on
the GDA
Dublin within M50
Rest of Dublin
Rest of Greater Dublin Area ("GDA")
Regional
49.8%
18.2%
27.0%
5.0%
DON
ANT
DRY
TYR
LET
FER
ARM
DOW
SLI
MOG
MAY
ROS
LOG
CAV
WEM
LOU
MEA
23 24
34
CLA
DUB
WIC
GAL
OFF
KID
LEX
CAR
22
LIM
TIP
KIK
WEX
KER
WAT
COR
21
Unit Type
Planning Status
Buyer Profile
Active
Active
Active
Note: See page 9 for explanation of regional site locations.
Well located housing sites
with excellent public transport
and infrastructure links
Prime apartment sites in and
near Dublin city centre
Student
Apartments
Houses
Apartments
Student
74%
22%
4%
Full Planning Permission
Strategic Development Zone
("SDZ") (Effective Full
Planning Permission)
Zoned Residential
Subject to Residential
Zoning
36%
32%
28%
4%
First Time Buyer ("FTB")
(from €250k)
47%
Trade Up / Mover (up to €600k)
25%
Premium (from €600k)
Social
Student Accommodation
14%
10%
4%
2
M3
M2
M1
N
Meath
12
18
Dublin
6
1
M50
28
32
M4
4
13
33
9
Kildare
3
10
16
M50
8
25
26
31
29
27
30
15
N7
N81
14
20
7
N11
17
Wicklow
11
19
5
High capacity public
transport routes
Coastal commuter train
Rapid city train red line
Rapid city train green line
Commuter rail
10.
Craddockstown, Naas, Co. Kildare
25.
Montrose, Dublin 4
1.
2.
3.
4.
5.
6.
7.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
Parkside, Malahide Road
Churchfields, Ashbourne, Co. Meath
Elsmore, Naas, Co. Kildare
Shackleton Park, Lucan
Glenheron, Greystones, Co. Wicklow
Parkside NAMA Joint Development
Albany, Killiney
Future
Coolagad, Greystones, Co. Wicklow
Mariavilla, Maynooth, Co. Kildare
Clonburris, Dublin 22
Cherrywood, South Co. Dublin
Newcastle, Co. Dublin
Citywest, Dublin 24
Blessington, Co. Wicklow
Swords, Co. Dublin
Farrankelly, Delgany, Co. Wicklow
Enniskerry, Co. Wicklow
Douglas, Cork
Kilkenny
Rahoon, Galway
Ballymoneen, Galway
8.
9.
26.
27.
28.
29.
30.
31.
1.
18.
4.
16.
5.
Marianella, Rathgar, Dublin 6W
32.
Blackhall Place, Dublin 7
Hanover Quay, Dublin 2
Greenfield Park, Dublin 4
Future
Cork Street, Dublin 8
Eyre Square, Galway
Stillorgan, Co. Dublin
33.
34.
29.
12.
Mariavilla, Maynooth, Co. Kildare
Future
Barrington Tower, Carrickmines, Dublin 18
Griffith Avenue, Dublin 9
Stillorgan, Co. Dublin
Glenamuck Road, Carrickmines, Dublin 18
Cross Avenue, Blackrock, Co. Dublin
Parkside, Malahide Road
Swords, Co. Dublin
Shackleton Park, Lucan
Citywest, Dublin 24
Glenheron, Greystones, Co. Wicklow
Note: See page 8 for regional site locations.
Cairn Homes plc — Annual Report 2017 9
2
Core Land Bank
M3
M2
M1
N
Capital allocation
by geographical location
Targeted
Capital
Allocation
Focused on
the GDA
Dublin within M50
Rest of Dublin
Rest of Greater Dublin Area ("GDA")
Regional
49.8%
18.2%
27.0%
5.0%
DON
ANT
DRY
TYR
MOG
LET
FER
ARM
DOW
SLI
MAY
23 24
34
CLA
ROS
LOG
CAV
WEM
LEX
LOU
MEA
DUB
WIC
GAL
OFF
KID
LIM
TIP
KIK
WEX
CAR
22
KER
WAT
COR
21
Meath
12
18
Dublin
6
1
M50
28
32
M4
4
13
33
9
Kildare
3
10
15
N7
N81
17
16
M50
8
25
26
31
29
27
30
High capacity public
transport routes
Coastal commuter train
Rapid city train red line
Rapid city train green line
Commuter rail
14
20
7
N11
Wicklow
11
19
5
Unit Type
Planning Status
Buyer Profile
Active
Active
Active
Note: See page 9 for explanation of regional site locations.
Well located housing sites
with excellent public transport
and infrastructure links
Prime apartment sites in and
near Dublin city centre
Student
Apartments
8.
9.
26.
Marianella, Rathgar, Dublin 6W
32.
Blackhall Place, Dublin 7
Hanover Quay, Dublin 2
Greenfield Park, Dublin 4
1.
2.
3.
4.
5.
6.
7.
Parkside, Malahide Road
Churchfields, Ashbourne, Co. Meath
Elsmore, Naas, Co. Kildare
Shackleton Park, Lucan
Glenheron, Greystones, Co. Wicklow
Parkside NAMA Joint Development
Albany, Killiney
Future
Future
Houses
Apartments
Student
74%
22%
4%
Full Planning Permission
36%
First Time Buyer ("FTB")
47%
Strategic Development Zone
32%
(from €250k)
("SDZ") (Effective Full
Planning Permission)
Zoned Residential
Subject to Residential
Zoning
Trade Up / Mover (up to €600k)
25%
Premium (from €600k)
28%
4%
Social
Student Accommodation
14%
10%
4%
10.
Craddockstown, Naas, Co. Kildare
25.
Montrose, Dublin 4
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
Coolagad, Greystones, Co. Wicklow
Mariavilla, Maynooth, Co. Kildare
Clonburris, Dublin 22
Cherrywood, South Co. Dublin
Newcastle, Co. Dublin
Citywest, Dublin 24
Blessington, Co. Wicklow
Swords, Co. Dublin
Farrankelly, Delgany, Co. Wicklow
Enniskerry, Co. Wicklow
Douglas, Cork
Kilkenny
Rahoon, Galway
Ballymoneen, Galway
27.
28.
29.
30.
31.
1.
18.
4.
16.
5.
Barrington Tower, Carrickmines, Dublin 18
Griffith Avenue, Dublin 9
Stillorgan, Co. Dublin
Glenamuck Road, Carrickmines, Dublin 18
Cross Avenue, Blackrock, Co. Dublin
Parkside, Malahide Road
Swords, Co. Dublin
Shackleton Park, Lucan
Citywest, Dublin 24
Glenheron, Greystones, Co. Wicklow
Future
Cork Street, Dublin 8
Eyre Square, Galway
Stillorgan, Co. Dublin
Mariavilla, Maynooth, Co. Kildare
33.
34.
29.
12.
Note: See page 8 for regional site locations.
Strategic Report 10
Our Business at a Glance (continued)
Housing – Selling Sites
Since its successful launch in 2015, Parkside has
established itself as one of the most attractive and
sought-after new developments in North Dublin.
These stylish three and four-bedroom family homes
are situated just off the Malahide Road beside Father
Collins Park.
Phases 1 (166 units) and 2 (141 units) and the NAMA
joint development (71 units) sold out. Phase 3 (88
units) under construction.
Shackleton Park is a collection of spacious three,
four and five-bedroom family homes on the outskirts
of the picturesque village of Lucan, an established
Dublin residential suburb. A 30-minute commute
from Dublin City Centre by train and bus, Shackleton
Park is an ideal starter home location close to all local
educational, retail, sporting and social amenities.
Phase 1 (267 units) progressing well with c. 150 units
sold to date.
Following the success of Glenheron, the adjoining
sister scheme, The View at Glenheron is an elegant
development of high-quality detached, semi-detached
and terraced three and four-bedroom family homes
located close to the coastal village of Greystones, Co.
Wicklow, a 50 minute commute from Dublin City
Centre by train.
Phase 1 (50 units) nearly complete and Phase 2 (192
units) construction underway.
Parkside
671 units
55.5 acres
Shackleton
Park
1,073 units
69 acres
Glenheron
491 units
87 acres
Cairn Homes plc — Annual Report 2017 11
Our Business at a Glance (continued)
Churchfields
397 units
37 acres
Elsmore
465 units
40 acres
Albany
20 units
2 acres
Churchfields in Ashbourne, Co. Meath, is an
exceptional development of new three, four and
five- bedroom homes designed with growing families
in mind. Only 45 minutes from Dublin City Centre,
Ashbourne is a thriving town with exceptional schools
and local amenities.
Phase 1 (173 units) sold out and construction of
Phase 2 (224 units) progressing well and completions
underway.
A new development of three and four-bedroom,
A-rated family homes situated off the South Ring Road
in Naas, the largest retail hub in Co. Kildare, within
walking distance of the vibrant town centre and close
to all local educational, retail, sporting and social
amenities and adjoining access routes.
Construction of Phase 1 (117 units) is advanced with
first occupations scheduled in Q2 2018.
Albany is an exclusive development of 20 luxury four
and five-bedroom new homes on the grounds of Albany
House, a sensitively restored Victorian villa situated
a few minutes’ walk from the sea in Killiney, South
County Dublin.
Strategic Report 12
Our Business at a Glance (continued)
Housing –
Options for 2018/2019 Commencements
Mariavilla,
Maynooth
462 units
49 acres
Craddockstown,
Naas
251 units
30 acres
Cherrywood,
Dublin
294 units
10.5 acres
Clonburris,
Dublin 22
Up to 3,086 units
177 acres
Planning application (462 units – 320
houses, 86 apartments and 56 duplex units)
lodged through the Strategic Housing
Development process in Q1 2018.
Full planning permission received for 251
houses in Q4 2017.
Infrastructure works and completion of
public parks progressing. Phasing within
the Strategic Development Zone (“SDZ”) is
being reviewed and fast-track SDZ planning
application to be submitted during 2018.
Enlarged 280 hectare SDZ expected to be
approved by South Dublin County Council
in H1 2018. Anticipate full An Bord Pleanála
approval by the end of H2 2018 which will
facilitate a fast-track (8 week) planning
application at that time.
Cairn Homes plc — Annual Report 2017 13
Our Business at a Glance (continued)
Farrankelly,
Delgany
440 units
35 acres
Citywest,
Dublin 24
354 units
20 acres
Swords,
Co. Dublin
500 units
28 acres
4/4/2018
Cairn Homes Data Platform T
Cairn Homes Data Platform T
Search
Rahoon,
Galway
220 units
21 acres
+
–
Currently in detailed design stage with
a view to lodging a planning application
through the Strategic Housing Development
process in H2 2018.
Currently in detailed design stage with
a view to lodging a planning application
through the Strategic Housing Development
process in H2 2018.
Currently in detailed design stage.
Well located site within 1km of proposed
Metro North, where a focus will be on higher
density development.
Currently in detailed design stage.
Well located site 2km from Galway city
centre in an established residential suburb.
DigitalGlobe, Microsoft
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400ft
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꤆Strategic Report 14
Our Business at a Glance (continued)
Apartments – Selling Sites
Marianella
231 units
8 acres
Six Hanover
Quay
120 units
1 acre
Greenfield
Park
86 units
3 acres
Marianella is a collection of spacious apartments,
townhouses and houses offering a unique choice of
lifestyle in the heart of one of Dublin’s most prestigious
residential locations in Rathgar. The development has
its own Resident’s Club with a wellness suite and gym,
a private cinema room, a concierge service and private
function room.
170 units sold and sales completions underway.
Six Hanover Quay is a landmark new apartment
building in an unrivalled waterfront setting in the heart
of Dublin’s South Docklands. The scheme comprises
120 luxurious residential units finished to exacting
standards, two ground floor commercial retail units,
a private residents gym, concierge service and secure
underground parking for 98 cars.
Formal sales process underway.
Apartments – Sites under Construction
Construction has commenced at Greenfield Park, an
exclusive apartment development which will consist
of 68 large two-bedroom apartments and 18 spacious
three-bedroom apartments, all serviced by a private
Resident’s Club including a full concierge service.
Greenfield Park is located in Donnybrook, South
Dublin’s most exclusive residential address, and within
close proximity to Dublin City Centre.
Cairn Homes plc — Annual Report 2017 15
Our Business at a Glance (continued)
Apartments –
Options for 2018/2019 Commencements
Montrose,
Dublin 4
Units TBC
8.6 acres
Griffith Avenue,
Dublin 9
Units TBC
7.5 acres
Cross Avenue,
Blackrock
Units TBC
8.0 acres
Barrington,
Carrickmines
Units TBC
12 acres
Site being master-planned presently with
a full design team retained ahead of pre-
planning consultation with Dublin City
Council.
A Strategic Housing Development planning
application will be submitted in H2 2018.
In detailed pre-planning, design and local
authority consultation with a Strategic
Housing Development planning application
to be submitted in H1 2018.
In detailed pre-planning, design and local
authority consultation with a Strategic
Housing Development planning application
to be submitted in H1 2018.
Currently in detailed design stage.
The site benefits from a dedicated light rail
station which serves St. Stephen’s Green in
Dublin City Centre in just over 25 minutes.
Strategic Report 16
Our Business at a Glance (continued)
Student Apartments – Active Site
Blackhall Place,
Dublin 7
29 units
112 beds
2,800 sq.m.
TCD, DIT
Refurbishment underway ahead of
completion and letting for the summer
student market and the start of the new
academic year in September 2018.
Cairn Homes plc — Annual Report 2017 17
Our Business at a Glance (continued)
Student Apartments – Future Sites
Full planning permission received through
the Strategic Housing Development process
in March 2018 for 576 student beds.
Full planning permission received through
the Strategic Housing Development process
in February 2018 for 399 student beds.
Planning application lodged through the
Strategic Housing Development process in
Q1 2018.
Full planning permission in place.
Stillorgan,
Dublin
215 units
576 beds
19,400 sq.m.
UCD, IAD
Cork Street,
Dublin 8
90 units
399 beds
13,000 sq.m.
TCD, DIT, Griffith
College
Mariavilla,
Maynooth
179 units
483 beds
19,600 sq.m.
NUI, Maynooth
Eyre Square,
Galway
22 units
147 beds
5,750 sq.m.
GMIT, NUIG
Strategic Report 18
Cairn Homes plc — Annual Report 2017
Chairman’s Statement
“2017 was a year of significant and sustained
progress for our growing business which is
successfully implementing our long-term
strategy and delivering a significant number
of quality new homes to the market.”
John Reynolds
19
Strategic Report 20
Chairman’s Statement (continued)
Dear Shareholder,
I am pleased to report that 2017 was another year of strong
growth and development in the continued maturing of Cairn
with substantial revenue and profitability growth achieved.
Significant progress was made during the year by our Chief
Executive Officer and Co-Founder, Michael Stanley, and his
team in developing and implementing the Company’s long-
term strategy as agreed by the Board.
Through the support of our shareholders and funding
partners, the Company has astutely and successfully
deployed over €820 million in capital in a unique and well-
located core land bank of 14,100 units. Our focus is on the
Dublin and Greater Dublin Markets, where over 90% of these
units are located.
We have spent the last three years growing our business in a
considered and measured manner as witnessed by our unit
sale completion and revenue progression (2015: 11 units –
€3.6 million; 2016: 105 units – €40.9 million; 2017: 418 units
– €149.5 million). Last year was another important year as
we commenced six new developments to bring to eleven our
total number of active sites. We have increased our medium-
term guidance to deliver revenue of c. €500 million from
1,300 to 1,400 sales completions annually from 2020. This is
well in excess of our original IPO target of 1,000 annual sales
completions at maturity.
Economy
The Irish economic recovery is now complete. Following
six consecutive years of economic growth well in excess of
the rest of the Euro area, the Irish economy is now firmly
in an expansionary phase and larger than at its previous
peak in 2007. The continuing strength of the labour market
is driving employment and wage growth, with over 352,000
more people now working in Ireland than at the bottom of
the market in 2012. Added to a more competitive mortgage
market and falling mortgage interest rates, affordability for
new homes continues to improve, particularly at the starter
home end of the market. These measures all contribute
towards continuing strong demand for new homes.
Strong macro-economic trends are forecast to continue into
the medium-term, notwithstanding the uncertainty which
Brexit has generated for the broader Irish economy. Cairn
believes that any Brexit impact on Dublin and the Greater
Dublin Area will be negated by further employment growth
with international financial services firms continuing to
announce very substantial job creation in Dublin, resulting in
an even greater demand for new homes.
Irish Stock Exchange Dual-Listing
The Company’s entire issued ordinary share capital was
admitted to the Official List of the Irish Stock Exchange on 26
July 2017. This was another milestone event for the Company
whose business is focused entirely on the Irish new homes
market. The Company’s shares continue to trade on the
London Stock Exchange.
Governance
We, as a Board, believe that effective governance is the
foundation of a successful and sustainable organisation and
should be based upon an appropriate level of oversight, and a
commitment to transparency. The Board sets the tone for the
rest of the Company. The Directors will continue to review
governance best-practice on an ongoing basis to ensure that
we adapt and evolve in what is an environment of constant
change. Details of our approach are set out in the separate
Corporate Governance Report on pages 58 to 64.
Board Composition and Leadership
Your Board comprises of three Executive Directors, three
Independent Non-Executive Directors, and myself as Non-
Executive Chairman. Board members meet frequently, both
formally in Board Committees and at Board meetings, and
less formally to discuss matters impacting the Company. The
Non-Executive Directors also meet separately as a group from
time to time. All of these formal and informal meetings focus
on continuing to drive the Company’s strategic direction and
associated matters.
I would like to thank all of my Board colleagues for their
continued commitment and hard work throughout the
year. The Board has played an important role in overseeing
the development of the Company and it is beneficial to
Cairn Homes plc — Annual Report 2017 21
Chairman’s Statement (continued)
“Following six consecutive years of economic growth well in
excess of the rest of the Euro area, the Irish economy is now
firmly in an expansionary phase and larger than at its
previous peak in 2007.”
all stakeholders to have such a depth of experience and
knowledge available to management as they continue to
drive the business forward.
The Board was delighted to announce the appointment of
Tim Kenny as its Group Finance Director on 24 April 2017.
Tim joined Cairn on 22 August 2017 from Musgrave Group
plc where he was Group Finance and Business Development
Director. Eamonn O’Kennedy resigned as Group Finance
Director on 22 August 2017. The Board has acknowledged
Eamonn’s contribution to the Company’s early development.
As part of ongoing succession planning of the Board and its
Committees, we are well-advanced in our search process
to appoint a new Non-Executive Director and a further
announcement will be made in due course.
Annual General Meeting
All Non-Executive and Executive Directors will retire and
seek re-election/election at the 2018 Annual General Meeting.
Each Non-Executive and Executive Director performs
effectively and has demonstrated a strong commitment
to the role and I strongly recommend, in the interests of
shareholders and the Board, that each of the Directors going
forward be re-elected/elected at the Annual General Meeting.
Health and Safety
The Company is fully committed to the highest standards
of health and safety on our sites. The health and safety of
employees, sub-contractors, customers and the general public
is a key priority for the Company. Increased construction
activity levels increase the risk of accidents on active sites and
the Company continually promotes the importance of a safe
working environment and ensures the highest industry health
and safety standards are set. Each active site has a dedicated
health and safety manager, ensuring that the Company’s
health and safety policies and procedures are adhered to
and implemented. Health and safety is a standing agenda
item at all Board and Audit and Risk Committee meetings
and to further enhance health and safety awareness, the
Company recently retained an independent external auditor to
undertake a monthly audit of health and safety practices and
management across all active sites.
Our People
The Company has continued to make outstanding progress in
delivering on its strategic objectives. The strong results for the
year would not have been achieved without the dedication,
expertise and capability of our senior management team, ably
led by our Chief Executive Officer and Co-Founder, Michael
Stanley, and all of our employees. On behalf of the Board, I
would like to extend our appreciation to each of them for
their contribution and commitment to the progress made
during 2017. People are one of the five strategic pillars under
which our business operates, and we continue to attract and
retain the best talent in the market to ensure that we have
the best team in place to effectively deliver on our long-term
strategy.
Returns to Shareholders
The Board had previously declared that it did not anticipate
paying a dividend in the short-term as the Company’s
primary focus was to achieve capital growth. However, in
the medium-term, the Board is committed to following a
progressive dividend policy as the business reaches maturity.
Outlook
The Company has a very clearly defined strategy, as approved
by the Board, which is being very effectively implemented by
our senior management team. We continue to deliver on our
strategic objectives and have become a brand synonymous
with the construction and delivery of quality new homes and
apartments.
The Board is very positive about the Company’s overall
prospects and looks to 2018 as a year of further progress.
John Reynolds
Non-Executive Chairman
Strategic Report 22
Cairn Homes plc — Annual Report 2017
Chief Executive Officer’s Statement
“Since our initial public offering in June 2015, we have
built a homebuilding business in a measured and
considered way. We have assembled a truly unique
land bank of great sites in the best locations and
managed our site commencements sensibly. We have
grown our sub-contractor base across multiple sites,
developed a strong and sustainable supply chain and
established a reputation for building quality homes in
a market with proven demand. I believe we have done
the hard yards, and I look forward with confidence to
the next phase of our growth.”
Michael Stanley
23
Strategic Report 24
Chief Executive Officer’s Statement (continued)
Dear Shareholder,
As our practice is to build on large sites which have an
extended lifespan, our planned expansion into 2018
and beyond will be easier to achieve, as this will in the
main be delivered from sites which we are currently
on or will commence during 2018. Building on larger
sites enables us to generate economies of scale through
procurement efficiencies and amortising fixed site costs
(site works, preliminaries, site accommodation, machinery
and professional fees) over longer-term construction
programmes. Importantly, building on sites which have an
average of c. 400 units allowed Cairn to respond quickly to
increased demand during 2017 and the Company anticipates
increased sales absorption rates in future years.
Our strategy is to continue to capitalise on the recovery of
the Irish new homes residential property market and create
sustainable shareholder value by establishing ourselves
over the long-term as a leading Irish homebuilder. 2017 was
another year of excellent progress in executing this strategy.
Construction Activities
With the continued maturing of Cairn, 2017 was a year of
strong operational progress with a significant ramp-up in the
Company’s construction activities as development activity
commenced on six new sites during the period: Glenheron
(Greystones), Parkside – NAMA joint development (Malahide
Road), Shackleton Park (Lucan), Elsmore (Naas), Greenfield
Park (Donnybrook) and Blackhall Place (Dublin 7). These six
new developments increase the Company’s active sites to
eleven, which will deliver in excess of 3,650 residential units
over the coming years.
Sales Activities
We are now actively selling across eight separate
developments and the Company delivered completed sales
across seven separate developments in the Greater Dublin
Area in 2017. The improvement in sales evident since the
latter part of 2016 continued throughout 2017 and into the
2018 spring selling season. Sales absorption rates at our
starter home schemes are growing, assisted by improving
affordability and an increasingly competitive mortgage
market with mortgage interest rates continuing to fall,
in addition to first time buyers continuing to avail of the
Government Help to Buy income tax rebate scheme.
The Company is also witnessing strong sales absorption rates
at our award-winning Marianella apartment development
from purchasers seeking to trade down as well as from
investors. With premium apartment developments also
attracting interest from international institutional investors
and private rental sector operators seeking exposure to the
Irish residential market recovery, the Company believes that
strong demand will exist from these cohorts of purchasers at
our other well-located developments.
Due to the significant shortage of apartments in city centre
locations and strong employment growth resulting in
escalating rents, we have received a number of enquiries in
recent months from international institutional investors and
private rental sector operators seeking to forward purchase
several of our current and future high-density apartment
developments. There has been specific recent interest in our
Six Hanover Quay development in Dublin City Centre and
the Company has commenced a formal sales process with
a view to selling the entire development (comprising 120
apartments, a 5,000 sq. ft. restaurant and 1,400 sq. ft. café).
If the process meets our expectations, this would lead to an
expected completion date of Q1 2019.
We had a strong forward sales pipeline as of 5 March
2018 of 383 units with a sales value of €143.2 million at an
average selling price of €374,000 (all ex. VAT). Our practice
is to forward sell c. six months in advance, and the current
forward sales pipeline underpins H1 2018 completions.
Operations
We completed an operational realignment during the
year with the business now structured to manage the
three elements of our construction activities – housing,
high density apartments and student apartments. The
construction of apartments is a more complex and
management intensive process than traditional housing, with
different construction skillsets and disciplines required. Our
accelerated investment in central overhead and operational
realignment will ensure the business operates in a more
efficient and balanced way, and under a more focused
operating platform, as we continue towards maturity in 2020.
Cairn Homes plc — Annual Report 2017 25
Chief Executive Officer’s Statement (continued)
Six Hanover Quay
“Due to the significant shortage of
apartments in city centre locations and
strong employment growth resulting
in escalating rents, we have received a
number of enquiries in recent months
from international institutional
investors and private rental sector
operators seeking to forward purchase
several of our current and future high-
density apartment developments.”
Land and Planning
One of our core strengths is our planning expertise.
Significant planning gains were achieved in 2017 with over
1,187 units granted full planning permission. In addition, the
Company expects to deliver a total of c. 1,900 incremental
units on our existing sites by maximising densities through
planning enhancements. This is being delivered by amending
historic planning consents with historic densities into
current, demand driven higher densities and putting
practical and relevant planning and design expertise into
each planning application. These gains are also a response
to impactful changes in apartment design guidelines and
local authorities supporting more efficient land use in the
backdrop of the continuing housing crisis.
An additional and important benefit of achieving higher
densities on certain sites will be the delivery of smaller
units at lower entry level price points for customers (e.g.
duplex units), therefore broadening our pool of prospective
purchasers further.
Our land bank is mature from a planning perspective and
contains no planning risk with 36% of our units having
full planning permission, 32% in strategic development
zones (effective full planning permission) and 28% zoned
residential.
As a business, we were delighted to have been awarded
the 2017 Excellence in Planning Award at the Irish
Property Awards for our premium apartment development
at Marianella. The Irish Property Awards programme
is designed to recognise the highest standards of
professionalism and excellence across the entire property
sector, and this accolade is testament to the dedication and
expertise of the Company’s planning and development team
and our ability to deliver the best apartment developments in
the best locations in Dublin.
We acquired the majority of our well-located land bank
within nine months of our June 2015 IPO. Our reduced
level of site acquisitions in 2017 included four new sites –
Montrose (Donnybrook), Greenfield Park (Donnybrook), a
site adjoining our Parkside site in conjunction with NAMA
Strategic Report 26
Chief Executive Officer’s Statement (continued)
(Malahide Road) and Eyre Square (Galway). We also acquired
additional land adjoining our Barrington (Carrickmines)
and Enniskerry sites during the year, all of which add to the
overall mix and quality of the land bank and improve the
distribution of units across the spectrum of locations and
price points.
Our joint development with NAMA of 71 three and four-
bedroom new homes in Parkside will deliver strong returns
for the joint development partners. The development is
nearing a successful completion and as a business, we
continue to explore joint venture opportunities which may
prove attractive.
The Company has formally retained a highly regarded team of
nationally and internationally renowned design professionals
to work in conjunction with our planning and development
team to masterplan the prime, residentially zoned 8.6 acre
Montrose site ahead of submitting a planning application
through the Strategic Development Housing process later in
the year. We have successfully brought our first two schemes
through this process with full planning permission recently
received for our Cork Street (Dublin 8) and Blakes (Stillorgan)
developments.
Other premium, large, high density central Dublin apartment
planning applications are expected in 2018 including Cross
Avenue (Blackrock) and Griffith Avenue (Dublin 9).
Residential Property Market
We believe that Dublin requires in excess of 20,000 new
homes per annum in the medium term, driven by a growing
population, increasing employment, annual obsolescence and
eight years of chronic undersupply. In 2017, just over 4,000
new homes were sold in Dublin (source – 2017 Property Price
Register). As the supply/demand imbalance continues to
intensify, the housebuilding sector is responding, however the
level of construction activity is still not meeting the needs of a
growing population and expanding economy.
The supply of affordable starter homes in Dublin remains
constrained. The average price of a new home sold in Dublin
in 2017 was €436,000 incl. VAT (source: 2017 Property Price
Register), and of the 4,000 new homes sold in Dublin in 2017,
less than half were priced below €350,000. Our bias towards
starter homes, with 47% of our land bank units targeted
at first time buyers, will ensure that more affordable and
competitively priced new homes are delivered to this cohort of
the market in the years to come.
With headline house price inflation remaining high at 12.5%
nationally in the year to January 2018 (source – CSO: Dublin
– 12.1%, Rest of Ireland – 13.0%), it is worth noting that
Eurostat, the statistical office of the EU, reported that 12%
national house price inflation in the year to September 2017
was split 5.9% for new homes and 13.1% for existing homes.
This is consistent with our experiences on the ground, where
first time buyers and those seeking to trade-up are mortgage-
dependent purchasers, sensitive to the Central Bank of Ireland
macro-prudential lending rules.
Dublin house prices remain 23.6% behind peak 2007 levels
while rents are now 19% above their peak levels (source – Daft.
ie Q4 2017 Rental Price Report). The rental crisis continues
unabated and the level of stock available to rent remains
at record low levels. It continues to be significantly dearer
to rent than own and finance a starter home in Dublin. The
Company estimates that the cost of renting compared to
owning continues to increase from €419 per month or 32.5%
in September 2017 to €494 per month or 37.3% in March 2018.
We believe we are ideally positioned to continue to offer high
quality new homes at competitive prices which will continue
to attract customers who are paying excessive rents.
Cairn Homes plc — Annual Report 2017 27
Chief Executive Officer’s Statement (continued)
“The Group expects to generate total revenue of in excess of €350
million in 2018 including more than 800 sales completions. In
addition, the Group is targeting a gross margin of
c. 20% in 2018.”
Government Initiatives
A number of positive initiatives have been announced under
the Government’s “Rebuilding Ireland” action plan including:
• the selection of the residential development sites which
will benefit from the €226 million Local Infrastructure
Housing Activation Fund (the Company owns five sites
which will benefit from this funding);
• the introduction of new fast-track planning for
developments greater than 100 residential units and 200
student beds through the Strategic Development Housing
process;
• the introduction of the Help to Buy income tax rebate
scheme to assist first time buyers in the purchase of new
homes; and
• the launch of the Rebuilding Ireland Home Loan product
which provides mortgages, through local authorities, to
first time buyers acquiring new or existing homes subject
to certain approval criteria.
The Company welcomes the recent Government
announcement of a review of the Rebuilding Ireland action
plan to identify new and additional actions requiring
implementation to improve supply, and the new National
Planning Framework, known as “Project Ireland 2040”, which
was officially launched on 16 February 2018. The plan aligns
the country’s spatial planning and investment decisions,
underpinned by €116 billion in capital spending, and forms a
strategy for Ireland’s growth and development until 2040.
The new apartment design guidelines announced in March
2018 and an expected imminent announcement relating
to building heights will assist in accelerating the supply of
much needed new apartments, particularly in Dublin City
Centre, and will also be supportive of the Company’s efforts
to maximise the value of our land bank.
People
Our achievements as a business to date could not have
happened without quality people with the right combination
of expertise and homebuilding experience. We invested
heavily in our people throughout 2017 and increased our
headcount from 52 direct employees at the end of 2016 to 126
direct employees at the end of 2017.
We have strengthened our senior management team further
since the start of 2017 with the appointments of Tim Kenny
as Group Finance Director, Sandra Thorpe as Corporate
Development Director, Ruchika Hassan as Director of
Marketing & Sales and Ian Cahill as Head of Finance, to
complement the existing senior team.
We have a highly experienced and committed team of people
to deliver our vision of building great homes and great places
where our customers will love to live.
I echo my Chairman’s sentiments in thanking each of my
colleagues for their hard work, dedication and contribution
to our business in 2017.
Outlook
The strong level of demand for new homes witnessed in
2017 has continued into 2018 as evidenced by our forward
sales pipeline. The Group expects to generate total revenue
of in excess of €350 million in 2018 including more than 800
sales completions. In addition, the Group is targeting a gross
margin of c. 20% in 2018. The Company expects our medium-
term run-rate to deliver revenue of c. €500 million from 1,300
to 1,400 sales completions annually from 2020.
I am very proud to lead a team that has delivered such strong
results for us in our second full year of operations and look
forward to another year of excellent progress in 2018.
Michael Stanley
Chief Executive Officer & Co-Founder
Strategic Report 28
Cairn Management Team
Michael
Stanley
Chief Executive
Officer &
Co-Founder
Sandra
Thorpe
Corporate
Development
Director
Ruchika
Hassan
Marketing &
Sales Director
Tim
Kenny
Group Finance
Director
Kevin
Stanley
CCO/Managing
Director, PBSA
Jude
Byrne
Managing
Director,
Apartments
Ian
Cahill
Head of Finance
Liam
O’Brien
Managing
Director,
Housing
Fergus
McMahon
Managing
Quantity
Surveyor
Cairn Homes plc — Annual Report 2017 29
Cairn Management Team (continued)
Aidan
McLernon
Planning &
Design Manager
John
Grace
Planning &
Design Manager
Susan
O’Connor
Company
Secretary
Declan
Murray
Head of Investor
Relations
Brian
Carey
Senior Manager
Acquisitions
Eiméar
O’Flanagan
HR Manager
Strategic Report 30
Strategy
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.
Strategic Pillars
Homes
Design and build
brilliant homes
Places
Create places for
communities to prosper
Customers
Making the home buying
journey exceptionally
positive for all of our
customers
People
Continue to attract and
retain the best talent in
the market
Operational Excellence
Leverage a commercial
operational platform
Vision
Be the most trusted and
respected home builder in
Ireland
Cairn Homes plc — Annual Report 2017
31
Strategic Report
Mission
Building in great locations to
create places and homes where
people love to live
Business Model
A defined and flexible Business Model to
deliver on our long-term strategic objectives
1.
Land
2.
3.
4.
5.
People
Planning &
The Homes
Design
we Build
Customer
Experience
Culture and Values
Collaborative
Agile &
Innovative
Commercially
Minded
Committed
& Engaged
Honest &
Straight
Talking
32
Business Model
The Steps we Take to Ensure our Future Success
Our business is based
on these resources:
1. Land
Our People and Relationships
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.
Our Land Bank
A 14,100 unit wholly owned land bank.
A significant number of new homes will be delivered to
the Irish new homes market into the long-term from
a defined business model supported by a strong and
robust balance sheet.
Our Customers
We engage with our customers to ensure that the new
homes we design and build meet their every need,
whether they are a first time buyer, trading-up or
trading-down. We understand that buying a new home
is one of the biggest decisions each of our customers
will make in their life. Every home buyer benefits from
the Cairn Customer Satisfaction Commitment, which
extends to our after-sales service.
• 14,100 units wholly owned, majority
acquired within one year of IPO in 2015.
Land cost to NDV – 16% (IPO target 20%)
• Agility of 34 core sites
• Unit mix across the price spectrum
• Average site size 400 units
• Amortise fixed preliminary costs over
longer term construction programme
• 2017 acquisitions were targeted towards
specific central city apartment sites
2. People
• High calibre, talented team assembled
• Support functions and site management
teams fully resourced
• Focus on developing talent and building
careers
• Business has been aligned operationally
to manage the three elements of our
construction activities – housing,
apartments and student apartments –
more efficiently
Cairn Homes plc — Annual Report 2017 33
3. Planning & Design
• Land bank has no material planning risk
• Design driven by creating communities
• 1,997 units granted planning permission since the start of 2017
• c. 1,900 incremental units granted planning permission or
expected to be gained on existing sites through increased densities
• Understanding our market and customer needs and designing
homes accordingly
We enhance value in our
unique land bank:
We Build Communities
We create sustainable, vibrant
communities centred around well
designed and high quality landscaped
environments
4. The Homes We Build
• Similar starter home product across multiple sites
• Own contractor – site management teams supported by central
support functions
• Manage strong and established sub-contractor relationships
• Large scale sites drive construction cost economies of scale
• Energy efficient homes with high energy ratings
5. Customer Experience
• Connect with customers when they start the journey of buying
a new home
• Investment in customer service operations with full after-sales
operations support across all selling sites
2,000+
Over 2,000 people are working directly
and indirectly on our active sites today
€149.5 million
Revenue increased from €40.9 million
in 2016
€27.1 million
Gross profit and a gross profit margin
of 18.2% (from €7.1 million and 17.3%
in 2016)
• Fully integrated CRM system streamlined across sales and
€15.0 million
customer management process
• Provide information, advice and support during every step of
the home buying journey
Operating profit before exceptional
items (from €3.6 million in 2016)
Exceptional items of €0.5 million
(2016: €1.4 million)
Livingin a Cairn HomeEnvironmentDesign & QualityCommunityStrategic Report 34
Strategic Pillars
Pillar 1 – Customers
Making the home buying journey
exceptionally positive for all of our
customers
Case Study: Churchfields, Ashbourne
Buying a new home is an exciting time in anyone’s life
and our customer service teams ensure that it is an
informed and collaborative experience.
Dedicated Customer Service Teams
Every development we build has a dedicated team of
customer service representatives who, in conjunction with
our selling agents, help, support and guide our customers
throughout the entire home buying journey and beyond.
Our Customer Goal
We put our customers at the heart of everything we do
from designing our homes to providing a dedicated after-
sales service, led and measured by research surveys. We
achieved strong Net Promoter Scores in Parkside (8.5)
and Churchfields (9.5), our two largest starter-home
developments.
We Listen
At Cairn, we are always learning and never stop trying to
improve our product and service to deliver a best in class
customer experience.
Cairn Homes plc — Annual Report 2017 At Cairn, we pride ourselves on our people-
focused approach to building and customer
service and are always delighted to get feedback
from our customers. Greg and Rosie recently
moved into Churchfields in Ashbourne, and had
positive things to say about their experience.
“We have been searching for a new home and place to settle
for a good while. The very first time we saw Cairn houses
in Ashbourne, we turned to each other and said, “This is
home!” Within minutes we had our new house reserved.
Several months later, as it was promised, the build was
completed. It has been three months since we received the
keys and started to enjoy our house. We live in a three bed
semi-detached house. The architecture and design of the
house is fantastic and all three bedrooms are of a good size
and finished to a high standard.
As food lovers, a spacious and modern kitchen was a must.
The living space and the beautiful back garden exceeded our
expectations.
After a hectic day in Dublin City Centre running Rosies Café,
Ashbourne’s location was our best decision. It’s quiet with
good family surroundings, good restaurants and all essential
shops and amenities available which can’t make this place
any better than it is. Our experience with Cairn was fantastic.
Their office team and the site team were always very helpful
and professional.”
36
Strategic Pillars (continued)
Pillar 2 – Homes
Design and build brilliant homes
Case Study: Marianella, Dublin 6W
When it comes to our homes, only the best will do. Our
design studio brings together the best craftspeople,
designers, architects and builders to deliver quality
homes that stand the test of time.
Attention to Detail
Our product speaks for itself. It’s all in the details with build
quality at the heart of everything we do. We work with the
best materials, proven design teams and an established and
experienced sub-contractor base. When you buy a new Cairn
home, you can be safe in the knowledge that it has been built
to the highest standards of design and quality.
Building for the Future
From planning to the build, we always take the long-term
view. We look closely at how families grow into our homes
and communities and how our development will look
and feel like, not just today, but for the next generation.
It’s all about our research led design process, centred on
collaboration with our customers, which makes our product
relevant now and in the future.
Designed for Life
We are all about creating places and building communities
in which people love to live and prosper. Apart from great
homes, we also strive to positively add to the neighbourhoods
we build, through our approach to landscaping and
amenities. Our award-winning landscape architect works
with a team of experienced professionals to ensure our local
environments are aesthetically pleasing and change and grow
from season to season, now and into the future.
Cairn Homes plc — Annual Report 2017 Róisín Lafferty from Kingston Lafferty Design,
is the talented Irish designer behind the
inspirational interiors at our Marianella show
apartments
“Marianella is a really exciting development catering to a
down-sizer market. Rathgar is a very settled and established
area; there hasn’t been a lot of development there over
recent years, and it’s a really beautiful setting. We took a lot
of inspiration from the beautiful surroundings of Rathgar,
especially in the artwork and the materials we have chosen.
Everything is very high quality, from the flooring to the
kitchens, so they will stand the test of time.
Making the most of the space and light was a key
consideration. There’s full-height glazing everywhere, so
that’s maximising all the light and the really nice views out
to the mature grounds. The apartments themselves are very
spacious – the master bedrooms have walk-in wardrobes – so
there is no compromise in terms of space.”
38
Risk Management
Principal Risks and Uncertainties
The principal operating risks and our approach to mitigating those are:
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.
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.
Health & Safety
Health and safety breaches could
result in injuries to Cairn staff or sub-
contractors operating on Cairn sites
and customers and members of the
general public accessing Cairn sites
could result in delays in construction
or increased costs, in addition to
reputational damage and potential
litigation.
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 impairment.
The Company continues to monitor the potential impacts of Brexit.
The Company 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 Company also monitors volumes of first time buyers, in order to quantify
the impact of the changes to the Central Bank of Ireland Loan to Value (LTV)
ratios and the Government Help to Buy tax rebate scheme, as this results in more
immediately realisable mortgage demand.
The Health and Safety department operates independently of the construction
division and reports directly to senior management in order to maintain
independence. Health and safety is also a standing item at all Board and Audit and
Risk Committee meetings.
Reportable and non-reportable incidents are measured across sites on a regular
basis in order to track trends across and within sites.
A strong health and safety culture exists across 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.
There is a monthly independent external audit of health and safety practices across
all active sites.
Cairn Homes plc — Annual Report 2017 39
Risk Management (continued)
Risk Description
Mitigation
Availability and Strength of Sub-Contractors
The risk that the Company is unable to
attract the right quantity and quality
of sub-contractors, which are critical
to delivery of the Company’s homes,
due to the outsourced business model
applied by the Company.
Supply agreements are fixed for all, or a significant portion, of each scheme in
order to ensure that 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.
Succession Planning
A risk that the loss of key staff will
result in a loss of key corporate
knowledge and consequential impact
on operations.
The Company ensures payments are made on time to suppliers in order to
maximise their liquidity as they scale their operations in conjunction with the
Company.
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.
Recruitment and Retention of Key Personnel
The risk that the Company does not
have a sufficiently robust HR strategy in
place in order to ensure the Company’s
recruitment policy/plans are delivered
and that key staff are retained.
The Company’s ambitious growth plans and plc status make it an attractive place
of employment for high calibre staff.
The Company ensures that it has a remuneration policy in place that is competitive
in the market-place to retain key staff. The recently introduced 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.
Strategic Report 40
Risk Management (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 Group and
Company.
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 risk that failure to comply with the
Group’s banking covenants results in
the withdrawal of funding lines.
Government Policy
Risk that the Government and
planning authorities will introduce new
legislation or legislative changes that
result in material cost, or time delays
for the Group. Inability to adhere to
the complex and stringent regulatory
environment that applies to the
building industry.
Financial controls and policies in place in order to manage risks across the key
areas.
Central Office personnel with direct site operational knowledge in place in order to
monitor site activity and site cost.
An outsourced internal audit function has been set up in order to test the
Company’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.
The Company aims to ensure that it always has sufficient liquidity in place to meet
the Group’s cash flow requirements for the next 3 years.
The Company prepares regular forecasts that look at both the short-term and
longer-term requirements of the Group.
Regular monitoring, forecasting and reporting of banking covenants.
Speed of delivery on individual schemes takes account of sales absorption rates
across each individual scheme.
An unforeseen stretch in liquidity can be managed through a reduction in the pace
of build on one or more sites if necessary.
The Company monitors all policy changes through its planning department and
the experienced team is well placed to interpret regulatory changes.
The Company uses external advisors who advise on any changes to relevant
legislation.
Rigorous design standards in place for the homes that the Group develops.
Participation in industry advocacy groups.
The recent changes to the planning regime (involving a one step process with An
Bord Pleanála for all sites delivering greater than 100 residential units), enacted
into legislation in June 2017, should ensure that the timeframe to obtain planning
permission on large sites is reduced.
Cairn Homes plc — Annual Report 2017 41
Risk Management (continued)
Risk Description
Mitigation
Programme Risk/Project Planning
The risk that the Group incurs costs
which are higher than expected or
experiences delays in construction due
to poor planning.
Availability and Quality of Materials
The risk that the Group is unable to
source the materials it requires at the
right time and at the best price, due
to availability and volume constraints,
or risk that sub-contractors utilise
poor quality, prohibited or dangerous
materials.
Robust project plans and controls are in place.
Monthly reporting of all project costs, with variances and explanations highlighted
in 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.
Current size and growth prospects make the Group an attractive customer for
suppliers. Continued scaling of the business should ensure that the Group has
access to necessary materials at competitive prices.
There is strong quality control monitoring through on-site engineers and materials
are tested at concrete plants and on site.
Strategic Report 42
Cairn Homes plc — Annual Report 2017
Recognising our
customers’ needs
We bring together the most talented designers
and craftsmen to interpret and deliver our
customer influenced vision.
Marianella, Rathgar, April 2018
43
Strategic Report
44
Market Overview
Key External Market Measures
1. Project Ireland 2040
The new National Planning Framework, known as “Project
Ireland 2040”, was officially launched on 16 February 2018.
The plan aligns the country’s spatial planning and investment
decisions, underpinned by €116bn in capital spending over
the next decade, and forms a strategy for Ireland’s growth
and development until 2040.
550,000 new houses are required in Ireland up to 2040 to meet
the needs of a growing population. Housing, which remains
Ireland’s largest infrastructure deficit, understandably
represents a core element of Project Ireland 2040 with a
target of 25,000 new home units to be built annually. A new
National Regeneration and Development Agency will be
set up to assist in the delivery of these targets. This will be
a central agency with the requisite powers to coordinate
the multiple agencies that are involved in the provision of
housing in Ireland.
2. Rebuilding Ireland
The objective of the Government’s “Rebuilding Ireland”
action plan in respect of residential construction is to double
the annual level of new homes construction to 25,000 by
2021. A number of initiatives have been implemented to date,
including;
• the launch of the €226 million Local Infrastructure Housing
Activation Fund. Cairn owns five sites – Shackleton Park
(Lucan); Parkside (Malahide Road); Cherrywood (South
County Dublin); Glenamuck Road (South County Dublin)
and Clonburris (West Dublin) – which are approved for
funding;
• the introduction of new fast-track planning for
developments greater than 100 residential units and 200
student beds through the Strategic Development Housing
process;
• the introduction of the Help to Buy income tax rebate
scheme (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) in respect of new homes valued
up to €500,000 to assist first time buyers in the purchase of
new homes until the end of 2019; and
• the launch of the Rebuilding Ireland Home Loan product
which provides mortgages, through local authorities, to
first time buyers acquiring new or existing homes subject
to certain approval criteria.
3. New Apartment Design Guidelines
The announcement on 12 March 2018 of new apartment
design guidelines will assist in accelerating the supply of
much needed new apartments, particularly in Dublin City
Centre, by facilitating a more efficient method of apartment
construction and improving the gross to net sellable area.
The principal changes are:
• Underground car parking can be eliminated in city centre
locations located close to public transport;
• Maximum number of units per lift core increased to 12
(previously 8);
• Minimum studio apartment sizes reduced to 37 sq.m from
40 sq.m, with the rest remaining unchanged (1-bedroom
apartments 45 sq.m, 2-bedroom apartments 73 sq.m,
3-bedroom apartments 90 sq.m);
• Maximum number of 1-bedroom or studio apartments
increased to 50% (previously 30%);
• Reduction in the ratio of dual aspect apartments to 33% in
urban centres (previously 50%); and
• Build-to-Rent and shared accommodation formalised in
the planning code and restrictions on units mix in Build-
to-Rent do not apply.
The new guidelines move away from “blanket restrictions”
on height, allowing location appropriate design. Height
limits are currently contained within city development
plans, however the Government will now supersede this with
guidance in the National Planning Framework, due to be
announced imminently.
Cairn Homes plc — Annual Report 2017 45
Market Overview (continued)
Market Outlook
Strong Economy
The Irish economic recovery is now complete. With GDP
growth of 7.8% in 2017, the Irish economy is now firmly in an
expansionary phase and larger than at its previous peak in
2007 (source – CSO).
The labour market continues to strengthen with strong
employment growth (3.1% in the year to December 2017)
and low unemployment (6.0% in February 2018, down from
7.3% in February 2017). There were over 352,000 more people
working in Ireland at the end of 2017 then at the bottom of
the market in 2012.
Consumer confidence remains strong with 2.2% growth
in consumption in 2017 underpinned by wage inflation of
2.0% and a 7.2% increase in retail sales (source: CSO), while
manufacturing continues to expand with the composite
Purchasing Managers Index averaging 58.0 throughout 2017
(source: Thomson Reuters Datastream).
With an average household size of 2.75 people (source:
Census 2016) and an increase in the population of 226,513
in the six years to April 2017, over 82,000 new homes were
required over this period to meet the housing needs of the
country. The Property Price Register indicates that just 34,350
new homes were built over this period (source – Property
Price Register), a shortfall of over 47,000 new homes.
The commencement of phase two of the Brexit negotiations,
which will agree on the future trading arrangement between
the EU and the UK, will have significant implications for
the Irish economy. The agreement by the EU to a two-year
transitional arrangement from March 2019 has removed
the threat of a “cliff-edge Brexit”, however the wider trade
negotiations are likely to take some time yet to agree. While
risks remain to the broader economy, Cairn believes that the
impact on Dublin and the GDA will be negated by further
employment growth with international services firms
continuing to announce significant job expansion, resulting
in an even greater demand for new homes.
All of these measures are reflective of an Irish economy
continuing to grow at a very solid pace and they further
underpin future GDP growth forecasts of 3.9% in 2018 and
3.1% in 2019 (source: Goodbody).
The vast majority of materials used by the Group in its
construction activities are domestically sourced, with those
imported tending to be sourced within the EU, and not
through the UK.
These strong macro-economic trends, underpinned by
other external factors such as increased government
support for the housebuilding sector and an improving
mortgage environment, are contributing towards improved
affordability for new homes which is broadening our buyer
pool.
Notwithstanding the prolonged period of undersupply of
new homes in the Irish market, demand is further supported
by strong demographics. The population of Ireland grew by
3.80% (173,613) in the five years to April 2016 (source: 2016
Census) and by a further 1.12% (52,900) in the year to April
2017 (source: CSO). This cumulative population growth of
4.76% is nearly three times the EU average of 1.76% between
2011 and 2017 (source: Eurostat).
Strategic Report 46
Market Overview (continued)
Mortgage Market Environment
Housing Outlook
The positive momentum witnessed in the Irish mortgage
market last year supports the Company’s growth trajectory.
The value of mortgage drawdowns increased by 28.6% year
on year to December 2017 to €7.3 billion, while mortgage
approval values increased by 34.0% to €9.3 billion in the same
period (Source: BPFI Mortgage Approvals December 2017
and BPFI Mortgage Drawdowns Q4 2017).
While the annual long-run housing demand for new homes
in Ireland is between 30,000 to 35,000 units (source: ESRI),
the Company believes that Dublin requires in excess of
20,000 new homes per annum in the medium term, driven
by a growing population, increasing employment, annual
obsolescence and eight years of chronic undersupply.
The ongoing strength of approvals indicates that the
value of mortgage drawdowns will continue to increase,
however the continued shortage of housing for mortgage
approved customers has seen the gap between the number
of mortgages approved and the number of mortgage
drawdowns increase to 20% in 2017 (2016: 16%).
Importantly, first time buyer mortgages drawdowns
increased to 49% of all drawdowns in the year (46% in 2016),
an increase of just under €1 billion.
Competition amongst mortgage providers continues
to intensify, resulting in continued downward pressure
on standard variable and fixed interest rates – the new
drawdown average variable rate has decreased from 3.40%
in Q4 2016 to 3.32% in Q4 2017, while average 1-3 year fixed
rates decreased from 3.27% to 3.08% in the same period
(source: CBI).
The Company estimates that the total number of new homes
sold in Ireland in multi-unit developments in 2017 was just
over 9,250 units (Dublin – 4,026 units) as measured by new
homes sales in the 2017 Property Price Register, reflecting a
market where supply is significantly below the level of annual
demand. While the supply/demand imbalance continues to
intensify, the housebuilding sector is responding, however
the level of construction activity is still not meeting the needs
of a growing population and expanding economy.
The underlying demand for new housing in Ireland is
therefore expected to remain strong into the medium
term across all price points. Demand is more realisable
for first time buyers with improving affordability for this
cohort of purchaser and better access to mortgage finance.
Our practice of acquiring and building on larger scale
developments allowed us to respond quickly to increased
demand during 2017. Similarly, demand for our premium
apartments is strong from purchasers seeking to trade down
as well as from investors. These purchasers are not generally
mortgage dependent.
The Company is now active on eleven separate sites, and will
commence construction on three further sites during 2018.
The Company’s strategy is to continue to capitalise on the
recovery of the Irish new homes residential property market
and create sustainable shareholder value by establishing
itself over the long-term as a leading Irish homebuilder.
Cairn Homes plc — Annual Report 2017 47
Market Overview (continued)
Key Drivers Boosting Affordability
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
4.2%
4.0%
3.8%
3.6%
3.4%
3.2%
3.0%
Wage inflation outstripping consumer price index
Strengthening Irish labour market
Peak: 16%
2,200
2,100
2,000
1,900
1,800
1,700
1,600
)
0
0
0
’
(
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e
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y
o
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)
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(
t
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e
m
y
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n
U
2013
2014
2015
2016
2017
2018f
2019f
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Wage Inflation
CPI
Employment
Unemployment
Fiscal space increasing after-tax income
Mortgage rates falling
Down: 0.80%
Down: 0.72%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
June 2015
December 2017
2013
2014
2015
2016
2017
2018
Standard Variable Rate
1-3 Year Fixed Rate
End of Austerity – Impact on couple earning €80k per annum
Strategic Report
48
Group Finance Director’s Review
In my first year as Group Finance Director, I am
delighted to present this review of Cairn’s financial
performance for 2017.
Tim Kenny
Cairn Homes plc — Annual Report 2017 49
Group Finance Director’s Review (continued)
Dear Shareholder,
Revenue
2017 represented a year of significant revenue growth and
strong operational performance for Cairn, putting the
Group firmly on track to deliver on its financial and strategic
objectives. The business achieved revenues of €149.5 million
in the year (2016: €40.9 million). Having concluded our capital
deployment phase in 2016, the business focused on its home
building and selling activities, evidenced by the growing unit
sales in 2017. The business delivered against its financial
targets by way of unit volumes, which increased by almost
300% to 418 (2016: 105) units. This performance is as a result
of successful selling activity on our schemes at Parkside;
Parkside joint development; Churchfields; Shackleton Park;
Glenheron; Albany and Marianella. Average selling prices
(ASPs) improved by 6.8% year on year to €315,000 (2016:
€295,000) (excluding VAT).
Outlook
Forward sales at 5 March 2018 totalled 383 units, equating
to €143.2 million revenues, or an ASP of €374,000 (excluding
VAT) reflecting a higher mix of premium apartments.
Furthermore, the Group expects to generate total revenue
of in excess of €350 million in 2018 including more than 800
sales completions.
Gross Margin and Operating Margin
Gross margins strengthened to 18.2% (2016: 17.3%) for the
year, and the gross profit amounted to €27.1 million (2016:
€7.1 million). The strengthening margins reflect Cairn’s
scaling, coupled with strong market conditions. The Group
is targeting a gross margin of c. 20% in 2018. Operating
profit (before exceptional items) of €15.0 million (2016: €3.6
million) was more than 300% higher than in the prior year,
reflecting the continued maturing and strengthening of the
business. Operating margin increased to 10.0% (2016: 8.9%).
Increased administrative costs of €12.4 million (excluding
exceptional costs of €0.5 million) reflect the increase
in the Group’s activities and strengthening of Cairn’s
operational platform in response to its broadening product
mix, including design and build high density apartments
delivering higher shareholder returns. Exceptional items of
€0.5 million relate to the costs incurred during the year in
connection with the Irish Stock Exchange listing. The Group
continues to exercise strict financial discipline across all
aspects of the business as we seek to continue to grow our
gross margin and operating margin.
Profit after Tax and Earnings per Share
Net finance costs for the year of €8.5 million include the
cost of the additional debt facilities relating to the Montrose
site acquisition and other loan drawdowns in the year.
Overall, the Group delivered a profit after tax of €5.0 million,
compared to a loss after tax of €2.1 million in 2016. Basic and
diluted earnings per share increased to 0.6 cent, both up from
a loss of 0.3 cent in 2016.
Financial Position
At 31 December 2017, total assets were €1,005.0 million
(2016: €834.3 million). Net assets amounted to €721.7
million (2016: €664.4 million), an increase of 8.6% over last
year. Inventories increased by 25.3% to €911.5 million at year
end, reflecting the increase in our unique land bank which
accounted for 86.5% of the inventory balance, with work in
progress making up a further 11.5%. The Group was active
on eleven sites at year end and increased the investment
in work in progress to €104.5 million (2016: €37.3 million)
at the end of 2017, reflecting the increase in development
activity during 2017.
Cash Flow
In May 2017, our share placing raised net proceeds of €50.4
million. Net cash used in operating activities amounted to
€128.6 million (2016: €121.2 million), primarily reflecting our
investment in inventories of €184.3 million, which included
our site purchases in 2017 and our work in progress spend on
our active development sites less cost of sales releases and
site sales.
During 2017, we added to our debt facilities by way of a €50
million term loan relating to the Montrose site acquisition. At
31 December 2017, the Group had net debt of €159.4 million
(2016: €76.0 million), made up of drawn debt of €245.2 million
(net of unamortised arrangement fees and issue costs)
(2016: €148.6 million), available cash of €68.8 million (2016:
€45.6 million) and restricted cash of €17.0 million (2016:
€27.0 million). We keep our medium to long term financing
requirements, including adequate liquidity and financial
flexibility, under continuing review as we look to further scale
the business with an appropriate capital structure.
Overall, our financial performance in 2017 was strong
and demonstrates our excellent progress in delivering our
strategic objectives.
Tim Kenny
Group Finance Director
Strategic Report 50
Cairn Homes plc — Annual Report 2017
Building new
communities
We design each development to be the heart
of a growing community, both now and for
generations to come.
Parkside, Malahide Road, August 2017
51
Strategic Report
52
Corporate Responsibility
Cairn recognises its responsibilities as a member
of the communities where we build our new homes
and is committed to developing links to those
communities 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.
Cairn’s approach and our flexible and scalable business model
allows us to not only achieve these standards, but to look at
ways to further enhance and improve our finished product.
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 are
amongst the highest within the European Union.
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:
Pillar 1
Pillar 2
Pillar 3
Pillar 4
Sustainable Living
Environments
Sustainable
Buildings
Sustainable Building
Practices
Sustainable Supply
Chain and Workforce
Cairn Homes plc — Annual Report 2017 53
Corporate Responsibility (continued)
Pillar 1: Sustainable Living Environments
Sustainable urban design and place-making is at the
core of each of our developments. Guided by our in-
house Urban Designer and Landscape Masterplanner,
we carefully design our open space landscapes and
associated public amenities to deliver sustainable
living environments equipped with a host of social
infrastructure and recreational facilities. Our
developments provide people-friendly places integrated
with existing public transport systems, schools, and local
shops and include crèches, playgrounds, green areas and
provision for new local shops. We also regularly set aside
sites for schools with new schools due to be constructed
at our Parkside, Glenheron and Douglas sites during 2018.
We care about the spaces between the new homes we
build and we develop people friendly spaces where
our customers become good neighbours and friends,
with both each other and those living in adjoining
developments. In this way, we create sustainable
communities which fully integrate with existing
communities.
We aspire to create urban environments and green space
networks which improve as they mature. At the core of our
design philosophy is delivering high-quality public realm
and green spaces which are robustly detailed to stand
the test of time. We place an emphasis on a native tree
palette and planting long-lived specimens and parkland
trees for future generations to enjoy. We promote natural
play within our parks; using timber equipment, organic
materials and natural features for playgrounds which fit
in seamlessly with surrounding nature but also encourage
children to play, learn and explore.
Pillar 2: Sustainable Buildings
Simple innovations have informed our approach to cost
effective sustainable building design. Our developments
incorporate water taps that use the latest aerated
technology to reduce water wastage, dual-flush toilet
cisterns and smart technology thermostats which allow
our homeowners to control heating and hot water straight
from their smartphones.
We take energy performance very seriously and ensure
our new homes are built to maximise thermal efficiency.
This is achieved by using high levels of roof, wall and
floor insulation, delivering excellent air tightness
levels (typically exceeding Part L Building Regulation
requirements) and low U-value window systems. We
deploy specialist Thermal Bridging Analysis to optimise
building envelope energy performance.
We use a range of different renewable energy technologies
in our new homes including roof mounted solar
photovoltaic panels and combined heat and power
district heating systems. We also use heat recovery
ventilation systems to recycle heat energy which would
otherwise be wasted.
All of our new homes have achieved a minimum A3 BER
rating.
Strategic Report 54
Corporate Responsibility (continued)
Pillar 3: Sustainable Building Practices
Sustainable building practice starts with effective and
consistent health and safety policies and procedures. All
of our staff are responsible for health and safety and this
priority is embedded within the day to day operations of
the business. Through our dedicated on-site health and
safety managers, we ensure that our employees, sub-
contractors, customers or members of the public remain
safe throughout the entire construction and sales process.
To ensure our health and safety policies and procedures
are being continuously adhered to, and to provide an
independent and impartial oversight of these practices,
we recently retained an independent external auditor to
undertake a monthly audit of health and safety practices
and management across all active sites.
Cairn is a holder of Safe-T Cert accreditation, a
construction sector specific safety management system
accreditation awarded to qualifying companies following
a rigorous assessment process. Our strong safety record
is a testament to the safety culture and our behaviours
across each of our developments.
Sustainable housing construction and design lies at the
heart of our business and our building practices. We
believe in using knowledge to protect and improve our
natural environment and human health. Right from
the very start of our projects, we work closely with our
design teams to design out waste and implement the five
principles of waste reduction:
1. Design for Waste Efficient Procurement;
2. Design for Materials Optimisation;
3. Design for Off-Site Construction;
4. Design for Reuse and Recycling; and
5. Design for Deconstruction.
A site waste management plan is compiled for each
project which will set out:
1. Who will be responsible for the resource
management;
2. What type of waste will be generated;
3. How will the waste be managed – reduced, reused or
recycled;
4. Which contractors will be used to ensure the waste
is correctly recycled or disposed of responsibly and
legally; and
5. How the quantity of waste generated by the project
will be measured.
Our waste management ethos is to eliminate, reduce,
reuse, recycle and dispose of leftover materials in a
responsible way. In 2017 we reduced the volume of waste
produce per m2 of construction by approximately 20%
with further reductions being sought throughout 2018.
We use sustainable building materials such as FSC
certified timber products and undertake specific noise
and dust control and monitoring on all of our sites to
ensure our developments are sustainable operations and
mitigate the impact on the surrounding environment
during the construction period.
Pillar 4: Sustainable Supply Chain and Workforce
An enduring supply chain and workforce forms the vital
final pillar of our model for sustainable growth as we scale
our business.
We continue to invest in training programmes for our
employees, while also working with our established supply
chain to enhance their capabilities.
We are mindful of the key role that apprentices will play
in sustaining the success of our industry, and we are
passionate about promoting the industry to young people
and supporting apprenticeships and training, through our
tailored sponsorship and awards scheme. This area will
get further focus in 2018 and beyond.
Cairn Homes plc — Annual Report 2017 55
Corporate Governance
Corporate
Governance
Board of Directors
Corporate Governance Report
Leadership
Effectiveness
Accountability
Remuneration
Relations with Shareholders
Audit and Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
Remuneration Policy
Annual Report on Remuneration
Directors’ Report
56
58
58
60
62
63
63
65
69
71
73
79
85
56
Board of Directors
John Reynolds
Non-Executive Chairman
Alan McIntosh
Co-Founder &
Executive Director
Age: 59
Nationality: Irish
Age: 50
Nationality: British
Appointed to the Board:
28 April 2015
Appointed to the Board:
12 November 2014
Committee Membership:
Chairman of the Nomination Committee (since April 2015)
Skills and experience:
John Reynolds 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. John is a Chartered
Director, an Economics graduate of Trinity College Dublin, and holds
a Masters degree in Banking and Finance from UCD.
Other current appointments:
Non-Executive Director of Computershare Investor Services (Ireland)
Limited, Business in the Community Limited and the National
Concert Hall.
Skills and experience:
Alan McIntosh has been a principal investor and part of successful
investor groups for over 18 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.
Other current appointments: None
Michael Stanley
Chief Executive Officer,
Co-Founder and Executive
Director
Tim Kenny
Group Finance Director,
Executive Director
Age: 52
Nationality: Irish
Age: 56
Nationality: Irish
Appointed to the Board:
12 November 2014
Appointed to the Board:
22 August 2017
Skills and experience:
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.
Other current appointments: None
Skills and experience:
Tim Kenny was previously Group Finance Director and Group
Business Development Director (2005 to 2017) of Musgrave Group
plc, Ireland’s largest grocery and food distribution business.
Prior to joining Musgrave Group, Tim served as Finance Director of
Dunloe Ewart plc, an Irish property company listed on the Dublin
and London Stock Exchanges, from 1997 to 2004. Tim has a degree
in Business Studies from Trinity College Dublin and is a Fellow of
Chartered Accountants Ireland.
Other current appointments: None
Cairn Homes plc — Annual Report 2017 57
Gary Britton
Non-Executive Director
Andrew Bernhardt
Non-Executive Director
Age: 63
Nationality: Irish
Age: 57
Nationality: British
Appointed to the Board:
28 April 2015
Appointed to the Board:
28 April 2015
Committee Membership: Chairman of the Audit and Risk Committee
and Member of the Nomination Committee (since April 2015).
Member of the Remuneration Committee (since December 2016).
Committee Membership:
Member of the Audit and Risk Committee and Remuneration
Committee (since April 2015).
Skills and experience:
Gary Britton 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 was formerly a non-executive director of the Irish
Stock Exchange plc and KBC Bank Ireland plc. Gary is a fellow of
Chartered Accountants Ireland, the Institute of Directors in Ireland
and the Institute of Banking. Gary is also a Certified Bank Director as
designated by the Institute of Banking.
Other current appointments:
Non-Executive Director of Origin Enterprises plc.
Skills and experience:
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. In 2007, he moved into investment
banking with Straumur Investment Bank (now ALMC). On its
successful restructuring in 2010, Andrew was appointed as CEO and
remained in this role until 2013. Andrew subsequently served as a
Non-Executive Director of ALMC from 2013 to 2017.
Other current appointments:
Non-Executive Director of AJ Walter Aviation Limited, and Non-
Executive Chairman of Cedar Dean Group and Fairey Industrial
Ceramics Ltd.
Giles Davies
Non-Executive Director
Age: 49
Nationality: British
Appointed to the Board:
28 April 2015
Committee Membership: Chairman of the Remuneration Committee
and Member of the Audit and Risk Committee (since April 2015).
Member of the Nomination Committee (since December 2016).
Skills and experience:
Giles Davies qualified as a chartered accountant with PwC in London
and spent five years in management consultancy in London and
New York. Giles went on to found Conservation Capital, a leading
practice in the emerging field of conservation enterprise and related
investment financing. Giles previously served as Non-Executive
Chairman of Capital Management & Investment plc, and as a Non-
Executive Director of Algeco Scotsman Group.
Other current appointments:
Non-Executive Chairman of Wilderness Scotland.
Corporate Governance 58
Corporate Governance Report
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.
On 26 July 2017, the Company’s shares were
admitted to trading on the Irish Stock Exchange
(the “ISE”). The Company took a primary listing
on the ISE’s Main Securities Market and utilised
the ISE’s dual listing facility in addition to the
Company’s standard listing in London.
The provisions of the UK Corporate Governance
Code (the “UK Code”), as issued by the Financial
Reporting Council in April 2016, were therefore
applicable to the financial year covered by this
Report and are the standard together with the
terms of the Irish Corporate Governance Annex
published by the Irish Stock Exchange (together
“the Codes”) in respect of the Company’s
corporate governance practices. The Board
believes that the Company has, throughout the
accounting period, complied with all relevant
provisions set out in the Codes.
The Company is incorporated in Ireland and is
subject to Irish company law.
This section, including the Audit and Risk
Committee Report and the Remuneration
Committee Report, details how the Company has
applied the principles of the Codes. The full text
of the UK Code can be found on the Financial
Reporting Council’s website www.frc.org.uk. A
copy of the Irish Corporate Governance Annex can
be obtained from the ISE’s website www.ise.ie.
Leadership
Role of the Board
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; and
• Terms of Reference and membership of Board Committees.
The Board’s responsibilities also include ensuring that
appropriate management, development and succession plans
are in place; reviewing the health and safety performance of
the Group; and approving the appointment of Directors and
the Company Secretary.
The Board has delegated some of its responsibilities to
standing committees of the Board as detailed on page 61.
Chairman and Chief Executive Officer
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, Michael Stanley, 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 is considered independent. 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
Cairn Homes plc — Annual Report 2017 59
Corporate Governance Report (continued)
directorships and the Board considers that these do not
interfere with the discharge of his duties to the Company.
Senior Independent Director
Giles Davies is 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;
• 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
• 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.
D&O Insurance
The Company maintains appropriate Directors’ and Officers’
liability insurance cover in respect of legal action against
Directors, the level of which is reviewed annually.
Directors’ Attendance at Board and Committee Meetings
The Board routinely meets eight times a year and additionally
as required by time-critical business needs. The Board met on
ten occasions during 2017.
A schedule of Board and Committee meetings and the
Directors’ attendance for the year ended 31 December 2017 is
disclosed below:
Director
J. Reynolds
M. Stanley
T. Kenny*
A. McIntosh
G. Davies
A. Bernhardt
G. Britton
E. O’Kennedy*
Board
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Total
Attended
Total
Attended
Total
Attended
Total
Attended
10
10
2
10
10
10
10
8
10
10
2
10
10
10
10
8
-
-
-
-
4
4
4
-
-
-
-
-
4
4
4
-
-
-
-
-
5
5
5
-
-
-
-
-
5
5
5
-
2
-
-
-
2
-
2
-
2
-
-
-
2
-
2
-
*
Eamonn O’Kennedy resigned as a Director with effect from 22 August 2017 and Tim Kenny was co-opted as a Director on the same date.
Corporate Governance 60
Corporate Governance Report (continued)
Effectiveness
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 56 and
57. The Board considers that the Chairman, John Reynolds,
and the Non-Executive Directors, Andrew Bernhardt, Gary
Britton and Giles 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 2017,
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. 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. Directors also
receive monthly management accounts. 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. Members of the management team are frequently
invited to attend Board and Committee meetings in order to
help Directors gain a deeper understanding of the Group’s
operations.
Conflicts of Interest
The Board reviews potential conflicts of interest as a
standing agenda item at each board meeting. Directors have
continuing obligations to update the Board on any changes
to these conflicts.
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.
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 16 May 2018 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 24 April 2017, Tim Kenny was appointed
as Group Finance Director, and co-opted as a Director of the
Board with effect from 22 August 2017. Eamonn O’Kennedy
resigned as a Director of the Board on the same date.
Tim Kenny will offer himself for election as a Director by
shareholders at the Annual General Meeting on 16 May 2018.
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
Cairn Homes plc — Annual Report 2017 61
Corporate Governance Report (continued)
process was appropriate for the year under review. To
facilitate this a Board Evaluation Questionnaire was
completed by each Director for the year ended 31 December
2017. 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 results confirmed that the Board continued to function
effectively and operate to a high standard of governance.
The Board is committed to having its own performance and
the performance of individual Directors externally evaluated
at least every three years and an externally facilitated
evaluation will be conducted in respect of the year ended 31
December 2018.
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.
Succession Planning
The Board plans for succession with the assistance of the
Nomination Committee.
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.
Audit and Risk Committee
Membership: Gary Britton (Chair), Andrew Bernhardt and
Giles 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 four meetings of the Committee during the
year and attendance details of each of the members of the
Committee are set out on page 59 of this report. The report of
the Committee is set out on pages 65 to 68 of this report.
Nomination Committee
Membership: John Reynolds (Chair), Gary Britton and Giles
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 were two meetings of the Committee during the
year and attendance details of each of the members of the
Committee are set out on page 59 of this report. The report of
the Committee is set out on pages 69 and 70 of this report.
Remuneration Committee
Membership: Giles Davies (Chair), Andrew Bernhardt and
Gary 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 awards under
the Company’s Long Term Incentive Plan (LTIP). The
remuneration of the Non-Executive Directors is a matter for
the Board. No Director may be involved in any discussions as
to their own remuneration.
There were five meetings of the Committee during the
year and attendance details of each of the members of the
Committee are set out on page 59 of this report. The report of
the Committee is set out on pages 71 to 84 of this report.
Corporate Governance 62
Corporate Governance Report (continued)
Accountability
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 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 38 to 41.
Financial Risk Management
The financial risk management objectives and policies of the
Company are set out in Note 30 to the consolidated financial
statements.
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.
Cairn Homes plc — Annual Report 2017 63
Corporate Governance Report (continued)
It is the policy of the Company to protect, so far as is
reasonably practicable, persons not employed by the
Company 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 Health and Safety policy is available at all work locations
for consultation and review by all employees. The policy
is 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.
Remuneration
The Board has adopted remuneration policies that are
considered sufficient to attract, retain and motivate Directors
of the quality required to manage the Company successfully
whilst ensuring that the performance related elements are
both stretching and rigorously applied. Details of Directors’
remuneration are set out in the Remuneration Committee
Report on pages 71 to 84 and in Note 10 to the consolidated
financial statements.
Relations with Shareholders
Communication with Shareholders
The Company attaches considerable importance to
shareholder communication. There is regular dialogue with
institutional shareholders, including detailed presentations
and roadshows after the announcement of half-yearly
and annual results. The Executive Directors meet with
institutional investors during the year and participate in
broker/investor conferences.
While the Chairman has overall responsibility for ensuring
that the views of our shareholders are communicated to
the Board as a whole, contact with major shareholders is
principally maintained by the Chief Executive Officer and
the Group Finance Director. The Chairman is available to
meet with shareholders if they have concerns which have
not been resolved through the normal channels or where
such contacts are not appropriate. The Executive Directors
report regularly to the Board on their contacts with
shareholders. The Board also regularly receives analysts’
reports on the Group.
Any significant or noteworthy acquisitions are announced to
the market. The Company’s website www.cairnhomes.com
provides the full text of all announcements including the
half-yearly and annual results and investor presentations.
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.
The Annual General Meeting of the Company is to be held at
The Marker Hotel, Grand Canal Square, Docklands, Dublin
2, D02 CK38 at 11.00am on 16 May 2018. The 2017 Annual
Report and Notice of the Annual General Meeting will be
circulated at least 20 working days prior to the meeting 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. The Chairman,
Chief Executive Officer and other Directors will be available
at the Annual General Meeting to answer shareholder
questions.
Corporate Governance 64
Corporate Governance Report (continued)
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.
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/she 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.
Other
The Company discloses information to the market as required
by the Listing Rules of the Irish and London Stock Exchanges
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);
(c)
information regarding major developments in the
Company’s activities;
(d) information regarding dividend decisions;
(e) any changes to the Board, which 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 legal advisor(s).
Cairn Homes plc — Annual Report 2017 65
Audit and Risk Committee Report
Dear Shareholder,
This report describes how
the Committee has fulfilled
its responsibilities during
the year under its Terms of
Reference and under the
relevant requirements of the UK
Corporate Governance Code.
The Committee is satisfied that
its role and authority include
those matters envisaged by
the UK Corporate Governance
Code that should fall within
its remit and that the Board
has delegated authority to
the Committee to address
those tasks for which it has
responsibility.
Gary Britton
Committee Chairman
Membership
The Committee currently comprises three Non-Executive
Directors:
• Gary Britton, Chairman;
• Giles Davies; and
• Andrew Bernhardt.
All members of the Committee are determined by the Board
to be independent Non-Executive Directors in accordance
with provision B.1.1 of the UK Corporate Governance Code.
In accordance with the requirements of provision C.3.1 of
the UK Corporate Governance Code, I am designated as
the Committee member with recent and relevant financial
experience. The biographical details on page 57 demonstrate
that members of the Committee have a wide range of
financial, commercial and business experience relevant to
the sector in which the Group operates.
Key Duties of the Committee
• monitoring the integrity of the Group’s financial
statements and announcements relating to the Group’s
performance;
• advising the Board on whether the Annual Report
and accounts, taken as a whole, is fair, balanced and
understandable, and whether it provides the information
necessary for shareholders to assess the Group’s
performance, business model and strategy;
• monitoring the effectiveness of the external audit process
and making recommendations to the Board in relation to
the appointment, reappointment and remuneration of the
External Auditor;
• overseeing the relationship between the Group and the
External Auditor including the terms of engagement and
scope of audit;
• reviewing the effectiveness of the Group’s internal controls;
• reviewing the scope, resourcing, findings and effectiveness
of the Internal Audit function;
• overseeing the effectiveness of the risk management
procedures in place and the steps taken to mitigate the
Group’s risks; and
• reporting to the Board on how the Committee has
discharged its responsibilities.
Corporate Governance 66
Audit and Risk Committee Report (continued)
Meetings
The Committee met four times during the year and each
meeting was attended by all Committee members as set out
in the table on page 59.
Meetings are attended by the members of the Committee and
others being principally the Chairman, the Group Finance
Director, the Head of Finance, the Group Financial Controller,
the Health and Safety Manager and Company Secretary and
representatives of the outsourced internal audit function
who attend by invitation. Other members of executive
management may be invited to attend to provide insight or
expertise in relation to specific matters.
Representatives of the External Auditor are also invited to
attend certain Audit and Risk Committee meetings. The
Committee also met privately with the External Auditor and
representatives of the outsourced internal audit function
without executive management present. Susan O’Connor,
Company Secretary, is Secretary to the Committee.
The Chairman of the Committee reports to the Board on the
work of the Audit and Risk Committee and on its findings
and recommendations.
Key Areas of Activity During 2017
A summary of the key activities of the Committee during the
year is set out below:
Financial Reporting
The Committee reviewed the draft financial statements
and draft half-yearly results before recommending their
approval to the Board. As part of this review, the Committee
considered significant accounting policies, estimates and
significant judgements. The Committee reviewed the Half
Year and Final Results announcements. The Committee also
reviewed the observations on internal control prepared by
KPMG as part of the audit process. The significant issues
in relation to the financial statements considered by the
Committee and how these were addressed are set out on
pages 67 and 68.
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.
Risk Management and Internal Control
The Board has delegated responsibility to the Committee for
monitoring the effectiveness of the Group’s system of risk
management and internal control. The Committee reviewed
the Group’s risk management process and the procedures
established for identifying, evaluating and managing key
risks, which included a review of performance against the
objectives set in the prior year.
Internal Audit
There is an outsourced internal audit function. The
Committee considered reports and updates from the internal
audit function which summarised the work undertaken,
findings, recommendations and management responses to
audits conducted during the year. The Committee considered
and approved the programme of work to be undertaken
by the Group’s internal audit function in 2017 and the
planned programme of work for 2018. The Committee met
representatives of the outsourced internal audit function
on four occasions during the year where they presented
internal audit report findings and recommendations and
updated the Committee on the actions taken to implement
recommendations.
External Auditor
The Committee reviewed the External Auditor’s overall
audit plan for the 2017 audit of the Group and approved
the remuneration and terms of engagement of the External
Auditor. The Committee also considered the quality
and effectiveness of the external audit process and the
independence and objectivity of the Auditor.
In order to ensure the independence of the External Auditor,
the Committee received confirmation from the Auditors that
they are independent of the Group under the requirements
of the Irish Auditing & Accounting Supervisory Authority
(“IAASA”) Ethical Standard for Auditors (Ireland). The
Auditors also confirmed that they were not aware of any
relationships between the firm and the Group or between
the firm and persons in financial reporting oversight roles in
the Group that may affect its independence. The Committee
considered and was satisfied that the relationships between
the External Auditor and the Group including those relating
to the provision of non-audit services did not impair the
External Auditor’s judgement or independence.
Cairn Homes plc — Annual Report 2017 67
Audit and Risk Committee Report (continued)
Non-audit Services
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.
Under this Policy, the External Auditor will not be engaged
for any non-audit services without the approval of the Audit
and Risk Committee. The External Auditor is precluded
from providing certain services under Regulation (EU) No
537/2014 or from providing any non-audit services that have
the potential to compromise its independence or judgement.
Fees for non-audit services in any financial year are targeted
not to represent more than 40% of the audit fee.
An analysis of non-audit services provided by KPMG for
2017 is disclosed in Note 10 to the consolidated financial
statements. The Committee has undertaken a review of non-
audit services provided during 2017 and is satisfied that these
services, which were limited in nature and related mainly to
reporting accountant services for the Irish Stock Exchange
listing, were efficiently provided by the External Auditor with
the benefit of their knowledge of the business and did not
prejudice their independence or objectivity.
Whistleblowing and Fraud
A Group Anti-Fraud Policy was approved during 2017 setting
out the Group’s approach to all forms of fraud and theft, the
responsibilities of management in relation to prevention and
detection procedures and controls, the appropriate reporting
channels and the possible actions which may be taken by the
Group in response to suspected fraud or theft. Instances of
fraud or theft over a specified threshold are reported to the
Committee.
The Committee considers reports received periodically
on matters raised through “Speak Up”, a Group-wide
confidential reporting service run independently of the
Group which allows colleagues to report any concerns they
may have regarding certain practices or conduct in their
businesses including possible instances of fraud and theft. All
concerns raised through this channel and the outcomes of
investigations are reported to the Committee.
Anti-Bribery
The Group’s Code of Business Conduct and Ethics sets out the
ethical standards to which all Group employees are expected
to adhere. A Group Anti-Bribery Policy was approved during
2017 and sets out the core standards and procedures to be
observed, and practical guidance on dealing with bribery risk.
Estimates and Judgements
The Committee reviewed in detail the key areas of significant
judgement, complexity and estimation in connection with the
Financial Statements for 2017 which are set out below. The
Committee considered a report from the External Auditor
on the audit work undertaken and conclusions reached as
set out in their Independent Auditor’s Report on pages 91 to
95. The Committee also had an in-depth discussion on these
matters with management and the External Auditor.
Carrying Value of Inventories and Profit Recognition
The Group has continued to invest significant capital in
development land during 2017 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 2017 to determine whether or not the investment
in such development land and the related work in progress
was 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.
Corporate Governance 68
Audit and Risk Committee Report (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
unit sold, by reference to the overall expected site margin. Cost
forecasts and expected site margins are reviewed regularly for
any indicators that may impact the reported profit.
As the build cost on a 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 for each
of the various sites. 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 units.
As Chairman of the Committee, I engaged with the Group
Finance Director, the Group Internal Audit function and
KPMG in preparation for Committee meetings. I also attend
the Annual General Meeting and am available to respond to
any questions that shareholders may have concerning the
activities of the Committee.
Gary Britton
Chairman of the Audit and Risk Committee
Cairn Homes plc — Annual Report 2017 69
Nomination Committee Report
Dear Shareholder,
As Chairman of the 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 John Reynolds
(Chairman), Gary Britton and
Giles Davies. There were two
meetings of the Committee
during the year and details of
the members’ attendance are set
out on page 59.
John Reynolds
Committee Chairman
Our Role and Focus
The Nomination Committee reviews the structure,
composition and capability (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, and how the
Board works together as a unit.
The Nomination Committee drives focus on succession
planning for the Company on behalf of the Board, taking into
account the competitive landscape facing the Company and
the capabilities that will be needed in the future to ensure the
sustainable growth and scaling of the Group.
The Nomination Committee also makes 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.
A particular focus of the Committee has been to ensure that
there is a clear connection between its work and that of the
Remuneration Committee – i.e. to ensure that succession
planning and retention requirements are reflected in long
term incentive considerations to ensure that we mitigate
people risk across the Company and have robust succession
plans in place to retain our best people and to sustain the
Group’s growth and performance.
Progress in 2017
Cairn is on a journey as a scaling business and so the
Committee has prioritised three areas of focus:
(i) Governance to ensure effective general oversight;
(ii) Board composition to ensure that we have the right mix
of capability and skills at Board level; and
(iii) Succession to ensure that we mitigate human capital risk
for the Company.
Corporate Governance 70
Nomination Committee Report (continued)
The following is a summary of key activities in our focus areas;
Governance
Board Composition
Succession Planning
• Reviewed and approved
the Committee’s annual
agenda and Terms of
Reference;
• Reviewed the Board
concerning any actual
or potential conflict of
interests which may arise
for any Board member;
and
• Reviewed the Group’s
Diversity Policy.
• Reviewed the structure
and size of the Board;
• Reviewed the skills,
experience and capability
of each Board member
and of the Board as a
whole against the needs
of the Board; and
• Ensured that the time
commitment required
from the Chairman and
Non-Executive Directors
was appropriate to fulfil
their roles.
• Led the recruitment for a new Group
Finance Director;
• Ensured that succession requirements
were considered in the hiring of senior
management (Corporate Development
Director, Sales & Marketing Director and
Head of Finance);
• Assessed the tenure and effectiveness of
current Board members;
• Commenced the process to recruit a new
Non-Executive Director; and
• Supported top talent assessment with
the Chief Executive Officer to identify
employees in the succession pipeline.
A key focus for the Committee was to ensure that Chief
Executive Officer succession and senior management
capability was supported. With the departure of Eamonn
O’Kennedy, the Committee identified the skills and
experience required to support the future development of
the Group and initiated a search for a new Group Finance
Director. The Committee developed a short list of potential
appointees, taking into account, among other things, the
particular skills and experience of each individual candidate
and their fit with the existing Board. Following an extensive
interview process, Tim Kenny was co-opted to the Board on
22 August 2017. The Committee further supported the Chief
Executive Officer in his decision to strengthen the senior
management team with the appointment of a Corporate
Development Director, Sandra Thorpe, and Sales & Marketing
Director, Ruchika Hassan.
A Non-Executive Director position arose with the departure
of Aidan O’Hogan from the Board in December 2016. Careful
consideration has been given to the capabilities and talent
required to complement the existing Board. We are well-
advanced in our search process to appoint a new Non-
Executive Director and a further announcement will be made
in due course.
During the year, the Board supported the Chief Executive
Officer in his annual review of the Group’s succession
plans. This involves a review of the succession for Executive
Directors and other senior management roles below Board
level. The aim of this review is to identify suitable individuals
who are capable of filling senior managerial positions
on a medium and long-term basis, whilst ensuring their
development needs are identified and addressed. As part of
their development, senior managers are undergoing talent
assessment and development coaching and will be invited to
attend part of a Board meeting to present on their specialist
area. This also enables the Board to assess the quality
of internal talent and for the individual to get a greater
understanding of the workings of the Board.
The Committee will continue to assess Board effectiveness
and determine any remaining skills or board members
required, with a particular focus on diversity over time
to ensure that the Board remains effective in its decision
making and ability to support Cairn’s growth and scaling.
We will build on this early stage of progress in our focus
areas of Governance, Board Composition and Succession
and continue the process of embedding and improving upon
them as a Committee over the coming years.
John Reynolds
Chairman, Nomination Committee
Cairn Homes plc — Annual Report 2017 71
Remuneration Committee Report
Dear Shareholder,
As Chairman of the
Remuneration Committee,
I am pleased to present our
Remuneration Report for the
year ended 31 December 2017.
Our Remuneration Report
is comprised of three parts:
the Annual Statement,
the Remuneration Policy
and the Annual Report on
Remuneration.
Giles Davies
Committee Chairman
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 page 57.
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, 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 Annual Report on Remuneration, as set out on pages 79
to 84, will therefore be put to a non-binding advisory vote by
shareholders at the Annual General Meeting on 16 May 2018.
Overview
The Remuneration Committee considered carefully the
performance outcomes of the Company on financial,
operational scaling and quality metrics as context for
Executive Remuneration decisions, which they believe fully
justify payment of the bonuses outlined on page 81. An
important principle for the Committee is that “standards
rise” in terms of performance expectations annually and
so whilst the team have performed exceptionally well,
annual incentives are effectively decreased year over year
as the “hurdle” for high performance continues to rise.
Performance outcomes are further outlined below but at a
summary level include;
• Top-line growth; Revenues increased to €149.5 million
(2016: €40.9 million), including 418 unit sale completions at
an average selling price of €315,000 per unit (2016: 105 unit
sale completions at an average selling price of €295,000 per
unit);
• Margin progression; Continued progression in gross
profit to €27.1 million and gross profit margin to 18.2%
(2016: €7.1 million and 17.3%);
• Bottom line delivery; Operating profit (before exceptional
items) increased to €15.0 million (2016: €3.6 million) and
the Group made a profit after tax of €5.0 million (2016: loss
of €2.1 million);
• Continuing to maturity; Active on eleven developments,
up from five developments at the end of 2016, which will
deliver in excess of 3,650 new homes; and
Corporate Governance 72
Remuneration Committee Report (continued)
• Strategic acquisitions; 2017 acquisitions, including the
unique Montrose site in Dublin 4, were targeted towards
specific central city apartment sites which add to the
overall mix and quality of the land bank and improved the
distribution of units across the spectrum of locations and
price points.
Key Decisions during 2017
The Committee considered appropriate methods to retain
key talent below Board level and decided to make an award
under the Company’s Long Term Incentive Plan (LTIP) to
a number of employees, to secure retention and continued
alignment of critical employees with shareholder interests.
The Committee increased the pension contributions to
Michael Stanley, Chief Executive Officer, from 10% of salary
to 25% of salary, effective 25 January 2018, in line with the
limits of pension contribution that can be paid to Executive
Directors which were approved by shareholders under the
Remuneration Policy last year. This change has been made to
rebalance the pay structure for the Chief Executive Officer in
line with market practice.
Eamonn O’Kennedy stepped down as Group Finance
Director in August 2017 and was replaced by Tim Kenny.
Eamonn’s remuneration arrangements for 2017 are in line
with his contractual entitlements and consistent with the
approved Remuneration Policy in this report. The Committee
has determined that ‘good leaver status’ should apply to
Eamonn’s outstanding share option awards and as such they
vest on their natural vesting date, with no other beneficial
treatment. The Committee considered a number of factors
in determining this position which included Eamonn’s
considerable contribution to the early growth of the
Company and the fact that a large proportion of the award
would have naturally vested by the end of his notice period.
The pay structure for the new Group Finance Director is
based on the pay components included in the Remuneration
Policy and is disclosed in more detail on pages 81 and 82 of
this report.
The Committee reviewed and considered Executive
remuneration against independent market benchmarks from
its remuneration consultants in its decision not to increase
Executive salaries or bonus opportunities and to continue to
focus on total compensation weighted towards the long-
term.
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.
As a growing and scaling business, the Committee is aware
of the importance of aligning performance measures not
only to shareholder interests but also to driving the right
performance for long-term growth. As these measures are
considered over time, the Committee remains committed to
consulting with shareholders to ensure that their views are
reflected in our decisions.
Giles Davies
Chairman, Remuneration Committee
Cairn Homes plc — Annual Report 2017 73
Remuneration Committee Report (continued)
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.
The key elements of the remuneration for Executive Directors
and other Executives under the Policy are set out in the table
on pages 74 and 75.
Remuneration Policy
The Cairn Homes Remuneration Policy (“the Policy”) is
set out on pages 74 to 77. This Policy was approved by
shareholders at the 2017 Annual General Meeting with 99.5%
of shareholders voting in favour of the resolution. As Cairn
Homes plc is an Irish incorporated company, the resolution
was subject to an advisory rather than binding vote.
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 positioned at the median
of an appropriate comparator group. In line with shareholder
preferences, the pay mix for Executives is weighted towards
performance related pay over the long term.
Through the operation of the Policy, the Committee seeks to
ensure that:
• the Company will attract, motivate and retain individuals
of the highest calibre;
• Executives are rewarded in a fair and balanced way which
promotes the long-term success of the Company;
• Executives receive a level of remuneration that is
appropriate to their scale of responsibility and individual
performance;
• 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
• risk is properly considered in setting remuneration policy
and in determining remuneration packages.
Corporate Governance 74
Remuneration Committee Report (continued)
Element and link to
Remuneration Policy
Approach
Maximum Opportunity
The target position for salaries will be
generally market median. Any annual
salary increases will be considered in
that context.
The target and maximum awards, as
a percentage of annual salary, for the
Executive Directors are as follows:
Chief Executive Officer
Other Executive
Directors
Target
70%
Max.
105%
50%
75%
Salary
Attract and
retain skilled
and experienced
Executives.
Annual Incentives
Reward the
achievement
of annual
performance
targets.
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.
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 and 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 — Annual Report 2017 75
Remuneration Committee Report (continued)
Element and link to
Remuneration Policy
Approach
Cairn Homes plc Long-Term Incentive Plan (‘LTIP’)
Maximum Opportunity
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.
The LTIP provides for annual awards of Performance
Shares. It is the Committee’s intention that the primary
long-term incentive 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.
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.
Performance Share awards vest based on 3-year financial
performance, with measures including cumulative EPS
and Total Shareholder Return. The Committee will
consider the appropriate measures and targets for each
subsequent cycle depending on strategic priorities.
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.
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.
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.
Retirement Benefits
Reward sustained
contribution.
Allowances
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.
Provide market
competitive
benefits.
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.
Corporate Governance 76
Remuneration Committee Report (continued)
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 LTIP shares until the applicable ownership level is
achieved.
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 senior
management and of any major changes in employee benefits
structures. 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.
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 to advisory votes at
the Annual General Meeting.
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.
Cairn Homes plc — Annual Report 2017 77
Remuneration Committee Report (continued)
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 vesting 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.
Policy for Non-Executive Directors
Element and link to strategy
Operation
Maximum Opportunity
Fees
The fees paid to Non-Executive Directors
reflect their experience, ability and the
time demands of their Board and Board
Committee duties.
The remuneration of the Chairman
is determined by the Remuneration
Committee for approval by the Board.
A basic fee is paid for Board membership.
Additional fees are payable to the Chairman
of the Board, the Chairs of the Audit
and Risk Committee and Remuneration
Committee and the Senior Independent
Director.
Additional fees may be paid for membership
of a Board Committee.
The remuneration of the other Non-
Executive Directors is determined by the
Chairman and the Chief Executive Officer
for approval by the Board.
The fees are reviewed from time to
time, taking account of any changes in
responsibilities and market practice.
No prescribed maximum annual
increase but benchmarking and
market practice will determine
any change in fees.
Non-Executive Directors do not
participate in the Company’s
Annual Incentive and LTIP and
do not receive any retirement
benefits from the Company.
Our Role
The Remuneration Committee’s role is to determine and
agree the Remuneration Policy for Executive Directors and
senior management and to monitor and report on it. The
Committee’s responsibilities, delegated by the Board, as set
out in its Terms of Reference, are:
1. To determine the remuneration packages of the
Chairman, Chief Executive Officer, Group Finance
Director and certain other Executives, including salary,
annual incentive, long term incentive awards, pension
rights and compensation payments;
2. To oversee remuneration structures for senior
management and to oversee any major changes in
employee benefits structures;
3. 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;
4. To ensure that contractual terms on termination or
redundancy, and any payments made, are fair to the
individual and the Company;
5. 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;
6. To obtain up to date information about remuneration in
other companies of comparable scale and complexity;
and
7. To agree the policy for authorising claims for expenses
from the Directors.
Corporate Governance 78
Remuneration Committee Report (continued)
The Committee follows an annual programme of work to execute against these responsibilities which for 2017 were;
Executive Remuneration
Governance
• Reviewed annual performance of the Executive
• Reviewed and made progress against the
Directors;
• Determined fixed and variable remuneration for
Executive Directors and senior management; and
• Determined the remuneration package for the new
Group Finance Director.
remuneration strategy agreed in line with the
Remuneration Policy for key employees;
• Worked with the Committee’s remuneration
consultants to ensure rigour of Committee analysis
and decision;
• Considered and approved the Remuneration Report
and remuneration disclosure requirements; and
• Reviewed and approved the Committee’s annual
agenda and Terms of Reference.
Shareholder Consultation
Long Term Incentives
• Implemented the Remuneration Policy and approved
LTIP awards following previous consultation with
shareholders.
• Set LTIP targets following consultation with
shareholders; and
• Ensured LTIP awards linked to succession planning.
The Committee met five times during the year ended
31 December 2017. The main agenda items included (i)
determining the annual incentives payable for 2017, (ii)
overseeing the remuneration policy implementation, (iii)
approving the grant of LTIP share awards, (iv) setting LTIP
performance targets, (v) reviewing remuneration trends
and market practice, (vi) approving the remuneration
packages of Executive Directors and other Executives, (vii)
reviewing pension matters, and (viii) approving the 2016
Remuneration Report.
The Company Chairman, Chief Executive Officer and 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 advisor to the Committee and has 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 Mercer’s advice is objective and independent.
As a growing and scaling business, the Committee is aware
of the importance of aligning performance measures not
only to shareholder interests but also to driving the right
performance for long term growth. As these measures are
considered over time, the Committee remains committed to
consulting with shareholders to ensure that their views are
reflected in our decisions.
Cairn Homes plc — Annual Report 2017 79
Remuneration Committee Report (continued)
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.
Annual Report on Remuneration
This section of the Remuneration Report sets out the basis
of how Cairn Homes Remuneration Policy was operated
for the year ended 31 December 2017 and how it will be
operated in 2018.
Total Shareholder Return Performance
The Committee is focused on ensuring that both (i) bottom
line performance as measured by Earnings per Share (EPS)
and (ii) Total Shareholder Return (TSR) are maximised. The
following graph shows the cumulative Total Shareholder
Return of the Company over the period since the initial
public offering 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 the Company.
€200
€175
€150
€125
€100
€75
€50
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12-Ju n-2015
12-Sep-2015
12-D ec-2015
12- M ar-2016
12-Ju n-2016
12-Sep-2016
12-D ec-2016
12- M ar-2017
12-Ju n-2017
12-Sep-2017
12-D ec-2017
12- M ar-2018
Cairn Homes Share Price
FTSE 250 (excluding Investment Trusts)
Corporate Governance
80
Remuneration Committee Report (continued)
Performance in 2017
The Committee reviewed the performance of the Executive Directors and other Executives for 2017. In conducting this review
the Committee considered the progress made during the year and in particular:
Financial Highlights
Revenue: €149.5 million
(2016: €40.9 million)
Gross Profit: €27.1 million
(2016: €7.1 million)
Operating Profit*:
€15.0 million
(2016: €3.6 million)
418 completions (ASP – €315k) up from
105 completions (ASP – €295k) in 2016.
Gross margin 18.2%
(2016: 17.3%).
* Pre-exceptional items of €0.5 million
(2016: €1.4 million).
Inventories: €911 million
(2016: €727 million)
Forward Sales: 383 units
Revenue Outlook
34 individual sites containing c. 14,100
residential units.
€807 million development land.
Forward sales pipeline of 383 units
(sales value €143.2 million) at an ASP
of €374k as at 5 March 2018, with an
expected gross margin of 19%.
Forecast total revenue in excess of €350
million (including c. 800+ unit sale
completions) and a gross profit margin
of c. 20% in 2018.
€104 million construction work in
progress.
Four additional sales launches in H1
2018.
Operational Highlights
Land Acquisitions
Cairn’s well located land bank has been
acquired at a cost of 16% of estimated
Net Development Value (excl. House
Price Inflation), comfortably ahead of
initial public offering target of 20%.
2017 acquisitions were targeted
towards specific central Dublin
apartment sites.
Enhancing Value in
Unique Land Bank
1,997 units granted planning
permission since the start of 2017.
c. 1,900 incremental units granted
planning permission or expected to
be gained on existing sites through
increased densities.
Shares Dual Listed
Customer – Product
Primary listing on the Irish Stock
Exchange on 26 July 2017.
Added to FTSE Global Small Cap Index
in Q3 2017 and the ISEQ-20 Index in Q4
2017.
Business has been aligned operationally
to manage the three elements of our
construction activities – housing,
apartments and student apartments –
more efficiently.
Cairn today has a highly experienced
and committed team of people to
deliver our vision of building great
homes and great places where our
customers will love to live.
Medium-term run-rate to deliver total
revenue of c. €500 million from between
1,300 and 1,400 sales completions
annually from 2020 (IPO target was
1,000 unit sales completions).
Six Hanover Quay
Due to the significant demand from
international capital, commenced a
formal sales process to sell the entire
development.
Construction well advanced with an
expected transaction close date at the
start of 2019, assuming a successful
sales process.
11 Active Sites
8 Selling Sites
Active on 11 developments (5 at the end
of 2016), which will deliver in excess of
3,650 new homes.
3 new site commencements planned
for 2018.
Scale of land bank and planning
maturity presents numerous site
commencement options going forward.
Cairn Homes plc — Annual Report 2017 81
Remuneration Committee Report (continued)
The Committee considered how the Executive Directors
and former Group Finance Director 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 2017 range from 45%
to 75% of salary. Further detail in relation to the Executive
Directors’ remuneration is set out on page 82.
Salary
The salaries of the Executive Directors for 2018 are set out
below. Salaries are unchanged from 2016 and 2017. It is the
Committee’s intention to review the Executive Director
salaries annually but not necessarily to revise them; any
increase will likely coincide with the Company achieving
critical scale in the market. Consequently, it is likely that
salaries will be increased only infrequently, but with such
increase if appropriate above the typical annual increase
observed at other comparable companies.
Michael Stanley
Alan McIntosh
Tim Kenny
(appointed to the Board 22 August 2017)
From 1 January
2018 €
425,000
325,000
380,000
Annual Incentive
The annual incentive targets for the Executive Directors and
the previous Group Finance Director for 2017 were as follows
and are further outlined in the Remuneration Outcomes
table on page 82:
Target
Incentive
(% of salary)
Maximum
Incentive
(% of salary)
Actual
2017 Bonus
(% of salary)
Michael
Stanley
Alan McIntosh
Tim Kenny*
Eamonn
O’Kennedy**
70%
50%
50%
50%
105%
75%
75%
75%
75%
50%
45%
58%
*
**
Paid on a pro-rata basis for time in employment in 2017
Paid for performance in line with contract for 2017
The annual incentive for 2017 and 2018 is based 70% on
financial performance (primarily 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 annual incentive within 3 years following the end of
the performance period subject to them being considered no
longer commercially sensitive.
Retirement Benefits
In 2017, the Executive Directors participated in the Defined
Contribution Pension Scheme or received a cash supplement
in lieu of pension, consistent with the Remuneration Policy,
and with the values as detailed on page 82. With effect
from 25 January 2018, the Chief Executive Officer’s pension
contribution has been increased from 10% to 25% of salary in
line with market practice and as supported by independent
market benchmarking.
Long Term Incentives
The purpose of the LTIP is to align the interests of Executive
Directors and other eligible Executives with shareholder
interests, and to reinforce exceptional performance. LTIP
awards are subject to performance targets set over a 3 year
period, with an additional 2 year holding period for Executive
Directors and other senior Executives.
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.
The Committee intends to make an annual grant of awards
under the LTIP in 2018 to key talent in line with the plan
rules and Remuneration Policy. The Committee will set
the performance targets at a level which it considers to
be stretching but achievable and reinforces performance
which is consistent with our key strategic objectives. 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, to ensure
succession and continued performance of the business.
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 CCO/Managing
Director – PBSA, Kevin Stanley. Therefore, the only Executive
Directors who can participate in the LTIP are Tim Kenny,
Group Finance Director and any other future Executive
Directors.
Corporate Governance 82
Remuneration Committee Report (continued)
The following award under the LTIP was made to Tim Kenny in 2017:
Tim Kenny
Number of Shares
431,818*
Performance Period
2017 – 2019
* The face value of the award was based on the share price at the date of award and was equivalent to 200% of base salary, in line with the shareholder
approved Remuneration Policy (see page 75).
Remuneration Outcomes for the year ended 31 December 2017
The table below sets out the details of the remuneration payable to the Executive Directors for the year ended 31 December
2017, with comparatives for the prior year ended 31 December 2016:
Michael Stanley
Alan McIntosh
Eamonn O’Kennedy
Tim Kenny
Total
Salary
Annual Incentive
Retirement Benefit
Car Allowance
Total
2017
€’000
425
325
375
140
1,265
2016
€’000
425
325
250
-
1,000
2017
€’000
319
163
219
63
764
2016
€’000
446
244
187
-
877
2017
€’000
43
27
35
35
140
2016
€’000
43
27
25
-
95
2017
€’000
10
10
14
4
38
2016
€’000
10
10
10
-
30
2017
€’000
797
525
643
242
2,207
2016
€’000
924
606
472
-
2,002
Notes:
1
2
4
5.
The table above does not include 32,882,498 ordinary shares (2016: 12,768,646 ordinary shares) which were issued to Michael Stanley and Alan McIntosh
during 2017 through the conversion of Founder Shares in their capacity as holders of Founder Shares.
Eamonn O’Kennedy’s remuneration was paid until November 2017 and includes his six month notice period per his contract of employment.
Alan McIntosh and Tim Kenny received their retirement benefits as cash in lieu of pension contributions.
Tim Kenny’s remuneration for 2017 is on a pro rata basis from the date of his appointment.
Non-Executive Directors’ Remuneration Details
The Committee reviewed independent benchmarking for Non-Executive Director fees from Mercer, its remuneration
consultants, which indicated that the fee for the Chairman role was below the lower quartile of the market for similar
companies and that the Non-Executive Director fees were below the median for similar companies in the market. Reflecting
the growing scale of the Company and the increasingly demanding role required of the Non-Executive Directors, the Chairman
and Non-Executive Directors fees were adjusted during 2017 to be appropriately positioned against the market as set out
below. Effective 1 July 2017, the Chairman receives a fee of €150,000 per annum and the Non-Executive Directors are paid a
basic fee of €60,000 per annum, with additional fees payable to the Chairman of the Audit and Risk Committee of €15,000 per
annum and the Chairman of the Remuneration Committee of €12,000 per annum. A fee is paid 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 2017 and the year ended 31 December 2016
are set out below:
Basic Fee
Additional Fee
Total Fees
Non- Executive Directors
John Reynolds
(Chairman)
Andrew Bernhardt
Gary Britton
(Chairman of Audit and Risk Committee)
Giles Davies
(Chairman of the Remuneration Committee)
(Senior Independent Director)
Aidan O’Hogan1
Total
1
Aidan O’Hogan resigned with effect from 13 December 2016.
2017
€’000
2016
€’000
2017
€’000
2016
€’000
2017
€’000
2016
€’000
125
55
55
55
-
290
100
50
50
50
50
300
-
-
15
16
-
31
-
-
15
10
-
25
125
55
70
71
-
321
100
50
65
60
50
325
Cairn Homes plc — Annual Report 2017 83
Remuneration Committee Report (continued)
Directors’ and Company Secretary’s Interests
The interests of the Directors and Company Secretary who held office at 31 December 2017 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
Tim Kenny
Gary Britton
Giles Davies
John Reynolds
Andrew Bernhardt
Susan O’Connor (Company Secretary)
Total
No. of Ordinary Shares
at 31 December 2017
No. of Ordinary Shares
at 31 December 2016
16,168,691
36,086,153
-
80,000
50,000
-
-
-
52,384,844
8,364,546
24,439,582
-
50,000
50,000
-
-
-
32,904,128
All of the above interests were beneficially owned. Tim Kenny was granted 431,818 LTIP awards in 2017. Apart from the
interests disclosed above and the Founder Shares and Deferred Shares held by the Founder Directors – see table below,
the Directors and the Company Secretary had no other interests in the share capital of the Company or any other Group
undertaking at 31 December 2017.
There were no changes in the above Directors’ and Secretary’s interests between 31 December 2017 and 3 April 2018.
The Company’s Register of Directors’ Interests (which is open to inspection) contains full details of Directors’ shareholdings.
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).
Additional Interests of Founder Shareholders who are Founder Directors
In addition to the shareholdings noted above, the Founder Directors have the following additional interests:
Founder Directors
Michael Stanley
Alan McIntosh
Total
No. of Deferred
Shares at
31 December 2017
No. of Founder
Shares at
31 December 2017
No. of Deferred
Shares at
31 December 2016
No. of Founder
Shares at
31 December 2016
9,990,000
9,990,000
19,980,000
16,202,470
23,146,386
39,348,856
9,990,000
9,990,000
19,980,000
29,742,322
42,489,032
72,231,354
The total number of Founder Shares in issue at 31 December 2017 is 46,292,771 (84,978,063 at 31 December 2016).
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 in each of
the years 2017 to 2022). 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.
Corporate Governance 84
Remuneration Committee Report (continued)
In calculating whether the performance condition is satisfied
during any test period, any dividends, returns of capital or
distributions declared in the 12 months ending at the end of
the relevant test period are added to the closing price.
Subject to satisfying the performance condition there is no
limitation on the amount to be converted into ordinary shares
(or otherwise issued as ordinary shares at nominal value to
fulfil the Founder Share Value) or paid out in cash, other than
the seven year limit.
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.
On 18 August 2017, the Company issued 38,685,292 ordinary
shares (through the conversion of 38,685,292 Founder Shares)
to the Founder Group of Michael Stanley, Alan McIntosh and
Kevin Stanley. All shares issued in respect of the conversion of
Founder Shares are subject to a one year lock-up period, with
50% of the shares remaining subject to a further one 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.
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, returns of
capital or distributions in each case in the relevant period,
being (i) the first time the performance condition is satisfied,
the period from the initial public offering 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% of the incremental increase
in Total Shareholder Return since the previous conversion or
redemption.
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.
Cairn Homes plc — Annual Report 2017 85
Directors’ Report
The Directors present their report to the shareholders
together with the audited financial statements for the year
ended 31 December 2017.
Principal Activities and Business Review
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 2017,
the Group consisted of the Company, Cairn Homes plc, and a
number of subsidiaries, which are detailed in Note 26 to the
consolidated financial statements. Shareholders are referred to
the Chairman’s Statement, Chief Executive Officer’s Statement
and the Group Finance Director’s Review which contain a
review of operations and the financial performance of the
Group for 2017, the outlook for 2018 and the key performance
indicators used to assess the performance of the Group. These
are deemed to be incorporated into the Directors’ Report.
Results for the Year
The consolidated statement of profit or loss and other
comprehensive income for the year ended 31 December 2017
and the consolidated statement of financial position at that
date are set out on pages 96 and 97 respectively. The Group’s
profit for the year ended 31 December 2017 was €5.0 million
(2016: loss of €2.1 million).
Dividends
There were no dividends paid or proposed by the Company
during the year.
Outlook
A review of future developments of the business is included
in the Chairman’s Statement, the Chief Executive Officer’s
Statement and the Group Finance Director’s Review.
Board of Directors
The names of the Directors and a biographical note on each
appear on pages 56 and 57.
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 2018
Annual General Meeting and offer themselves for re-election.
Directors’ and Company Secretary’s interests
Details of the Directors’ and Company Secretary’s interests in
shares and in unvested share awards of the Company are set
out in the Remuneration Committee Report on page 83.
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.
Share Capital
The Company has four authorised classes of shares: Ordinary
Shares; A Ordinary Shares; Founder Shares and Deferred
Shares. As at 31 December 2017 and 3 April 2018, the
Company had 761,672,549 Ordinary Shares in issue, each with
a nominal value of €0.001, all of which are of the same class
and carry the same rights and obligations. The Company
also had 46,292,771 Founder Shares and 19,980,000 Deferred
Shares in issue at the same date.
The percentage of the total issued share capital represented
by each class of shares on the above dates was:
Andrew Donagher resigned as Company Secretary on
20 February 2017 and Susan O’Connor was appointed as
Company Secretary on the same date. Eamonn O’Kennedy
(former Group Finance Director) resigned as a Director on
22 August 2017. Tim Kenny was appointed as Group Finance
Director on the same date.
Share Class
Ordinary Shares
Founder Shares
Deferred Shares
% of total issued
share capital
92.0
5.6
2.4
In accordance with the provisions contained in the UK
Code, all Directors retired at the Annual General Meeting
of the Company on 17 May 2017 and, being eligible, offered
themselves for re-election, and all were re-elected to the
Board on the same day.
Corporate Governance 86
Directors’ Report (continued)
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.
The Company has a Long-Term Incentive Plan in place, the details of which are set out in the Remuneration Committee Report
and in Note 19 to the consolidated financial statements.
Substantial Shareholdings
As at 31 December 2017 and 29 March 2018 (the latest practicable date before approval of this Annual Report), the Company
had been notified of the following details of interests of 3% or more in the ordinary share capital of the Company:
Fidelity Investments Limited
Bank of Montreal
The Capital Group Companies, Inc.
BlackRock Inc
Fidelity Management & Research Company
Lansdowne Partners International Ltd
Kames Capital plc
Emerald Everleigh Limited Partnership*
Coltrane Master Fund, L.P.
J O Hambro Capital Management Limited
Henderson Group plc
Oppenheimer Funds Inc
Wellington Management Group LLP
Notified holding
31 December 2017
65,503,839
31,380,909
31,914,080
50,575,057
44,710,179
45,237,886
30,971,822
36,086,153
37,474,289
26,721,051
24,252,393
23,197,940
30,466,902
%
8.60
4.12
4.19
6.64
5.87
5.94
4.07
4.74
4.92
3.51
3.18
3.05
4.00
Notified holding
29 March 2018
65,635,101
46,601,448
45,911,000
44,669,388
43,094,527
42,237,886
38,089,244
36,086,153
31,367,365
26,721,051
24,252,393
23,197,940
22,481,600
%
8.62
6.12
6.03
5.86
5.66
5.55
5.00
4.74
4.12
3.51
3.18
3.05
2.95
*
Emerald Everleigh Limited Partnership (the ‘LP’) and Prime Developments Ltd (‘PDL ‘) are the registered holders of the interests described above. The LP
is ultimately owned by 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.
Except as disclosed above, the Company has not been notified at 29 March 2018 of any interest of 3% or more in its ordinary
share capital, nor is it aware of any person who directly or indirectly, jointly or severally, exercises or could exercise control
over the Company.
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.
These principal risks and uncertainties are set out on pages 38 to 41 and are deemed to be incorporated into the Directors’ Report.
The Group’s exposure to financial risk is further described in Note 30 to the consolidated financial statements.
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 the registered office: 7 Grand Canal, Grand Canal Street Lower, Dublin 2, D02 KW81.
Cairn Homes plc — Annual Report 2017 87
Directors’ Report (continued)
Takeover Regulations 2006
For the purposes of Regulation 21 of Statutory Instrument
255/2006 ‘European Communities (Takeover Bids (Directive
2004/25/EC)) Regulations 2006’, the details provided on share
capital on page 85, substantial shareholdings on page 86, and
the disclosures on Directors’ remuneration and interests in
the Remuneration Committee Report on pages 71 to 84 are
deemed to be incorporated into this section of the Directors’
Report.
Transparency 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 18 to 21, the Chief
Executive Officer’s Statement on pages 22 to 27 and the
Group Finance Director’s Review on pages 48 and 49.
2. The Corporate Governance Report on pages 58 to 64.
3. The Principal Risks and Uncertainties on pages 38 to 41.
4. Details of Earnings Per Share in Note 27 to the
consolidated financial statements.
5. Details of the Capital Structure of the Company in Note
18 to the consolidated financial statements.
Corporate Governance Regulations
As required by company law, the Directors have prepared
a Corporate Governance Report which is set out on pages
58 to 64 and which, for the purposes of Section 1373 of the
Companies Act 2014, is deemed to be incorporated into this
part of the Directors’ Report. Details of the capital structure
and employee share schemes are included in Notes 18 and 19
to the consolidated financial statements respectively.
Subsidiaries
Information on the Group’s subsidiaries is set out in Note 26
to the consolidated financial statements.
Going Concern
The Group’s activities, strategy and performance are
explained in the Chief Executive Officer’s Statement on
pages 22 to 27 and the Group Finance Director’s Review on
pages 48 and 49 of this Report. Further detail on the financial
performance and financial position of the Group is provided
in the financial statements. In addition, principal risks and
uncertainties affecting the Group, and the steps taken to
mitigate these risks are described in the Risk Management
section of the Strategic Report on pages 38 to 41. Having
assessed the relevant business risks, the Directors 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. The Directors have
therefore continued to adopt the going concern basis of
preparation for the financial statements.
Viability Statement
In accordance with the UK Code provision C.2.2, the
Directors have assessed the prospects of the business and its
ability to meet its liabilities as they fall due over the medium
term. The Directors have concluded that three years is an
appropriate period for assessment as the Group progresses
towards being significantly cash flow generative by 2020,
through a substantial and controlled investment in work in
progress and continued growth in sales and profit over the
period.
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 the principal risks
of the Group and Company as set out in this Annual Report.
Having carried out a robust assessment of the principal
risks facing the Group, including those that would threaten
its business model, future performance, solvency and
liquidity, the Directors confirm that they have a reasonable
expectation that the Group and Company will continue to
operate and meet their 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, the Market Abuse (Directive 2003/6/
EC) Regulations 2005, the Prospectus (Directive 2003/71/EC)
Regulations 2005, the Transparency (Directive 2004/109/EC)
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.
Corporate Governance 88
Directors’ Report (continued)
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.
Subsequent Events
Information in respect of events since the year end
is contained in Note 34 to the consolidated financial
statements.
Audit and Risk 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 65 to 68.
External Auditor
In accordance with Section 383(2) of the Companies Act
2014, the External Auditor KPMG, will continue in office
and a resolution authorising the Directors to fix their
remuneration will be proposed at the forthcoming Annual
General Meeting.
Disclosure of Information to the External Auditor
Each of the Directors who held office at the date of approval
of the Directors’ Report confirms that:
• so far as they are aware, there is no relevant audit
information of which the External Auditor is unaware; and
• they have taken all steps that they ought to have taken as
a Director to make themselves aware of any relevant audit
information and to establish that the External Auditor is
aware of such information.
Approval of Financial Statements
The Financial Statements were approved by the Board on
3 April 2018.
Signed on behalf of the Board
John Reynolds
Chairman
3 April 2018
Michael Stanley
Director
Cairn Homes plc — Annual Report 2017 89
Financial Statements
Consolidated
Financial
Statements
For the year ended 31 December 2017
Statement of Directors’ Responsibilities
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
90
91
96
97
98
100
101
90
Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual
Report and the consolidated and company financial
statements, in accordance with applicable law and
regulations.
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.
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 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 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
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.
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 56 and 57 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 2017 and of the profit 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, provides 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
John Reynolds,
Chairman
3 April 2018
Michael Stanley,
Director
Cairn Homes plc — Annual Report 2017
91
Independent Auditor’s Report
to the members of Cairn Homes plc
1. Opinion: our opinion is unmodified
We have audited the financial statements of Cairn Homes
plc for the year ended 31 December 2017 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.
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 2017 and of its profit 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 2017;
• 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 consolidated financial statements and company
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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (Ireland) (“ISAs (Ireland)”) and
applicable law. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities section
of our report. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for our opinion.
Our audit opinion is consistent with our report to the Audit
and Risk Committee.
We were appointed as auditor by the Directors on 10 June
2015. The period of total uninterrupted engagement is the
three years ended 31 December 2017. We have fulfilled our
ethical responsibilities under, and we remained independent
of the Group in accordance with, ethical requirements
applicable in Ireland, including the Ethical Standard issued
by the Irish Auditing and Accounting Supervisory Authority
(IAASA) as applied to listed public interest entities. No non-
audit services prohibited by that standard were provided.
2. Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the
financial statements and include the most significant
assessed risks of material misstatement (whether or not
due to fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters
were as follows:
Carrying values of inventories €911.5 million (2016: €727.2
million) and profit recognition
Refer to pages 67 and 68 (Audit and Risk Committee Report),
page 106 (accounting policy for inventories) and Note 15 to
the consolidated financial statements (financial disclosures
– inventories).
The key audit matter
Inventories represents the costs of land, materials, design
and related production and site development costs to date,
less amounts recognised as cost of sales on properties which
have been sold. 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 may be inaccurate with a resulting impact
on the carrying value of inventory or the amount of profit
recognised.
Financial Statements 92
Independent Auditor’s Report (continued)
How the matter was addressed in our audit
Our audit procedures included, among others:
a) We obtained and documented our understanding of the
processes, and tested the design and implementation of
relevant controls, over the accuracy and completeness
of the input data and assumptions made in the Group’s
financial models which support the carrying value
of development land and work in progress, and the
allocation of costs to individual residential units. This
involved checking approvals over reviewing and updating
selling prices and cost forecasts and the authorising and
recording of costs.
b) We examined management’s detailed year-end
assessments of the net realisable value of development
sites. These calculations were primarily based on residual
value calculations whereby the estimated total costs of
the development were deducted from total forecast sales
proceeds. We challenged the key inputs and assumptions
in the following ways, among others:
• We examined forecast residential unit sales prices for
consistency with estimates supplied from independent
property consultants.
• We agreed a sample of forecast costs to supplier
agreements or 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
numbers of units to be constructed based on
appropriate documentary support.
• We considered wider market evidence relating to land
prices in Ireland and the current demand for housing.
c) 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 accordingly. We evaluated the sensitivity
of margins on these sites to changes in sales prices and
costs and considered whether this indicated a risk of
impairment of the inventory balance.
d) 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.
e) For new development land acquisitions in the year, we
inspected purchase contracts and other supporting
documentation to agree the costs of acquisition,
including related direct purchase costs. We agreed
amounts paid to corroborating documentary evidence.
f) 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 appropriately recorded as part of the costs of the
relevant site.
g) We considered the adequacy of the Group’s disclosures
regarding the carrying value of development land and
work in progress.
Our findings
We found that the Group had appropriate processes in place
to regularly update forecasts of development site profitability
to take account of costs incurred, updated forecast costs
to complete and estimated sales prices. We found that
the profit margins recognised on sales during the year
appropriately reflected the costs attributable to units sold
based on the Group’s financial models.
Our audit procedures on the key assumptions underpinning
the year-end assessments of the net realisable value of
development sites, and the related sensitivity analysis, did
not identify any impairment issues which caused us to
disagree with the Group’s conclusion that inventories are
stated at the lower of cost and net realisable value.
We found that the costs of new development site acquisitions
during the year, and of the sample of additions to construction
work in progress inspected, were appropriately recorded.
The disclosures in the financial statements relating to
inventories are adequate to provide an understanding of the
accounting policy and key judgements relating to the Group’s
inventories.
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 €2.5 million (2016: €4.1 million). This has
been calculated with reference to a benchmark of total assets.
Materiality represents approximately 0.25% (2016: 0.49%) 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. Sales activity increased
in 2017, and the Group has recorded a profit for the first time
in the year ended 31 December 2017. Therefore in assessing
materiality for 2017 in absolute terms, we also had regard to
the level of sales and profit. Our materiality measure for 2017
represents 0.25% of total assets which is below the materiality
measure of 0.5%-1.0% typically used for this measure, where
applicable, in public company audits.
Cairn Homes plc — Annual Report 2017 93
Independent Auditor’s Report (continued)
We report to the Audit and Risk Committee all corrected and
uncorrected misstatements we identified through our audit
with a value in excess of €0.125 million (2016: €0.2 million), in
addition to other audit misstatements below that threshold
that we believe warrant 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.
Materiality for the company financial statements as a whole
was set at €1.7 million (2016: €4.1 million), determined
with reference to a benchmark of total assets, of which it
represents 0.23% (2016: 0.61%).
4. We have nothing to report on going concern
We are required to report to you if:
• we have anything material to add or draw attention to
in relation to the Directors’ Statement in Note 1 to the
financial statements on the use of the going concern basis
of accounting with no material uncertainties that may cast
significant doubt over the Group’s and Company’s use of
that basis for a period of at least twelve months from the
date of approval of the financial statements; or
• if the related statement under the Listing Rules set out
on page 87 is materially inconsistent with our audit
knowledge.
We have nothing to report in these respects.
5. We have nothing to report in respect of the other
information in the Annual Report
The Directors are responsible for the other information
presented in the Annual Report. The other information
comprises the information included in the Annual Report
other than the financial statements and our auditor’s report
thereon (Directors’ Report, Key Highlights, Our Business at
a Glance, Chairman’s Statement, Chief Executive Officer’s
Statement, Cairn Management Team, Strategy, Business
Model, Risk Management, Market Overview, Group Finance
Director’s Review, Corporate Responsibility, Board of Directors,
Corporate Governance Report, Audit and Risk Committee
Report, Nomination Committee Report, Remuneration
Committee Report and Additional Information section). Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit
opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and,
in doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have not
identified material misstatements in the other information.
Based solely on that work, we report that:
• we have not identified material misstatements in the
Directors’ Report or other accompanying information;
• in our opinion, the information given in the Directors’
Report is consistent with the financial statements;
• in our opinion, the Directors’ Report has been prepared in
accordance with the Companies Act 2014.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
• the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated;
• the Directors’ confirmation within the Viability Statement
on page 87 that they have carried out a robust assessment
of the principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency and liquidity; and
• the Directors’ explanation in the Viability Statement of
how they have assessed the prospects of the Group, over
what period they have done so and why they considered
that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Other corporate governance disclosures
We are required to address the following items and report to
you in the following circumstances:
• Fair, balanced and understandable: if we have identified
material inconsistencies between the knowledge we
acquired during our financial statements audit and the
Directors’ Statement that they consider that the annual
report and financial statements taken as a whole is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position
and performance, business model and strategy;
Financial Statements 94
Independent Auditor’s Report (continued)
• Audit and Risk Committee Report: if the section of the
Annual Report describing the work of the Audit and
Risk Committee does not appropriately address matters
communicated by us to the Audit and Risk Committee;
The Listing Rules of the Irish Stock Exchange and UK Listing
Authority require us to review:
• the Directors’ statements, set out on page 87, in relation to
going concern and longer-term viability;
• Statement of compliance with UK Corporate Governance Code:
if the Directors’ Statement does not properly disclose a
departure from provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
In addition as required by the Companies Act 2014, we report,
in relation to information given in the Corporate Governance
Report on pages 58 to 64, that:
• based on the work undertaken for our audit, in our
opinion, the description of the main features of internal
control and risk management systems in relation to the
financial reporting process, and information relating to
voting rights and other matters required by the European
Communities (Takeover Bids (Directive 2004/25/EC))
Regulations 2016 and specified for our consideration, is
consistent with the financial statements and has been
prepared in accordance with the Act; and
• based on our knowledge and understanding of the
Company and its environment obtained in the course
of our audit, we have not identified any material
misstatements in that information.
We also report that, based on work undertaken for our audit,
other information required by the Companies Act 2014 is
contained in the Corporate Governance Report.
6. Our opinions on other matters prescribed by the
Companies Act 2014 are unmodified
We have obtained all the information and explanations which
we consider necessary for the purpose 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 Company’s statement of financial
position is in agreement with the accounting records.
7. We have nothing to report on other matters on which
we are required to report by exception
The Companies Act 2014 requires us to report to you if, in
our opinion, the disclosures of Directors’ remuneration and
transactions required by sections 305 to 312 of the Act are
not made.
• the part of the Corporate Governance Report on pages
58 to 64 relating to the Company’s compliance with the
provisions of the UK Corporate Governance Code and
the Irish Corporate Governance Annex specified for our
review; and
• certain elements of disclosures in the report to
shareholders by the Board of Directors’ Remuneration
Committee.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page
90, the Directors are responsible for: the preparation of the
financial statements including being satisfied that they give a
true and fair view; such internal control as they determine is
necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend
to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue our opinion in an auditor’s report. Reasonable
assurance is a high level of assurance, but does not guarantee
that an audit conducted in accordance with ISAs (Ireland)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the
financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is
higher than for one resulting from error, as they may involve
collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control and may involve any area
of law and regulation not just those directly affecting the
financial statements.
Cairn Homes plc — Annual Report 2017 95
Independent Auditor’s Report (continued)
A fuller description of our responsibilities is provided on
IAASA’s website at https://www.iaasa.ie/getmedia/b2389013-
1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_
responsiblities_for_audit.pdf
9. The purpose of our audit work and to whom we owe
our responsibilities
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 our 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
3 April 2018
Financial Statements 96
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 31 December 2017
Before
Exceptional
Items
€’000
Note
2017
Exceptional
Items
(Note 8)
€’000
Before
Exceptional
Items
€’000
Total
€’000
2016
Exceptional
Items
(Note 8)
€’000
6
7
8
9
9
149,462
(122,325)
27,137
258
(12,414)
14,981
17
(8,533)
-
-
-
-
(497)
(497)
-
-
149,462
(122,325)
27,137
258
(12,911)
40,906
(33,844)
7,062
4,425
(7,841)
-
-
-
-
(1,356)
Total
€’000
40,906
(33,844)
7,062
4,425
(9,197)
14,484
3,646
(1,356)
2,290
17
(8,533)
89
(5,194)
-
-
89
(5,194)
Continuing operations
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Operating profit
Finance income
Finance costs
Profit/(loss) before
taxation
Tax (charge)/credit
Profit/(loss) for the year
11
Other comprehensive
income
Total comprehensive
income/(loss) for the year
Profit/(loss) attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) for the year
Basic earnings/(loss)
per share
Diluted earnings/(loss)
per share
27
27
6,465
(497)
5,968
(1,459)
(1,356)
(2,815)
(989)
4,979
-
4,979
4,452
527
4,979
0.6 cent
0.6 cent
752
(2,063)
-
(2,063)
(2,063)
-
(2,063)
(0.3) cent
(0.3) cent
Cairn Homes plc — Annual Report 2017 97
Consolidated Statement of Financial Position
At 31 December 2017
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Restricted cash
Current assets
Loan assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Share-based payment reserve
Retained earnings
Equity attributable to owners of the Company
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Loans and borrowings
Deferred taxation
Current liabilities
Loans and borrowings
Trade and other payables
Current taxation
Total liabilities
Total equity and liabilities
On behalf of the Board:
John Reynolds
Chairman
Michael Stanley
Director
Note
2017
€’000
2016
€’000
12
13
17
14
15
16
17
18
18
19
28
20
22
20
23
1,372
821
17,002
19,195
-
911,496
5,540
68,803
985,839
894
485
27,000
28,379
16,000
727,223
17,015
45,645
805,883
1,005,034
834,262
828
749,616
14,222
(44,741)
719,925
1,795
721,720
226,838
5,611
232,449
18,361
31,636
868
50,865
794
697,733
24,779
(58,935)
664,371
-
664,371
148,631
5,490
154,121
-
15,770
-
15,770
283,314
169,891
1,005,034
834,262
Financial Statements 98
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Attributable to owners of the Company
Share Capital
Ordinary
shares
€’000
Deferred
shares
€’000
Founder
shares
€’000
Share
premium
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Non-
controlling
interests
€’000
Total
€’000
Total
equity
€’000
As at 1 January 2017
689
20
85
697,733
24,779
(58,935)
664,371
-
664,371
Total comprehensive
income for the year
Profit for the year
Transactions with
owners of the Company
Issue of ordinary shares
for cash
Share issue costs
Conversion of founder
shares to ordinary shares
Equity-settled share-
based payments
Changes in ownership
interests
Investment in subsidiary
by non-controlling
shareholders
-
-
34
-
39
-
73
-
-
-
-
-
-
-
-
-
-
-
4,452
4,452
4,452
4,452
527
527
4,979
4,979
-
-
51,883
-
-
-
-
-
-
-
-
-
(39)
-
(39)
-
(1,515)
51,917
(1,515)
-
(11,257)
11,257
-
-
51,883
700
(10,557)
-
9,742
700
51,102
-
-
-
-
-
51,917
(1,515)
-
700
51,102
-
-
-
-
-
-
-
-
-
-
1,268
1,268
1,268
1,268
As at 31 December 2017
762
20
46
749,616
14,222
(44,741)
719,925
1,795
721,720
Cairn Homes plc — Annual Report 2017 99
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Share Capital
Ordinary
shares
€’000
Deferred
shares
€’000
Founder
shares
€’000
Share
premium
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Total
€’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
Transactions with owners
of the Company
Issue of ordinary shares for
cash
Share issue costs
Conversion of founder shares
to ordinary shares
Equity-settled share-based
payments
As at 31 December 2016
-
-
157
-
15
-
172
689
-
-
-
-
-
-
-
-
-
-
-
(15)
-
(15)
-
-
176,343
-
-
-
-
-
(2,063)
(2,063)
(2,063)
(2,063)
-
(8,088)
176,500
(8,088)
-
(4,371)
4,371
-
-
176,343
32
(4,339)
-
(3,717)
32
168,444
20
85
697,733
24,779
(58,935)
664,371
Financial Statements 100
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
Cash flows from operating activities
Profit/(loss) for the year
4,979
(2,063)
2017
€’000
2016
€’000
Adjustments for:
Share-based payments expense
Finance costs
Finance income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Taxation
Increase in inventories
Decrease in loan assets
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
700
8,533
(17)
317
81
989
15,582
(184,273)
16,000
11,475
12,607
32
5,194
(89)
112
32
(752)
2,466
(151,105)
26,768
(3,796)
4,464
Net cash used in operating activities
(128,609)
(121,203)
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
Transfer from restricted cash
-
-
(795)
(417)
15
10,000
(86,074)
818
(876)
(434)
89
-
Net cash from/(used in) in investing activities
8,803
(86,477)
Cash flows from financing activities
Proceeds from issue of share capital, net of issue costs paid
Proceeds from borrowings, net of debt issue costs
Repayment of loans
Investment in subsidiary by non-controlling interest
Interest paid
50,402
96,937
-
1,268
(5,643)
167,716
99,285
(15,500)
-
(4,727)
Net cash from financing activities
142,964
246,774
Net increase in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
23,158
45,645
68,803
39,094
6,551
45,645
Cairn Homes plc — Annual Report 2017 101
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
1. Basis of Preparation
102
20. Loans and Borrowings
2. Key Judgements and Estimates
104
21.
Reconciliation of movement of Liabilities
to Cash Flows arising from Financing
Activities
3.
Significant Accounting Policies
4. Measurement of Fair Values
5.
Segmental Information
6. Revenue
7. Other Income
8. Administrative Expenses
9. Finance Income and Finance Costs
10. Statutory and Other Information
11. Taxation
12. Property, Plant and Equipment
13. Intangible Assets
14. Loan Assets
15. Inventories
104
110
111
111
111
112
112
113
114
115
116
22. Deferred Taxation
23. Trade and Other Payables
24. Dividends
25. Related Party Transactions
26. Group Entities
27. Earnings Per Share
28. Non-Controlling Interest
29. Business Combination
30.
Financial Instruments and
Risk Management
116
31. Operating Leases
117
32.
Other Commitments and
Contingent Liabilities
16. Trade and Other Receivables
117
17.
Restricted Cash and Cash and Cash
Equivalents
33. Profit or Loss of the Parent Company
118
34. Events After the Reporting Period
18. Share Capital and Share Premium
119
35. Approval of Financial Statements
19. Share-Based Payments
121
122
123
124
124
125
125
126
127
127
128
129
134
134
134
135
135
Financial Statements 102
Notes to the Consolidated Financial Statements (continued)
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 2017 for the Company and its subsidiaries (together referred to as “the Group”). 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
The following standards and interpretations were effective for the Group for the first time from 1 January
2017. These standards had no material effect on the consolidated results of the Group.
• Amendments to IAS 7 Statement of Cash Flows;
• Amendments to IAS 12 Income Taxes; and
• Annual Improvements to IFRS Standards 2014-2016 Cycle.
The following standards and interpretations are not yet endorsed by the EU. The potential impact of these
standards on the Group is under review.
• IFRS 17 Insurance Contracts (IASB effective date 1 January 2021);
• IFRIC 22 Foreign Currency Transactions and Advance Consideration (IASB effective date 1 January 2018);
• IFRIC 23 Uncertainty over Income Tax Treatments (IASB effective date 1 January 2019);
• Amendments to IFRS 9 Prepayment Features with Negative Compensation (IASB effective date 1 January 2019);
• Amendments to IAS 28 Long-term Interest in Associates and Joint Ventures (IASB effective date 1 January
2019);
• Annual Improvements to IFRS Standards 2015-2017 Cycle (IASB effective date 1 January 2019); and
• Amendments to IAS 19 Plan Amendment, Curtailment or Settlement (IASB effective date 1 January 2019).
The following standards have been endorsed by the EU, are available for early adoption and are effective from
1 January 2018 or 1 January 2019 as indicated below. The Group has not adopted these standards early, and
instead intends to apply them from their effective dates as determined by their dates of EU endorsement.
• IFRS 15 Revenue from contracts with customers (May 2014) including amendments to IFRS 1 (September
2015). Effective date 1 January 2018;
• IFRS 9 Financial Instruments (July 2014). Effective date 1 January 2018;
• IFRS 16 Leases (January 2016). Effective date 1 January 2019;
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions (Effective
date 1 January 2018); and
• Amendments to IAS 40 Transfers of Investment Property (Effective date 1 January 2018).
The full potential impact of these standards on the Group is under review.
Cairn Homes plc — Annual Report 2017 103
Notes to the Consolidated Financial Statements (continued)
1.
Basis of Preparation (continued)
Revenue recognition
IFRS 15, Revenue from Contracts with Customers, replaces IAS 18 Revenue Recognition and IAS 11 Construction
Contracts. IFRS 15 is based on the principle that revenue is recognised when control of a good or service
transfers to a customer. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, and
the Group will apply IFRS 15 from its effective date.
The Group considers that in respect of residential property sales control passes to customers at legal
completion and therefore will be recognised at that point in time. Based on the Group’s assessment of
IFRS 15 it is not thought to have an impact on residential property sales, which make up the majority of
the Group’s revenue and profit. Residential site sales, which by their nature vary from year to year, are not
expected to be impacted, but the Group will continue to review the contracts as they occur in the future
to ensure that their treatment is consistent with IFRS15.
If IFRS 15 had been applied to the year ended 31 December 2017, it would not have had a material impact
on the revenue reported by the Group.
Leases
IFRS 16, Leases, replaces IAS 17 Leases. IFRS 16 sets out principles for the recognition, measurement,
presentation and disclosure of leases for both the lessee and the lessor. IFRS 16 is effective for annual periods
beginning on or after 1 January 2019, and the Group will apply IFRS 16 from its effective date.
Under IFRS 16, the distinction between operating leases and finance leases is removed for lessees. IFRS
16 requires all assets held by the Group under lease agreements which are greater than twelve months in
duration to be recognised as right-of-use assets within the statement of financial position. The present
value of future payments to be made under those lease agreements must be recognised as a liability. Rental
expenses will be removed from profit or loss and replaced with finance costs on the lease liability and
depreciation of the right-of-use assets.
The Group has an operating lease in respect of the rental of the central head office. The Group’s outstanding
operating lease commitments as at 31 December 2017 were €1.958 million as set out in Note 31. This figure is
undiscounted and therefore is not an accurate measure of the potential impact of IFRS 16 on the statement of
financial position. The liability at the date of initial application of IFRS 16 will be measured using a discount
rate which cannot be accurately determined in advance of that date. Based on the Group’s assessments to
date of the potential impact of initial implementation of the new standard, whilst both assets and liabilities
of the Group will increase, it is not expected to have a material impact on the Group’s net assets.
Financial instruments
IFRS 9, Financial Instruments, is the standard replacing IAS 39, Financial Instruments: Recognition and
Measurement. The standard addresses the classification, recognition, measurement and derecognition
of financial assets and liabilities, and introduces new rules for hedge accounting and a new impairment
model for financial assets. IFRS 9 is effective for annual periods beginning on or after 1 January 2018 and
the Group will apply IFRS 9 from its effective date.
The Group considers that there will be no material impact on the accounting for financial liabilities, as
the new requirements mainly affect the accounting for financial liabilities that are designated at fair value
through profit or loss and the Group does not have any such liabilities. The Group considers that there
will be no material impact on its financial assets which are expected to continue to be accounted for at
amortised cost.
Financial Statements 104
Notes to the Consolidated Financial Statements (continued)
1.
Basis of Preparation (continued)
IFRS 9 also introduces expanded disclosure requirements and changes in presentation. These are expected
to change the nature and extent of the Group’s disclosures about its financial instruments particularly in
the year of adoption of the new standard.
(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) Going concern basis of accounting
Having considered the principal risks to the business, cash flow forecasts and available bank facilities, 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).
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 2017. 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.
Cairn Homes plc — Annual Report 2017 105
Notes to the Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
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.
Non-controlling interests, as stated in the statement of financial position, represents the portion of the
equity of subsidiaries which is not attributable to the owners of the Company.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated.
(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.
Financial Statements 106
Notes to the Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
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.
(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.
The Group is predominantly involved in the development of residential property units for sale. Because
the nature of such individual units is that they are produced in large quantities on a repetitive basis over
a relatively short period of time, the Group’s inventories are not considered to be qualifying assets for the
purposes of capitalisation of borrowing costs.
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.
Cairn Homes plc — Annual Report 2017
107
Notes to the Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
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.
(g)
Share-based payments
The Group has issued equity-settled share-based payments to certain employees (long-term incentive
awards and 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.
The amount recognised as an expense is not adjusted for market conditions not being met. 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
Tax expense comprises current tax and deferred tax. Tax expense 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 by the reporting date.
Deferred tax is recognised in respect of temporary 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.
Financial Statements 108
Notes to the Consolidated Financial Statements (continued)
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 employees. The Group’s contributions to the schemes
are charged to profit or loss in the period in which the contributions fall due.
(j)
Restricted cash and cash and cash equivalents
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 (“CODM”)
(designated as the Board of Directors), which is responsible for allocating resources and assessing performance
of operating segments.
(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.
Cairn Homes plc — Annual Report 2017 109
Notes to the Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
Commitment fees in relation to undrawn loan facilities are accounted for on the accruals basis, within
finance costs.
The Group is required to capitalise borrowing costs directly attributable to the acquisition, construction
and production of a qualifying asset, as part of the costs of that asset. Inventories which are produced in
large quantities on a repetitive basis over a short period of time are not qualifying assets. The Group does
not generally produce qualifying assets.
(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 period,
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.
(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.
Financial Statements 110
Notes to the Consolidated Financial Statements (continued)
3.
Significant Accounting Policies (continued)
(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.
4. Measurement of Fair Values
Certain 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); and
• 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 16 – Trade and other receivables;
• Note 17 – Restricted cash and cash and cash equivalents;
• Note 23 – Trade and other payables; and
• Note 30 – Financial instruments and risk management.
Cairn Homes plc — Annual Report 2017 111
Notes to the Consolidated Financial Statements (continued)
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 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.
As the Group operates in a single geographic market, Ireland, no geographical segmentation is provided.
6. Revenue
Residential property sales
Residential site sales
Income from property rental
7.
Other Income
Loan income
Other gains
2017
€’000
131,490
16,797
1,175
149,462
2017
€’000
258
-
258
2016
€’000
35,540
4,205
1,161
40,906
2016
€’000
2,643
1,782
4,425
Loan income during 2017 represents net income on certain loans originally acquired in the Project Clear
loan portfolio.
In the prior year, loan income of €2.6 million arose primarily from the settlement of certain loans acquired
in the Project Clear loan portfolio, relating to development sites which the Group will not develop itself.
In the prior year, other gains mainly related to the release of a liability which had been assumed for certain
expected payments to third parties, arising on the Project Clear loan portfolio, that are no longer payable.
Financial Statements 112
Notes to the Consolidated Financial Statements (continued)
8.
Administrative Expenses
Before
Exceptional
items
€’000
2017
Exceptional
items
€’000
Before
Exceptional
items
€’000
Total
€’000
2016
Exceptional
items
€’000
Employee benefits
expense (Note 10)
Other expenses
8,347
4,067
12,414
-
497
497
8,347
4,564
12,911
5,126
2,715
7,841
-
1,356
1,356
Total
€’000
5,126
4,071
9,197
Costs of €0.5 million, which are treated as exceptional, relate to the costs incurred during the year in
connection with the Irish Stock Exchange listing which was completed in July 2017. As the listing of the
Group is a non-routine transaction, these costs have been classified as an exceptional item.
In prior year, costs of €1.4 million relating to the acquisition of Argentum (Note 29) were treated as exceptional
as a business combination is a non-routine transaction for the Group which is not currently expected to
recur on a regular basis.
9.
Finance Income and Finance Costs
Finance income
Interest income on short term deposits
Finance costs
Interest expense on financial liabilities measured at amortised cost
Other finance costs
2017
€’000
17
(8,533)
-
(8,533)
2016
€’000
89
(5,067)
(127)
(5,194)
Finance costs for the year ended 31 December 2017 comprise of interest (including amortised transaction
costs) on the drawn Term Loans and Revolving Credit Facilities (Note 20), plus commitment fees on the
undrawn facilities during the year.
Cairn Homes plc — Annual Report 2017 113
Notes to the Consolidated Financial Statements (continued)
10. Statutory and Other Information
(i)
Employees
The average number of persons employed by the Group (including executive Directors) during the year was:
Number of employees
The aggregate payroll costs of these employees were:
Wages and salaries
Social welfare costs
Pension costs – defined contribution schemes
Share-based payment expense
Other
Amounts capitalised into inventories
Employee benefit expense
(ii) Other Information
Operating lease rental expense
Net foreign currency losses recognised in profit or loss
Auditor’s remuneration
Audit of Group, Company and subsidiary financial statements*
Other assurance services
Tax advisory services
Other non-audit services
Directors’ remuneration**
Salaries, fees and other emoluments
Pension contribution – defined contribution schemes
*
**
Inclusive of review of interim financial statements.
Inclusive of remuneration of connected persons as defined by Companies Act 2014.
2017
95
2017
€’000
9,982
942
478
700
39
12,141
(3,794)
8,347
2017
€’000
343
5
200
-
73
144
417
2,910
108
3,018
2016
38
2016
€’000
5,443
545
260
32
3
6,283
(1,157)
5,126
2016
€’000
409
18
170
11
143
398
722
2,663
90
2,753
Financial Statements
114
Notes to the Consolidated Financial Statements (continued)
11. Taxation
Current tax charge for the year
Deferred tax charge/(credit) for the year
Total tax charge/(credit)
2017
€’000
868
121
989
2016
€’000
-
(752)
(752)
The amount shown for current taxation includes a liability for tax uncertainties and is based on the Directors’
best estimate of the probable outflow of economic resources that will be required. As with all estimates,
the actual outcome may be different to the current estimate.
The tax assessed for the period differs from the standard rate of tax in Ireland for the period. The differences
are explained below.
Profit/(loss) before tax
Tax charge/(credit) at standard Irish income tax rate of 12.5%
Effects of:
Income taxed/expenses deductible at the higher rate of
corporation tax
Expenses not deductible for tax purposes
Losses not recognised in prior period*
Adjustment in respect of prior period
Total tax charge/(credit)
2017
€’000
5,968
746
-
162
-
81
989
2016
€’000
(2,815)
(352)
399
14
(813)
-
(752)
*
Relates to certain prior period unused tax losses which were not recognised as a deferred tax asset at 31 December 2015.
Cairn Homes plc — Annual Report 2017 115
Notes to the Consolidated Financial Statements (continued)
12. Property, Plant and Equipment
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Depreciation
At 31 December 2017
Net book value
At 31 December 2017
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Depreciation
At 31 December 2016
Net book value
At 31 December 2016
Leasehold
Improvements
€’000
Computers &
Equipment
€’000
460
3
463
(66)
(66)
(132)
546
792
1,338
(46)
(251)
(297)
2017
Total
€’000
1,006
795
1,801
(112)
(317)
(429)
331
1,041
1,372
Leasehold
Improvements
€’000
Computers &
Equipment
€’000
67
393
460
-
(66)
(66)
63
483
546
-
(46)
(46)
2016
Total
€’000
130
876
1,006
-
(112)
(112)
394
500
894
Financial Statements 116
Notes to the Consolidated Financial Statements (continued)
13.
Intangible Assets
Software
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated amortisation
At 1 January 2017
Amortisation
At 31 December 2017
Net book value
At 31 December 2017
Software
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Amortisation
At 31 December 2016
Net book value
At 31 December 2016
14. Loan Assets
Loan receivables
The loan receivables were received in full on 6 July 2017.
2017
€’000
517
417
934
(32)
(81)
(113)
821
2016
€’000
130
387
517
-
(32)
(32)
485
2017
€’000
-
-
2016
€’000
16,000
16,000
Cairn Homes plc — Annual Report 2017 117
Notes to the Consolidated Financial Statements (continued)
15.
Inventories
Land held for development
Construction work in progress
Development land collateral
2017
€’000
788,791
104,492
18,213
911,496
2016
€’000
559,032
37,277
130,914
727,223
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.
As the build costs on each site can take place over a number of reporting periods the determination of the
cost of sales to release on each sale is dependent on up to date cost forecasting and expected profit margins
across the various developments. There is a risk that one or all of the assumptions may require revision
as more information becomes available, with a resulting impact on the carrying value of inventory or the
amount of profit recognised. The risk is managed through ongoing site profitability reforecasting with any
necessary adjustments being accounted for in the relevant reporting period. The Directors considered the
evidence from impairment reviews and profit forecasting models across the various sites and are satisfied
with the carrying value of inventories (development land and work in progress), which are stated at the lower
of cost and net realisable value, and with the methodology for the release of costs on the sale of inventory.
Development land collateral consists of the collateral property attached to loans acquired by the Group as
part of the December 2015 Project Clear loan portfolio acquisition. The Group has almost completed 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 loan assets is shown
within inventories. The carrying value of this collateral property at 31 December 2017 was €18.2 million.
The total amount charged to cost of sales from inventories during the year was €122.0 million (2016: €33.7
million).
16. Trade and Other Receivables
VAT recoverable
Construction bonds
Other receivables
2017
€’000
-
4,344
1,196
5,540
2016
€’000
6,888
4,440
5,687
17,015
The carrying value of all trade and other receivables is approximate to their fair value.
Financial Statements 118
Notes to the Consolidated Financial Statements (continued)
17. Restricted Cash and Cash and Cash Equivalents
Non-current
Restricted cash
2017
€’000
2016
€’000
17,002
27,000
On 24 August 2017, the senior debt facility was amended and restated to reduce the restricted cash amount
to €17 million. €10 million of this restricted cash was released into cash and cash equivalents.
€17 million of restricted cash is required to be maintained in an interest-bearing blocked deposit 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 2017 is its carrying value.
Current
Cash and cash equivalents
2017
€’000
2016
€’000
68,803
45,645
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 — Annual Report 2017 119
Notes to the Consolidated Financial Statements (continued)
18. Share Capital and Share Premium
Authorised
Ordinary Shares of €0.001 each
Founder Shares of €0.001 each
Deferred Shares of €0.001 each
A Ordinary Shares of €1.00 each
Total authorised share capital
Issued and fully paid
As at 31 December 2017
Ordinary Shares of €0.001 each
Founder Shares of €0.001 each
Deferred Shares of €0.001 each
A Ordinary Shares of €1.00 each
Total issued and fully paid
Issued and fully paid
As at 31 December 2016
Ordinary Shares of €0.001 each
Founder Shares of €0.001 each
Deferred Shares of €0.001 each
A Ordinary Shares of €1.00 each
Total issued and fully paid
Number
1,000,000,000
100,000,000
120,000,000
20,000
2017
€’000
1,000
100
120
20
1,240
Number
1,000,000,000
100,000,000
120,000,000
20,000
Number
761,672,549
46,292,771
19,980,000
-
Number
689,274,623
84,978,063
19,980,000
-
Share
Capital
€’000
762
46
20
-
828
Share
Capital
€’000
689
85
20
-
794
Share
Premium
€’000
749,570
46
-
-
749,616
Share
Premium
€’000
697,648
85
-
-
697,733
2016
€’000
1,000
100
120
20
1,240
Total
€’000
750,332
92
20
-
750,444
Total
€’000
698,337
170
20
-
698,527
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.
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 Emerald Everleigh Limited Partnership (the sole limited
partner and economic beneficiary of which is the Emerald Opportunity Investment Fund, a sub-fund of the
Emerald Fund ICAV) and PDL (the ultimate beneficiaries of which are Alan McIntosh, a Director, and his
spouse), Michael Stanley and Kevin Stanley (the Founders) to receive 20% of the Total Shareholder Return
(which is the increase in the market capitalisation of the Company, plus dividends, returns of capital or
distributions in the relevant periods) (the Founder Share Value), over the seven years following the Initial
Public Offering, 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,
returns of capital or distributions 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 Founder Share Value.
Subject to satisfying the Performance Condition there is no limitation on the amount to be converted into
Ordinary Shares (or otherwise issued as Ordinary Shares at nominal value to fulfil the value of 20% of Total
Shareholder Return achieved) or paid out in cash, other than the seven year limit.
Financial Statements 120
Notes to the Consolidated Financial Statements (continued)
18. Share Capital and Share Premium (continued)
The following restrictions apply to the transfer of Founder Shares before they are converted to Ordinary
Shares: any Founder Shareholder may at any time transfer some or all of the Founder Shares held by him
to a family member or (one or more) trustees to be held under a Family Trust and/or any other Founder
Shareholder. None of the Founder Shares transferred to the above mentioned parties may subsequently
be transferred save to a person or a party to which the shares in question could have been transferred as
defined above.
The following restrictions apply to the Ordinary Shares which are issued as a result of the Founder Shares
conversions:
During the period of 365 days from the date of conversion, none of the Founders will, without the prior
written consent of the Board, offer, sell or contract to sell, or otherwise dispose of such Ordinary Shares
(or any interest therein or in respect thereof) or enter into any transaction with the same economic effect
as any of the foregoing.
For a second period of 365 days commencing one year following conversion of Founder Shares into Ordinary
Shares, the Founders shall be entitled to offer, sell, or contract to sell, or otherwise dispose of 50% of such
Ordinary Shares (or any interest therein or in respect thereof) or enter into any transaction with the same
economic effect as any of the foregoing but the lock-up restriction described above will continue to apply
to the remaining 50% of such Ordinary Shares during that second period of 365 days.
The total number of Ordinary Shares impacted by these restrictions amounted to 46,196,261 at 31
December 2017.
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 2017
On 16 May 2017, the Company issued 33,712,634 Ordinary Shares at €1.54 each through a share placing,
raising gross proceeds of €51.9 million. Share issue costs of €1.5 million associated with the placing have
been charged directly in equity to retained earnings.
On 18 August 2017, the Company issued 38,685,292 Ordinary Shares (through the conversion of 38,685,292
Founder Shares) to the Founder Group of Michael Stanley, Alan McIntosh and Kevin Stanley.
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. Share issue costs of €8.1 million were charged directly in equity to retained earnings.
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.
Cairn Homes plc — Annual Report 2017 121
Notes to the Consolidated Financial Statements (continued)
19. Share-Based Payments
Founder Shares
A valuation exercise was undertaken in 2015 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 has been
or will be recognised in subsequent years.
The valuation exercise was completed using the “Monte Carlo” simulation methodology and the following
key assumptions:
• Share price volatility of 25% per annum, based on a basket of comparative UK listed entities;
• Risk free rate of 0.1% per annum;
• Dividend yield of 3% per annum, effective from 2018; and
• 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 2017, 38,685,292 Founder Shares were converted
to ordinary shares and a proportionate amount of the €29.1 million amount referred to above, totalling
€11.3 million, was transferred from the share-based payment reserve to retained earnings.
In the year ended 31 December 2016, 15,021,937 Founder Shares 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.
Long Term Incentive Plan
The Group operates an equity settled Long Term Incentive Plan (LTIP), which was approved at its May 2017
Annual General Meeting, under which conditional awards of 1,465,909 shares have been made to senior
executives. The shares will vest on satisfaction of service and performance conditions attaching to the LTIP.
Vesting of 80% of the awards will be based on Earnings per Share (EPS) performance and 20% will be based
on Total Shareholder Return (TSR) over the 3 years 2017, 2018 and 2019.
The EPS-related performance condition is a non-market performance condition and does not impact the
fair value of the EPS-based awards at the grant date, which is equivalent to the share price at grant date.
A valuation exercise was undertaken in 2017 to fair value the TSR-based LTIP awards. The valuation exercise
was completed using the “Monte Carlo” simulation methodology and the following key assumptions:
• Share price volatility of 30% per annum;
• Risk free rate of 0% per annum;
• Dividend yield of 3% per annum, effective from 2018;
• Share price at date of grant €1.60; and
• Share price at beginning of performance period €1.35.
Financial Statements 122
Notes to the Consolidated Financial Statements (continued)
19. Share-Based Payments (continued)
The Group recognised an expense of €0.640 million related to the LTIP in the statement of profit or loss and
other comprehensive income during the year ended 31 December 2017, with a corresponding increase in
the share-based payment reserve in equity.
Share Options
500,000 ordinary share options were issued in the period ended 31 December 2015, to a Director at that time.
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 2017 of €0.060 million (2016: €0.032 million) with
a corresponding increase in the share-based payment reserve in equity.
20. Loans and Borrowings
Current liabilities
Bank loans
Repayable within one year
Non-current liabilities
Bank loans
Repayable as follows:
Between one and two years
Between two and five years
Total borrowings
2017
€’000
18,361
2016
€’000
-
226,838
-
245,199
-
148,631
148,631
The Group has Term Loan and Revolving Credit Facilities with AIB and Ulster Bank of €200 million of which
€180 million is drawn. These facilities are repayable by 11 December 2019. During 2017, €30 million was
drawn down on the Revolving Credit Facility by the Group.
On 29 August 2017, the Group entered into a 12 month short term loan facility with AIB for €10 million.
The loan facilities above are secured by a floating charge over the assets of the Company and its wholly
owned subsidiaries except for Cairn Homes Montrose Limited and Balgriffin Cells P13-P15 DAC.
On 31 May 2017, a subsidiary entity, Balgriffin Cells P13-P15 DAC (see Note 28) entered into a Revolving
Credit Facility of €10.1 million with AIB for a term of 18 months, to finance a joint development with National
Asset Management Agency (“NAMA”). At 31 December 2017, €8.6 million was drawn down. This facility is
secured by a fixed and floating charge over the assets of Balgriffin Cells P13-P15 DAC.
Cairn Homes plc — Annual Report 2017 123
Notes to the Consolidated Financial Statements (continued)
20. Loans and Borrowings (continued)
On 5 July 2017, the Group entered into a two year €50 million term loan facility with Activate Capital. This
facility is secured by a fixed and floating charge over the assets of Cairn Homes Montrose Limited. The term
loan is repayable by 12 July 2019.
The amount presented in the financial statements is net of related unamortised arrangement fees and
transaction costs.
21.
Reconciliation of movement of Liabilities to Cash Flows arising from Financing
Activities
Balance at 1 January 2017
148,631
28
698,527
Liabilities
Equity
Loans and
borrowings
(Note 20)
€’000
Accrued
interest
€’000
Share capital/
premium
€’000
Non-controlling
interests
€’000
Total
€’000
847,186
50,402
96,937
1,268
(5,643)
-
-
-
1,268
-
-
96,937
-
-
-
-
-
(5,643)
50,402
-
-
-
96,937
(5,643)
50,402
1,268
142,964
(1,604)
1,235
-
-
-
7,231
-
-
-
-
-
1,515
-
-
-
-
(1,604)
1,235
7,231
1,515
-
(369)
245,199
-
7,231
1,616
-
1,515
750,444
527
527
1,795
527
8,904
999,054
Cash flows from financing
activities
Proceeds from issue of share
capital, net of issue costs paid
Proceeds from borrowings, net of
debt issue costs
Investment in subsidiary by non-
controlling interest
Interest paid
Total changes from financing
cash flows
Other changes
Borrowing costs offset against
loans
Amortisation of borrowing costs
Interest for the year
Share issue costs charged to
retained earnings
Profit attributable to non-
controlling interest
Total other changes
Balance at 31 December 2017
Financial Statements 124
Notes to the Consolidated Financial Statements (continued)
22. Deferred Taxation
Movement in deferred tax liability:
Opening balance
Net liability acquired in business combination (Note 29)
Charged/(credited) to profit or loss
As at year end
2017
€’000
5,490
-
121
5,611
2016
€’000
815
5,427
(752)
5,490
Deferred tax arises from temporary differences relating to tax losses (deferred tax assets) and land held for
development (deferred tax liabilities).
2017
Opening balance
Recognised in profit or loss
Closing balance
2016
Opening balance
Acquired in business combinations
– land held for development
– tax losses
Recognised in profit or loss
Closing balance
Deferred tax
assets
Deferred tax
liabilities
Net deferred tax
liability
€’000
2,813
(1,488)
1,325
€’000
(8,303)
1,367
(6,936)
€’000
(5,490)
(121)
(5,611)
Deferred tax
assets
Deferred tax
liabilities
Net deferred tax
liability
€’000
1,546
-
1,137
130
2,813
€’000
(2,361)
(6,564)
-
622
(8,303)
€’000
(815)
(6,564)
1,137
752
(5,490)
There are no unrecognised deferred tax assets at 31 December 2017 (2016: €nil).
23. Trade and Other Payables
Trade payables
Accruals
VAT liability
Other creditors
2017
€’000
8,193
14,202
7,854
1,387
31,636
2016
€’000
7,659
6,945
-
1,166
15,770
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.
Cairn Homes plc — Annual Report 2017 125
Notes to the Consolidated Financial Statements (continued)
24. 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.
25. Related Party Transactions
For the year ended 31 December 2017, the following related party transactions have taken place requiring
disclosure:
• The Directors decided not to exercise the option to acquire lands at Navan owned by Sonbrook Property
Moathill Limited (“Sonbrook”), a company controlled by Kevin Stanley, a Founder Shareholder and
employee of the Company. Sonbrook refunded costs incurred by the Company of €0.122 million.
• The remuneration of key management personnel (which comprise the Board of Directors of the Company)
was as follows:
Short-term employee benefits
Post-employment benefits (pension contributions – defined
contribution schemes)
Share-based payment expense – LTIP and share options
Total remuneration of key management personnel
2017
€’000
2,450
78
256
2,784
2016
€’000
2,259
68
32
2,359
In the prior year ended 31 December 2016, the following related party transaction had 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.
Financial Statements 126
Notes to the Consolidated Financial Statements (continued)
26. 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
Cairn Homes Holdings Limited
Principal activity
Holding company
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
management of loan assets
Cairn Homes Montrose Limited
Holding of property
Balgriffin Cells P13-P15 Designated Activity
Company
Development of property
Cairn Homes Property Holdco Limited
Holding company
Cairn Homes Property Management Limited
No activity in period
Cairn Homes Property Holding One Limited
No activity in period
Cairn Homes Property Holding Two Limited
No activity in period
Cairn Homes Property Holding Three Limited Holding of property
Cairn Homes Property Holding Four Limited
No activity in period
Cairn Homes Property Holding Five Limited
No activity in period
Cairn Homes Property Holding Six Limited
No activity in period
Cairn Homes Property Holding Seven Limited No activity in period
Cairn Homes Property Holding Eight Limited
No activity in period
Company’s holding
Direct
Indirect
100%
-
-
100%
100%
100%
100%
100%
100%
65%
-
-
-
-
-
-
-
-
-
-
-
100%
100%
-
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Cairn Homes plc — Annual Report 2017 127
Notes to the Consolidated Financial Statements (continued)
27. Earnings Per Share
The basic earnings per share for the year ended 31 December 2017 is based on the earnings attributable to
ordinary shareholders of €4.452 million and the weighted average number of ordinary shares outstanding
for the period.
Profit/(loss) for the year attributable to the owners of the
Company
Numerator for basic and diluted earnings/(loss) per share
2017
€’000
4,452
4,452
2016
€’000
(2,063)
(2,063)
Number of Shares
Number of Shares
Weighted average number of ordinary shares for year (basic)
Dilutive effect of Founder Shares and options
Denominator for diluted earnings/(loss) per share
724,734,096
31,665,322
756,399,418
632,830,319
-
632,830,319
Earnings/(loss) per share (cent)
– Basic
– Diluted
0.6
0.6
(0.3)
(0.3)
The diluted earnings per share calculation reflects an estimate of the number of ordinary shares to be issued
through conversion of Founder Shares in 2018. It assumed, as is required under IAS 33, that the test period
for the Founder Share conversion calculation is from 1 September 2017 to 31 December 2017, however the
actual test period for determining the Founder Share conversion in 2018 will be from 1 March 2018 to 30
June 2018. The impact of share options granted is also reflected in the calculation.
Additional ordinary shares may be issued under the Founder Share scheme in future periods up to and
including 2022 if the performance condition under the rules of the scheme is reached.
28. Non-Controlling Interest
The non-controlling interest at 31 December 2017 of €1.8 million relates to the 35% share of the net assets of
a subsidiary, Balgriffin Cells P13-P15 DAC, which is held by National Asset Management Agency (“NAMA”).
Cairn Homes plc holds 65% of the equity share capital in this subsidiary which is involved in the development
of residential property. The non-controlling interest in respect of Balgriffin Cells P13-P15 DAC is not
considered material to the Group.
Name
Balgriffin Cells P13-P15
Designated Activity
Company
Principal activities
Country of
incorporation
Ownership interest held by
non-controlling interest %
2017
2016
Development of
property
Ireland
35%
0%
(Not active in 2016)
Financial Statements 128
Notes to the Consolidated Financial Statements (continued)
29. Business Combination
There were no business combinations by the Group during 2017.
Year ended 31 December 2016
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. 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:
Inventories
Receivables
Deposit paid
Cash and cash equivalents
Current liabilities
Deferred tax liability
Total fair values of net assets acquired
Consideration satisfied by:
Cash paid (including €5 million deposit paid in 2015)
Consideration fair value
2016
€’000
94,324
1,050
1,600
818
(1,178)
(5,427)
91,187
91,187
91,187
The total fair value of assets acquired was €91.2 million, which was 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 paid 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 32). 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 was 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.
Transaction costs relating to the business combination of €1.4 million were charged to profit or loss in 2016
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 on a regular basis, these have been
classified as an exceptional item.
Cairn Homes plc — Annual Report 2017 129
Notes to the Consolidated Financial Statements (continued)
30. Financial Instruments and Risk Management
The Group has exposure to the following risks arising from financial instruments:
• credit risk;
• liquidity risk; and
• market risk.
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 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.
(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 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 cash and cash equivalents (including restricted cash).
Loan receivables, which totalled €16.0 million at 31 December 2016 were repaid in full in July 2017. As at
31 December 2017 there were no loan receivables.
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 2017, the Group’s deposits were held in one Irish financial institution with a
credit rating of A.
The maximum amount of credit exposure is therefore:
Loan receivables
Construction bonds and other receivables
Restricted cash – non-current
Cash and cash equivalents – current
2017
€’000
-
5,540
17,002
68,803
91,345
2016
€’000
16,000
10,127
27,000
45,645
98,772
Construction bonds and other receivables of €5.5 million at 31 December 2017 were all neither past due
nor impaired.
Financial Statements 130
Notes to the Consolidated Financial Statements (continued)
30. Financial Instruments and Risk Management (continued)
At 31 December 2017, the ageing of loan receivables was as follows:
Past due, in default and not impaired
The loan receivables were received in full in July 2017.
(c)
Liquidity risk
2017
€’000
-
-
2016
€’000
16,000
16,000
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
2017 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.
Financial liabilities due in less than one year
Trade payables and accruals
Borrowings
Financial liabilities due after more than one year
Borrowings
Funds available:
Cash and cash equivalents (excluding restricted cash)
Revolving credit facilities undrawn
2017
€’000
22,395
18,361
40,756
2016
€’000
14,604
-
14,604
226,838
226,838
148,631
148,631
68,803
21,500
90,303
45,645
50,000
95,645
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 forecasting by site for the period 2018-2020, reflecting trends experienced up to the date of
preparation; and
• future revenues for 2018-2020 based on management’s assessment of trends across principal development
sites.
Cairn Homes plc — Annual Report 2017 131
Notes to the Consolidated Financial Statements (continued)
30. Financial Instruments and Risk Management (continued)
The critical assumptions underlying the forecast 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 2017
Non-derivative
financial liabilities
Trade payables and
accruals
Loans and borrowings
31 December 2016
Non-derivative
financial liabilities
Trade payables and
accruals
Loans and borrowings
(d) Market risk
Carrying
Amount
€’000
Total
€’000
6 months
or less
€’000
6-12
months
€’000
1-2
years
€’000
2-5
years
€’000
Contractual cash flows
22,395
245,199
267,594
(22,395)
(266,349)
(288,744)
(22,395)
(6,249)
(28,644)
-
(22,960)
(22,960)
-
(237,140)
(237,140)
-
-
-
Carrying
Amount
€’000
Total
€’000
6 months
or less
€’000
6-12
months
€’000
1-2
years
€’000
2-5
years
€’000
Contractual cash flows
14,604
148,631
163,235
(14,604)
(164,867)
(179,471)
(14,604)
(2,529)
(17,133)
-
(2,571)
(2,571)
-
(5,100)
(5,100)
-
(154,667)
(154,667)
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.
Currency risk
(i)
The Group is not exposed to significant currency risk. The Group operates only in the Republic of Ireland.
Interest rate risk
(ii)
At 31 December 2017, the Group had Term Loan and Revolving Credit Facilities (“RCF”) with AIB and Ulster
Bank that had a principal drawn balance of €180 million (€150 million Term Loan and €30 million RCF),
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 these 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.
Financial Statements 132
Notes to the Consolidated Financial Statements (continued)
30. Financial Instruments and Risk Management (continued)
On 5 July 2017, the Group entered into a two year €50 million Term Loan facility with Activate Capital at
a variable interest rate based on one month Euribor (with a 0% floor), plus a margin of 6%. The Group has
not hedged its interest rate exposure on this Term Loan and retains an exposure to interest rate risk where
there are changes in the prevailing one month Euribor rate.
Cash flow sensitivity analysis for variable-rate instruments
A reasonably possible change of 100 basis points in Euribor benchmark 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 loans that are exposed to
movements in Euribor.
31 December 2017
Variable-rate instruments – borrowings
Cash flow sensitivity (net)
31 December 2016
Variable-rate instruments – borrowings
Cash flow sensitivity (net)
Profit or loss
100 bp
increase
€’000
100 bp
decrease
€’000
Equity
100 bp
increase
€’000
100 bp
decrease
€’000
(707)
(707)
-
-
(707)
(707)
-
-
Profit or loss
100 bp
increase
€’000
100 bp
decrease
€’000
Equity
100 bp
increase
€’000
(700)
(700)
700
700
(700)
(700)
100 bp
decrease
€’000
700
700
The Group is also exposed to interest rate risk on its cash and cash equivalents. These balances attract low
interest rates and therefore a relative increase or decrease in their interest rates would not have a material
effect on profit or loss.
(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 future development of the business. The Group
takes a conservative approach to bank financing and the net debt to total asset value ratio was 15.9% at
31 December 2017 (2016: 9.1%). Net debt is defined as loans and borrowings (Note 20) less cash and cash
equivalents and restricted cash (Note 17).
(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 which 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.
Cairn Homes plc — Annual Report 2017 133
Notes to the Consolidated Financial Statements (continued)
30. Financial Instruments and Risk Management (continued)
The following table shows the Group’s financial assets and liabilities and the methods used to calculate
fair value.
Asset/ Liability
Carrying value
Level Method
Assumptions
Borrowings
Amortised cost
2 Discounted
Cash Flow
Valuation based on future repayment and
interest cashflows discounted at a year-
end market interest rate.
Loan assets –
as at 31 Dec 2016
Amortised cost
2 Discounted
Cash Flow
Valuation based on discounted cash flows
from expected settlement proceeds.
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 other financial assets and
liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
2017
Carrying Value
€’000
Fair Value
Level 1
€’000
Level 2
€’000
Level 3
€’000
Financial assets measured at amortised cost
Construction bonds and other receivables
Cash and cash equivalents – current
Restricted cash – non-current
5,540
68,803
17,002
91,345
Financial liabilities measured at amortised cost
Trade payables and accruals
Borrowings
22,395
245,199
267,594
2016
Carrying Value
€’000
Level 1
€’000
Financial assets measured at amortised cost
Loan assets
Construction bonds and other receivables
Cash and cash equivalents – current
Restricted cash – non-current
16,000
10,127
45,645
27,000
98,772
Financial liabilities measured at amortised cost
Trade payables and accruals
Borrowings
14,604
148,631
163,235
Level 3
€’000
245,199
Fair Value
Level 2
€’000
16,000
148,631
Financial Statements 134
Notes to the Consolidated Financial Statements (continued)
31. Operating Leases
Operating lease commitments
The Group’s operating lease commitments relate to the lease of its central head office property.
At the period end, the Group had outstanding commitments under this non-cancellable operating lease
which fall due as follows:
Less than one year
Later than one and no later than five years
Later than five years
2017
€’000
389
1,569
-
1,958
2016
€’000
389
1,558
400
2,347
32. Other Commitments and Contingent Liabilities
Pursuant to the provisions of Section 357, Companies Act 2014, the Company has guaranteed the liabilities
and commitments of its subsidiary undertakings (excluding Balgriffin Cells P13-P15 DAC) for their financial
periods ending 31 December 2017 and as a result such subsidiary undertakings have been exempted from
the filing provisions of Companies Act 2014. Details of the Group’s subsidiaries are included in Note 26 and
all subsidiaries listed there, except Balgriffin Cells P13-P15 DAC, are covered by the Section 357 exemption.
As at 31 December 2017 the Group had a conditional contract to acquire a directly adjoining lot to its
Cherrywood site at a cost of €9.2 million. Subsequent to the year end the Group completed this acquisition.
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 in 2016) (Note 29), is successfully rezoned as residential by
25 February 2019.
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.
33. Profit or 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 loss after tax for the year ended 31 December 2017, determined in accordance
with IFRS as adopted by the EU, is €2.3 million (2016: profit of €2.8 million).
Cairn Homes plc — Annual Report 2017 135
Notes to the Consolidated Financial Statements (continued)
34. Events After the Reporting Period
There have been no events subsequent to 31 December 2017 which would require a disclosure in, or
adjustment to, these financial statements.
35. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 3 April 2018.
Financial Statements 136
Cairn Homes plc — Annual Report 2017
Company
Financial
Statements
For the year ended 31 December 2017
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
137
138
140
141
137
Company Statement of Financial Position
At 31 December 2017
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Deferred tax asset
Current assets
Amounts due from subsidiary undertakings
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
Total equity and liabilities
On behalf of the Board:
John Reynolds
Chairman
Michael Stanley
Director
Note
2017
€’000
2016
€’000
2
3
4
5
6
7
7
8
9
581
821
29,151
130
30,683
674,051
648
20,113
694,812
515
485
26,657
118
27,775
610,106
1,318
37,075
648,449
725,495
676,274
828
749,616
14,222
(42,218)
722,448
794
697,733
24,779
(49,674)
673,632
3,047
3,047
2,642
2,642
725,495
676,274
Financial Statements 138
Company Statement of Changes in Equity
For the year ended 31 December 2017
Share Capital
Ordinary
shares
€’000
Deferred
shares
€’000
Founder
shares
€’000
Share
premium
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Total
€’000
As at 1 January 2017
689
20
85
697,733
24,779
(49,674)
673,632
Total comprehensive loss
for the year
Loss for the year
Transactions with owners
of the Company
Issue of ordinary shares for
cash
Share issue costs
Conversion of founder shares
to ordinary shares
Equity-settled share-based
payments
-
-
34
-
39
-
73
-
-
-
-
-
-
-
-
-
-
-
(39)
-
(39)
-
-
51,883
-
-
-
-
-
(2,286)
(2,286)
(2,286)
(2,286)
-
(1,515)
51,917
(1,515)
-
(11,257)
11,257
-
-
51,883
700
(10,557)
-
9,742
700
51,102
As at 31 December 2017
762
20
46
749,616
14,222
(42,218)
722,448
Cairn Homes plc — Annual Report 2017 139
Company Statement of Changes in Equity
For the year ended 31 December 2016
Share Capital
Ordinary
shares
€’000
Deferred
shares
€’000
Founder
shares
€’000
Share
premium
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Total
€’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
Transactions with owners
of the Company
Issue of ordinary shares for
cash
Share issue costs
Conversion of founder shares
to ordinary shares
Equity-settled share-based
payments
As at 31 December 2016
-
-
157
-
15
-
172
689
-
-
-
-
-
-
-
-
-
-
-
(15)
-
(15)
-
-
176,343
-
-
-
-
-
2,775
2,775
2,775
2,775
-
(8,088)
176,500
(8,088)
-
(4,371)
4,371
-
-
176,343
32
(4,339)
-
(3,717)
32
168,444
20
85
697,733
24,779
(49,674)
673,632
Financial Statements 140
Company Statement of Cash Flows
For the year ended 31 December 2017
Cash flows from operating activities
(Loss)/profit for the year
(2,286)
2,775
2017
€’000
2016
€’000
Adjustments for:
Share-based payments expense
Finance income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Taxation
Decrease in inventories
Increase in amounts due from group undertakings
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
614
(16)
141
81
(12)
(1,478)
-
(63,945)
670
405
32
(89)
95
32
(118)
2,727
72,899
(124,320)
(328)
829
Net cash used in operating activities
(64,348)
(48,193)
Cash flows from investing activities
Acquisition of Argentum
Investment in shares in subsidiary undertakings
Purchases of property, plant and equipment
Purchases of intangible assets
Interest received
-
(2,408)
(207)
(417)
16
(86,074)
-
(535)
(434)
89
Net cash used in investing activities
(3,016)
(86,954)
Cash flows from financing activities
Proceeds from issue of share capital, net of issue costs paid
Net cash from financing activities
50,402
167,716
50,402
167,716
Net (decrease)/increase in cash and cash equivalents in the year
(16,962)
32,569
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
37,075
20,113
4,506
37,075
Cairn Homes plc — Annual Report 2017 141
Notes to the Company Financial Statements
For the year ended 31 December 2017
1.
Significant Accounting Policies
2. Property, Plant and Equipment
3.
4.
Intangible Assets
Investments in Subsidiaries
5. Amounts due from Subsidiary Undertakings
6. Trade and Other Receivables
7.
8.
Share Capital and Share Premium
Share-Based Payments
9. Trade and Other Payables
10. Financial Instruments
11. Related Party Transactions
12. Approval of Financial Statements
142
143
143
144
144
144
144
144
145
145
145
145
Financial Statements 142
Notes to the Company Financial Statements (continued)
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 33
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 loss after tax for
the year ended 31 December 2017 is €2.3 million (2016: profit of €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)
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.
Share-based payments in respect of employees in subsidiaries are accounted for as an increase in the cost
of investments in subsidiaries.
(b)
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 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 — Annual Report 2017 143
Notes to the Company Financial Statements (continued)
2.
Property, Plant and Equipment
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Depreciation
At 31 December 2017
Net book value
At 31 December 2017
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Depreciation
At 31 December 2016
Net book value
At 31 December 2016
3.
Intangible Assets
Leasehold
Improvements
€’000
Computers &
Equipment
€’000
460
3
463
(66)
(66)
(132)
150
204
354
(29)
(75)
(104)
331
250
Leasehold
Improvements
€’000
Computers &
Equipment
€’000
67
393
460
-
(66)
(66)
394
8
142
150
-
(29)
(29)
121
2017
Total
€’000
610
207
817
(95)
(141)
(236)
581
2016
Total
€’000
75
535
610
-
(95)
(95)
515
For further information on Intangible Assets refer to Note 13 of the consolidated financial statements.
Financial Statements 144
Notes to the Company Financial Statements (continued)
4.
Investments in Subsidiaries
At the beginning of the year
Additions during the year
Transfer to group undertaking
Cost of share-based payments in respect of subsidiaries
At the end of the year
2017
€’000
26,657
2,408
-
86
29,151
2016
€’000
26,657
91,187
(91,187)
-
26,657
Details of subsidiary undertakings are given in Note 26 of the consolidated financial statements.
Additions during 2017 relates to the investment in 65% of the equity share capital in Balgriffin Cells P13-P15
DAC, further details of which are given in Note 28 of the consolidated financial statements.
Additions during 2016 related to the acquisition of 100% of the share capital of Argentum Property Holdco
Limited (‘Argentum’) (see Note 29 of the consolidated financial statements). During 2016, 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.
Trade and Other Receivables
VAT recoverable
Other receivables
2017
€’000
255
393
648
2016
€’000
773
545
1,318
7.
Share Capital and Share Premium
For further information on Share Capital and Share Premium refer to Note 18 of the consolidated financial
statements.
8.
Share-Based Payments
For further information on Share-Based Payments refer to Note 19 of the consolidated financial statements.
Cairn Homes plc — Annual Report 2017 145
Notes to the Company Financial Statements (continued)
9.
Trade and Other Payables
Trade payables
Accruals
Other creditors
10. Financial Instruments
2017
€’000
376
2,671
-
3,047
2016
€’000
428
1,250
964
2,642
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, accruals and other creditors are
a reasonable approximation of their fair value. Relevant disclosures on Group financial instruments and
risk management are given in Note 30 of the consolidated financial statements.
11. 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 26 of the consolidated financial statements).
Key management compensation is set out in Note 25 of the consolidated financial statements.
For the year ended 31 December 2017 the following related party transaction had taken place requiring
disclosure:
• The Directors decided not to exercise the option to acquire lands at Navan owned by Sonbrook Property
Moathill Limited (“Sonbrook”), a company controlled by Kevin Stanley, a Founder Shareholder and
employee of the Company. Sonbrook refunded costs incurred by the Company of €0.122 million.
For the year ended 31 December 2016 the following related party transaction had 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.
12. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 3 April 2018.
Financial Statements 146
Additional Information
Company Information
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
Ulster Bank Ireland DAC
33 College Green
Dublin 2
Directors
Michael Stanley (Chief Executive Officer)
Alan McIntosh (Executive, British)
Tim Kenny (Group Finance Director)
John Reynolds (Non-Executive Chairman)
Andrew Bernhardt (Non-Executive, British)
Giles Davies (Non-Executive, British)
Gary Britton (Non-Executive)
Secretary and Registered Office
Susan O’Connor
Cairn Homes plc
7 Grand Canal
Lower Grand Canal Street
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. Stephen’s Green
Dublin 2
Website
www.cairnhomes.com
Cairn Homes plc — Annual Report 2017 147
Additional Information
Financial Calendar
Half-Year Results for 2017
5 September 2017
Final Results for 2017
Annual General Meeting
6 March 2018
16 May 2018
2018 Half-Year Results
4 September 2018
Location of 2018 Annual General Meeting
The Annual General Meeting of the Company will be held on Wednesday 16 May 2018 at 11am in
The Marker Hotel, Grand Canal Square, Docklands, Dublin 2, D02 CK38.
148
Notes
Cairn Homes plc — Annual Report 2017 In This ReportKey Highlights 02Our Business at a Glance 07Chairman’s Statement 18Chief Executive Offi cer’s Statement 22Cairn Management Team 28Strategy 30Business Model 32Risk Management 38Market Overview 44Group Finance Director’s Review 48Corporate Responsibility 52Board of Directors 56Corporate Governance Report 58Audit and Risk Committee Report 65Nomination Committee Report 69Remuneration Committee Report 71Directors’ Report 85Company Information 146Financial Calendar 147Location of 2018 Annual General Meeting 147Notes 148Statement of Directors’ Responsibilities in respectof the Annual Report and the Financial Statements 90Independent Auditor’s Report 91Consolidated Statement of Profi t or Lossand Other Comprehensive Income 96Consolidated Statement of Financial Position 97Consolidated Statement of Changes in Equity 98Consolidated Statement of Cash Flows 100Notes to the Consolidated Financial Statements 101Company Statement of Financial Position 137Company Statement of Changes in Equity 138Company Statement of Cash Flows 140Notes to the Company Financial Statements 14101–54Strategic Report89–145Financial Statements55–88Corporate Governance146–148Additional Informationsourcedesign.ie Designed forlivingBuilt for lifeCairn Homes plcAnnual Report 2017Cairn Homes plc • Annual Report 20177 Grand CanalGrand Canal Street LowerDublin 2P: +353 1 696 4600E: info@cairnhomes.comwww.cairnhomes.com