Cairn Homes plc
Annual Report 2018
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STRATEGIC REPORT
01 - 65
01
Introduction
02 Highlights
04 Chairman’s Statement
08 Chief Executive Officer’s Review
12 What We Are
20 At a Glance
22 Our Business Model
24 Market Overview
32 Our Strategy
34 Strategy in Action
40 Operating Review
50 Risk Report
54 Group Finance Director’s Review
56 Corporate Social Responsibility
62 Site Management Team
64 Management Team
CORPORATE GOVERNANCE
66 - 107
66 Board of Directors
68 Corporate Governance Report
78 Audit & Risk Committee Report
82 Nomination Committee Report
86 Remuneration Committee Report
105 Directors’ Report
FINANCIAL STATEMENTS
108 - 155
109 Statement of Directors’ Responsibilities
in respect of the Annual Report and the
Financial Statements
110
114
Independent Auditor’s Report
Consolidated Statement of Profit or
Loss and Other Comprehensive Income
115
Consolidated Statement
of Financial Position
116
Consolidated Statement of
Changes in Equity
118
119
Consolidated Statement of Cash Flows
Notes to the Consolidated
Financial Statements
148
Company Statement of
Financial Position
149
Company Statement of Changes
in Equity
151
152
Company Statement of Cash Flows
Notes to the Company Financial
Statements
ADDITIONAL INFORMATION
156
156
Company Information
INTRODUCTION
WE BUILD PLACES
& HOMES WHERE
PEOPLE LOVE
TO LIVE.
“Cairn is committed to building high quality,
competitively-priced, sustainable new homes
in great locations. We operate a defined and
established business model which brings
together the best town planners, architects,
subcontractors and designers in collaboration
with our own experienced team. At Cairn,
the homeowner is at the very centre of the
design process and we strive to provide an
unparalleled customer service throughout each
stage of the home-buying journey. A new Cairn
home is thoughtfully designed and built to
last with a focus on creating shared spaces and
environments where communities prosper.”
Michael Stanley, Co-Founder and
Chief Executive Officer
Read more about What We Are on pages 12 to 19
and in Strategy in Action on pages 34 to 39
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01
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL HIGHLIGHTS
A YEAR OF
GROWTH & PROGRESS
REVENUE
€337.0m
GROSS PROFIT/GROSS MARGIN
€69.1m/20.5%
OPERATING PROFIT
€53.2m
‘18
‘17
‘16
€149.5m
€40.9m
€337.0m
‘18
‘17
‘16
€69.1m/20.5%
€27.1m/18.2%
€7.1m/17.3%
‘18
‘17
‘16
€14.5m
€2.3m
€53.2m
INVENTORIES
€933.4m
ADJUSTED EPS*
4.4 cent
OPERATING CASH FLOW
€40.1m
‘18
‘17
‘16
€933.4m
€911.5m
€727.2m
‘18
‘17
‘16
0.7 cent
(0.1 cent)
4.4 cent
‘18
‘17
‘16
€40.1m
(€128.6m)
(€121.2m)
NET DEBT
€134.4m
‘18
‘17
‘16
€134.4m
€159.4m
€76.0m
02
* see note 26 to the consolidated financial statements.
See more in Group Finance
Director’s Review on pages 54
and 55
OPERATIONAL HIGHLIGHTS
Quality
& Location
Driving Sales
Demand
Enhancing
Inherent
Land Value
• Selling on 9 sites – 5 sales
launches planned
• 2,106 units – granted
planning in 2018
• Strong sales rates – 2.8 units per
• Total planning gains
active site per week
– 3,000 units
• House price inflation c. 4.5%
• 15,100 unit land bank
Mature
Business
• Active on 13 sites
– 5,000 new homes
• 5 upcoming site
commencements, including 4
large-scale multifamily PRS sites
• Talented and experienced
homebuilding team
Operational
Efficiencies
Land
Acquisition
Strategy
• Procurement advantage
• No large sites acquired
through scale
• Established subcontractor base
• Off-site manufacturing
• 2.75% build cost inflation
• Focused on more
strategic opportunities
Cash
Generation
• Significant free cash flow
and expected €550 million
share premium conversion
underpinning capital returns
• First dividend to be announced
in September 2019
• Land bank to normalise
to c. 6-7 year supply
See more in Operating Review
on pages 40 to 49
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03
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
“I am pleased to report that 2018 was another
year of strong growth and development
in your Company with substantial increases
in construction activity, revenue and
profitability achieved.”
JOHN REYNOLDS
CHAIRMAN
Cairn is now generating significant
free cash flow which supports
the development of the Company
and the implementation of a
progressive capital return policy
which will reward our shareholders
for their support and investment
in our business.
Strategy
The Company’s performance in 2018
illustrates the positioning and growing
maturity of our business. We believe
significant progress was made during
the year by management in developing
and implementing the Company’s
long-term strategy as agreed by the Board,
with a number of key strategic decisions
taken, including:
• The forward sale of our premium
120 unit apartment development at
Six Hanover Quay for €101 million
(incl. VAT) as a multifamily private
rented sector (“PRS”) opportunity.
Significant opportunities exist in this
sector into 2019 and beyond; and
• A debt refinancing of our existing
€200 million term loan and revolving
credit facility into a new attractively
priced €277.5 million term loan
and revolving credit facility and
a €72.5 million private placement
of loan notes, all of which provides
additional financial flexibility
in supporting the growth of
our business.
Our People
The Board recognises its role in supporting
and overseeing the evolution of our
culture. Our people are the critical
component in the success which the
Company has delivered to date. The
Company is committed to the ongoing
development of a strong culture through
our values and by extension how we work
with each other on a daily basis. This
extends to how we collaborate with our
established subcontractor base and other
sector professionals in delivering our high
quality, competitively priced new homes.
Currently, there are over 2,500 people
employed across our active sites and our
business continues to make a significant
contribution to the broader Irish
economy. Training the next generation
of talented workers is key to
underpinning the sustainability of our
industry. We place a relentless focus on
developing our employees and providing
further opportunities to subcontractors
to grow their businesses. We focus on the
development and succession of our talent
through continuous professional
development, structured development
planning and our reward strategy.
2018 was another year of significant
growth in revenues and profitability
for our business and these excellent
results could not have been delivered
without the dedication, expertise and
capability of our management team, ably
led by Michael, 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 2018.
OUR VISION
OUR MISSION
Be the most trusted, respected and
safest homebuilder in Ireland.
Respect and trust are hard won and easily lost, so we
do everything in our power to earn both by consistently
living our values and treating our customers, staff and
partners with respect.
We value everyone who is helping us to achieve our
mission and consider their well-being to be of paramount
importance. Health and safety is our number one priority
and this is reflected in our culture and practices.
We are confident that our integrity and hard work
are building a Company that we can all be proud
to be a part of now and in the future.
04
Building in great locations
to create places and homes
where people love to live.
Our mission is what guides us throughout the homebuilding
process; from acquisitions to after-sales we keep the
customer in mind and work hard to create places where
they will enjoy a great quality of life.
It’s this drive that allows us to consistently build great
homes, attractive and functional environments and vibrant
communities that people are proud to be a part of and
raise their families in. As we mature as a Company, we take
great satisfaction from seeing our efforts translate into
homes and neighbourhoods where people love to live.
CHAIRMAN’S STATEMENT
OUR VALUES
Agile &
Innovative
We are creative and
open to new ideas, ready
to implement change
if required. We are
prepared and able to
adapt to changing
market conditions and
customer requirements.
Honest &
Straightforward
Maintaining an open and
transparent dialogue.
Saying what needs to be
said and not just what
people want to hear.
Laying down the truth,
warts and all, means that
we can get to a better
solution faster.
Collaborative
Collaboration is at the
core of homebuilding.
Projects involve hundreds
of people from varied
disciplines working
together to achieve a
clear common goal – to
build great homes.
Commercially
Minded
Committed
& Engaged
Being sector aware.
Knowing the customer.
Seeking value and making
savings. As well as building
great and competitively
priced new homes we
are building sustainable
long-term value for
our shareholders.
We are all in. We’ll
be there to deliver
on stakeholder needs
throughout their journey
with us, sharing our
knowledge, our insights
and our expertise
to guide, support
and reassure.
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05
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
“Each new Board member brings
a unique and highly relevant background,
diversifying our existing Board
composition and adding significant
value to Board discussions as our
business continues to grow.”
In an increasingly competitive market,
we continue to attract and retain the best
talent to ensure that we have the best
team and trusted partners in place to
effectively deliver on our long-term
strategy. Our ability to do so is testament
to the strong and positive culture we
have developed.
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, subcontractors, customers
and the general public is our number one
priority. 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 our health and safety
policies are implemented. Health and
safety is a standing agenda item at
all Board and Audit & Risk Committee
meetings and the Company retains an
independent external auditor to
undertake a monthly audit of health
and safety practices and management
across all active sites.
throughout the Company through the
Remuneration Committee. I, as Chairman
of the Board, alongside Giles Davies,
our Remuneration Committee Chairman,
also engaged directly with many of our
shareholders to ensure they remain
appraised of our progress as a Board as
well as garnering their opinion on future
decisions to be taken relating to strategy,
corporate governance and executive
remuneration. This journey has continued
into 2019 and will continue and evolve
in the years ahead as we continue to
operate our business in an open and
transparent manner.
Board Evaluation
An externally facilitated Board evaluation
was conducted by the Institute of
Directors in Ireland following a thorough
tender process, which I am delighted
to report found that the Board runs
smoothly and effectively, with robust,
informed and inclusive debate taking
place on key decisions. The process
was comprehensive and gave positive,
constructive and progressive
recommendations which we will
apply throughout 2019 and beyond.
You are invited to read more about
this process and the recommendations
made on pages 71 and 72 of this report.
Governance
Overview
As a collaborative Board, we try to ensure
our time is spent productively, reviewing
the challenges and opportunities of our
business and setting a clear and agile
strategic focus whilst ensuring we have
the resources and capability to deliver
on our strategic ambitions.
During the year, the Board completed an
externally facilitated Board evaluation,
embarked upon a process to appoint three
new Non-Executive Directors through the
Nomination Committee, reviewed
corporate social responsibility practices
across the Company and reviewed
remuneration frameworks utilised
Board Composition
The Nomination Committee had a busy
2018 engaging Korn Ferry, an external
recruitment consultant, to assist in
its search for new independent Non-
Executive Directors to complement the
existing Board member skillsets. I was
pleased to be able to welcome two new
members to the Board in 2019; Jayne
McGivern and David O’Beirne and I look
forward to welcoming Linda Hickey to the
Board on 12 April 2019. Each new Board
member brings a unique and highly
relevant background, diversifying our
existing Board composition and adding
significant value to Board discussions
as our business continues to grow. In
2019, we will review Board Committee
composition to ensure we diversify and
refresh their membership as we continue
on our impressive growth trajectory.
Further details of this process and its
outcome are set out in the Nomination
Committee Report on page 83.
Remuneration
2018 has been an equally busy year for
the Remuneration Committee, reviewing
executive compensation, goals and
bonus frameworks, long-term incentive
arrangements and exploring additional
avenues to enable the Company to
reward employees at all levels of the
organisation in a fair and measured
way. This process is ongoing and I look
forward to seeing these frameworks
evolve as the Company continues to
grow. Additional information on existing
remuneration frameworks and the
remuneration policy are set out in the
Remuneration Committee Report on
pages 86 to 104.
2018 UK Corporate Governance Code
During 2018, the Financial Reporting
Council published a revised UK Corporate
Governance Code (the “Code”), which
includes a number of changes to the
current governance regime for UK and
Irish companies. Following the publication
of the latest iteration of the Code in July
2018, the Board was appraised of the key
alterations to the principles of the Code.
Certain of these key changes are being
made in areas where the Company
has already made significant progress,
including embedding our culture,
strengthening engagement with our
key stakeholders and putting in place
robust channels to hear the views of
the workforce. With support from our
Committees, we will continue to evolve
our governance framework to ensure
that we remain compliant with the Code
and meet best practice requirements.
06
Returns To Shareholders
The Company’s intention to implement a
progressive capital return policy is aligned
with the commitment given to shareholders
that a dynamic capital management policy
would be pursued at the earliest opportunity.
The Board provided further clarity on its
intention with regard to capital returns at
the Extraordinary General Meeting held
on 26 February 2019 when shareholders
approved a capital reorganisation resolution
to reduce the Company’s share premium
account by €550 million. Subject to
High Court approval of the capital
reorganisation, the reserves resulting
from this cancellation will be treated
as realised profits.
The significant progress which our business
has achieved will enable the Board to
announce a first interim ordinary dividend of
2.5 cent per share in September 2019 and our
recent actions, as outlined above, added to
the significant free cash flow which is expected
to be delivered by 2021 and beyond, supports
and signals the likelihood of future capital
returns while allowing the Company to
continue its successful development.
Outlook
As I look to 2019 and beyond, I am
confident that the management team,
in conjunction with the Board, can continue
to effectively implement and deliver on
our strategic priorities. In less than four
years since our IPO, we have created
a homebuilder of scale, building on the
best sites in the best locations, and have
developed a brand synonymous with high
quality, competitively priced new homes
across the housing spectrum, from starter
homes to premium homes and apartments.
The Board is very positive about your
Company’s overall prospects and looks
to 2019 as a year of further progress.
John Reynolds
Chairman
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Co-Founder Alan McIntosh and Giles Davies
STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
CHIEF EXECUTIVE OFFICER’S REVIEW
08
“ I am delighted to be reporting strong results for
2018 across all of our key metrics and importantly
to announce our intention to propose an interim
ordinary dividend of 2.5 cent per share next
September, a very proud and significant milestone
for everybody associated with Cairn less than
four years since our IPO.”
MICHAEL STANLEY
CO-FOUNDER & CHIEF EXECUTIVE OFFICER
We are Ireland’s most active
homebuilder and the sites we are
currently building on around the
Greater Dublin Area (“GDA”) will
deliver 5,000 new homes. Our
operational capability across our
exceptional land bank, combined with
the pent-up demand from homebuyers
and institutional investors for houses
and apartments will drive revenues,
cash generation and profitability in
2019 and beyond. This momentum
will enable us to return cash to
shareholders by way of regular
dividends and potentially through
other capital return mechanics.
Cairn adopted a balanced portfolio
approach in assembling our land bank, with
a strategic decision taken in 2016 to expose
more of our shareholders’ capital to well
located, high density apartment sites in and
close to Dublin City Centre. This followed
the acquisition of the majority of our
suburban and commuter belt housing sites
in 2015 and early 2016. The timing and
manner in which the Company acquired
our land bank, the location of our sites,
our low land costs and the efficiency of
our construction operations ensure that
we deliver new homes across the price
spectrum – from our c. 8,000 starter home
units on large, multi-phase, multi-year sites
where our average historic site cost of
€26,000 per unit enables us to continue
to sell these units to mortgage backed first
time buyers at prices starting from €275,000
(including VAT) to competitively priced
premium homes and apartments.
The growth and popularity of multifamily
PRS as an asset class and the substantial
quantum of international institutional capital
seeking exposure to this sector provides
the Company with options and significant
opportunities across each of our sites over
the coming years. Cairn estimates that as
many as c. 2,500 – 3,000 units from our
c. 4,400 apartment units could satisfy
more than €1 billion of the capital seeking
these multifamily PRS opportunities.
Our strategy is to integrate multifamily
PRS into our apartment delivery pipeline
in a measured and balanced manner to
provide us with the flexibility and option
to accelerate multifamily PRS delivery plans
so as to maximise shareholder returns.
Following on from the successful forward
sale of 120 apartments at Six Hanover Quay
(Dublin 2) for €101 million (including VAT),
Cairn will commence four multifamily PRS
schemes which we will potentially bring to
the market as forward sales opportunities,
including 280 apartment units in Citywest
(Dublin 24), which launched in March 2019.
Our business turned cash flow positive in
H2 2018, and we are now monetising our
land bank. We will implement a progressive
capital returns policy in 2019 and also retain
the operational flexibility, working capital and
liquidity to continue to take advantage of the
favourable Irish residential market conditions.
Our vision is to be the most trusted,
respected and safest homebuilder in
Ireland and our strategy is to capitalise on
the recovery of the Irish residential property
market by building in great locations and
creating places and high quality
competitively priced homes where people
love to live. 2018 was another year of
excellent progress in executing this strategy.
Construction Activities
2018 was a year of significant growth in
the breadth of the Company’s construction
activities and we are today active on
13 sites which will deliver 5,000 residential
units. Cairn is supporting over 2,500 jobs
across our active sites, including direct
employees, subcontractors and other sector
professionals. The Company commenced
construction on three new housing sites at
Gandon Park (Lucan), Oak Park (Naas) and
Mariavilla (Maynooth) during 2018 which
will deliver nearly 1,000 new homes to
the market; five commencements are
anticipated during 2019 across our housing
and apartment sites which will deliver
c. 2,200 new homes, including the recently
commenced Citywest (Dublin 24) site.
In addition in 2018, the construction of
new phases commenced at our Parkside
(Malahide Road), Glenheron (Greystones),
Shackleton Park (Lucan), Churchfields
(Ashbourne) and Elsmore (Naas) housing
sites. Phase 1 of our award winning
Marianella (Rathgar) apartment scheme is
complete, while construction of both Six
Hanover Quay (Dublin 2) and Donnybrook
Gardens (Dublin 4) is progressing well.
Construction of our first investment venture
development with NAMA at Parkside
(Malahide Road) completed during 2018,
and Cairn recently announced our second
investment venture development with
NAMA to build in excess of 550 new homes
on a 14.5 acre site adjoining our successful
Parkside development.
Cairn builds on large scale, multi-phase,
multi-year housing sites which allows us to
respond quickly to increased demand by
accelerating construction, while effectively
managing build cost. The Company is a
developer contractor. Our directly employed
site management teams, supported by the
central team, manage and control a strong
supply chain and a well-established, loyal
subcontractor base. The Company has a
current committed order book of €250
million on active sites (orders placed and
prices fixed on labour and materials) and our
top 15 subcontractors account for 60% of all
procurement since IPO, working across an
average of five developments each. Cairn’s
senior management have decades-long
business relationships with most of our
key subcontractors through our previous
homebuilding companies. The Company
is not experiencing any challenges with
the availability of subcontractors or building
materials. This is reflective of our business
model, how closely we partner with our
subcontractors and the scale and pipeline
of work we provide them with. The average
contract value awarded to Cairn’s top 15
subcontractors is €18 million. The majority
of the Company’s subcontractors work
across multiple sites and the longer duration
of contracts allows them to employ skilled,
full-time tradesmen. Cairn has fixed price
contracts in place across all of our active
construction sites – 81% of our 2019 and
71% of our 2020 construction costs on these
active sites are fixed.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED
Subcontractors tender on a “supply and fit”
basis and Cairn proactively manages cost
inflation through direct procurement
strategies, initiatives and fixed term
framework agreements. Our experience of
build cost inflation in the last 12 months is
2.75%. The efficiency of Cairn’s construction
activities, and importantly, tangible evidence
of tightly managed costs, can be seen in the
gross margin progression as volumes have
increased year-on-year.
Sales Activities
Cairn delivered 804 closed sales in 2018
across nine developments at an average
selling price (“ASP”), excluding VAT, of
€366,000 comprising 612 houses at an ASP
of €323,000 and 192 apartments at an ASP
of €505,000 (2017: 418 closed sales at an
ASP of €315,000 comprising 373 houses at
an ASP of €286,000 and 45 apartments at
an ASP of €552,000). Cairn sold our first
duplex housing units in 2018 and delivered
73 Part V homes across our various sites
to local authorities, including 68 units in
H2 2018 at an ASP of €207,000. First time
buyer starter homes remain our core product
offering and represented over 60% of our
housing sales in 2018. The ASP in 2018
across our three-bedroom starter homes
was €286,000 (2017: €278,000), an
important number for our business which
demonstrates our ability to build and sell
competitively priced starter homes at price
points where our purchasers can secure
mortgages off single or joint earnings of
c. €80,000. House price inflation averaged
4.5% across our active sites during 2018.
Cairn’s 2019 year to date closed sales and
current forward sales pipeline is strong, with
a sales value of €201.4 million (471 units
at an ASP of €428,000) as at 6 March 2019,
the day prior to our 2018 preliminary results
announcement, which strongly underpins
2019 completions. The forward sales
pipeline will be enhanced by Spring 2019
sales launches – sales suites reopened on
seven of our active sites during Q1 2019,
all of which are in excellent locations with
proven demand. We also held our first sales
launch of new homes at Mariavilla
(Maynooth) at the end of February 2019
with additional initial launches scheduled
at Gandon Park (Lucan), Oak Park (Naas)
and Donnybrook Gardens (Dublin 4) during
Q2 2019.
We also recently brought 280 apartment
units in Citywest (Dublin 24) to the market as
a multifamily PRS opportunity, a further sign
of the depth and breadth of our potential
buyer pool.
Land and Planning
Cairn’s c. 15,100 unit land bank comprises
32 separate residential development sites
(containing an average of c. 475 units) all in
great locations with proven demand. Some
98% of these units have the benefit of full
planning permission, are residentially zoned
or are within a Strategic Development Zone
(“SDZ”). Cairn’s strategic approach to
assembling this unique land bank, the
favourable planning environment in Ireland
and importantly our planning expertise
provides a constant conversion of sites into
active development sites. This underpins our
confidence in achieving our medium term
run rate of c. 1,400 to c. 1,500 unit sales
completions annually from 2021.
Cairn obtained full planning permission for
2,106 units in 2018 (2017: 1,187 units) from
24 separate successful grants of planning.
Cairn’s track record in delivering planning
grants and gains continues and almost all
of our planning applications have utilised the
single-step Strategic Housing Development
(“SHD”) or fast-track SDZ process including:
• Nine applications granted full planning
permission (c. 2,500 units);
• Five applications are in the SHD process
(c. 1,800 units); and
• Nine further SHD and SDZ planning
submissions (c. 3,000 units) are being
progressed through detailed design and
local authority engagement, with a view
to lodging each application over the
course of the next six months.
Cairn’s core strength in planning is also
evidenced by the significant planning gains
that we have achieved. Cairn has materially
enhanced the value of existing sites through
the planning process, and we expect to
deliver an extra c. 400 units on our existing
sites in addition to the c. 2,600 incremental
units previously gained.
Cairn significantly reduced expenditure on
site acquisitions in 2018 to €33.7 million
(2017: €150.0 million), including €25.7
million in deferred consideration for sites
acquired in prior years. This reflects our
evolving site acquisition strategy and the
fact that we have already acquired the
majority of the land which we need to
deliver on our strategic objectives. Our focus
is now on strategic opportunities, including
acquiring land adjoining existing sites and
exploring further joint development and
investment opportunities.
Economy
Notwithstanding Brexit, Ireland’s strong
economic performance continues as our
economy grew by 6.7% in 2018 (source:
CSO). Employment growth (+2.3%), wage
inflation (+3.4%) and consumer spending
(+3.1%) (source all: CSO) are important
ingredients for affordability which all
continue to trend positively, as does
Ireland’s future economic growth prospects.
Residential Property Market
The medium-term annual demand for new
homes in Ireland is 35,000 units (source:
ESRI). The Company believes that the GDA
alone requires c. 20,000 new homes per
annum driven by a growing population,
increasing employment driven by foreign
direct investment (“FDI”) and Brexit job
gains, annual obsolescence and 8 years of
chronic undersupply. 18,072 new homes
were built nationally in the year to December
2018. With 4,699 (26%) one off homes built,
only 13,373 new homes related to multi-unit
developments (source: CSO New Dwelling
Completions Q4 2018). In the GDA, 10,245
new homes were built, including 1,833
apartments and 830 one off homes. The
undersupply of apartments in the GDA,
and in Dublin City Centre in particular, is
alarming for a capital city growing at pace
and attracting continued FDI and Brexit
related jobs.
Mortgage Market
The Irish mortgage market landscape
continues to improve with competition
amongst mortgage providers intensifying.
Attractive headline fixed mortgage interest
rates are now on offer, in addition to cash
back offers, and we expect competition
to increase further with the entry of
new mortgage providers to the market
during 2019.
The value of mortgage drawdowns rose
by 19.2% in 2018 to €8.7 billion (2017:
€7.3 billion), while mortgage approval
values increased by 9.8% to €10.1 billion
(2017: €9.2 billion) (source: BPFI Mortgage
Approvals December 2018 and BPFI
Mortgage Drawdowns December 2018).
The mortgage market (drawdowns) is
forecast to expand by 16% in 2019 to
€10.1 billion (source: Goodbody – Irish
Economy Q1 2019 Health Check).
The mortgage market continues to be
driven by first time buyers who accounted
for 60% of all drawdowns and all approvals
by volume in 2018.
10
Government Initiatives
A number of welcome initiatives have
been implemented in recent years:
• the launch of the €226 million Local
Infrastructure Housing Activation Fund
(the Company owns five sites which
will benefit from this funding) with
an additional allocation of €50 million
in Budget 2019;
• the introduction of new fast-track
planning for developments greater
than 100 residential units through the
SHD process;
• the first time buyer Help to Buy income
tax rebate scheme; and
• the launch of the Rebuilding Ireland
Home Loan product for first time buyers.
New apartment design and urban
development and building height guidelines
have been implemented which remove
numerical height caps and actively
encourages higher density developments,
while the new National Planning Framework,
known as “Project Ireland 2040”, will be
underpinned by €116 billion in capital
spending on infrastructure priorities by 2027.
Despite these Government initiatives, the
supply of new, and in particular affordable,
starter homes remains constrained.
People
Our achievements as a business to date
could not have happened without quality
people with the right combination of
expertise and homebuilding experience,
across housing and apartments. We
continued to invest in our people throughout
2018 and increased our headcount from
126 direct employees at the end of 2017
to 155 direct employees at the end of 2018.
Outlook
Construction activity has increased since
the start of 2019 with five further site
commencements planned which will deliver
an additional c. 2,200 new homes, including
four large-scale multifamily PRS sites. Our
positive momentum from 2018 continued
into 2019 as evidenced by our closed and
forward sales pipeline, all of which underpins
the Company’s medium-term target.
Following the substantial investment in
scaling our business and our investment in
construction work in progress over the last
number of years, Cairn is now generating
significant free cash flow and all profits
generated from 2019 onwards will add
to our distributable reserves. We expect to
generate significant free cash of c. €350 million
to €400 million by the end of 2021 and
in addition to a 2.5 cent per share interim
ordinary dividend which we will announce in
September, we will also outline our approach
to ordinary dividends, special dividends and/
or share buybacks at that time.
I am very proud to lead a team that has
delivered such strong results for us in 2018
and look forward to another year of excellent
progress in 2019.
Michael Stanley
Co-Founder & Chief Executive Officer
I was delighted to strengthen my senior
management team further with the recent
appointment of Sarah Murray as our new
Director of Customer with responsibility for
our sales and marketing teams. Sarah brings
a wealth of experience to our business and
will help us to continue to deliver a brilliant
customer experience from brand promise
through our product quality, customer
buying journey and after-sales experience.
We have a highly experienced and
committed team of people to deliver
our mission of building in great locations
to create places and homes where people
love to live.
I share my Chairman’s sentiments in thanking
each of my colleagues for their hard work,
dedication and contribution to our business
in 2018, while I would also like to thank our
established and loyal subcontractor base
and the other property sector professionals
with whom we collaborate in delivering
our high quality, competitively priced
new homes.
Finally, I would also like to extend a warm
welcome to our two new independent
Non-Executive Directors, Jayne McGivern
and David O’Beirne, and I look forward to
welcoming Linda Hickey to the Board on
12 April 2019. I look forward to working
closely with them all over the coming years.
Gary Britton, Jayne McGivern, John Reynolds,
Gerry Butcher and David O’Beirne at Shackleton Park
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
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FUTURE
THINKERS
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WHAT THIS MEANS FOR US
When we say built for life, we mean just that;
solid homes that will stand the test of time,
places that provide a great quality of life and a
business model that takes a long term approach,
creating a sustainable future for our customers,
our Company, the homebuilding sector and also
providing long term value for our shareholders.
01
Long term
approach
02
Sustainable
future
03
Shareholder
value
Our design teams of planners, architects,
landscapers and urban designers collectively
consider how families and indeed communities
will grow into the spaces that we create.
There are many decisions taken that our
customers may not fully appreciate for years
to come – future-proofed homes that are
designed to adapt to a family’s changing
needs, trees planted today that will fully
mature in 15 or 20 years, inventive
engineering solutions that ensure our
neighbourhoods are climate-change ready
and shared spaces that facilitate the growth
of vibrant and cohesive communities.
Built for life also means asking ourselves –
what will success look like tomorrow
and how will we build towards it today?
A business model that places an emphasis
on sustainability, anticipating market
conditions and demand and having the
agility to adapt, creating jobs and training
the next generation, addressing the shortfall
of new homes in Ireland and helping to
provide access to great homes for everyone.
For us, taking a long term approach means
imagining the future we want to live in and
working hard with all of our stakeholders
to make it a reality.
5,000
New homes delivery
across our active sites
“Built for life also
means asking
ourselves – what
will success look like
tomorrow and how
will we build towards
it today?”
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PEOPLE
PEOPLE
Gerry Butcher,
Ian Cahill, Jillian Conway
and John Grace.
Other page: Ciaran Trainor,
Richard Irving, Robbie Thornton.
14
WHAT THIS MEANS FOR US
People come first. We never lose sight of
the fact that our business is all about people,
partnerships, respect and trust. This is
evident in how we work with our customers,
subcontractors, investors and each other. We
are committed and engaged on a personal level.
01
Respect
02
Trust
03
Safety
From our design processes to our after-care
commitment, it’s our dedication to treating
people with respect that really comes
through. By listening to our customers,
we can get to the core of what matters and
factor these insights into the way we design,
build and sell houses and apartments.
Identifying the highs and lows along our
customers’ journeys allows us to be there
when they need us and ensure that they
feel valued and in safe hands.
Our team are smart, talented, commercial
and honest. That’s why we value them so
much and provide support, resources and
opportunities for growth and development.
This approach enables us to retain and
attract the best people in our sector.
The task ahead of us is a challenging but
exciting one, and by getting down to work
with a shared sense of purpose and mutual
respect we know we can achieve great
things together.
2,500
Cairn is proud to support
over 2,500 jobs across
our active sites
“It’s our dedication to
treating people with
respect that really
comes through.”
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
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COM-
MUNITY
SPIRITED
School run in Parkside.
16
WHAT THIS MEANS FOR US
Family life is what happens inside a home:
community is what happens in the spaces
between and around the new homes we build.
We place great emphasis on the importance
of cohesive and vibrant communities and this
influences our thinking at every level.
The social infrastucture which we deliver
across our new home developments
differentiates a Cairn development from
the rest of the market. Our focus is not
just on the new homes we build – we
ensure that these new homes benefit
from recreational areas which we build
to enhance the sense of community
within our developments.
Our investment in green infrastructure
ensures our shared spaces are more
visually appealing, comfortable and
unique, enhancing the quality of life
and the health of our customers.
We create sustainable neighbourhoods
which fully integrate with existing
communities.
01
We are part of
the community
02
A sustainable
approach
03
A shared sense
of ownership
9
Playgrounds and outdoor
gyms delivered across
our active developments
“ We provide
amenities that
encourage social
interaction to create
a stronger sense
of community
in our new home
developments.”
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COMMER-
CIALLY
MINDED
Elena Popa.
Other page: Landscaping
in Glenheron, Padraic Ward,
Liam O’Brien and Kathy Naughton
18
01
Agile Strategy
02
Competitively
priced starter
homes
03
Broad buyer pool
WHAT THIS MEANS FOR US
We are an established business with a clear
strategy and a defined business model, offering
a broad range of new homes across the price
spectrum which appeal to all segments of the
market from first time buyers to institutional
investors. Our core business is focused on the
delivery of quality, competitively priced starter
homes to first time buyers.
Our portfolio approach to our land
bank, which contains prime suburban
and commuter belt housing sites and
premium apartment sites in and close to
Dublin City Centre, and our established
housing and high density apartment
operating platforms, deliver a broad
range of products from competitively
priced starter homes for first time
buyers, to larger four and five bedroom
homes for up-sizers and premium
apartments for down-sizers and
investors. This diversification of sales
risk ensures that we are not overly
exposed to any individual buyer profile
and the scale of our land bank enables
us to continually and immediately adapt
to market conditions.
We are a “developer-contractor” building
on multi-phase, multi-year large scale
residential sites containing an average
of 475 units. A housebuilder can only
operate efficiently and manage build
costs in a measured and disciplined
manner when building at the scale and
pace which we are. Our business model
is based on the use of subcontactors
and construction cost economies of scale
are driven by our purchasing power and
through the standardisation of house
types, both in terms of building envelope
and identical internal finishes. Our
€242 million spend on procurement in
2018 delivered 2.75% build cost inflation.
With our low land cost, this ensured
we continued to deliver competitively
priced starter homes to the market.
€240k
Average selling price (incl. VAT) of 110 new homes
sold or forward contracted to various local
authorities to satisfy Part V obligations
“We are a “developer-
contractor” building
on multi-phase,
multi-year large
scale residential
sites containing an
average of 475 units.”
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
AT A GLANCE
A BUSINESS
BUILT TO LAST
OUR LAND BANK
€751m
90%
c.15,100
32 sites
Invested in land bank
Targeted capital allocation
focused on the Greater
Dublin Area (“GDA”)
Land bank units
(90% of units acquired
within 1 year of IPO)
17 housing
(average c. 475 units)
6 housing & apartments
(average c. 575 units)
9 high density apartments
(average c. 325 units)
WHAT WE ARE DOING NOW
Established
operating platform
across housing and
apartments –
defined supply chain
and established
subcontractor base
13 active
5 new
1,500
Sites which will deliver
5,000 new homes
Site commencements in
2019 delivering an additional
c. 2,200 new homes
New homes will be
built across our active
sites in 2019
GUIDANCE
2.5 cent
€350m –
€400m
Capital
Returns
1,400 –
1,500
First interim ordinary
dividend to be announced
in September 2019
Free cash generation
by the end of 2021
Approach to ordinary
dividends, special dividends
and/or share buybacks
to be outlined in
September 2019
Unit medium-term target
by 2021
20
THE BEST SITES IN THE BEST LOCATIONS
2
M3
M2
M1
N
MEATH
9
M4
KILDARE
3
7
16
DUBLIN
1
14
M50
27
4
5
15
25
11
N7
N81
22
8
M50
24
28
26
29
31
30
32
High capacity public
transport routes
Coastal commuter train
Rapid city train red line
Rapid city train green line
Commuter rail
13
23
10
N11
WICKLOW
17
12
6
HOUSING
APARTMENTS
Well located housing sites with
excellent public transport and
infrastructure links
Parkside, Malahide Road
Elsmore, Naas, Co. Kildare
Shackleton Park, Lucan
Active
1
2 Churchfields, Ashbourne, Co. Meath
3
4
5 Gandon Park, Lucan
6 Glenheron, Greystones, Co. Wicklow
7 Oak Park, Naas, Co. Kildare
8 Citywest, Dublin 24
9 Mariavilla, Maynooth, Co. Kildare
10 Albany, Killiney
2019/2020 Commencements
11 Newcastle, Co. Dublin
12 Farrankelly, Delgany, Co. Wicklow
13 Cherrywood, South Co. Dublin
14 Parkside, Malahide Road (NAMA JV)
15 Clonburris, Dublin 22
16 Swords, Co. Dublin
Future
17 Coolagad, Greystones, Co. Wicklow
18 Douglas, Cork
19 Callan Road, Kilkenny
20 Rahoon, Galway
21 Ballymoneen, Galway
22 Blessington, Co. Wicklow
23 Enniskerry, Co. Wicklow
Prime apartment sites in
and near Dublin City Centre
Shackleton Park, Lucan
Active
4
24 Marianella, Rathgar, Dublin 6W
25 Six Hanover Quay, Dublin 2
26 Donnybrook Gardens, Dublin 4
2019/2020 Commencements
1
Parkside, Malahide Road
8 Citywest, Dublin 24
24
Marianella, Rathgar, Dublin 6W
(new phase)
27 Griffith Avenue, Dublin 9
28 Montrose, Donnybrook, Dublin 4
29 Cross Avenue, Blackrock, Co. Dublin
Future
6 Glenheron, Greystones, Co. Wicklow
9
Mariavilla, Maynooth, Co. Kildare
14 Parkside, Malahide Road (NAMA JV)
16 Swords, Co. Dublin
30
Barrington Tower, Carrickmines,
Dublin 18
Stillorgan, Co. Dublin
Glenamuck Road, Carrickmines,
Dublin 18
31
32
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CLA
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LIM
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KIK
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OUR BUSINESS MODEL
The steps we take to ensure our future success.
INPUTS
CREATING VALUE
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
15,100
Owned land bank units
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, an up-sizer or a
down-sizer. 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.
1. LAND
15,100 units owned,
majority acquired
within one year
of IPO in 2015
Land cost to Net
Development Value*
– 12.9%
Agility of 32 core sites
Unit mix across the
price spectrum
Average site size
c. 475 units
Amortise fixed
preliminary costs
over longer term
construction
programme
Acquisitions targeted
on land adjoining
existing sites and
joint ventures
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
two elements of
our construction
activities – housing
and apartments –
more efficiently
3. PLANNING
& DESIGN
Land bank has no
material planning risk
Design driven by
creating communities
2,106 units granted
planning permission
in 2018
c. 3,000 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
*
is defined as the estimated total revenue from all of the units in the Cairn land bank (ex. house price inflation and ex. VAT).
22
4. THE HOMES
WE BUILD
Standardised starter
home product across
multiple sites
Developer-Contractor
– site management
teams supported
by central support
functions
Manage strong and
established sub-
contractor and
supplier relationships
Central procurement
with fixed price
framework
agreements with
major suppliers
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
Fully integrated
Customer Relationship
Management system
streamlined across
sales and customer
legal management
process
Provide information,
advice and support
during every step
of the home-buying
journey
OUTPUTS
WE BUILD COMMUNITIES
We create sustainable, vibrant communities centred around
well designed and high quality landscaped environments.
& Q u a li t y
n
g
i
s
e
LIVING IN A
CAIRN HOME
En
vir
o
n
m
e
n
t
D
Comm u n i t
y
€337.0m
Revenue increased from
€149.5m in 2017
€53.2m
Operating profit
(2017: €14.5m)
2.5 cent
First interim ordinary
dividend to be announced
in September 2019
€69.1m
Gross profit and a gross profit
margin of 20.5% (from €27.1m
and 18.2% in 2017)
4.4 cent
Adjusted earnings per share*
(2017: 0.7 cent)
€350m –
€400m
Free cash generation
by the end of 2021
* see note 26 to the consolidated financial statements.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
MARKET OVERVIEW
PERFECTLY POSITIONED
FOR GROWTH
With a talented and experienced team, a long-term land bank containing
the best housing and apartment sites in the best locations and a defined
operating model, Cairn is uniquely positioned to meet Ireland’s growing
housing and apartment demands.
MARKET OPPORTUNITY
The fundamentals of the Irish new
homes market, and in particular in
the Greater Dublin Area (“GDA”),
are strong as demand continues to
significantly exceed supply. Demand
is strong across all buyer profiles
from first time buyers to international
institutional investors and Cairn
continues to deliver product across
the price spectrum.
Growing Economy
Notwithstanding Brexit, Ireland’s robust
economic performance continued in 2018
when our economy recorded the highest
growth rate in the EU at 6.7% for a fifth
consecutive year (source: CSO). 2018 was
another year of rapid employment growth
with the total number of people employed
growing by 2.3% (or 50,500), which
supported wage inflation of 3.4%.
Importantly, employment growth is
widespread with construction the fastest
growing sector in 2018, up 8.3% year on
year with 144,000 people now employed
in the construction industry. Employment in
Ireland has grown by 418,000 in the 6 years
to the end of 2018. The unemployment rate
fell to 5.6% in February 2019 from 6.1%
in January 2018, its lowest rate since early
2008. Consumer spending continues to
grow and increased by 3.1% in 2018 (source
all: CSO), underpinning future GDP growth
forecasts of 3.5% in 2019 and 3.0% in 2020
(source: Goodbody).
Strong Demographics
The population of Ireland increased by
8.3% between 2008 and 2018 (source
– CSO) to just under 4.9 million people.
This population growth is three times
the EU average and is being driven by:
• A high birth rate (13.5 births for every
1,000 of population in 2017 – highest
in EU);
Continuing Housing Undersupply
The ESRI estimate national demand at 35,000
new home units per annum. Within this, we
estimate GDA demand at 20,000 units. This
level of demand can be calculated as follows:
• Population in 2016 (4.8 million) x
headship rate (35.2%) = 1.691 million
houses needed
• Population in 2021 (5.0 million) x
• One of the highest household formation
sizes in the EU at 2.8x (average 2.3x); and
headship rate (36.8%) = 1.836 million
houses needed
• Inward migration.
Ireland has one of the youngest populations
in the EU with 33.3% of our population under
the age of 25 (6.8% above EU average).
Nearly 22% of our population are aged
between 25 and 39. This cohort of the
population account for 58% of all houses
rented in Ireland, and only 16% of all houses
owned. It is this cohort of the population
which is stuck in a rental trap because the
supply of new, affordable and well located
homes remains constrained.
• (1.836 million – 1.691 million) = 0.145
million/5 years = 28,900 houses per
annum + (2.04 million houses in Ireland
x 0.3% annual obsolescence = 6,100
obsolescence) = 35,000 units
There were 18,072 new homes built in Ireland
in 2018 (of which 4,699 or 26% were one-off
homes), including only 10,245 new homes
in the GDA. Excluding one-off houses,
the number of apartment and multi-unit
development homes delivered in the GDA
was 9,415, less than half the level of demand.
Despite the large number of apartment
schemes that are through planning or in
planning, and benefitting from density
and height changes, we estimate that only
c. 4,000 apartments will be delivered by
the end of 2021 in Dublin’s Central Business
District (CBD). This is a critical undersupply
for a capital city that is growing at the pace
of Dublin and attracting continued FDI and
Brexit displacement jobs.
24
Increasing supply in the Irish homebuilding
industry is being constrained by the inability
of Irish homebuilders to scale at pace, with
constraints including, but not limited to:
• Sourcing equity;
• High bank funding costs;
• High land costs;
• Building on smaller sites;
• Small subcontractor bases;
• Not operating at scale;
• Inability to price new homes
competitively; and
• Low margin returns.
Only 1,754 apartment units are currently
under construction in the CBD and therefore
this is the maximum number of apartments
that can be delivered by the end of 2020
due to the known construction timeline
of an apartment development.
New Home Supply Constraints
A report issued by Goodbody Stockbrokers
in September 2018 stated that the top 20
homebuilders in Ireland only sold c. 1,600
new homes in the first half of 2018, equating
to 19.9% of new homes supplied in the
period. By way of comparison, the top
20 homebuilders in the UK delivered 50%
of total UK supply in 2017. With annual
demand estimated at 35,000 units, the
output of the top 20 homebuilders in Ireland
equates to c. 9.1% of total demand on an
annualised basis.
OPPORTUNITY:
FASTEST GROWING
ECONOMY IN THE EU
UNDERSUPPLY
OF NEW HOMES
DEMOGRAPHICS
ATTRACTIVE PRS MARKET
+10.6%
13,373
+350,000
€7bn
Average 5 year GDP and
+418,000 employment
growth since 2012
Ireland has been the fastest
growing and best performing
economy in the EU for each
of the last 5 years.
Supply in 2018 versus
demand of 35,000 (ESRI)
Supply still less than 50%
of annual demand.
Population growth and
increasing employment has
broadened our addressable
market. Irish Revenue statistics
indicate that there are +350,000
couples who can afford to buy a
house priced between €275,000
and €375,000.
Capital seeking multifamily
PRS opportunities in
the GDA.
POSITION:
BEST LOCATED, LOW COST
LAND BANK
PIPELINE AND
PLANNING MATURITY
COMPETITIVELY PRICED
STARTER HOMES
€49,000
70%
Average land cost
per unit:
• Housing €37,000
• Apartments €76,000
70% of our sites are active or
“ready to go“ in 2019 and
2020 underpinning medium
term guidance.
c. 8,400
Of our starter homes can
be priced between €275,000
and €375,000.
MULTIFAMILY PRS
c. 2,500 –
3,000
Apartment units
c. 2,500 – 3,000 of our
apartment units can satisfy
more than €1 billion
of multifamily PRS demand.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
MARKET OVERVIEW CONTINUED
PROFILE AND OUTLOOK
FOR OUR MARKET SEGMENTS
One of our key strengths is our ability to conduct effective and
relevant proprietary research. Our scale provides us with a broad
sample of market and customer data to draw from; our experience
gives us the knowledge and intuition to turn this data into actionable
insights in driving the strategic direction of our business.
The First Time Buyer
The Up-sizer
The Down-sizer
The Young Professional
Individual Investors
Institutional Investors
PROFILE
PROFILE
PROFILE
PROFILE
PROFILE
PROFILE
• Individuals earning in excess of
• Seeking a 4 or 5 bedroom house
• Empty nesters downsizing from larger
• Individuals earning in excess of
• Generally cash purchasers seeking
• International institutional investors,
€70,000 (or combined for couples) with
a preference for 3 bedroom houses
(equals 60% of Cairn’s first time buyers)
• Mortgage dependent
• Help to Buy support
to accommodate expanded families
• Generally mortgage dependent –
levels of equity vary with those who
bought pre-2000 carrying significantly
more equity into their new homes
• Location important
houses purchased in the 1970s – 1990s
containing significant equity
• Generally cash purchasers, mainly
seeking smaller houses or apartments
€80,000, city centre location focused
– want to live near where they work
in 1 and 2 bedroom apartments
2 or 3 bedroom apartments for
onward rental
• Living and working in Ireland, or Irish
• Mortgage dependent and less price
working overseas buying a residential
multifamily PRS operators and Irish
REITs seeking entire apartment blocks
to build multifamily PRS portfolios
of scale
sensitive than first time buyers
property in Dublin as a potential
• Particular focus on Dublin (strong rents
future home
and attractive yields)
OUTLOOK
• Demand is at its strongest
in this segment of the owner
occupier market
• Significant supply constraints remain
• Very positive outlook
OUTLOOK
OUTLOOK
• Supply challenged as they are location
specific and new homes at their price
points are not being built
• Very strong demand in this segment
– 60% of apartment purchasers
in Marianella are Down-sizers
• Strong demand and positive outlook
for those who bought their first home
before 2005 and after 2010 (have
equity), while challenged for those
who bought between 2005 and 2008
(in negative equity)
• Positive outlook
OUTLOOK
OUTLOOK
OUTLOOK
• Very strong demand in this segment
• Residential “buy to let” (BTL)
• Institutional investors actively seeking
but limited number of new apartments
investment is generally discouraged
multifamily PRS opportunities
being built near where they work
• Growing market driven by an
increasing number of higher paid jobs
from a tax perspective, albeit full
interest relief is now available
in Ireland
in Dublin’s CBD, with numerous tech
• Improving funding environment
firms continuing to expand and
– 20% of purchasers in Marianella
Brexit relocations
• Very positive outlook
were investors
• Neutral outlook
• Rents continue to increase and the
supply of apartments, particularly in
the CBD, will continue to be constrained
• Very positive outlook
26
Our research methodology
Our research methodology is multi-faceted;
it includes independently commissioned
research, interviews and focus groups; it
utilises our CRM raw data and analytics;
it factors in frontline anecdotal stories and
insights from our site and customer service
teams; it makes use of market data, financial
patterns and market trend analysis. Our
success in putting the customer first and
being commercially agile is driven by our
ability to turn all this data into insights
that inspire design processes and inform
business decisions.
The First Time Buyer
The Up-sizer
The Down-sizer
The Young Professional
Individual Investors
Institutional Investors
PROFILE
PROFILE
PROFILE
• Individuals earning in excess of
• Seeking a 4 or 5 bedroom house
• Empty nesters downsizing from larger
€70,000 (or combined for couples) with
to accommodate expanded families
houses purchased in the 1970s – 1990s
a preference for 3 bedroom houses
(equals 60% of Cairn’s first time buyers)
• Mortgage dependent
• Help to Buy support
• Generally mortgage dependent –
containing significant equity
levels of equity vary with those who
• Generally cash purchasers, mainly
bought pre-2000 carrying significantly
seeking smaller houses or apartments
more equity into their new homes
• Location important
PROFILE
PROFILE
PROFILE
• Individuals earning in excess of
€80,000, city centre location focused
– want to live near where they work
in 1 and 2 bedroom apartments
• Mortgage dependent and less price
sensitive than first time buyers
• Generally cash purchasers seeking
2 or 3 bedroom apartments for
onward rental
• Living and working in Ireland, or Irish
working overseas buying a residential
property in Dublin as a potential
future home
• International institutional investors,
multifamily PRS operators and Irish
REITs seeking entire apartment blocks
to build multifamily PRS portfolios
of scale
• Particular focus on Dublin (strong rents
and attractive yields)
OUTLOOK
OUTLOOK
OUTLOOK
OUTLOOK
OUTLOOK
• Supply challenged as they are location
• Very strong demand in this segment
• Very strong demand in this segment
• Residential “buy to let” (BTL)
• Institutional investors actively seeking
but limited number of new apartments
being built near where they work
• Growing market driven by an
increasing number of higher paid jobs
in Dublin’s CBD, with numerous tech
firms continuing to expand and
Brexit relocations
investment is generally discouraged
from a tax perspective, albeit full
interest relief is now available
in Ireland
• Improving funding environment
– 20% of purchasers in Marianella
were investors
• Very positive outlook
• Neutral outlook
multifamily PRS opportunities
• Rents continue to increase and the
supply of apartments, particularly in
the CBD, will continue to be constrained
• Very positive outlook
OUTLOOK
• Demand is at its strongest
in this segment of the owner
occupier market
• Very positive outlook
• Significant supply constraints remain
• Strong demand and positive outlook
• Positive outlook
specific and new homes at their price
– 60% of apartment purchasers
points are not being built
in Marianella are Down-sizers
for those who bought their first home
before 2005 and after 2010 (have
equity), while challenged for those
who bought between 2005 and 2008
(in negative equity)
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
MARKET OVERVIEW CONTINUED
GOVERNMENT INITIATIVES – SUPPORTING
THE HOMEBUILDING INDUSTRY
Project Ireland
2040 (National
Planning
Framework)
Seeks to achieve ten strategic
outcomes as prescribed in the
National Planning Framework
which guides at a high-level strategic
planning and development for the
country over the next 20+ years.
550,000 new houses are required in
Ireland up to 2040 (25,000 annually)
to meet the needs of a growing
population with a focus on the
sustainable growth of Dublin and
other major urban areas.
Strategic Housing
Development –
Fast-Track
Planning
Introduction of a fast-track one step
planning process for developments
greater than 100 residential units and
200 student beds. The Strategic
Housing Development (“SHD”)
planning process has significantly
increased the efficiency of the
process for obtaining full planning
permission for large scale
residential developments.
Help to Buy
Assist first time buyers obtain the
deposit required to purchase new
homes only.
Income tax rebate of up to
€20,000 on new homes priced
below €500,000.
Unlike the UK, the rebate is not
repayable (in kind or through an
equity stake in the new home).
€116bn
16 week
€20,000
Capital spending on infrastructure
priorities by 2027.
Determination period from date
of formal submission.
Income tax rebate on new homes
priced below €500,000.
Up to
Impact for Cairn
Impact for Cairn
Impact for Cairn
All Cairn sites are well located on
or in close proximity to excellent
public transport links. Increased
investment will benefit accessibility
of our sites further.
1,620 units granted permission
through the SHD process.
1,800 units awaiting determination.
c. 50% of purchasers at our starter
home sites are first time buyers
benefitting from Help to Buy.
28
New Urban
Development &
Building Height
Guidelines
New guidelines adopted in late 2018
allowing for increased residential
heights in appropriate locations
such as city centre areas and locations
well served by public transport.
The assessment of increased heights
is based on meeting a series of
criteria to demonstrate the suitability
of additional height and the
guidelines replace previous
numerical height restrictions.
Local
Infrastructure
Housing
Activation Fund
Initial €226 million fund launched in
2017 to provide loans to developers
to fund public off-site infrastructure to
accelerate the delivery of new homes
on sites with infrastructure cost
blockages. 34 locations approved
for funding, including five Cairn sites.
A second Local Infrastructure
Housing Activation Fund (“LIHAF”)
of €50 million was approved through
Budget 2019 with applications for
funding to be sought during 2019.
€276m
Funding to accelerate delivery
of critical off-site infrastructure.
New Apartment
Design
Guidelines
Announced in 2018 to assist in
accelerating the supply of new
apartments, particularly in Dublin
City Centre, by facilitating more
efficient apartment construction and
reducing the gross to net sellable
area. The principal changes include:
• Underground car parking can be
eliminated in city centre locations
and developments located close
to public transport;
• Maximum number of units per lift
core increased to 12 (previously 8);
• 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.
Impact for Cairn
Impact for Cairn
Impact for Cairn
Improves the efficiency of building
apartments across our c. 4,400
apartment units.
Increased heights and densities
secured on a number of Cairn sites
to date.
Five Cairn sites approved for funding
to date:
• Shackleton Park (Lucan);
• Parkside (Malahide Road);
• Cherrywood (South County Dublin);
• Glenamuck Road (South County
Dublin); and
• Clonburris (West Dublin).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
MARKET OVERVIEW CONTINUED
POSITIVE OUTLOOK
FOR AFFORDABILITY
WAGE INFLATION OUTSTRIPPING
CONSUMER PRICE INDEX
STRONG LABOUR MARKET
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
2.4m
2.3m
2.2m
2.1m
2.0m
1.9m
1.8m
1.7m
1.6m
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
2013
2014
2015
2016
2017
2018f
2019f
2020f
1
Q
7
0
0
2
4
Q
7
0
0
2
1
Q
8
0
0
2
4
Q
8
0
0
2
1
Q
9
0
0
2
4
Q
9
0
0
2
1
Q
0
1
0
2
4
Q
0
1
0
2
1
Q
1
1
0
2
4
Q
1
1
0
2
1
Q
2
1
0
2
4
Q
2
1
0
2
1
Q
3
1
0
2
4
Q
3
1
0
2
1
Q
4
1
0
2
4
Q
4
1
0
2
1
Q
5
1
0
2
4
Q
5
1
0
2
1
Q
6
1
0
2
4
Q
6
1
0
2
1
Q
7
1
0
2
4
Q
7
1
0
2
1
Q
8
1
0
2
4
Q
8
1
0
2
Wage inflation
CPI
Employment
Unemployment
MORTGAGE RATES FALLING SLOWLY
EXPANSIONARY BUDGETS
Impact on take-home pay for a couple earning €80,000
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
5
1
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n
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J
5
1
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p
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S
5
1
-
c
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D
6
1
-
r
a
M
6
1
-
n
u
J
6
1
-
p
e
S
6
1
-
c
e
D
7
1
-
r
a
M
7
1
-
n
u
J
7
1
-
p
e
S
7
1
-
c
e
D
8
1
-
r
a
M
8
1
-
n
u
J
8
1
-
p
e
S
8
1
-
c
e
D
2013
2014
2015
2016
2017
2018
2019
Standard Variable rates
1-3 Year Fixed rate
Sources: CSO, CBI, Department of Finance
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OUR STRATEGY
The Group’s strategy is to establish itself over the long-term as a leading Irish
homebuilder, constructing high quality and competitively priced new homes.
Read more about Our Strategy in Action on pages 34-39.
OUR STRATEGIC PRIORITIES
WHAT WE DID IN 2018
CUSTOMERS
MAKING THE HOME BUYING JOURNEY
EXCEPTIONALLY POSITIVE FOR ALL
OF OUR CUSTOMERS AND ENSURE
THAT THEY LOVE WHERE THEY LIVE
Moved 804 new customers into their new
homes with positive feedback on their
buying journey; Undertook a large research
project, which included qualitative and
quantitative research across all buyer
segments, our existing customers and
the wider market, with the objective of
providing a better understanding of the
home buying journey and our customers’
motivations and behaviours so we can better
meet their needs; Mapped the customer
journey and identified gaps for extra
attention; Launched a new, more intuitive,
customer friendly website; and Trialled
a children’s entertainment section for
our customers at a development launch.
HOMES
DESIGNING AND BUILDING HIGH
QUALITY, ENERGY EFFICIENT HOMES
THAT PEOPLE WILL LOVE LIVING
IN NOW AND INTO THE FUTURE
In doubling output volume to 804 units,
delivered new homes of the highest quality
to the market; Increased the range of
product delivery from two-bedroom duplex
units and competitively priced suburban
starter homes to high end city centre
apartments; Evolved the Cairn design
to adapt to evolving trends; Delivered a
standardised starter homes product across
more starter homes sites; and Unlocked the
potential of a number of sites with the
delivery of key offsite infrastructure.
PLACES
CREATING PLACES FOR
COMMUNITIES TO PROSPER
Contributed over €55 million to date
towards public realm and infrastructure
projects like roads, bridges, schools, public
parks, playgrounds and sports facilities; Built
communities and great places across 804
new homes – all within proximity to existing
communities and infrastructure and
with convenient transport links and access
to great retail, leisure and recreational
amenities; Market leading native planting
and biodiversity programme executed.
PEOPLE
WE ATTRACT AND RETAIN THE BEST
PEOPLE AND TRUSTED PARTNERS
Recruited best talent within and outside
the sector to increase our design and
construction capability in order to scale;
Support over 2,500 jobs across our active
sites; Designed and introduced performance
management, succession planning and
development planning for all employees;
Embedded goal setting across teams to
ensure they were aligned to produce great
homes efficiently; Introduced values to
support our culture which constitute 20%
of overall targets for our employees.
OPERATIONAL
EXCELLENCE
CREATE A COMMERCIAL OPERATING
PLATFORM TO TURN LAND INTO
GREAT PLACES TO LIVE
Secured access to talent in rising market
through subcontractor network and
recruitment of direct talent; c. 2,000
subcontractors fully engaged across our
sites working under our site management
teams to scale the business; Planning
consents – 2,106 units granted planning
in 2018; Strengthened buying power on
€242 million procurement resulting in 2.75%
build cost inflation; Introduced a partnership
with Kingspan Group plc for the supply
of off-site manufactured timber frame
structures for our housing division
(c. 30% of all houses constructed over
the next two years will be off-site modular
constructed units).
1
2
3
4
5
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WHAT WE’LL DO IN 2019
KEY PERFORMANCE INDICATORS
Roll out a customer lifecycle and content
program to help plug identified gaps in
the customer journey; Continued launch
and roll out of our Corporate Social
Responsibility (“CSR”) strategy with
development specific initiatives; Increased
use of research to drive insight led product
innovation and development of brilliant
homes; Increased focus on after-sales
experience and support; and Expand
customer care to improve ease of
customer access to our product.
Launch of lifecycle and content program;
Key customer success and product
decisions driven by research and
customer insights; Launch of CSR
initiatives that help foster communities
within our developments; and Maintain
net promoter score (“NPS”).
Continue to enhance the standard of new
homes that the Company builds through
our in-house pre-construction design
development processes; Create further
efficiencies during our construction
process by ensuring fit for purpose designs
and deployment of innovative building
systems and methodologies; and Enhance
the quality, cost effectiveness and timelines
of construction.
Maintain the Company’s best in class
quality standards for homes delivered;
Increase volume output; Greater
construction programme and
cost efficiencies.
Contribute over €20 million towards
public realm and infrastructure projects
across 13 active developments; Build
communities and great places across an
additional 1,500 new homes to be built;
Expand our native planting and
biodiversity programme; Launch
our CSR program which is centred
on community development.
Customer feedback on all sites where we
build new homes in 2019; Launch of CSR
policy and review of its effectiveness.
Hire additional employees; Integrate
supply chain more closely to ensure long
term scaling for the business; Further
embed succession planning as part of
broader talent management strategy to
find, develop and retain the best people;
Launch Cairn management development
program; Introduce Employee
Volunteering program as part of our
CSR strategy to support community
development and placemaking.
Expand and integrate supply chain more
closely to ensure long term scaling for the
business; Hire additional staff and broaden
our pool of subcontractors; Increased
spend on procurement and maintain
below-market build cost inflation;
Introduce Cairn Apprenticeship program
to support industry talent development;
Standardisation across our starter home
developments to drive greater efficiency
through the development cycle; Five
new site commencements; Delivery of
completed timber-frame constructed new
homes across multiple sites; Maintain A3
Building Energy Ratings across all sites.
Attrition below agreed targets; Succession
planning in place and effective for all key
roles; New apprentices hired and being
trained; Best talent in the market secured
for all roles; 100% of employees have a
development plan and full access to CPD;
All site managers have been through the
Management Development program;
Internal communications strategy
developed; Effective cross team goal
setting and ways of working to ensure fully
integrated delivery model from planning
through to post sales experience.
Scaling evidenced through effective
subcontractor performance and
achievement of program targets on time;
Achievement of sales and margin targets;
Direct construction costs as % of sales
price; Build cost inflation; Procurement
strategy capturing economies of scale
and timely access to external resources
and materials. Supply chain reliability
(labour and materials).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
STRATEGY IN ACTION
John Nicol, Site Manager,
Six Hanover Quay
STRATEGY
IN ACTION
Across our five strategic pillars:
Pillar 1
CUSTOMERS
Pillar 2
HOMES
Pillar 3
PLACES
Pillar 4
PEOPLE
Pillar 5
OPERATIONAL
EXCELLENCE
34
1 STRATEGY IN ACTION – CUSTOMERS
DELIVER THE BEST CUSTOMER EXPERIENCE.
Success to us is delivering a positive customer
experience throughout the home buying journey.
We have mapped the customer experience to identify
gaps that need extra attention. From initial awareness
through to after-sales, we place ourselves in their shoes.
It’s all about listening with empathy and respect.
We have worked hard to understand
our customers’ motivations, needs and
frustrations and to be there when they
need us. This often manifests in the
smaller details: clear product information;
simple guides that engage and educate;
responding to any issues swiftly;
communicating clearly and regularly.
We are there for the highs and the lows
and we know when to step in and be
right beside our customer.
Buying a new home is exciting, but we know
it can also be stressful at times. This can cast
a shadow on the biggest purchase of our
lives. With this in mind, we strive to go the
extra mile to ensure that our customer is
happy. Our customer service and site teams
are committed and engaged, and our
after-sales service means we are still there
with you after you move in.
“We are thrilled with
our new home. The
build quality is excellent
and the whole buying
experience was as
stress-free as possible.”
Michelle and Keith, Parkside
90%
Of our first time buyers
are couples
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
STRATEGY IN ACTION CONTINUED
2 STRATEGY IN ACTION – HOMES
DESIGN AND BUILD HIGH QUALITY HOMES.
Good housing is at the core of quality of life. Solid
homes that are designed around how we live today,
and can adapt to how we will live tomorrow. We
place our customers at the heart of every design choice
we make, because when good design informs the
practicalities of everyday living, everything is better.
“Energy efficient
homes that cost
less than €2 per
day for heating,
hot water, lighting
and ventilation.”
* €2 is based on standardised occupancy as per
the Sustainable Energy Association of Ireland
(“SEAI”) guidelines
A3
Energy rating of all of our
new homes
A home needs to be able to adapt to the
ever-changing needs of the people that
live in them. For example, the way you
use storage today may not be how you
use it tomorrow – ask any parent. Bearing
this in mind we place a strong emphasis
on designing spaces that are versatile
and adaptable.
Each space has a role to play and a story to
tell. The kitchen has always been the heart
of the Irish home, the place where the family
comes together for meals and where guests
are entertained. Sitting rooms where you
can relax and unwind, bedrooms that are
a personal space, as pleasant to fall asleep
in as they are to awaken in.
Our homes also feature innovative
technology like demand control ventilation
to maintain healthy filtered air, photovoltaic
panels to provide you with a cheap and
sustainable source of hot water, “A” rated
energy efficient homes that can cost as
little as €2 day to run and state of the
art insulation and build materials. A Cairn
development is a guarantee for future
generations, where your choice will stand
the test of time.
36
3 STRATEGY IN ACTION – PLACES
CREATING PLACES FOR COMMUNITIES
TO PROSPER.
We believe that design has the power to transform
the way we live for the better and creating a sense of
belonging extends beyond four walls. This is why we
focus on creating places where people and communities
can enjoy a great quality of life. Places which encourage
positive interaction and allow families to relax, reflect
and enjoy themselves.
To date we have contributed over
€55 million towards public realm and
infrastructure projects, including new:
• public roads at Parkside, Elsmore,
Mariavilla and Shackleton Park:
• schools at Parkside and Glenheron;
• playgrounds at all of our active new
home developments:
• art installations at Parkside, Marianella,
Churchfields and Glenheron; and
• sports facilities at Shackleton Park
and Gandon Park.
This investment is part of our contribution
to healthy and happy communities.
€55m
Contributed towards public
realm and infrastructure
projects to date
“The quality of finish
on the development is
superb. I think it’s
because it doesn’t look
like a new development;
it fits in well and looks
fantastic. The mature
parkland, the brick – it’s
just an amazing setting.”
Tom, Marianella
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
STRATEGY IN ACTION CONTINUED
4 STRATEGY IN ACTION – PEOPLE
ATTRACT AND RETAIN THE BEST TALENT
AND TRUSTED PARTNERS.
At Cairn, it is not just about building great homes.
We are also about building a business where people
are valued, careers are developed and friendships
are made.
We are in a strong position to meet the
significant pent-up demand for new homes
in Ireland and to make a meaningful
contribution to society. We need the best
people by our side to do this. We value
our people and partners and provide
resources and opportunities to grow
and develop together.
We support over 2,500 jobs across our
active sites, including our established and
loyal subcontractor base and the significant
number of sector related professionals
with whom we collaborate, from town
planners to consulting engineers, from
architects to interior designers and from
sales agents to solicitors.
Individual objectives are aligned to
our strategic pillars and values and
we continuously develop our people’s
talent. By doing all of this, we empower
our people.
“We value our people
and partners and
provide resources
and opportunities
to grow and
develop together.”
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60%
Of our construction staff have
participated in our CPD programme
5 STRATEGY IN ACTION – OPERATIONAL EXCELLENCE
LEVERAGE A HIGH PERFORMING
COMMERCIAL OPERATIONAL PLATFORM.
Our developer-contractor model ensures our planning,
design and central support teams integrate directly with
our directly employed site management teams. This
enables us to manage and control a strong supply chain
and a well-established subcontractor base, many of
whom work across several active Cairn developments.
Subcontractors tender on a “supply and fit” basis
and Cairn proactively manages cost inflation
through direct procurement strategies, initiatives
and fixed term framework agreements.
Operational efficiencies are achieved
by standardisation across our starter
home developments which are further
complemented by the use of both traditional
and new off-site construction methods,
including a partnership with Kingspan Group
plc for the supply of off-site manufactured
timber frame structures for our housing
division. We estimate that c. 30% of all
houses constructed over the next two years
will be off-site modular constructed units.
2.75%
Build cost inflation
in the last 12 months
Build cost inflation in the last 12 months was
2.75% and reflects our business model and
the strong, established relationships with our
subcontractor base. We carefully monitor
build cost inflation and continuously
seek out innovative ways to ensure
we achieve the lowest cost without
compromising quality.
Our practice is to acquire and build on
larger scale housing developments which
enables us to deliver economies of scale
through direct and indirect procurement
efficiencies and amortising fixed site
costs (site works, preliminaries, site
accommodation, machinery and professional
fees) over longer-term, multi-year,
multi-phase construction programmes.
The same site management teams and
subcontractors work more effectively
and efficiently together as they progress
through each phase.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OPERATING REVIEW
OPERATING
REVIEW
Our business operates in an efficient and balanced
manner, under a focused operating platform aligned
to the two elements of our construction activities –
traditional housing and high density apartments.
40
“2018 was another year of significant
operational progress which delivered
a strong trading performance
underpinning our capital return plans.”
NEW SITE COMMENCEMENTS
3
Sites
c. 1,000
Units
HOUSE PRICE INFLATION
c. 4.5%
Across our active sites
NEW PHASE COMMENCEMENTS WITHIN ACTIVE SITES
BUILD COST INFLATION
5
c. 900
New phases
Units
2.75%
On €242m procurement
NEW HOMES BUILT
HOMES UNDER CONSTRUCTION
NUMBER OF UNITS GRANTED PLANNING PERMISSION
1,100 2,300
24
2,106
Applications (2017: 24)
Units (2017: 1,187)
NEW HOME SALES
804
INCREMENTAL UNITS GAINED THROUGH PLANNING
c. 1,100
Units (2017: c.1,900)
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OPERATING REVIEW CONTINUED
CASE STUDY
CAIRN AND KINGSPAN –
A COLLABORATIVE PARTNERSHIP
Our partnership with Kingspan Century, a subsidiary
of Kingspan Group plc, ensures the dependable just-in-
time delivery and speedy assembly of pre-fabricated
timber frames and insulation for our housing division
with our developments at Gandon Park in Lucan, Oak
Park in Lucan, Edenbrook in Citywest and Mariavilla
in Maynooth utilising this off-site construction method.
This partnership enables us to construct solid
homes at a rapid rate and provides other
efficiencies throughout our construction
delivery programmes.
Other advantages of this collaboration are:
• Quick assembly times – weatherproof
within 10 days
• Reduced drying out times
• Lower on-site labour input
• Factory controlled quality assurance
in fabrication
• Construction programme time savings
• Lower waste
• Environmentally sustainable
4Sites using timber frame
30%Of 2019 and 2020 starter
homes will be timber frame
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CASE STUDY
WORKING IN CLOSE PARTNERSHIP
WITH OUR SUBCONTRACTORS
We enjoy strong working relationships with
our subcontractor base, some of which go
back generations with our senior management.
By providing clear visibility on a high-volume pipeline
of work, we have enabled our subcontractor partners
to scale in a confident and sustainable manner.
A key factor in ensuring that we can continue
to price our new homes competitively is how
we manage build cost inflation. We have
fixed price contracts in place across all of
our active construction sites which provides
cost certainty. Strong and established
relationships with subcontractors are
central to our unit delivery model.
€250m
Current committed order book
(orders placed and prices fixed
on labour and materials)
€18m
Average total contract value awarded
to top 15 subcontractors
60%
Top 15 subcontractors account for
60% of all procurement since IPO
5
Average number of Cairn sites our
top 15 subcontractors work on
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OPERATING REVIEW CONTINUED
Our development at Six Hanover
Quay which we agreed to sell for
€101m during 2018
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LAND BANK METRICS
70%Of capital deployed in 2015 and
early 2016
90%Of land bank units acquired within
9 months of IPO
AVERAGE DEVELOPMENT SIZE
AVERAGE UNIT COST
c.475 units
c.260 units
€37,000
€76,000
€49,000
Houses
Apartments
Houses
Apartments
Land bank average
CAPITAL
ALLOCATION BY
GEOGRAPHICAL
LOCATION
Dublin – within M50: 46%
Dublin – outside M50: 21%
Rest of GDA: 28%
Regional: 5%
PLANNING
STATUS
UNIT TYPE
Houses: 71%
Apartments: 29%
BUYER
PROFILE
Full Planning Permission: 33%
In Planning: 13%
Zoned Residential: 28%
Strategic Development Zone:
24%
Unzoned: 2%
First Time Buyer
(from €275,000): 51%
Trade Up/Mover
(up to €600,000)*: 20%
Premium (from €600,000)**:
19%
Social: 10%
Includes Young Professionals
*
** Includes Down-sizers, Individual Investors and Institutional Investors
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OPERATING REVIEW CONTINUED
HOUSING
ACTIVE AND 2019 SELLING SITES
PARKSIDE
395 units
SHACKLETON PARK
768 units
Much sought-after location with excellent
public transport links to Dublin City Centre.
Sustained strong demand since its 2015
launch from first time buyers and people
seeking to trade up.
Our largest new homes development
to date, Shackleton Park is situated in
a traditional residential suburb of Dublin
with excellent transport links. Ideal location
for first time buyers.
CHURCHFIELDS
397 units
GLENHERON
393 units
Churchfields in Ashbourne is our first
commuter belt starter home development
with continuing demand from both first time
and next time buyers.
Elegant development on the outskirts of
the coastal village of Greystones, a strong,
established and sought after commuter
location with excellent transport links.
ELSMORE
500 units
ALBANY
20 units
OAK PARK
251 units
Situated off the South Ring Road in Naas,
and within a 5 minute walk from Naas Town
Centre, Elsmore is another popular
commuter belt starter home scheme.
Development of 20 large homes set within
the grounds of an elegant Victorian villa
in coastal Killiney and within a short walk
of the train station.
Our second development in Naas,
Oak Park offers impressive vistas over
the surrounding Kildare countryside
and will launch in Q2 2019.
GANDON PARK
237 units
MARIAVILLA
462 units
CITYWEST
165 units
Located adjacent to Shackleton Park,
this attractive development will launch
in Q2 2019.
Situated by the Lyreen River, Mariavilla is on
the edge of the vibrant university town of
Maynooth and launched in February 2019.
Popular residential location in West Dublin,
our site is adjacent to a Luas light rail station
providing direct access into Dublin City Centre.
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HOUSING
PLANNED 2019/2020 COMMENCEMENTS
HOUSING
FUTURE SITES
NEWCASTLE, CO. DUBLIN
c. 700 units
Strong commuter location in an established
residential location popular with first
time buyers.
FARRANKELLY, DELGANY,
CO. WICKLOW
c. 429 units
An exceptional site enjoying both
mountain and sea views, Farrankelly
is located in Delgany, a popular and
sought after commuter location.
CHERRYWOOD,
SOUTH CO. DUBLIN
c. 294 units
Located adjacent to a Luas light rail station
providing direct access to Dublin City
Centre, Cherrywood is a new town currently
under construction in South County Dublin.
PARKSIDE,
MALAHIDE ROAD
c. 120 units
Adjoining our existing Parkside
development, the lands will provide
additional and sought-after housing units
in an area of continuing proven demand.
CLONBURRIS, DUBLIN 22
c. 3,000 units
SWORDS, CO. DUBLIN
c. 200 units
Awaiting formal adoption of enlarged SDZ.
Strong and established residential suburb.
BALLYMONEEN, GALWAY
BLESSINGTON, CO. WICKLOW
CALLAN ROAD, KILKENNY
COOLAGAD, GREYSTONES,
CO. WICKLOW
DOUGLAS, CORK
ENNISKERRY, CO. WICKLOW
RAHOON, GALWAY
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
OPERATING REVIEW CONTINUED
APARTMENTS
ACTIVE AND 2019 SELLING SITES
APARTMENTS
PLANNED 2019/2020
COMMENCEMENTS
MARIANELLA
316 units
SIX HANOVER QUAY
120 units
GRIFFITH AVENUE, DUBLIN 9
c. 387 units
Marianella is one of our flagship apartment
developments, located in the affluent, leafy
Dublin suburb of Rathgar. Very popular with
down-sizers.
An architecturally innovative waterfront
apartment building, Six Hanover Quay is
ideally situated in the centre of Dublin’s
thriving tech quarter.
Beautiful site on the historic tree-lined
Griffith Avenue, an established residential
area with strong transport links to the
city centre.
SHACKLETON PARK
60 units
DONNYBROOK GARDENS
86 units
Our largest new homes development
to date, Shackleton Park is situated in
a traditional residential suburb of Dublin
with excellent transport links. Ideal location
for first time buyers.
An exclusive apartment development in one of
Dublin’s most prestigious suburbs, Donnybrook
Gardens will appeal to down-sizers when
launched during Summer 2019.
MONTROSE, DONNYBROOK,
DUBLIN 4
c. 600 units
An exceptional landmark site located in the
affluent south Dublin suburb of Donnybrook,
3km from the city centre.
CITYWEST
294 units
Popular residential location in West Dublin,
our site is adjacent to a Luas light rail station
providing direct access into Dublin City Centre.
CROSS AVENUE, BLACKROCK,
CO. DUBLIN
221 units
An exclusive site located in the affluent
village of Blackrock on Dublin’s south side,
6km from the city centre.
PARKSIDE, MALAHIDE ROAD
c. 250 units
Much sought-after location with excellent
public transport links to Dublin City
Centre. Sustained strong demand since
its 2015 launch.
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APARTMENTS
FUTURE SITES
BARRINGTON TOWER,
CARRICKMINES, DUBLIN 18
GLENAMUCK ROAD,
CARRICKMINES, DUBLIN 18
GLENHERON, GREYSTONES,
CO. WICKLOW
MARIAVILLA, MAYNOOTH,
CO. KILDARE
PARKSIDE,
MALAHIDE ROAD
STILLORGAN, CO. DUBLIN
SWORDS, CO. DUBLIN
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
RISK REPORT
RISK MANAGEMENT PROCESS
The Group presents its risk
management process and
Viability Statement in line with
the UK Corporate Governance
Code provisions.
The Group maintains a comprehensive
risk register which records identified risks
across the areas of financial, regulatory
compliance, operations including IT and
strategy. The register also includes external
risks which the Board continue to monitor
on an ongoing basis.
The risk register is a key risk management
tool used to identify, assess, mitigate,
monitor and report the key risks facing
the Group. Cairn has adopted a 5 x 5 risk
scoring methodology focusing on both
the likelihood of each risk occurring and
the impact should the risk materialise. Each
risk is assessed initially from an inherent
risk perspective. The controls in place to
mitigate each risk are then considered and
captured on the risk register, which informs
the residual risk rating. Where control gaps
or weaknesses are identified, the Group
seeks to address these through the
development of remediation plans and
further appropriate controls.
The Board engages Deloitte to review
the Group’s risk register at least annually,
which includes a workshop with senior
management to review and challenge the
existing risks and to identify any potential
new or emerging risks to be added to the
register. The risk register helps inform the
Group in identifying the Principal Risks
and Uncertainties for inclusion in the annual
report. The risk register is considered,
discussed and challenged at regular
meetings with senior management, the
Audit & Risk Committee and the Board. The
Principal Risks and Uncertainties consist of
the highest risks as documented on the risk
register while also considering those risks
that could have the greatest impact on
achieving the Group’s strategic objectives
from a top-down perspective.
Going Concern
The Group’s activities, strategy and
performance are explained in the Chief
Executive Officer’s Review on pages 8 to 11
and the Group Finance Director’s Review on
pages 54 and 55 of this report. Having
assessed the relevant business risks, the
Directors have a reasonable expectation
that the Group has adequate resources
to continue in operational existence for
the foreseeable future. The Directors have
50
O
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A R D OVERSIGHT
cution of
ation pla n s
e
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RISK
MANAGEMENT
PROCESS
Ris
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&
a
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Mitigation a n
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g
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O
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MITTEE
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therefore continued to adopt the
going concern basis in preparing 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 continues towards
being significantly cash flow generative by
2021, through a substantial and controlled
investment in construction work in progress
and continued growth in sales and
profitability over the period.
The Group has developed a financial
model as part of our three-year plan, which
is updated at least annually and is regularly
tested and assessed by the Board. Progress
against the three-year plan is regularly
reviewed by the Board through
presentations from senior management
on the performance of the business.
The Group’s Principal Risks and Uncertainties
aggregate the risks identified, as well as the
mitigation plans implemented as part of this
process, and they include the risks that may
have short-term impacts as well as those
which may threaten the long-term viability
of the Group. The Directors have made a
robust assessment of the potential impact
that these risks would have on the Group’s
business model, future performance,
solvency and liquidity.
The three-year plan has been tested for
a number of scenarios which assess the
potential impact of severe but plausible
risks to the long-term viability of the
Group. These scenarios can be summarised
as follows:
• sales are 200 units lower per annum
than budgeted and build cost inflation
runs at 5% per annum, with no house
price inflation;
• all revenues are delayed by three
months and build cost inflation runs
at 5% per annum, with no house price
inflation; and
• all housing revenues are delayed by
three months, all apartment revenues
are delayed by six months and there
is annual house price deflation of 5%.
Having reviewed the three-year plan and
considered these scenarios, the Directors
confirm that they have a reasonable
expectation that the Group will continue to
operate and meet its liabilities as they fall due
over the aforementioned three-year period.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal operating risks and our approach to mitigating those risks are set out in more detail below.
RISK TREND
Risk increased
Risk unchanged
Risk decreased
RISK AREA
RISK DESCRIPTION
MITIGATION
RISK TREND
ECONOMIC
CONDITIONS
Cairn’s business is sensitive to
the performance of the wider
Irish economy (an open economy
whose performance is linked
to that of the global economy),
changes in interest rates,
employment and general
consumer confidence. Changes
in economic conditions are likely
to impact on house prices and
sales rates.
MORTGAGE
AVAILABILITY &
AFFORDABILITY
The availability of mortgage
finance, particularly the deposit
and income requirements set by
the Central Bank of Ireland on
mortgage lending, is fundamental
to customer demand.
Cairn’s Board and management team closely monitor
economic indicators for indications of weakness in
the economy.
Internal systems are in place to track the margin impact of
reductions in sales prices and increased construction costs.
Regular site appraisal reviews are undertaken to address
any risk of impairment.
Economic conditions are
closely monitored on a regular
basis and there has been
no material change this year.
The Group monitors mortgage availability, including any
impact from regulations on mortgage lending and rates on
an ongoing basis and it is a regular item for discussion at
Board meetings.
The Group also monitors volumes of first time buyers, in order
to quantify the impact of the Central Bank of Ireland Loan to
Value and Loan to Income ratios and the Government Help to
Buy tax rebate scheme, as this results in more immediately
realisable mortgage demand.
Changes or potential changes to rules or regulations
are considered by the Group, and in conjunction with
industry experts.
Availability of mortgage finance
is regularly reviewed, both
internally and in conjunction
with industry experts. There
has been no material change
this year.
HEALTH & SAFETY Health and Safety breaches
can result in injuries to Cairn
employees, subcontractors,
customers and the general public
on Cairn sites, and/or result in
delays in construction or increased
costs in addition to reputational
damage and potential litigation.
The Health and Safety department operates independently
of the construction division and reports directly to senior
management in order to maintain independence. Health
and Safety is also a standing item on the Audit & Risk
Committee and Board agendas.
Reportable and non-reportable incidents are measured
across sites and reported to management and the Board on
a regular basis in order to track trends across and within sites.
Cairn continued to achieve
high standards in the area
of Health and Safety during
the year and strives to make
ongoing improvements.
AVAILABILITY AND
STRENGTH OF
SUBCONTRACTORS
The risk, due to Cairn’s outsourced
business model, that the Group is
unable to engage the appropriate
quantity and quality of
subcontractors, which are critical
to the construction and delivery
of new homes.
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 monthly independent safety audits
and scoring of results.
Supply agreements with subcontractors are fixed for a
significant portion of each active site, in order to ensure that
supply is guaranteed, including for timber frame houses.
Given the size of the Group’s land bank and its position
in the marketplace, it is a very attractive customer
for subcontractors.
Management have many years of experience in the
industry and strong relationships with and knowledge
of key subcontractors.
The Group ensures payments are made on time to
subcontractors in order to maximise their liquidity
as they scale their operations.
A panel of approved subcontractors is in place and circulated
on all relevant tenders.
Weekly procurement meetings ensure greater visibility of
subcontractor dependencies and availability across trades.
Subcontractor relationships
and capacity are closely
monitored by the business
on an ongoing basis.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
RISK REPORT CONTINUED
RISK AREA
BREXIT
RISK DESCRIPTION
MITIGATION
Risk of a hard Brexit which could
be detrimental to the Group as
it may impact consumer
confidence, procurement and
sourcing of materials, house prices
and sales rates, thereby causing
a negative impact on Cairn’s
income stream.
The Group continues to monitor the potential impacts
of Brexit.
Close monitoring of economic indicators for indications of
weakness in the economy at Board and management level.
Continuous evaluation of procurement approach and
exposure to external/international markets.
Strong Irish supplier base (> 90%) with limited exposure
to UK materials. Majority of labour and materials are
sourced domestically.
RISK TREND
New risk for 2019.
SUCCESSION
PLANNING
A risk that the loss of key staff
will result in a loss of key corporate
knowledge and consequential
impact on operations.
“9 box” succession planning methodology in place,
in order to identify succession gaps and actions to close
any gaps identified.
Performance management process ensures annual
goal-setting and structured performance feedback
with mid-year and year-end staff ratings.
Ensuring that remuneration policy is robust enough to meet
market demands. Succession planning actions will be directly
linked to compensation outcomes to ensure reward and
retention of best talent.
The Group continues to
place a strong emphasis
on succession planning.
RECRUITMENT AND
RETENTION OF KEY
PERSONNEL
The risk that Cairn does not have
a sufficiently robust HR strategy
in place in order to ensure the
Group’s recruitment policy/plans
are delivered and that key
employees are retained.
The Group’s ambitious growth plans and plc status make it
an attractive place of employment for high calibre employees.
The Group ensures that it has a remuneration policy in
place that is competitive in the market-place to retain key
employees. The Long Term Incentive Plan (“LTIP”) further
incentivises and aligns employees to Group performance.
The Group has continued
to fill out its organisation
structure and has had low
levels of employee turnover.
Annual performance reviews in place to ensure that Group
strategy and goals are communicated to key employees and
to provide regular feedback to ensure they are kept motivated.
The Group utilises a talent acquisition recruitment specialist
to ensure recruitment of high quality employees.
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.
Financial controls and policies in place in order to manage
risks across the key areas.
Regular commercial review meetings and associated
processes ensure robustness of margin reporting.
Central support office personnel with direct site operational
knowledge in place in order to monitor site activity and
site costs.
The design, implementation
and monitoring of the Group’s
financial controls continue to
receive significant investment
and focus.
An outsourced internal audit function tests the internal
control framework and suggests improvements where
required. These improvements are presented to the
Audit & Risk Committee and are reviewed periodically
to assess implementation.
52
RISK TREND
Risk increased
Risk unchanged
Risk decreased
RISK AREA
RISK DESCRIPTION
MITIGATION
RISK TREND
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.
The Group aims to ensure that it always has sufficient liquidity
in place to meet its cash flow requirements for the next
3 years, as evidenced through the 2018 debt refinancing.
The Group prepares regular forecasts which look at both
its short-term and longer-term requirements.
Regular monitoring, forecasting and reporting of
banking covenants.
Speed of construction delivery on sites takes account of sales
absorption rates across each site.
An unforeseen stretch in liquidity can be managed through
a reduction in the pace of construction on one or more sites
if necessary.
The Group refinanced its
debt facilities during 2018.
In doing so it increased the
quantum of available debt
facilities as well as extending
the maturity profile of
its facilities.
GOVERNMENT
POLICY INCLUDING
PLANNING
REGULATIONS
Inability to adhere to the
complex and stringent regulatory
environment that applies to the
building industry. 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.
PROGRAMME
RISK/PROJECT
PLANNING
The risk that the Group incurs
costs which are higher than
expected or experiences delays
in construction due to poor
project planning.
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
subcontractors utilise poor quality,
prohibited or dangerous materials.
The Group monitors all policy changes through its planning
department and this experienced team is well placed to
interpret regulatory changes.
The Group uses external advisors who advise on any changes
to relevant legislation.
Rigorous design standards in place for the new homes the
Group builds.
Participation in industry advocacy groups.
The changes to the planning regime and the establishment
of the Strategic Housing Development planning process
(involving a one step process with An Bord Pleanála for all
sites delivering greater than 100 residential units), have
ensured that the timeframe to obtain planning permission
on large sites has reduced.
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 on-site meetings attended by site management
teams and senior management. 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.
Framework agreements in place with key suppliers providing
certainty over supply and pricing.
Strong quality monitoring through a dedicated quality
manager and on site engineers, and materials are tested
at concrete plants and on site.
Off site manufacturing – using materials and suppliers
that have the capacity to deliver in line with the Group’s
growth plans.
The Group continues to
achieve a high level of success
with regard to planning
applications and is in
compliance with regulations.
Initial planning and ongoing
monitoring of programme
execution is a key business
process for the Group.
Access to adequate quantities
of suitable materials at
competitive prices is a
core focus for the Group.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
GROUP FINANCE DIRECTOR’S REVIEW
54
“ 2018 was a year of continued strengthening of
our financial position, through both trading
performance and debt refinancing, setting
us up for continued success into the future.”
TIM KENNY
GROUP FINANCE DIRECTOR
Our financial performance in 2018
was strong and demonstrates our
excellent progress in delivering
our strategic objectives.
Revenue
Cairn delivered a strong trading
performance in 2018, earning revenues
of €337.0 million (2017: €149.5 million)
from 804 unit sales and a number of
non-core site sales, representing a 92%
increase in unit sales and a 125% increase
in revenues over 2017. Sales of new homes
totalled €294.2 million from nine separate
selling sites. Our average selling price
(“ASP”) was €366,000 (excluding VAT)
(2017: €315,000), representing a 16%
year on year increase. Revenues included
total consideration of €41.7 million
(2017: €16.8 million) from a number
of non-core site disposals.
Outlook
A total of 471 units were closed or forward
sold as at 6 March 2019, the day prior to
our 2018 preliminary results announcement,
equating to revenues of €201.4 million at
an ASP of €428,000 reflecting a higher mix
of premium apartments, including 120 units
at our development at Six Hanover Quay.
This is a strong start in delivering on our
2019 targets.
Gross Margin and Operating Margin
Gross margin progressed further in
2018, with the business delivering a margin
of 20.5% (2017: 18.2%) for the year. The
gross profit amounted to €69.1 million (2017:
€27.1 million). Our continued margin
expansion reflects the benefits of our low
cost land bank, the majority of which was
bought or contracted in 2015, and our scale
which continues to deliver procurement
and operational efficiencies. We achieved
operating profits of €53.2 million
(2017: €14.5 million), representing a 267%
year-on-year increase, with operating margin
strengthening by 610bps to 15.8% (2017:
9.7%) from what is now an established
and profitable business. Administrative
costs of €15.9 million demonstrate that we
are a lean, low-cost organisation, with an
operational platform that is largely complete
from a structural perspective.
Profit after Tax and Earnings per Share
Net finance costs for the year of
€15.6 million (2017: €8.5 million) include
the interest and amortised costs on
our financing facilities. It also includes
exceptional items totalling €3.9 million
arising from non-routine transactions,
including a contingent consideration
settlement relating to a 2016 acquisition
(€3.3 million) and the expensing of
residual unamortised arrangement fees
on refinancing of our debt facilities (€0.7
million). Overall, the Group delivered a
profit after tax of €31.4 million, compared
to €5.0 million in 2017. Basic earnings per
share for 2018 was 4.0 cent (2017: 0.6 cent).
Adjusted earnings per share, which is
adjusted for exceptional items (net of tax),
was 4.4 cent for the year (2017: 0.7 cent).
Financial Position
Total assets amounted to €1,005.8 million
at 31 December 2018 (2017: €1,005.0
million). Net assets totalled €756.6 million
(2017: €721.7 million), an increase of 4.8%.
Inventories at year end were €933.4 million
(2017: €911.5 million), comprising land
held for development of €750.7 million
(2017: €788.8 million), construction work
in progress of €180.8 million (2017:
€104.5 million) and €1.9 million (2017: €18.2
million) of development land collateral. The
investment in construction work in progress
reflects the increase in development activity
during the year as the Group is now active
on 13 development sites. Net debt reduced
by €25.0 million over the course of 2018.
At 31 December 2018, the Group had net
debt of €134.4 million (2017: €159.4
million), comprising drawn debt of €196.7
million (net of unamortised arrangement
fees and issue costs) (2017: €245.2 million)
and available cash of €62.2 million (2017:
€68.8 million). There was no restricted cash
at 31 December 2018 (2017: €17.0 million).
Debt Refinancing
During 2018, the Group refinanced its
primary debt facilities, replacing our
€200 million corporate facility which was
due to mature in December 2019, with
€277.5 million of syndicated bank facilities
maturing in December 2022 and also
completed a €72.5 million private placement
of loan notes, with repayment dates
between 2024 and 2026. The new facilities
provide the Group with greater flexibility,
reduces our cost of funds and extends the
maturity profile of our debt. Our net debt
to inventories (at cost) was just 14.4% at year
end (2017: 17.5%).
Cash Flow
During 2018 the Group generated net cash
from operations of €40.1 million (2017: cash
outflow of €128.6 million), demonstrating
the substantial progress we have made.
We expect this strong cash generation to
continue into the future, supported by the fact
we have bought and paid for all of the land
needed to deliver on our strategic objectives
and also signalled that over time our land
bank will reduce to a more normalised level of
c. 6 – 7 years supply. We expect to generate
free cash of c. €350 million to €400 million
by the end of 2021 and all profits generated
from 2019 onwards will add to our
distributable reserves. This, added to our
€550 million capital reorganisation, which
is subject to High Court approval, will enable
the Board to announce a first interim ordinary
dividend of 2.5 cent per share in September
2019, earlier than previously guided.
This signals the likelihood of future
capital returns and our approach to ordinary
dividends, special dividends and share
buybacks will be outlined to shareholders
at our interim results announcement in
September 2019.
2018 was a year of continued strengthening
of our financial position, through both
trading performance and debt refinancing,
setting us up for continued success into the
future. We look forward to commencing a
progressive capital return strategy in 2019.
Tim Kenny
Group Finance Director
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE SOCIAL RESPONSIBILITY
e
r
a
e
W
BUILDING
COMMUNI-
TIES
Sandra Thorpe and Jude Byrne
presenting a cheque to John
Fitzsimons of St Andrew’s
Resource Centre.
56
“ We recognise our responsibility as a
member of the communities in which
we build, and we don’t take it lightly.
We are proud to be using our skills,
scale and commitment to contribute
to a better society. Placemaking for
our homes is very important to us and
to the communities that we work with.”
OUR CORPORATE SOCIAL
RESPONSIBILITY (“CSR”)
PROGRAMME: HOMES FOR GOOD
We will achieve this by working closely
with our stakeholders towards clearly
stated goals; getting down to work
with a common sense of purpose;
working hard to give people a home;
helping to create strong and vibrant
communities; generating jobs
and growth; and supporting the
environment. Our CSR activities are
strong expressions of our values and
build towards us achieving our vision
of being the most trusted, respected
and safest homebuilder in Ireland.
Our social responsibility activities are based
around four themes: Community, Environment,
Industry and People. Community is our central
theme and feeds into all of our activities.
We believe that the success of these initiatives
will be down to how embedded they are in
our culture and as such we focus on getting
everyone in the Company actively involved
– not only because it gives us great initiatives
to rally around but because it is the right
thing to do.
OPLE
E
P
IN
D
U
S
T
R
Y
COMMUNITY
ENVIRO N M E
N T
INVESTMENT
IN PARKS,
PLAYGROUNDS,
CYCLEPATHS AND
LOCAL COMMUNITY,
SPORTS CLUBS
AND SCHOOLS
CLIMATE
CHANGE READY
INNOVATIVE
SOLUTIONS
FOR UNIVERSAL
DESIGN (“ISUD”)
IN PLACE
A3 ENERGY
EFFICIENT HOMES
CHILDRENS
BOOKS IRELAND
PARTNERSHIP
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
COMMUNITY
Community is the central theme of our CSR programme.
We believe that by working closely with our customers,
local authorities and communities, we are helping to
create places and spaces in which people can thrive and
make a positive contribution to society – today and for
generations to come.
In addition to creating great public
realm and infrastructure projects such
as bridges, roads, schools and public
parks, we place great importance
on the social, sporting and cultural
activities that help to build cohesive
communities.
We are committed to promoting
healthy communities with grass-roots
support for local youth sport teams
and sporting facilities, walkways and
cyclepaths; promoting and supporting
community initiatives like planting
days and family friendly events;
creating culturally rich environments in
collaboration with artists, councils and
residents through our arts programme
and getting involved in the community
at a personal level with our
volunteering programme.
OVER
€70m
commitment for public
realm and infrastructure
projects for 2019-2021
58
ENVIRONMENT
As homebuilders we are acutely aware of the effects
of our business activities on the locations in which we
build and the environment as a whole. From planning
through to landscaping we keep sustainability in
mind and ensure that we are building new homes and
communities that are energy efficient, environmentally
friendly and contribute to biodiversity in Ireland.
We are committed to making our new
homes environmentally sustainable
to both build and to live in. We are
currently introducing off-site fabrication
methods for timber framed homes
which use less energy to build.
We design and build energy efficient
homes which use less energy, cost
less to operate and produce fewer
greenhouse gases, which is good for
everyone and good for the environment.
By its nature, the development of
a site will have an impact on the local
environment. We aim to minimise any
potentially negative impacts and make
a positive contribution to the local
environment wherever possible, and
with the expansion of our biodiversity
programme we are doing just that.
Initiatives like our pollinator friendly
planting policy, our designation of land
to meadow usage and our commitment
to native tree and ground cover planting
put us at the forefront of the promotion
of biodiversity in Ireland. We are
committed to creating great places
to live for all of the residents of our
neighbourhoods – not only the
human ones.
INDUSTRY
We are leading from the front in developing a strong, safe
and sustainable homebuilding industry. By developing
close industry relationships, supporting jobs and
training the next generation we are contributing to
the long-term growth and sustainability of our sector.
5 trees
planted for every home we build
Cairn is a registered
supporter of the All Ireland
Pollinator Plan 2015-2020.
Investment in training, technology
and innovation are key to developing
a resilient business and sector and
ensuring a skilled workforce that
is capable of meeting the industry
needs. Our apprenticeship
programme is designed to integrate
higher education institutes with our
core subcontractor pool, providing
real world experience and knowledge
with the goal of creating new jobs
and training the next generation.
We are committed to working with
all of our stakeholders towards the
UN Sustainable Development Goals
and continue to increase employment
opportunities, especially for young
people, and promote safe and secure
working environments.
OVER
2,000
subcontractor jobs supported
across our active sites
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
PEOPLE
We value our people and trusted partners and are actively
providing resources and opportunities to grow and
develop together. Our priority is ensuring an environment
where our people can develop and do their best work
to build high quality, sustainable new homes in a safe
workplace for all of our people.
Our focus on safety manifests in
our strict enforcement and education
programmes, state-of-the-art safety
equipment and practices and through
our dedicated health and safety
officers, working closely with all
site and office teams to manage risk
and eliminate complacency. We also
engage with independent auditors
to perform monthly health and
safety audits on every site. We also
proactively promote physical and
mental health across the organisation
and provide all employees with
access to our 24 hour Employee
Assistance Programme.
We feel strongly that working together
should be a positive and rewarding
experience and our Continuous
Professional Development Programme
allows for all employees to further
develop their skills. Our Company
volunteering programme rolls out
fully in 2019, providing our employees
with opportunities to engage with
the community on a personal level and
using our skills and know how to help
make society better in any way we can.
10
dedicated Health & Safety Officers
Caoilin Mills Gorman of EMCL onsite at Shackleton Park
60
2018 EMPLOYEE DIVERSITY DISCLOSURES
The Company places great emphasis on
the need to ensure that our workforce
is as diverse as our customer groups,
because it is good practice and also
because we believe that a diverse team
produces better results. We are aware
that there is a challenge traditionally in
our sector to access and attract diverse
talent, so it is a strategic priority for us
to work hard to do so.
We have made some positive progress
on gender diversity as outlined below
in our directly employed workforce.
There is greater ethnic and broader
diversity of talent across the more than
2,500 jobs we support across our active
sites and we will continue to ensure
that diversity of all forms remains a
strategic and operational priority for
our recruitment team.
HEADCOUNT BY GENDER
HEADCOUNT BY AREA
AVERAGE SALARY BY GENDER
155
22.6% (35)
77.4% (120)
155
51.0% (79)
49.0% (76)
€92,481
€72,977
Female
Male
Central Support Office
Site Based
Female
Male
AVERAGE AGE BY GENDER
RECRUITMENT BY GENDER
RECRUITMENT BY AREA
33.7 Years
39.2 Years
76
28.9% (22)
71.1% (54)
76
26.3% (20)
73.7% (56)
Female
Male
Female
Male
Central Support Office
Site Based
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
SITE MANAGEMENT TEAM
A TALENTED
TEAM
Building high quality homes at scale to tight deadlines is a
complex operation and our Site and Project managers are
vital in keeping build programmes on track.
Joanne King
Derek Roche
Paddy Hoare
Neil Scott
Brian Heverin
62
Our depth of technical expertise is unique within
our industry. We are a design-led developer with
an in-house team of architects, town planners and
design managers working alongside our experienced
construction management teams. They are led by
award winning engineers, construction managers
and surveyors who bring a wide array of national
and international residential experience to our team.
Gerry Butcher
Ian Hart, Damien O’ Brien and Pauline Carberry
Kevin Sweeney
Martin Robotham
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
MANAGEMENT TEAM
MICHAEL STANLEY
Co-Founder & Chief Executive Officer
TIM KENNY
Group Finance Director
SANDRA THORPE
Corporate Development Director
JUDE BYRNE
Managing Director, Apartments
LIAM O’BRIEN
Managing Director, Housing
IAN CAHILL
Head of Finance
DECLAN MURRAY
Head of Investor Relations
BRIAN CAREY
Senior Manager Acquisitions
TARA GRIMLEY
Company Secretary
64
SARAH MURRAY
Director of Customer
GERALD HOARE
Pre-Construction Manager
FERGUS MCMAHON
Managing Quantity Surveyor
AIDAN MCLERNON
Planning & Design Manager
JOHN GRACE
Planning & Design Manager
EIMÉAR O’FLANAGAN
HR Manager
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
BOARD OF DIRECTORS
JOHN REYNOLDS
Chairman
MICHAEL STANLEY
Co-Founder &
Chief Executive Officer
TIM KENNY
Group Finance
Director
ALAN MCINTOSH
Co-Founder &
Non-Executive Director
GARY BRITTON
Non-Executive
Director
Age: 60
Nationality: Irish
Appointed to the Board:
28 April 2015
Age: 53
Nationality: Irish
Appointed to the Board:
12 November 2014
Age: 57
Nationality: Irish
Appointed to the Board:
22 August 2017
Age: 51
Nationality: British
Appointed to the Board:
12 November 2014
Age: 64
Nationality: Irish
Appointed to the Board:
28 April 2015
Committee membership:
Chair of the Nomination
Committee (since April
2015).
Independent: N/A
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, Institute of
Directors Ireland and the
National Concert Hall.
Independent: No
Independent: No
Independent: No
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,
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:
Not applicable.
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:
Not applicable.
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:
Not applicable.
Committee membership:
Chair of the Audit & Risk
Committee (since April 2015).
Member of the Nomination
Committee (since April 2015).
Member of the Remuneration
Committee (since December
2016).
Independent: Yes
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.
He is also a Certified Bank
Director as designated by
the Institute of Banking.
Other current
appointments:
Non-Executive Director
of Origin Enterprises plc.
66
ANDREW BERNHARDT
Non-Executive
Director
GILES DAVIES
Non-Executive
Director
JAYNE MCGIVERN
Non-Executive
Director
DAVID O’BEIRNE
Non-Executive
Director
LINDA HICKEY
Non-Executive
Director
Age: 58
Nationality: British
Appointed to the Board:
28 April 2015
Age: 50
Nationality: British
Appointed to the Board:
28 April 2015
Age: 58
Nationality: British
Appointed to the Board:
1 March 2019
Age: 61
Nationality: Irish
Appointed to the Board:
1 March 2019
Age: 57
Nationality: Irish
To be Appointed to
the Board: 12 April 2019
Committee membership:
Member of the Audit & Risk
Committee (since April 2015).
Chair of the Remuneration
Committee (since April 2015).
Member of the Nomination
Committee (since December
2016).
Independent: Yes
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. He went
on to found Conservation
Capital, a leading
practice in the emerging
field of conservation
enterprise and related
investment financing.
He 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.
Committee membership:
Member of the Audit & Risk
Committee (since April 2015).
Member of the Remuneration
Committee (since April 2015).
Independent: Yes
Skills and experience:
Andrew Bernhardt 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 the successful
restructuring in 2010,
Andrew was appointed
as CEO and remained in
this role until 2013. He
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 Fairey Industrial
Ceramics Ltd.
Independent: Yes
Independent: Yes
Independent: Yes
Skills and experience:
David O’Beirne is a former
Managing Partner of the
international law firm
Eversheds Sutherland,
Dublin, is also a former
Head of the firm’s
Corporate and Commercial
Department and is
currently a Partner in its
Corporate & Commercial
Department. David’s
primary practice areas
are mergers, acquisitions,
disposals, private equity
investments, corporate
restructurings and
corporate reorganisations,
and has advised clients,
both domestic and
international, for almost
40 years.
Other current
appointments:
Not applicable.
Skills and experience:
Linda Hickey was
previously Head of
Corporate Broking at
Goodbody Stockbrokers,
where she worked since
2004, and where she
advised clients on a range
of capital markets and
corporate governance
matters. Prior to this,
Linda worked at both NCB
Stockbrokers in Dublin and
Merrill Lynch in New York.
Linda also has a degree
in Business Studies from
Trinity College Dublin.
Other current
appointments:
Non-Executive Director
at Kingspan Group plc
and Chair of the Board
of The Irish Blood
Transfusion Service.
Skills and experience:
Jayne McGivern
is currently Global
Executive Vice President
of Development and
Construction for Madison
Square Garden plc, where
she is responsible for
overseeing all new venue
development projects in
addition to management
of the company’s planned
MSG Sphere venues in
Las Vegas and London.
Her former roles include
Divisional Managing
Director at Redrow plc,
Chief Executive Officer
of the European Division
of Multiplex plc and
Managing Director of
Anschutz Entertainment
Group in London,
during its acquisition
and redevelopment of
the O2, and Chair of the
UK Ministry of Defence
Infrastructure Organisation.
She most recently led
her own private property
investment vehicle,
Red Grouse. Jayne
is also a Fellow of the
Royal Institution of
Chartered Surveyors.
Other current
appointments:
Non-Executive Director
at Skanska AB.
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CORPORATE GOVERNANCE REPORT
We have made significant progress
in diversifying the Board during 2018
as we prepare to implement the new
Corporate Governance Code.
JOHN REYNOLDS
CHAIRMAN OF THE BOARD
Dear Shareholder,
I am pleased to report that for the year ended 31 December 2018, Cairn Homes plc (the “Company”) remains fully compliant with the
requirements of the UK Corporate Governance Code and Irish Corporate Governance Annex, (together the “Code”). We set out on the
following pages the important details of our work as a Board conducted during the year.
As previously announced, Mr. Alan McIntosh moved from an Executive Director role to a Non-Executive Director role in August 2018. In
addition, we engaged Korn Ferry, an independent executive search firm in 2018 to assist the Nomination Committee in its search for new,
independent Non-Executive Directors. We were delighted to welcome Ms. Jayne McGivern and Mr. David O’Beirne to the Board in March
2019, following an extensive process. Ms. Linda Hickey will also join the Board on 12 April 2019. Further details of this recruitment process
are disclosed in the Nomination Committee Report on pages 82 to 85.
The Board currently consists of nine members comprising myself, two executives and six non-executives, one of whom is female. Five Board
members are resident in Ireland with three resident in the UK and one in Kenya. Each member brings their own extensive experience across
a range of sectors including property development, construction, real estate, legal, capital markets and corporate governance allowing for
interesting and constructive debate in the boardroom. We are now also more adequately resourced to diversify the composition of our
Committees which will be a focus for the Board in 2019.
During 2018 we also engaged the Institute of Directors in Ireland to conduct our first externally facilitated Board evaluation. Constructive
recommendations materialised including ensuring more Board oversight of succession planning for key executives within the business and
facilitating Board exposure to a broader cohort of senior management at Board meetings, both of which will be followed up on in 2019.
Further details of this evaluation can be found on pages 71 and 72.
As always, we continue to engage with our shareholders to ensure we keep abreast of their considerations and concerns and will continue
to do so in the coming year.
John Reynolds,
Chairman
Cairn Homes plc Governance Framework
Chairman:
John Reynolds
Board of Directors
Chief Executive Officer:
Michael Stanley
Audit & Risk Committee
Chair: Gary Britton
Committee Report on pages 78 to 81
Nomination Committee
Chair: John Reynolds
Committee Report on pages 82 to 85
Remuneration Committee
Chair: Giles Davies
Committee Report on pages 86 to 104
Senior
Management Team
68
LEADERSHIP
Role of the Board
The Company has a strong Board comprising members who have held senior positions in a number of public and private companies, bringing
a wealth of property, construction, legal, capital markets and public company experience, with a majority of independent Directors (including,
upon appointment, the Chairman) in compliance with the Code. The Board is responsible for the leadership, control and overall strategy of
the Company, including establishing goals for management and monitoring the achievement of those goals.
The Board has a formal schedule of matters specifically reserved for its review including the approval of:
• Significant acquisitions or disposals;
• Significant capital expenditure;
• Financial statements and budgets;
• Risk management processes and the Principal Risk and Uncertainties; 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 Company; and approving the appointment of Directors and the Company Secretary.
The roles of Chairman and Chief Executive Officer are separately held with a clear division of responsibility between them. The Board has
delegated some of its responsibilities to standing Board Committees as detailed below.
Board Committees
The Board has established three Committees to assist in the execution of its responsibilities, the Audit & Risk Committee, the Remuneration
Committee and the Nomination Committee. An overview of these Committees is provided in the Governance Framework on page 68 and in
each Committee report. The current Committee membership, meeting attendance and tenure of each member is set out in each individual
Committee report.
Each Board Committee has specific Terms of Reference under which authority is delegated to it by the Board. These Terms of Reference are
reviewed annually and are available on the Company’s website. The Chair of each Committee reports to the Board regularly on its activities,
attends the Annual General Meeting and is available to answer questions from shareholders.
Chairman
John Reynolds was appointed Chairman of the Board on 29 April 2015 and was considered independent as at the date of his appointment.
The Chairman leads the Board, ensuring its effectiveness by:
• Providing a sounding board to the Chief Executive Officer;
• Providing leadership and spearheading the governance of the Board;
• Setting the agenda, style and tone of Board meetings;
• Ensuring the Board is provided with accurate, relevant, timely information to ensure its effective operation;
• Promoting a culture of openness and debate to ensure each Board member contributes to effective decision-making; and
• Ensuring effective communications with shareholders and shareholder engagement.
The Chairman holds other non-executive directorships and the Board considers that these do not interfere with the discharge of his duties to
the Company.
Director
Andrew Bernhardt
Gary Britton
Giles Davies
Tim Kenny
Alan McIntosh
John Reynolds
Michael Stanley
Board
No. of Meetings
where Director
was a Member
7
No. of Meetings
Attended
6
7
7
7
7
7
7
7
7
7
7
7
7
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CORPORATE GOVERNANCE REPORT CONTINUED
Chief Executive Officer
Michael Stanley was appointed Chief Executive Officer in November 2014. The Chief Executive Officer is responsible for:
• The effective management of the Company;
• Development and implementation of the Board strategy through the Senior Management Team;
• Resourcing of the organisation to achieve its strategic goals, including creating the desired organisational structure for a growing business;
• Promoting of the mission, vision, values and culture of the Company; and
• Maintaining a close working relationship with investors, potential investors and other relevant external bodies.
Senior Independent Director
Giles Davies is the Senior Independent Director. The role of the Senior Independent Director is to:
• Provide a sounding board for the Chairman and to serve as an intermediary for the other Directors when necessary;
• Facilitate shareholders if they have concerns which contact through the normal channels of Chairman or Executive Directors has failed
to resolve or for which such contact is inappropriate;
• To hold a meeting with Non-Executive Directors at least annually (and on such other occasions as are deemed appropriate) to appraise
the Chairman’s performance, taking into account the views of Executive Directors; and
• To attend sufficient meetings with a range of major shareholders to listen to their views in order to help develop a balanced
understanding of the issues and concerns of major shareholders.
Non-Executive Directors
The role of the Non-Executive Director is to:
• Constructively challenge and debate management proposals;
• Examine and review management performance in meeting agreed objectives and targets, including ensuring levels of remuneration
are appropriate for Executive Directors and succession plans are in place;
• Assess risk and the integrity of financial controls and information; and
• Input their knowledge and experience in respect of any challenges facing the Company and in particular, to the development of the
Company’s strategy.
Company Secretary
Tara Grimley was appointed Company Secretary in March 2018. The Company Secretary assists the Chairman in ensuring the effective
operation of the Board. The Directors have access to the advice and services of the Company Secretary who advises the Board on all
governance matters and developments in best practice. The Company Secretary is also responsible for ensuring a good information flow
between the Board and its Committees and the Senior Management Team.
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.
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.
Board Meetings
The Board met seven times during the year. Details of Directors’ attendance at these meetings are set out on page 69. In the event
a Director is unable to attend a meeting, he or she can communicate their views on any items to be raised at the meeting through
the Chairman.
70
EFFECTIVENESS
Board Composition and Independence
The Board is currently comprised of nine Directors, two Executive Directors and seven Non-Executive Directors (including the Chairman).
The biographies of these Directors are set out on pages 66 and 67. The Board considers that at least half the Board, excluding the Chairman
is comprised of independent Non-Executive Directors. The Chairman was deemed independent upon appointment. Further details of the
independence assessments are included in the Nomination Committee Report on pages 82 to 85.
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 invited to attend Board and
Committee meetings, on occasion, in order to help Directors gain a deeper understanding of the Company’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 Board members was established in early 2019. Board members engage with senior management on a
regular basis to assist and enhance 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.
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, including those appointed in March
2019 and to be appointed in April 2019, will seek re-election. Accordingly, all Directors will retire at the Annual General Meeting on 22 May
2019 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.
Board Evaluation
The Board engaged the Institute of Directors in Ireland (“the IoD”) following a tender process to facilitate an external Board evaluation in 2018.
As the Chairman of the Board is a council member of the IoD, the decision on appointment was deferred to the Chairman of the Audit & Risk
Committee. The IoD has no other relationship with the Company. In the latter part of 2018, a consultant from the IoD conducted one-to-one
interviews with each Board member following the completion of a detailed questionnaire, and interviewed a number of senior managers who
regularly attend Board meetings.
The review focussed on the following key areas:
• Strategy and performance;
• Risk management and internal control;
• Composition of the Board and its Committees, Board effectiveness, Board dynamics and contributions and succession planning;
• Stakeholder management; and
• Performance of the Chairman.
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CORPORATE GOVERNANCE REPORT CONTINUED
Board Evaluation continued
The output from this review was presented to the Board and indicated that the Board and Committees had many strengths and consisted of
enthusiastic and committed Directors who were, overall, a successful and collegiate team that continued to operate effectively. The agreed
action items out of this review are summarised below:
• The Board will implement a more formal process around stakeholder engagement, particularly for customers and employees;
• The Board will ensure policies and procedures relating to unexpected operational events are developed;
• The Board will enhance engagement and planning for succession of key employees;
• A formal Board induction process will be put in place for new Directors;
• Formal training for Directors to be undertaken on a regular basis; and
• The Board will receive presentations from a broader cohort of senior managers in the Company.
The Company Secretary in conjunction with the Chairman of the Board will follow up on these recommendations and ensure they are
implemented in 2019. The Board will continue to review its performance, the performance of individual Directors and the Chairman on
an annual basis.
Board Policy on Diversity
Whilst the Company has not put in place a formal Diversity Policy, being cognisant of the benefits of diversity and the recommendations of
the Hampton-Alexander review, the Board and management recognise the clear benefits of increasing diversity at all levels of the organisation
and we made significant progress in this area during 2018 and the first quarter of 2019, both at Board level and throughout the Company.
In February 2019, and as detailed in the Nomination Committee Report, we announced the appointment of Ms. Jayne McGivern (from
1 March 2019) and Ms. Linda Hickey (from 12 April 2019) which will increase female representation on the Board to 20%. As at 31 December
2018, our female employees made up 22% of our total workforce, while 29% of the Chief Executive Officer’s direct reports were female.
In each of these areas, the Company has made progress and diversity will continue to be key focus area for the Board and management,
with the intention that a formal Diversity Policy, which will apply to the Board and the Company as a whole and focus on other areas
including age, educational and professional backgrounds and ethnicity, will be approved in 2019. Further details on diversity within the
Company can be found on page 61.
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 risk management and internal control systems, with the assistance of the Audit & 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 Company’s risk framework continues to evolve, with some risk mitigants only in existence for a short period of time. The Company will
continue to monitor and improve its risk management framework. Further details are available in the Risk Report on page 50.
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 issuance of financial reports is managed by the finance function.
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 & Risk Committee who
recommend their approval to the Board.
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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 & 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.
Further information on the principal risks applicable to the Company is given on pages 51 to 53.
Financial Risk Management
The financial risk management objectives and policies of the Company are set out in note 28 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 whilst at work and provides such information, training and supervision as is required
for this purpose.
It is the policy of the Company to protect, so far as is reasonably practicable, persons not employed by the Group 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 employees at the 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.
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CORPORATE GOVERNANCE REPORT CONTINUED
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 86 to 104 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 interim and preliminary 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 contact with shareholders. The Board also regularly
receives analysts’ reports on the Company.
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 interim and preliminary 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 2019 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 22 May 2019. The 2018 Annual Report and 2019 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.
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/it 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 75% or more of the votes cast by members voting on the relevant
resolution is required in order to pass a special resolution. Matters requiring a special resolution include for example:
• altering the Objects of the Company;
• altering the Constitution of the Company; and
• approving a change of the Company’s name.
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Other
The Company discloses information to the market as required by the Listing Rules of Euronext Dublin and the Listing Rules of the London
Stock Exchange and Financial Conduct Authority, including inter alia:
• Periodic financial information such as interim and preliminary results;
• Price-sensitive information, which for example, might be a significant change in the Company’s financial position or outlook, unless
there is a reason not to disclose such information (e.g. prejudicing commercial negotiations);
• Information regarding major developments in the Company’s activities;
• Information regarding dividend decisions;
• Any changes to the Board once a decision has been made, and
• 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 as soon as possible and in
any event before the start of trading the next day. Information relayed at a shareholders’ meeting, which could be price-sensitive, must be
announced no later than the time the information is delivered at the meeting.
In relation to any uncertainty regarding the communication of a particular matter, advice will be sought from the Company’s sponsors and/or
legal advisor(s).
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CORPORATE GOVERNANCE REPORT CONTINUED
THE BOARD’S YEAR IN REVIEW
In 2018, the Board focussed on Strategy, Board Succession Planning and Company Performance.
Key operational and financial highlights, as laid out on pages 02 and 03, are a testament to the ongoing work of the Board and management
team to deliver on its strategic priorities and continue to grow and develop in a structured, conscious way.
With 27 Board and Committee meetings, some taking place across our various sites located in the Greater Dublin Area, it has been a very busy
year. Some of the highlights and key decisions are detailed below.
JANUARY – FEBRUARY – MARCH
APRIL – MAY – JUNE
Q1
Board
• Approved the Preliminary Results for the year
ended 31 December 2017
• Approved the strategy, budget and three year
2018 to 2020 plan
Audit & Risk Committee
• Reviewed KPMG’s External Audit Report and reviewed the
Preliminary Results for the year ended 31 December 2017
with subsequent recommendation to the Board
• Reviewed and approved Deloitte’s Internal Audit Plan
for 2018 to 2020
• Received updates on GDPR, fraud risk and health
and safety
• Reviewed the Company’s Risk Register and associated
risk mitigation plans culminating in the recommendation
of the Principal Risks and Uncertainties for inclusion in the
2017 Annual Report
• Recommended the Audit & Risk Committee Report to
the Board
• Reviewed and recommended the Directors Compliance
Statement and Viability Statement for inclusion in the 2017
Annual Report
• Reviewed and recommended the 2017 Annual Report
to the Board
Remuneration Committee
• Executive bonuses assessed against 2017 performance
targets and bonus recommendations made
Q2
Board
• Approved 2017 Annual Report
• Approved the forward sale of Six Hanover Quay,
to be completed in 2019
• Approved the sale of three student accommodation sites
• Received additional training on the Market Abuse
Regulation and the Company’s policies and procedures
in relation to share dealing
Remuneration Committee
• Granted share options under the LTIP
• ‘Nine-box’ assessment conducted for all employees
• Analysed 2018 Annual General Meeting shareholder votes
Nomination Committee
• Engaged Korn Ferry to assist with the recruitment
• Review of external benchmarking data compiled by Mercer
of new Non-Executive Directors
• Recommended the Remuneration Committee Report to
the Board for inclusion in the 2017 Annual Report
• Review of longlist of potential new Non-Executive Directors
Nomination Committee
• Agreed to commence a recruitment process for new
Non-Executive Directors
• Talent assessment and mapping process conducted
• Update on succession planning for senior management
• Recommended the Nomination Committee Report to
the Board for inclusion in the 2017 Annual Report
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27 MEETINGS
2 ON SITE MEETINGS
JULY – AUGUST – SEPTEMBER
OCTOBER – NOVEMBER – DECEMBER
Q3
Board
• Approved bank refinancing
• Approved Interim Results for the period
ended 30 June 2018
• Approved Alan McIntosh move from an Executive Director
to a Non-Executive Director
Audit & Risk Committee
• Reviewed and recommended to the Board the Interim
Results for the period ended 30 June 2018
• Reviewed the output of internal audits conducted
in the period
• Received an update on health and safety from the
Health and Safety manager
Remuneration Committee
• Shareholder engagement strategy established
• LTIP construct reviewed for continued appropriateness
for the Company
Nomination Committee
• Alan McIntosh decision to step down as an Executive
Director and continue as a Non-Executive Director
recommended to the Board
Q4
Board
• Agreed to initiate a process to complete
a capital reorganisation
• Approved the strategy, budget and three year
2019 to 2021 plan
• Approved the Corporate Social Responsibility Policy
for the Company
Audit & Risk Committee
• Reviewed and approved the 2018 KPMG External Audit
Plan for the year end audit
• Reviewed and approved Deloitte’s Internal Audit Plan
for 2019 to 2021
• Received bi-annual update on health and safety
Remuneration Committee
• Bonus framework and goals reviewed
Nomination Committee
• Reviewed and conducted interviews of shortlisted
potential new Non-Executive Directors
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“The Committee confirms that,
in our view, the Annual Report,
taken as a whole, is fair, balanced and
understandable, and provides the
information necessary to assess the
Group’s position and performance,
business model and strategy.”
GARY BRITTON
CHAIR OF THE AUDIT & RISK COMMITTEE
Attendance & Tenure
Member
Gary Britton
Andrew Bernhardt
Giles Davies*
Meetings Held Meetings Attended
Committee Tenure
5
5
5
5
5
4
4 years
4 years
4 years
* Mr Davies was unable to attend one meeting during the year due to personal circumstances.
Dear Shareholder,
This report describes how the Audit & Risk Committee (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, and Irish Corporate Governance Annex (together
“the 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.
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 pages 66 and 67
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.
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 & Safety Manager and Company Secretary and representatives of the outsourced Internal
Audit function who attend by invitation. Other members of 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 Committee meetings. The Committee also met privately with the
External Auditor and representatives of the outsourced Internal Audit function without management present.
The Chair of the Committee reports to the Board on the work of the Committee and on its findings and recommendations.
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Key Responsibilities
• 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 Financial Statements, taken as a whole, is fair, balanced and understandable, and
whether it provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy;
• Monitoring the effectiveness of the external audit process and making recommendations to the Board in relation to the appointment,
re-appointment and remuneration of the External Auditor;
• Overseeing the relationship between the Group and the External Auditor including the terms of engagement and scope of the 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.
KEY AREAS OF ACTIVITY DURING 2018
A summary of the key activities of the Committee during the year is set out below:
Financial Reporting
The Committee reviewed the draft preliminary results and draft interim 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 also reviewed
the observations on internal controls prepared by the External Auditor 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 page 81.
In accordance with the reporting requirements of the Code, the 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 Group’s position and
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 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. Further information on the Group’s risk management
process is outlined in the Risk Report on page 50.
Going Concern and Viability Statements
The Committee reviewed the draft Going Concern and Viability Statements prior to recommending them for approval by the Board.
These statements are included in the Risk Report on page 50. This review included assessing the effectiveness of the process undertaken
by management to evaluate going concern, including the analysis supporting the Going Concern Statement and disclosures in the financial
statements. The Committee and the Board consider it appropriate to adopt the going concern basis of accounting with no material
uncertainties as to the Group’s ability to continue to do so. The Committee also reviewed the Viability Statement on page 50.
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 Internal Audit function in 2018 and the
planned programme of work for 2019. The Committee met representatives of the outsourced Internal Audit function on three 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
Our External Auditor, KPMG, was appointed in 2015. The Group currently has no plans to tender for audit services, although is cognisant
of the EU Audit Regulation requirements on auditor rotation.
The Committee reviewed the External Auditor’s overall audit plan for the 2018 audit 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 External Auditor.
In order to ensure the independence of the External Auditor, the Committee received confirmation from the External 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 External 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 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 Auditors judgement or independence.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
AUDIT & RISK COMMITTEE REPORT CONTINUED
Non-Audit Services
During the year, the Committee reviewed and 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 considered 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 External 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 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.
Details of the audit and non-audit services provided by the External Auditor for 2018 and their related fees are disclosed in note 10 to
the consolidated financial statements. The Committee has undertaken a rigorous review of non-audit services provided during 2018 and
is satisfied that these services were efficiently provided by the External Auditor with the benefit of their knowledge of the business and did
not prejudice their independence or objectivity. The fees related mainly to tax advisory services and to restructuring services for work carried
forward from previous years. Specifically, a portion of the fees reflect receivership work on the Project Clear portfolio acquisition, completed
in December 2015, and represents contracted legacy work for which the Group did not appoint the receiver. To have commenced a process
to replace the appointed receiver would have represented a significant burden in costs and delays.
In the absence of the aforementioned restructuring fees, non-audit fees would have totalled 85% of the audit fees in 2018. The Committee has
commenced a process to appoint an independent advisory firm to conduct tax and other non-audit advisory work to ensure the independence
of the Group’s auditor and reduce the level of non-audit work conducted by the External Auditor. In line with EU audit regulations, the Group’s
non-audit fees will be less than 70% of the average of the audit fees over the last three-year period by the year ended 31 December 2020.
Whistleblowing and Fraud
An Anti-Fraud Policy was approved during the 2017 financial year and sets 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.
An Anti-Bribery Policy was approved during the 2017 financial year and sets out the core standards and procedures to be observed and
practical guidance on dealing with bribery risk.
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ESTIMATES AND JUDGEMENTS
The Committee reviewed in detail the following areas of significant judgement, complexity and estimation in connection with the financial
statements for 2018. The Committee considered a report from the External Auditors on the audit work undertaken and conclusions reached
which are set out in their audit report on pages 110 to 113. The Committee also had an in-depth discussion on these matters with the External
Auditors. The significant areas were:
• Carrying value of inventories and profit recognition; and
• Revenue recognition
Carrying Value of Inventories and Profit Recognition
The Group continued to invest capital in developing its land bank during 2018 and the construction work in progress carrying values have
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 2018 to ensure
that the investment in such development land and the related construction work in progress is not impaired. The impairment exercise was
conducted with input from the relevant stakeholders across the business and external input, where appropriate. The annual impairment test
looks at all aspects of site performance on an individual 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 agents’ assessment of the sales value of those units.
All costs associated with the individual sites 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 management and is also tested extensively as part
of the annual audit process.
The annual impairment test did not show any evidence of impairment on a site by site basis.
The Group recognises its gross profit on each sale, based on the particular unit sold and the total cost attaching to that unit. As the build
cost on 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 across the scheme. There is a risk that one or all of the assumptions
could be inaccurate, with a resulting impact on the carrying value of inventory or the amount of profit recognised. This risk is managed through
ongoing site profitability reforecasting, with any necessary adjustments being accounted for in the relevant reporting period.
The Committee considered the evidence from impairment reviews and profit forecasting models across the various sites and discussed the
results with management and is satisfied with the carrying values of inventories (development land and construction work in progress) and
with the methodology for the release of costs on the sale of individual units.
Revenue Recognition
Considering that the Group experienced a significant increase in revenue in 2018 and a new accounting standard was introduced in the
form of IFRS 15, revenue recognition was a key focus area for the Committee. The Committee, through discussions with management and
with the External Auditor, monitored the effectiveness of the internal controls exercised over the key processes employed by the Group in
relation to revenue, and considered the application of IFRS 15 to the Group’s contractual arrangements with customers. The Committee is
satisfied with the treatment of revenue recognition and the associated disclosures.
As Chair of the Committee, I engaged with the Group Finance Director, the Internal Audit function and the External Auditor 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
Chair of the Audit & Risk Committee
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOMINATION COMMITTEE REPORT
During 2018, the Nomination
Committee was particularly active
in identifying suitable candidates
as part of its succession planning
for the Board of Directors.
JOHN REYNOLDS
CHAIR OF THE NOMINATION COMMITTEE
Attendance & Tenure
Member
John Reynolds
Gary Britton
Giles Davies
Meetings Held Meetings Attended
Committee Tenure
5
5
5
5
5
5
4 years
4 years
4 years
All members of the Nomination Committee (“the Committee”) are independent Non-Executive Directors (or in the case of the Chairman
of the Board, independent upon appointment). Member biographies can be found on pages 66 and 67.
Key Responsibilities
The Committee is responsible for Board recruitment and conducts a continuous and proactive process of planning and assessment, taking
into account the Company’s strategic priorities and the factors affecting the long term success and future viability of the Company.
The key objective of the Committee is to ensure the Board is comprised of individuals with the requisite skills, knowledge, experience and
expertise which are appropriate for the Company’s requirements today and into the future. These responsibilities include:
• To review and evaluate the balance of skills, knowledge, experience and diversity of the Board and Committees and make
recommendations to the Board with regard to any changes;
• To play a leading role in the annual Board evaluation process;
• To consider succession planning for Directors and other senior management as appropriate, taking into account which skills and expertise
are required for the future growth and scaling of the Company, as well as the competitive landscape within which it operates;
• To identify and nominate for the approval of the Board, candidates for appointment as Directors;
• To make recommendations to the Board on the independence of Non-Executive Directors;
• To keep under review the time commitment expected from the Chairman and Non-Executive Directors;
• To consider the re-appointment of any Non-Executive Director at the conclusion of their term of office and recommend their re-
appointment to the Board having due regard for their ability to continue to contribute to Board effectiveness; and
• To review the corporate governance framework and practices of the Company, to ensure the highest standards of corporate governance
are maintained.
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Key Areas of Activity in 2018
• Evaluated the balance of skills, experience, independence and knowledge on the Board;
• Oversaw the appointment process and interviewed shortlisted candidates for Non-Executive Director roles and recommended to the
Board the appointment of three new independent Non-Executive Directors in 2019; and
• Under the direction of the Chairman, played a leading role in the external Board evaluation process.
GOVERNANCE
BOARD COMPOSITION
SUCCESSION PLANNING
• Reviewed and approved the
Committee’s annual agenda
and Terms of Reference
• Reviewed any actual or potential
conflict of interests which may
arise for any Board member
• Reviewed the structure, size and
• Ensured that succession
composition 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
• Ensured that the time commitment
required from the Chairman and
Non-Executive Directors were
appropriate to fulfil their roles
• Completed a skills assessment of the
current Board to identify gaps in skills,
diversity and capabilities required
to support the Company’s growth
• Recruited three additional
independent Non-Executive
Directors to address diversity
and skills gaps identified
requirements were considered
in the hiring of key senior
management (Corporate
Development Director, Company
Secretary and Director of Customer)
• Assessed the tenure and
effectiveness of current
Board members
• Supported top talent assessment
with the Chief Executive Officer
to identify employees in the
succession pipeline
Board Refreshment
During 2018, the Committee placed particular focus on Board development and putting in place plans for Board refreshment. As part of
that focus, the Committee undertook a formal, rigorous recruitment process to manage the search for additional Non-Executive Directors
with relevant sector experience to ensure that the Board’s composition continues to evolve alongside the scaling of our business.
With the support of Korn Ferry, an independent executive search firm, the Committee looked in detail at the skills and capabilities that would
be required from new Non-Executive Directors to help the Company achieve its strategic objectives and deliver sustainable shareholder value.
The outcome of this detailed review, which took into account the opinions expressed by Board members and feedback from shareholders,
resulted in the identification of a list of potential candidates.
Based on the skills that each candidate would bring to the Board, the Committee then selected candidates to invite forward to interview.
The initial interview process for each candidate involved meeting with the Chairman, Company Secretary and Director of Corporate
Development who then shortlisted candidates to proceed to a further interview with the Chief Executive Officer and one other Board
member. The focus of these interviews was to ensure that the selected candidates would appropriately diversify the Board’s composition
and deepen the sectoral, corporate governance and legal capabilities of the Board.
Non-Executive Director Appointments
This process culminated in the Committee recommending to the Board the appointments of Ms. Jayne McGivern, Ms. Linda Hickey and
Mr. David O’Beirne, which were announced in February 2019. The Committee was pleased to recommend three outstanding candidates
to join the Board.
Ms. McGivern brings a depth of sectoral experience to the Board having worked in an executive capacity in other property and construction
companies. Ms. McGivern will also add invaluable knowledge to Board discussion due to her directorship of another publicly quoted construction
company outside of Ireland.
Mr. O’Beirne brings significant legal expertise to the Board having advised clients on both domestic and international transactions for almost
40 years. Mr. O’Beirne also has a deep understanding of the Irish commercial landscape and Irish company law and will greatly enhance the
Board’s deliberations going forward in these areas.
Ms. Hickey has extensive corporate governance experience as a long standing independent Non-Executive Director of a public company
and a chair position on the board of a state sponsored body, as well as having held senior positions in financial services firms both in Ireland
and the US. Ms. Hickey will further strengthen the capital markets and corporate governance expertise on the Board when appointed on
12 April 2019, complementing the existing Non-Executive Directors’ abilities.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOMINATION COMMITTEE REPORT CONTINUED
Director Independence
The Board considers that at least half the Board, excluding the Chairman, is comprised of independent Non-Executive Directors. All
Non-Executive Directors, excluding Alan McIntosh, are considered independent by the Board. The Chairman was deemed independent
upon appointment.
In accordance with the UK Corporate Governance Code (the “Code”), the Committee took particular account of the following matters in
determining the independence of Directors:
• Have they been an employee of the Company within the last five years;
• Have they had a material business relationship with the Company;
• Have they received additional remuneration apart from a Director’s fee;
• Have they close ties with any of the Company’s advisors, Directors, or senior employees;
• Do they represent a significant shareholder or have significant links with other Directors through their involvement in other companies
or bodies; or
• Have they served on the Board for more than nine years from the date of their election.
As Alan McIntosh is a Founder and former executive of the Company, the Board do not consider him independent. Nonetheless, the Board
is firmly of the belief that Mr. McIntosh’s skills and experience and his knowledge of Cairn’s business will result in him continuing to provide
a highly valued contribution to the Board.
The Board considers that each of Andrew Bernhardt, Gary Britton, Giles Davies, Linda Hickey, Jayne McGivern and David O’Beirne are independent
in character and judgement. In the case of Ms. Hickey and Mr. O’Beirne, a thorough review was undertaken by the Committee and the Board in line
with the Code to ensure that there were no relationships or circumstances that were likely to affect, or could affect their judgement.
The Board had due regard for Ms. Hickey’s position as a retiring senior executive at Goodbody Stockbrokers, one of the Company’s
corporate brokers and her position on the Board of Kingspan Group plc (“Kingspan”). Kingspan supplies raw materials to the Company
and is the largest supplier of timber frame housing in Ireland. The availability of suppliers at such scale is limited in the Irish market and
procurement of these products was strictly subject to the Company’s standard procurement procedures.
The annual level of fees and expenses paid to Goodbody Stockbrokers are normally in the region of €50,000 for corporate broking services.
In 2018, additional once-off fees of €500,000 were incurred for work completed relating to loan refinancing services in which Ms. Hickey had
no involvement.
The Committee’s rationale in selecting Ms. Hickey was based on identifying a candidate who could bring additional insight into the
capital markets environment within which the Company operates as an Irish plc. Ms. Hickey, having worked for two of the three largest Irish
stockbroking firms and retiring from an executive role in Goodbody Stockbrokers, will present the Company with very valuable insight into the
capital markets domain as it applies to an Irish plc. She will also bring the benefit of five years’ experience as an independent Non-Executive
Director with Kingspan where she has overseen a company which has experienced very significant growth and operates in a related sector.
In these circumstances the Committee concluded that there was no material relationship, financial or otherwise, which might either directly
or indirectly influence her judgement upon her appointment on 12 April 2019.
In determining the independence of Mr. O’Beirne, the Board had particular regard for his position as a partner in Eversheds Sutherland,
a legal firm that primarily provides conveyancing advice to the Company. The Board concluded that Mr. O’Beirne was fully independent,
taking into account the following factors:
• He will not have any role in the selection or retention of legal advisors to the Company nor is the Company in any way influenced in
its choice of legal advisors by reason of him being a Director;
• All work undertaken by Eversheds Sutherland for the Company is managed by other partners within the firm, and there is protection in
place to ensure that no information about the Company’s legal affairs is available to Eversheds Sutherland which is not available to all
other Directors generally; and
• He does not, nor has not, had any involvement in advising the Company on any legal matters.
The Board identified Mr. O’Beirne as an experienced and accomplished corporate lawyer who would add important legal and regulatory
experience to the Board. Mr. O’Beirne has on no occasion acted as an advisor in any capacity to the Company. The Company uses the
services of A&L Goodbody and Pinsent Masons for corporate law advice in Ireland and the UK respectively, and also receives legal advice
from other firms including Beauchamps and Arthur Cox. In 2018, fees paid to Eversheds Sutherland amounted to less than 5% of that firm’s
overall revenues.
In light of the above, the Board concluded that there was no material relationship, financial or otherwise, which might either directly or
indirectly influence his judgement.
The Committee will continue to assess Board independence and effectiveness on an annual basis and determine whether any further
appointments are necessary to ensure that the Board remains effective in its decision making and ability to support the Company’s growth.
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Succession Planning
Succession planning is an important element of good governance, ensuring that we are fully prepared for planned or sudden departures.
Both the Nomination and Remuneration Committees have clear roles in aligning succession planning and incentive arrangements with the
development of our strategy and during the year the Committee placed a particular focus on ensuring there was a clear connection between
its work and activities and those of the Remuneration Committee.
During 2018, the Board supported the Chief Executive Officer in his annual review of the Company’s succession plans. This involved a review
of the succession plans for Executive Directors and other senior management roles below Board level. The aim of this review was to identify
suitable individuals 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, managers below Board level consistently undergo talent assessment and
development coaching and will also be invited to attend part of a Board meeting to present on their specialist area. This will allow the Board
to develop a clear insight into the quality of the talent pipeline in the organisation and provide the individual with a greater understanding of
the workings of the Board. A key aspect of further developing the Committee’s understanding of our talent pipeline is the regular updates
the Committee received from HR on the assessment of a significant number of employees below Board, which included details on our
‘nine-box’ approach to evaluating employee performance and potential growth for broader roles across the Company.
The Committee agreed that development plans be put in place for senior management to ensure that we mitigate “key people” risk and
have robust succession plans in place to retain our best people and to sustain the Company’s growth and performance.
External Board Evaluation Process
Under the direction of the Chairman, an independent Board evaluation review was conducted during the year, which was externally facilitated by
the Institute of Directors in Ireland (the “IoD”). The Committee will take an active role in ensuring the recommendations made in the evaluation are
effected. Further details of the evaluation and findings can be found in the Corporate Governance Report on pages 71 and 72.
Re-Election of Directors
The effectiveness and commitment of each of the Non-Executive Directors is reviewed annually. The Committee has satisfied itself as to
the individual skills, relevant experience, contributions and time commitment of all the Non-Executive Directors, taking into account their
other offices and interests held. Prior to the appointment of Ms. McGivern and Mr. O’Beirne to the Board in March 2019, and the imminent
appointment of Ms. Hickey, the Board reviewed the new Directors’ other roles and were satisfied by their approaches to managing their
time commitments.
The Board is recommending the formal election to office of the new Directors and the re-election to office of all the other Directors at
this year’s Annual General Meeting. Details of the Service Agreements for the Executive Directors and the Letters of Appointment for the
Non-Executive Directors are set out on pages 90 and 93.
Advisors
During the year, the Committee worked with independent executive search firm Korn Ferry, to identify candidates for additional Non-
Executive Director roles. For the 2018 external Board evaluation, the Committee worked with the IoD. John Reynolds is a council member of
the IoD and deferred the Board evaluation tender decision to the Chair of the Audit & Risk Committee. FTI Consulting also provided broad
governance advice to the Committees and Board during the year. None of the above consultants has any other connection with the Company.
Priorities for 2019
In 2019, the Committee will continue to ensure that Chief Executive Officer succession planning and senior management capability is
supported and, where necessary, further developed. The progress made during 2018 will continue as the Board assists the Executive Directors
in enhancing the Senior Management Team and the senior site managers across the business. Visits with senior site managers are also a key
element of Board development. The Board’s exposure to the workforce is a pivotal aspect of directly obtaining the viewpoint of employees
within the Company, which enhances their understanding of various aspects of our culture, values and work environment.
Following the appointment of three new Non-Executive Directors, the Committee will focus on overseeing the induction of each new
Board member. On joining the Board, new members receive a tailored induction organised by the Company Secretary which covers,
amongst other things, the business of the Company, their legal and regulatory responsibilities as Directors, briefings and presentations
from relevant senior managers and opportunities for site visits to certain of the Company’s operations. Additionally, the Committee will
assess the composition of the Board’s Committees. The Committee currently envisage that each new Non-Executive Director will, over time,
join one or more of the Board’s Committees.
Lastly, with the introduction of the new 2018 Corporate Governance Code, effective for the Company from 1 January 2019, the Committee
will place particular emphasis on developing our corporate governance framework and continue to align it with corporate governance
requirements and market best practice. In the 2019 Annual Report, we will, for the first time, report against the revised 2018 UK Corporate
Governance Code.
John Reynolds
Chair, Nomination Committee
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT
2018 was another year of strong growth
and delivery against key strategic
objectives for Cairn.
GILES DAVIES
CHAIR OF THE REMUNERATION COMMITTEE
Attendance & Tenure
Member
Giles Davies
Gary Britton
Andrew Bernhardt
Meetings Held Meetings Attended
Committee Tenure
10
10
10
9*
10
10
4 years
4 years
4 years
* Mr Davies was unable to attend one meeting during the year due to personal circumstances and requested the Board Chairman to Chair the meeting in his absence.
Dear Shareholder,
As Chair of the Remuneration Committee (the “Committee”), I am pleased to present our Remuneration Report for the year ended
31 December 2018. In the period since our initial public offering, the Company has made significant progress in terms of scaling and growth
in financial performance. In line with the development of the business, a key focus for the Committee has been ensuring our approach to
remuneration and, of equal importance, our communication with shareholders through the Annual Report and direct engagement, has
continued to evolve. Throughout this report we have sought to provide enhanced disclosure on our remuneration framework and how
Committee decisions reflect the strategic goals and direction of the business.
Approach to Remuneration
The Committee’s overall philosophy on remuneration remains to ensure that Executive Directors and employees are incentivised to
successfully implement strategy and that remuneration promotes alignment with the long term interests of shareholders. In implementing
the Remuneration Policy approved at the 2017 Annual General Meeting, the Committee seeks to ensure that:
• 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 need to attract, retain and motivate employees of a high calibre is taken into account; and,
• Risk is properly considered in setting the Remuneration Policy and in determining remuneration packages.
As an Irish incorporated company, the Company is not subject to the UK executive remuneration requirements as set out in the Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. Nonetheless, in order to ensure transparency
to all of our stakeholders, we have sought to comply with these requirements on a voluntary basis, to the extent possible under Irish law.
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Performance and Remuneration Outcomes
2018 was another year of strong growth for the Group, with management driving continued progress as evidenced in a number of
key areas.
• Significant Growth: Revenues increased to €337.0 million (2017: €149.5 million)
• Continued Scaling: Delivered 804 unit sale completions. Active on 13 developments, up from 11 at the end of 2017, which will deliver
5,000 new homes
• Financial Performance: Gross profit increased by €42.0 million to €69.1 million (2017: €27.1 million) and the Group made a profit after
tax of €31.4 million (2017: €5.0 million)
• Margin Progression: Continued progression in gross profit margin which strengthened to 20.5% (2017: 18.2%)
• Capital Restructuring: Successfully completed a €350 million debt refinancing and further developed other strategic opportunities.
In addition to the key financial highlights detailed above, the Committee considered carefully the impact of the performance of Executive
Directors on operational scaling and quality metrics, all of which we believe justify payment of above target bonuses to both the Chief
Executive Officer and the Group Finance Director. An important principle for the Committee is that “standards rise” in terms of performance
expectations annually. While annual incentives were effectively decreased in 2017 (compared to 2016) as the ‘hurdle’ for high performance
continually rises, the team have performed exceptionally well in 2018 and have exceeded expectations in terms of financial and operational
performance. Further details of the bonus framework and performance are provided on pages 97 and 98.
As the first grants under our Long Term Incentive Plan (“LTIP”) were made in 2017, no awards were capable of vesting during 2018. An update on
performance against the Earnings Per Share (“EPS”) and Total Shareholder Return (“TSR”) targets for those awards is provided on page 99.
2018 LTIP Awards
During 2018, the Committee spent significant time determining the targets under the LTIP. The Committee has sought to ensure that
the targets in place are suitably stretching while reflecting the future performance of the business as it grows and scales. The Committee
was cognisant of the steps taken to accelerate and increase investment in central overheads that were made to support more stretching
growth objectives over the past two years. In particular, these increases in investment were made to provide greater resources to align
with increased investment in Dublin city centre apartment sites and their subsequent planning, design and construction. Market consensus
figures are carefully considered in setting targets that are achievable but stretching. While consensus figures remain a component of ensuring
we set targets that are achievable but stretching, as we remain in a state of substantial scaling and expansion, the Committee place greater
weighting in the more accurate picture provided by internal projections. Consequently, for 2018, the Committee determined that there would
be a minor recalibration of the maximum target under the EPS component of the LTIP. The threshold target has remained unchanged and the
TSR target is 12.5% and represents 20% of the total target under each grant of the LTIP. The narrowing of the EPS performance range reflects
the Committee’s clearer line of sight over expected and stretching performance as the Company has developed.
The Committee is fully aware of the sensitivities around the lowering of performance targets among shareholders and proxy advisors.
In determining the revisions to the targets, the Committee carefully weighted shareholder feedback, consensus forecasts and internal
modelling of expected performance. In order for the EPS component of LTIP 2018 to vest in full, management will have to deliver very
significant growth over the remaining two years in this cycle. Furthermore, as outlined below, the proposed LTIP 2019 target will require
an average EPS in excess of 10 cent p.a. over that three year cycle to fully vest. In our view, these are stretching targets and if achieved
they would represent an excellent result for shareholders all within six years of our initial public offering.
The Chief Executive Officer, who holds Founder Shares, will not receive an award under the LTIP for the duration of the performance
period relating to his Founder Shares. Therefore, the only Executive Director who currently participates in the LTIP is Tim Kenny, Group
Finance Director.
The TSR target remains unchanged at 12.5%
and represents 20% of the total target under
each grant of the LTIP.
2018 LTIP TARGET – EPS
100%
75%
50%
25%
0%
16.7c
24.0c
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
Shareholder Engagement
The Committee is committed to open dialogue with shareholders and institutional investor bodies on remuneration matters and welcomes
feedback as it helps to inform its decisions. During the early part of 2019, the Chairman of the Board and I contacted shareholders who hold
approximately 70% of our issued share capital as well as the proxy advisors ISS and Glass Lewis with an outline of our proposed changes and
requested a meeting to obtain their feedback and input on a range of governance areas. During this process we received feedback from
shareholders representing almost 50% of our issued share capital, and the proxy advisors. The Committee found the feedback to be very
valuable, particularly on target setting, progress against the 2017 LTIP targets and how performance measures are aligned with strategy. I would
like to take this opportunity to thank shareholders for their time in engaging with us. Later in 2019, in advance of proposing a Remuneration
Policy at the 2020 Annual General Meeting, we will once again consult with shareholders to ensure their views are reflected in our decisions.
Remuneration in 2019
The Committee has determined that the salary of the Group Finance Director, Tim Kenny, should be increased by 5% effective from 1 January
2019. This increase is marginally below that awarded to the wider workforce. While the Committee is not reliant on benchmarking, it does
use such data as a reference point and acknowledged that Mr. Kenny’s fixed and variable pay have remained below market median since his
appointment in 2017.
In response to shareholder feedback, and as we strive to enhance the level of disclosure in our Remuneration Report, we are providing
prospective disclosure of the LTIP targets that will apply to the grants to be made in April 2019, which will be considerably higher than those
in 2017 and 2018 for the EPS component of awards. As with the target setting process for the 2018 LTIP, the Committee undertook a rigorous
review of the Company’s strategic growth plans, three year plan and external forecasts when setting the target for the 2019 LTIP. Prior to finalising
the target, the Committee also engaged with shareholders to consider their views and determined the following target ranges for the 2019
LTIP awards:
2019 LTIP TARGET – EPS
100%
75%
50%
25%
0%
The TSR target remains unchanged at 12.5%
and represents 20% of the total target under
each grant of the LTIP.
19.9c
31.0c
The Committee is satisfied that the progress the business has made is reflected in a substantial increase in EPS targets for the 2019 to
2021 performance period. In order for awards to vest in full, management will be required to meet truly stretching expectations.
2018 UK Corporate Governance Code
In July, the Financial Reporting Council published the new UK Corporate Governance Code, in which a number of revisions relating to
remuneration were introduced. The principal new provisions which are likely to impact on our future Remuneration Policy relate to pensions
and post-employment shareholding requirements, which apply from 1 January 2019 and will be reported on in our 2019 Annual Report. As
our current Remuneration Policy is in effect until our 2020 Annual General Meeting, we have not finalised the steps we will take to ensure our
new Remuneration Policy fully reflects the provisions of the new UK Corporate Governance Code.
On behalf of the Committee and the entire Board, I thank all shareholders and their representatives for the constructive engagement in 2018
and 2019 and the valuable feedback and suggestions. We are grateful for your continued support and welcome any future guidance.
Giles Davies
Chair, Remuneration Committee
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ROLE AND RESPONSIBILITIES OF THE COMMITTEE
Our Role
The 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 to:
• Determine the remuneration packages of the Chairman, Chief Executive Officer, Group Finance Director and certain other senior
managers, including salary, annual incentive, pension rights and compensation payments;
• Oversee remuneration structures for senior management and to oversee any major changes in employee benefits structures
throughout the Company;
• Nominate Executive Directors and management for inclusion in the 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 LTIP;
• Ensure that contractual terms on termination or redundancy, and any payments made, are fair to the individual and the Company;
• Be exclusively responsible for establishing the selection criteria, selecting, appointing and setting the Terms of Reference for any
consultants who advise the Committee;
• Obtain up to date information about remuneration in other companies of comparable scale and complexity; and
• Agree the policy for authorising claims for expenses from the Directors.
Key Responsibilities
The Committee follows an annual program of work to execute these responsibilities which for 2018 were:
EXECUTIVE REMUNERATION
GOVERNANCE
SHAREHOLDER CONSULTATION
LONG TERM INCENTIVES
• Reviewed annual
performance of the
Executive Directors
• Determined fixed and
variable remuneration
for Executive Directors
and senior management
• Reviewed and made
progress against the
remuneration strategy
agreed to execute the
Remuneration Policy
• Worked with the
Committee’s consultants
during 2018 to ensure
rigour of Committee
analysis and decision
• Considered and
approved the
Remuneration Report
and remuneration
disclosure requirements
• Reviewed and approved
its annual agenda and
Terms of Reference
• Implemented
Remuneration Policy
and LTIP approved
following previous
consultation with
shareholders
• Engaged with
shareholders to
discuss Remuneration
approach for 2018
• Set 2018 and 2019
LTIP targets following
consultation with
shareholders
• Ensured LTIP awards
were linked to
succession planning
• Assessed efficacy and
stretch of LTIP targets
through all cycles
Q1
• Evaluation of business
strategy and priorities
relative to remuneration
Q2
• Succession planning &
“Nine-Box” assessment
of top talent
• Executive Director
• LTIP target review
Q3
• Remuneration Report
development
• New hire review relative
to succession gaps
goal setting
• Terms of Reference
review
• LTIP target review
Q4
• Year end performance
and compensation
assessment for
Executive Directors
• Assessment of
remuneration
outcomes for general
employee base
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
The Committee met ten times during the year ended 31 December 2018. The main agenda items included:
• Determining the annual incentives payable for 2017;
• Overseeing the Remuneration Policy implementation;
• Approving the grant of LTIP share awards;
• Setting LTIP performance targets;
• Reviewing remuneration trends and market practice;
• Approving the remuneration packages of Executive Directors and senior management;
• Reviewing pension matters; and
• Approving the 2017 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 Committee.
Non-Executive Directors Letters of Appointment
Non-Executive Directors have Letters of Appointment which set out their duties and responsibilities. The appointments are for three year
terms but are terminable on one month’s notice by the Board.
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.
REMUNERATION POLICY
Cairn Homes plc’s Remuneration Policy (the “Policy”) is set out below. The Remuneration Report and Policy were approved following a
shareholder advisory vote at the 2017 Annual General Meeting which approved the Policy at 99.5% and it is now fully operational.
Through the implementation of the Policy, the Board seeks to align the interests of Executive Directors and other senior management
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, both of which are aligned to
the embedding of our culture and values.
The basic objective of the Policy is to promote the long term success of the business by ensuring remuneration reflects business
performance and personal contribution to the delivery of the Company’s strategy.
Through the operation of the Policy, the Committee seeks to ensure that:
• The Company will attract, motivate and retain individuals of the highest calibre;
• Executive Directors and senior management are rewarded in a fair and balanced way which promotes the long term success
of the Company;
• that Executive Directors and senior management 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 Executive Directors and senior management; and
• Risk is properly considered in setting the Policy and in determining remuneration packages.
The Policy requires well designed incentive plans that reward the creation of shareholder value through organic and acquisition growth, while
promoting strong cash generation and a focus on good risk management. The elements of the remuneration package for the Executive Directors
and other senior management are annual salary, retirement benefits and allowances, annual performance related incentives and participation in
an LTIP, which promotes the creation of sustainable shareholder value. Each element of remuneration is set out in full in the Remuneration Policy
table below.
90
Remuneration Policy
The key elements of the remuneration for Executive Directors and other senior management under the Policy are set out in the table below.
Element and link to
Remuneration Policy
Approach
Maximum Opportunity
SALARY
To attract and retain high
performing talent required
to deliver the business
strategy, providing core
reward for the role.
ANNUAL INCENTIVES
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.
The target position for salaries will
generally be market median. Any annual
salary increases will be considered in that
context and reflect wider considerations
of performance and increases in pay for
the wider workforce.
To incentivise and reward
the delivery of near term
business targets and
objectives.
Annual Incentive payments to Executive Directors and other
senior management are based on (a) meeting the Company’s
financial objectives and (b) the overall contribution and
attainment of personal objectives.
The target and maximum awards, as a
percentage of annual salary, for the
Executive Directors are as follows:
Chief Executive Officer
Target Max.
70% 105%
Other Executive Directors
50%
75%
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 senior management), 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 92.
CAIRN HOMES PLC LONG TERM INCENTIVE PLAN (“LTIP”)
To reward and retain
Executive Directors and
senior management over
the longer term and align
the interests of management
and shareholders through
incentivising the delivery
of strategy.
Under normal circumstances, the
maximum annual award of Performance
Shares is up to 100% of salary. In
exceptional circumstances, such as
recruitment, awards of up to 200% of
salary can be made. The actual grant
size will be dependent on individual
performance and potential.
No more than 5% of the issued ordinary
share capital may be issued or reserved
for issuance under the LTIP over any ten
year period.
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.
Performance Share awards vest based on three year financial
performance, with measures including cumulative EPS and
TSR. The Committee will consider the appropriate measures
and targets for each subsequent cycle depending on
strategic priorities.
Performance Shares will vest after three years, with
awards made to the Executive Directors and other senior
management subject also to an additional two year holding
period after vesting.
A formal clawback policy is in place for the Executive Directors
(and other senior management), 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 92. Any unvested awards
will also be subject to malus provisions.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
RETIREMENT BENEFITS
To attract and retain talent
by enabling long term
pension saving.
ALLOWANCES
To provide market
competitive benefits
consistent with role.
Executive Directors and senior management 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.
The main benefit is a car allowance. However, benefits can
include medical insurance, life assurance, health screening
and participation in all employee share schemes.
Maximum levels have not been set as
payments depend on the individuals
circumstances and may be subject to
change periodically.
Notes to the Policy Table
The Committee may make minor amendments to the Policy set out above (for regulatory, exchange control, tax or administrative purposes
or to take account of a change in legislation) without obtaining shareholder approval for that amendment.
The rules of the incentive plans permit the substitution or variance of performance conditions to produce a fairer measure of performance as a
result of an unforeseen circumstances or transaction and include discretions for upwards adjustment to the number of shares to be realised in
the event of a takeover, scheme of arrangement or voluntary winding up. Non-significant changes to the performance metrics may be made
by use of discretion under the LTIP rules.
The Committee reserves the right to make remuneration payments and payments for loss of office (including exercising any discretions available
to it in connection with such payments) that are not in line with the policy table set out above where the terms of the payment were agreed:
(i) before the Policy came into effect; or (ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the
Committee, the payment was not in consideration for the individual becoming a Director of the Company.
Performance measures for the annual bonus scheme and the LTIP are selected to focus the Executive Directors on strategic financial and
operational priorities, both short term and those related to long term sustainable performance, providing alignment with shareholder interests.
Targets for each performance measure are then set by the Committee in light of strategic objectives over the short term for the annual bonus
scheme and over at least a three year performance period for the LTIP. In setting targets, the Committee takes into account a number of
reference points including our three year plan and the external market.
Clawback Policy
Incentive payments made to the Executive Directors and other senior management 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; or
• a material breach of applicable health and safety regulations by the individual.
The rules of the LTIP provide for 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 Directors interests with those of shareholders, the Committee has
adopted guidelines for Executive Directors to retain substantial long term share ownership. 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. Executive Directors and other senior management will be required to
hold 50% of any vested LTIP shares until the applicable ownership level is achieved. The guidelines also specify that Executive Directors
should, over a period of five years from the date of appointment, build up and retain a shareholding in the Company.
The table below sets out the percentage of base salary held in shares in the Company by each Executive Director as at 31 December 2018.
Shareholdings as at 31 December 2018 (% of base salary)
Michael Stanley
6,507.9%
Tim Kenny*
17.8%
* Tim Kenny joined the Company in August 2017 and therefore has until 2022 to meet the requirements.
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Differences in Pay Policy for Employees and Executive Directors
The principles applied to the remuneration of Executive Directors are essentially the same as those for the Company. The difference
between pay for Executive Directors and employees is that for Executive Directors the variable pay element forms a greater proportion of
the overall package and the total remuneration opportunity is higher to reflect the increased responsibility of the role. While remuneration
practices vary across the full employee population, they are based on the same broad principles which underpin the policy for Executive
Directors set out above.
While the Committee’s specific oversight of individual remuneration packages extends only to the Executive Directors and a number of senior
management, it aims to create a broad policy framework, to be applied by management to employees throughout the Company, through
its oversight of remuneration structures for senior management and of any major changes in employee benefits structures throughout the
Company. Alignment is delivered by ensuring that senior management and Executive Directors participate in the same bonus and incentive
schemes as far as possible, with similar performance measures and targets.
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.
Where an individual forfeits outstanding incentive awards with a previous employer, the Committee may offer compensatory awards to
facilitate recruitment. These awards would be in such form as the Committee considers appropriate, taking into account all relevant factors
including the form, expected value, anticipated vesting and timing of the forfeited awards. The value of any compensatory awards would be
no higher, in the opinion of the Committee, than the value forfeited.
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.
Service Contracts
The service agreements of the Executive Directors are rolling contracts which were entered into on the dates shown in the table below:
Name
Michael Stanley
Tim Kenny
Contract Effective Date
Notice Period (Director)
Notice Period (Company)
9 June 2015
21 September 2017
12 months
6 months
12 months
6 months
Policy for “Leavers”
On termination of an Executive Director’s contract, the Committee’s objective is to agree an outcome which is in the best interests of the
Company and its shareholders, taking into account the specific circumstances and performance of the individual, as well as any relevant
contractual obligations and incentive plan rules.
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 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 individual.
Annual Incentive
The Committee can apply appropriate discretion in respect of determining the annual incentives, if any, to be awarded based on actual
achieved performance and the period of employment during the financial year. The Committee’s consideration will include the individual’s
performance and contribution in the year in which they leave as well as the basis on which they are leaving the Company.
LTIP
The Committee would normally exercise its discretion when dealing with a participant who ceases to be an employee by reason of certain
exceptional circumstances e.g. death, injury or disability, redundancy, retirement or any other exceptional circumstances. In such circumstances,
any shares that have not already vested on the participant’s cessation date would be eligible for vesting on the normal vest date or other date
determined by the Committee. The number of shares vesting would be determined by the Committee, although the default position would be
to pro-rate for the proportion of the vesting period elapsed at cessation and to continue to apply the performance conditions.
In the event that a participant ceases to be an employee due to resignation or by reason of a termination for serious misconduct, share
awards held by the participant, whether or not vested, would lapse immediately on the service of notice of such termination, unless the
Committee in its sole discretion determines otherwise.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
Consideration of Conditions Elsewhere in the Company
When setting the Remuneration Policy for Executive Directors, the Committee has regard to the pay and employment conditions of
employees within the Company.
Consultation with Shareholders
When determining remuneration, the Committee takes into account the views of representative investor bodies and shareholder views.
As part of corporate governance engagement with shareholders, since the start of 2019, the Remuneration Committee Chair wrote to
shareholders representing approximately 70% of the Company’s issued share capital and the major proxy advisors and directly engaged with
a number of major shareholders. The Board is committed to engaging with major shareholders on any material changes to the Remuneration
Policy which will be up for shareholder vote at the 2020 Annual General Meeting.
Policy for Non-Executive Directors
Fees
Operation
Maximum Opportunity
The fees paid to Non-Executive Directors
reflect their experience and ability and the
time demands of their Board and Board
Committee duties.
A basic fee is paid for Board membership.
Additional fees are payable to the Chairman,
Chair of the Remuneration Committee,
Chair of the Audit & Risk Committee
and the Senior Independent Director.
Additional fees may be paid for membership
of a Board Committee.
The remuneration of the Chairman is
determined by the Remuneration
Committee for approval by the Board.
No prescribed maximum annual increase
but benchmarking and market practice will
determine any change in fees.
The remuneration of the other Non-
Executive Directors is determined by the
Chairman and the Chief Executive Officer
for approval by the Board.
Non-Executive Directors do not participate
in the Company’s Annual Incentive and LTIP
and do not receive any retirement benefits
from the Company.
The fees are reviewed from time to
time, taking account of any changes in
responsibilities and market practice.
Statement of Shareholder Voting
The Company is committed to ongoing shareholder dialogue and takes shareholder views into consideration when formulating remuneration
policy and practice. To the extent there are substantial votes against resolutions in relation to remuneration, the Company will seek to
understand the reasons for such votes and will provide details of any actions in response to such a vote.
The following table sets out the actual votes at the 2018 Annual General Meeting in respect of the Remuneration Committee Report.
Directors’
Remuneration
Report
Number of Votes
(millions)
Percentage %
For
Against
Withheld*
602,647,894
43,484,426
5,531,501
93.27
6.73
–
* A vote withheld is not a vote in law and is not counted in the calculation of the percentage of votes for and against a resolution.
ANNUAL REPORT ON REMUNERATION
This section of the Remuneration Report sets out the basis of how the Company’s Remuneration Policy was operated for the year ended
31 December 2018 and how it will be operated in 2019.
At a Glance Summary
Component
Single figure totals
Annual bonus
LTIP vesting in 2018
LTIP awards granted in 2018
Salaries for 2019
Bonus opportunity 2019
LTIP award for 2019
Shareholding as % of salary
94
Michael Stanley – Chief Executive Officer
Tim Kenny – Group Finance Director
€920,000
€770,000
90% payout = €382,500
75% payout = €285,000
N/A
N/A
€425,000
70-105% of salary
N/A
6,507.9%
N/A
100% of salary
€399,000
50-75% of salary
100% of salary
17.8%
Aligning Long Term Incentives and Strategy
The Committee carefully considered the most appropriate metrics for the LTIP to drive fulfilment of early stage targets, whilst ensuring long
term alignment between key employees and shareholder interests. The Committee consulted directly with shareholders and established
EPS (80%) and TSR (20%) as the most appropriate metrics to promote line of sight for employees between the work they do, and, the profit
outcomes for shareholders. These metrics are reviewed annually and, as the business matures, the Committee anticipates considering other
metrics including returns on capital and relative TSR metrics.
Remuneration Outcomes for the Year Ended 31 December 2018
The table below sets out the details of the remuneration payable to the Executive Directors for the year ended 31 December 2018, with
comparatives for the prior year ended 31 December 2017.
Michael Stanley
Tim Kenny1
Alan McIntosh2
Eamonn O’Kennedy3
Salary
Annual Incentive
2018
€’000
425
380
190
–
995
2017
€’000
425
140
325
375
1,265
2018
€’000
383
285
–
–
668
2017
€’000
319
63
163
219
764
Retirement Benefit
2017
€’000
43
2018
€’000
102
95
16
–
213
35
27
35
140
Car Allowance
2018
€’000
2017
€’000
10
10
10
6
–
26
4
10
14
38
Total
2018
€’000
920
770
212
–
2017
€’000
797
242
525
643
1,902
2,207
1 Tim Kenny joined the Company in August 2017 and therefore his 2017 salary is reflective of the period worked. Mr. Kenny also received his retirement benefit as cash in lieu
of pension contributions.
2 Alan McIntosh stepped down as an Executive Director in August 2018 to become a Non-Executive Director. The remuneration shown above is reflective of the time spent in the
Executive Director role. Mr. McIntosh also received his retirement benefits as cash in lieu of pension contributions.
3 Eamonn O’Kennedy left the Company in November 2017. The figures above include notice payments to Mr O’Kennedy per his contract of employment.
Non-Executive Directors’ Remuneration Details
The Committee reviewed independent benchmarking for Non-Executive Director fees from Mercer, which was aged by 2% for 2018.
No changes were proposed or made to Non-Executive Director fees during 2018.
The fees paid to Non-Executive Directors in respect of the year ended 31 December 2018 and the year ended 31 December 2017 are set
out below:
John Reynolds
Andrew Bernhardt
Gary Britton
Giles Davies
Alan McIntosh1
Base Fee
Chair Fee
SID Fee
Total
2018
€’000
150
60
60
60
25
355
2017
€’000
125
55
55
55
–
290
2018
€’000
–
–
15
12
–
27
2017
€’000
–
–
15
6
–
21
2018
€’000
–
–
–
10
–
10
2017
€’000
–
–
–
10
–
10
2018
€’000
150
60
75
82
25
392
2017
€’000
125
55
70
71
–
321
1 Alan McIntosh stepped down as an Executive Director in August 2018 to become a Non-Executive Director. The fees shown above are reflective of the time spent in the
Non-Executive Director role.
Notes to the Table
Annual Bonus
The maximum bonus opportunity for 2018 was 105% of salary for the Chief Executive Officer and 75% of salary for the Group Finance
Director. Annual incentives are based 70% on financial performance and 30% on the achievement of individual performance objectives
linked to leadership and operational targets. Given the early stage growth of the Company, the goals are set annually within a three year
context and assessed annually for progress versus expected performance. As part of the review of the remuneration policy in advance of the
2020 Annual General Meeting, the Committee will place a particular focus on whether the bonus framework should be altered to reflect that
the business is in a more mature stage of development.
The breakdown and resulting bonus outcomes for 2018 for the Chief Executive Officer and Group Finance Director were:
Michael Stanley
Tim Kenny
Target
Incentive
(% of salary)
70%
Maximum
Incentive
(% of salary)
105%
Actual
2018 Bonus
(% of salary)
90%
50%
75%
75%
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
REMUNERATION OUTCOMES IN DIFFERENT PERFORMANCE SCENARIOS
The total remuneration opportunity for Executive Directors is strongly performance based and weighted to the long term. The charts below
illustrate the total remuneration of Executive Directors under three assumed performance scenarios:
Remuneration Scenarios as at 1 January 2018
Michael Stanley (Chief Executive Officer)
Tim Kenny (Group Finance Director)
€1,200,000
€1,000,000
€800,000
€600,000
€400,000
€200,000
0
€988,000
€839,000
45%
35%
€541,000
100%
65%
55%
Minimum
On Target
Maximum
0
€1,200,000
€1,000,000
€800,000
€600,000
€400,000
€200,000
€1,150,000
33%
€770,000
12%
25%
25%
€485,000
100%
63%
42%
Minimum
On Target
Maximum
Fixed Remuneration
Annual Bonus
LTIP
Fixed Remuneration
Annual Bonus
LTIP
Minimum: There is no annual bonus payment and no vesting under the LTIP
On Target: There is a target bonus payout of 70% of base salary for Mr. Stanley and 50% for Mr. Kenny of base salary. There is a threshold vesting under the LTIP of 25% of
the maximum award for Mr. Kenny. As Mr. Stanley does not receive grants under the LTIP for the duration of the Founder Share scheme, this element of remuneration is zero.
Maximum: There is a maximum bonus payout of 105% of base salary for Mr. Stanley and 75% for Mr. Kenny. There is a maximum vesting under the LTIP of 100% of base
salary for Mr. Kenny. As Mr. Stanley does not receive grants under the LTIP for the duration of the Founder Share scheme, this element of remuneration is zero.
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BONUS FRAMEWORK DISCLOSURE
As disclosed in the 2017 Annual Report, annual incentives are based 70% on financial performance and 30% on the achievement of
individual performance objectives linked to leadership and operational targets. During 2018, both the Chief Executive Officer and the
Group Finance Director achieved at or above target performance in each of the key areas of performance. In assessing performance,
the Committee took into account a range of financial and non-financial criteria linked to the delivery of strategy and the generation of
shareholder value. A detailed breakdown of the bonus framework and performance of both the Chief Executive Officer and the Group
Finance Director for 2018 is set out below:
Michael Stanley, Chief Executive Officer:
Area
Financial
Goal
Weighting
Outcome
Performance
70%
Above
Target
Significant growth in revenue, which increased by
over 125% to €337.0 million (2017: €149.5 million).
Achievement of revenue,
profit and margin targets
for this year against three
year plan and to achieve
progress as set by the
Board at the start of 2018.
Continued Scaling of the business, with delivery
of 804 unit sales completions. Cairn is active on
13 developments, up from 11 developments at the
end of 2017, which will deliver 5,000 new homes.
Financial performance; Gross profit up by €42.0 million
to €69.1 million (2017: €27.1 million); Group profit after
tax of €31.4 million (2017: €5.0 million).
Margin Progression; Continued progression in
gross profit margin which strengthened to 20.5%
(2017: 18.2%).
Capital Restructuring; Successfully completed €350
million debt refinancing.
Yielded considerable value through forward sale of
Six Hanover Quay due to close in 2019 and sale of
three student accommodation sites, and disposed of
additional non-core sites.
c. 3,000 incremental units from planning gains to
enhance land bank value.
Strategic Value
Evaluate and execute land
acquisitions to ensure
strategic value captured
and portfolio is risk balanced
and value led.
10%
Above
Target
Succession
Planning
Attract, retain and motivate
best in market leadership.
10%
At Target
“Nine-box” succession planning methodology in place
which is linked to LTIP and active talent development.
Key talent hired to strengthen future succession
options.
Performance management fully established and
supporting our values.
10%
At Target
Strategy and values in place for the business and
fully cascaded across all teams into goals.
Brand effectively communicated across all channels.
Strong corporate presence and reputation within
local market.
Brand,
Values and
Stakeholders
Define strategy and values
for the Company that aligns
with shareholder value and
long term sustainable
growth. Represent the
Company effectively to
create leverage for the
company with stakeholders
and enhancement of the
Company’s brand identity
and Group reputation in
the market.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
Tim Kenny, Group Finance Director:
Area
Financial
Goal
Weighting
Outcome
Performance
Support delivery of revenue,
profit and margin targets for
this year against three year
plan and to achieve progress
as set by the Board at the
start of 2018.
70%
Above
Target
Significant growth in revenue, which increased by
over 125% to €337.0 million (2017: €149.5 million).
Financial Performance; Gross profit up by €42.0 million
to €69.1 million (2017: €27.1 million); Group profit after
tax of €31.4 million (2017: €5.0 million).
Margin Progression; Continued progression in
gross profit margin which strengthened to 20.5%
(2017: 18.2%).
Executed Capital Restructuring; Personally drove
€350 million debt refinancing.
Managed transaction to support forward sale of Six
Hanover Quay due to close in 2019 and sale of three
student accommodation sites and disposed of
additional non-core sites.
Supported the development and execution of the
Group’s mission, strategy and values.
10%
Above
Target
10%
10%
Above
Target
Key talent hired to strengthen finance leadership and
broaden succession options.
Drove commercial focus through the business
right down to site level to support top and bottom
line delivery.
Above
Target
Excellent Health and Safety support and record.
Integration of financial governance and risk framework
as disclosed in annual report is fully effective.
Strategic Value
Support the Chief Executive
Officer in evaluation and
execution of land acquisitions
to ensure strategic value
captured and portfolio is
risk balanced and value led.
Succession
Planning
Attract, retain and
motivate best in market
finance leadership.
Risk
Management
Provide direct leadership
to ensure that there is an
appropriate finance and
safety governance
framework for the business,
underpinned by the
appropriate risk appetite
for the Company.
The Committee fundamentally believes that the absence of formulaic bonus targets is in the best interests of the Company and our
shareholders at this stage of the Company’s development, as it provides the Committee with flexibility to determine payouts during
a period of rapid development, growth and change. A review of the current bonus framework, including the level of payout at target,
will be a fundamental aspect of our Remuneration Policy, set to be proposed at the 2020 Annual General Meeting.
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LONG TERM INCENTIVES
The purpose of the LTIP is to align the Executive Directors and other eligible senior managers with shareholder interests, and to reinforce
exceptional performance. LTIP awards are subject to performance targets set over a three year period, with an additional two year holding
period for Executive Directors and other senior managers as identified by the Committee.
LTIP Target Setting – 2017 to 2021 Overview
The Committee is very pleased with the operational scaling of the Company, evidenced through the fulfilment of its unit and margin targets,
each of which have been achieved. The Company must remain dynamic and agile in its ability to not only deliver its original commitments,
but also to exploit market opportunities as they arise. For the benefit of value creation and shareholder returns over the long term,
management took advantage of the high density development opportunity for enhanced margin progression which emerged alongside
housing delivery. The natural implication of this evolution of strategy towards stronger high density development produces enhanced, but
delayed earnings.
Therefore the Committee has taken the view that the LTIP targets should reflect this longer time horizon of stronger returns. In this context
the EPS targets for 2018 of 24 cent and 2019 of 31 cent are considered to be achievable but stretching.
2017 LTIP
In 2017, we made the first award under our LTIP. The tables below provide an overview of performance targets for this award. With two years
of the three year performance period completed, and in the interests of transparency, set out below is an update on the performance of EPS
and TSR versus the targets set.
A total of 80% of the shares under the award will vest subject to the following target thresholds:
Cumulative EPS
Less than 16.7c
16.7c
Between 16.7c and 26.0c
Vesting of EPS-based award
0%
25%
Straight-line vesting between
25% and 100%
26.0c or above
100%
A total of 20% of the shares under the award will vest subject to the following target thresholds:
Total Shareholder Return
Vesting of TSR-based award
Less than 8% p.a.
8% p.a.
0%
25%
Between 8% p.a. and 12.5% p.a.
Straight-line basis between
25% and 100%
12.5% p.a. or above
100%
EPS
performance
TSR
Performance*
2017
2018
Total
0.6c
4.0c
4.6c
2017
2018
Total
TBC
TBC
TBC
* TSR performance is determined with reference to the closing six month period of the LTIP grant and is therefore not yet known.
The only Executive Director eligible to receive an award under the LTIP in 2017 was the Group Finance Director Mr. Kenny, which was
granted at 200% of salary, to recognise Mr. Kenny’s appointment to the Board, taking into account he will have no vesting under any long
term incentive award for at least three years, and also to represent the value of his long term incentive forfeited in his previous role.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
2018 LTIP
On 5 April 2018, Tim Kenny received an award under the LTIP as set out in the table below:
Executive
Director
Date of
Grant
Number of
Shares
Granted
Share Price at
Date of Grant
Face Value on
Date of Grant
Award as %
of salary
Vesting Date Holding Period
after vesting
Tim Kenny
05.04.18
214,689
€1.77
€380,000
100%
05.04.21
2 years
Vesting of these awards will be subject to EPS and TSR performance targets measured over the period 2018 to 2020.
A total of 80% of the shares under the award will vest subject to the following target thresholds:
Cumulative EPS
Less than 16.7c
16.7c
Between 16.7 and 24.0c
Vesting of EPS-based award
0%
25%
Straight-line basis between
25% and 100%
24.0c or above
100%
A total of 20% of the shares under the award will vest subject to the following target thresholds:
Total Shareholder Return
Vesting of TSR-based award
Less than 8% p.a.
8% p.a.
0%
25%
Between 8% p.a. and 12.5% p.a.
Straight-line basis between
25% and 100%
12.5% p.a. or above
100%
2019 LTIP
The performance measures for the 2019 LTIP award remain a mix of EPS (80%) and TSR (20%). Vesting of the 2019 awards will be dependent
on the achievement of the specific targets set out below:
A total of 80% of the shares under the award will vest subject to the following target thresholds:
Cumulative EPS
Less than 19.9c
19.9c
Between 19.9c and 31.0c
Vesting of EPS-based award
0%
25%
Straight line vesting between
25% and 100%
31.0c or above
100%
A total of 20% of the shares under the award will vest subject to the following target thresholds:
Total Shareholder Return
Vesting of TSR-based award
Less than 8% p.a.
8% p.a.
0%
25%
Between 8% p.a. and 12.5% p.a.
Straight-line basis between
25% and 100%
12.5% p.a. or above
100%
As with the target-setting process for the 2018 LTIP, the Committee undertook a rigorous review of the Company’s strategic growth plans,
three year plan and external forecasts when setting the target for the 2019 LTIP. Prior to finalising the target, the Committee also engaged
with shareholders to consider their views.
100
Retirement Benefits
In 2018, the Executive Directors participated in the Defined Contribution Pension Scheme or received a cash supplement in lieu of pension,
consistent with the Remuneration Policy. No changes are proposed to these arrangements for 2019.
Payments for Loss of Office
No payments for loss of office were made during the year under review.
Payments to Past Directors
There were no payments to former Directors during the year.
Total Shareholder Return Performance
The Committee is focused on ensuring that both bottom line performance through EPS and TSR are maximised. The following graph
shows the cumulative Total Shareholder Return of the Company over the period since initial public offering relative to the FTSE 250 Index
(excluding Investment Trusts), an index considered by the 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.
Value of
Hypothetical
€100 Holding
€200
€180
€160
€140
€120
€100
€80
€60
€40
€20
€0
12/06/2015
12/06/2016
12/06/2017
12/06/2018
Cairn Homes Share Price
FTSE 250 (excluding Investment Trusts)
Change in Remuneration of Chief Executive Officer
The table below sets out the percentage change in the remuneration awarded to Michael Stanley between 2017 and 2018.
Michael Stanley
(Chief Executive Officer)
Percentage
Change
2018
Percentage
Change
2017
15.4%
(13.7%)
Mr. Stanley received no salary increase in 2017 or 2018. The 13.7% decrease in 2017 and 15.4% increase in 2018 relates to his variable
bonus and pension entitlements. Given the early stage development of the Company and the significant increase in new employees
hired in 2017 and 2018, it is not appropriate to disclose the comparable average employee remuneration. The Company will provide a
comparative analysis from 2019 onwards as the tenure of employees stabilises.
Relative Importance of Spend on Pay
The table below shows total employee remuneration (excluding LTIP awards) and distributions to shareholders, in respect of 2018 and
2017 (and the difference between the two).
Total Employee Remuneration
Distributions to Shareholders
2018
€15.5m
–
2017
€11.4m
–
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
Remuneration Policy Implementation in 2019
A summary of how the Remuneration Policy will be applied for 2019 is set out below.
Salary
The Chief Executive Officer’s salary remains unchanged from 2018 and 2019. The Group Finance Director’s salary was increased by 5%
effective 1 January 2019, marginally lower than increases for the general employee population. The increase is also aligned with the growth
in the size and scale of our operations.
Michael Stanley
Tim Kenny
1 January
2019
€425,000
1 January
2018
€425,000
€399,000
€380,000
Pension and Benefits
Pensions and benefits remain unchanged from 2018.
Annual Bonus
The performance framework and bonus opportunity for 2019 remain unchanged from 2018. The maximum opportunity will continue to be
105% of salary for the Chief Executive Officer and 75% for the Group Finance Director.
As in previous years, the bonus will be based on financial performance (70% of maximum bonus) and on organisational and leadership
goals (30% of maximum bonus). Specific disclosure of the performance framework for 2019 will be detailed in the 2019 Annual Report.
In advance of proposing a Remuneration Policy at the 2020 Annual General Meeting, the Committee will place particular focus on reviewing
the bonus framework, which currently includes flexibility reflective of the Company’s rapid growth and development since listing.
Directors’ & Secretary’s Interests in the Long Term Incentive Plan (“LTIP”)
Details of outstanding share awards, with performance conditions, granted to the Directors and the Company Secretary under the LTIP are
set out below:
Number of Shares Under Award
At
1 January
2018
Granted
During
the Year
Exercised
During
the Year
Lapsed
During
the Year
At
December
2018
Market
Price at
Date of
Award €
Exercise
Price €
Market
Price at
Date of
Vesting
Date of
Award
Vesting
Date
Expiry
Date
Tim Kenny
431,818
–
–
214,689
Tara Grimley
(Company Secretary)
–
96,507
–
–
–
–
–
–
431,818
214,689
646,507
1.76
1.77
Nil
Nil
N/A
N/A
09.09.17
09.09.20
08.09.24
05.04.18
05.04.21
04.04.25
96,507
1.09
Nil
N/A
19.12.18
19.12.21
18.12.25
Directors’ & Secretary’s Interests in Ordinary Share Capital
The interests of the Directors and Company Secretary who held office at 31 December 2018 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
Tara Grimley (Company Secretary)
Total
No. of Ordinary
Shares at
31 December 2018
No. of Ordinary
Shares at
31 December 2017
25,657,409
49,641,464
62,750
130,000
50,000
–
–
–
16,168,691
36,086,153
–
80,000
50,000
–
–
–
75,541,623
52,384,844
All of the above interests were beneficially owned. Apart from the interests disclosed above and the Founder Shares and Deferred Shares
held by the Founder Directors disclosed below, the Directors and the Company Secretary had no interests in the share capital of the
Company or any other group undertaking at 31 December 2018.
102
There were no changes in the above Directors and Secretary’s interests between 31 December 2018 and 29 March 2019.
The Company’s Register of Directors Interests (which is open to inspection) contains full details of Directors’ shareholdings and other interests.
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 Company shares. Directors are restricted from dealing during designated close periods and at any other
time when they are in possession of Inside Information (as defined by the Market Abuse Regulation).
External Advice
The Committee seeks independent advice when necessary from external consultants. Mercer acted as independent remuneration advisors
to the Committee for 2017 and this data was aged by 2% for 2018. During 2018, the Committee did not retain a nominated remuneration
consultant. FTI Consulting (“FTI”) is engaged by the Company to provide independent advisory corporate governance support to the Board,
as well as both the Nomination and Remuneration Committees. As part of FTI’s role, the Committee was provided with advice in relation to
market trends and developments in remuneration policy and practice. In light of this, and the level and nature of the service received, the
Committee remains satisfied that the advice is objective and independent.
Additional Interests of Founder Shareholders who are Founder Directors
In addition to the shareholdings noted above, the Founder Directors have the following additional interests:
No. of Deferred Shares
at 31 December 2018
No. of Founder Shares at
31 December 2018
No. of Deferred Shares
at 31 December 2017
No. of Founder Shares at
31 December 2017
Founder Directors
Michael Stanley
Alan McIntosh
Total
9,990,000
9,990,000
19,980,000
6,713,752
9,591,075
16,304,827
9,990,000
9,990,000
19,980,000
16,202,470
23,146,386
39,348,856
The total number of Founder Shares in issue at 31 December 2018 is 19,182,149 (46,292,771 at 31 December 2017).
The Founder Shares are convertible into Ordinary Shares subject to the performance condition, which is the achievement of a compound
annual rate of return of 12.5% in the Company’s share price.
The Founder Shares do not carry a right to a dividend or voting rights. The performance condition was tested initially over the first test
period in 2016 (the first test period was 1 March 2016 to 30 June 2016), and is tested again over the six subsequent test periods (from
1 March to 30 June).
The Performance Condition is that for a period of 15 or more consecutive business days during the relevant test period, the closing price
exceeds such price as is derived by increasing the adjusted issue price by 12.5% for each test period, starting with the first in 2016 and
ending with the last in 2022, such increase to be on a compound basis.
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.
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 TSR in the periods described below.
TSR is calculated as the sum of the increase in market capitalisation, plus dividends, returns of capital or other distributions in each case in
the relevant period, being:
(i) the first time the performance condition is satisfied, the period from 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 TSR 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
TSR since the previous conversion or redemption.
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.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
REMUNERATION COMMITTEE REPORT CONTINUED
REMUNERATION COMMITTEE REPORT CONTINUED
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 TSR, not just that element of TSR above the hurdle contained in the
performance condition.
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.
All New Ordinary Shares issued in respect of the conversion of Founder Shares are subject to a one year lock-up period, with 50% of the
New Ordinary 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.
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DIRECTORS’ REPORT
The Directors present their report to the shareholders together with the audited financial statements for the year ended 31 December 2018.
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 2018, the Group consisted of the Company, Cairn Homes plc, and a number of subsidiaries, which are
detailed in note 25 to the consolidated financial statements. Shareholders are referred to the Chairman’s Statement, Chief Executive Officer’s
Review and the Group Finance Director’s Review which contain a review of operations and the financial performance of the Group for 2018,
the outlook for 2019 and the key performance indicators used to assess the performance of the Group. These are deemed to be incorporated
in the Directors’ Report.
Results for the Year
The Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018 and the Consolidated
Statement of Financial Position at that date are set out on pages 114 and 115 respectively. The Group’s profit for the year ended 31 December
2018 was €31.4 million (2017: €5.0 million).
Dividends
There were no dividends paid or proposed by the Company during the year.
Future Developments
A review of future developments of the business is included in the Chief Executive Officer’s Review and the Operating Review.
Directors and Company Secretary
The names of the Directors and Company Secretary and a biographical note on each appear on pages 66 and 67.
In accordance with the provisions contained in the UK Corporate Governance Code (the “Code”), all Directors retired at the Annual General
Meeting of the Company on 16 May 2018 and, being eligible, offered themselves for re-election, and all were re-elected to the Board on the
same day.
Any Director appointed to the Board by the Directors will be subject to election by the shareholders at the first Annual General Meeting
held following his/her appointment. Furthermore, under the Company’s Constitution, one third of all Directors must retire by rotation at each
Annual General Meeting and may seek re-election. However, in accordance with the provisions of the Code, the Board has decided that all
Directors should retire at the 2019 Annual General Meeting and offer themselves for re-election.
Directors’ and Company Secretary’s interests
Details of the Directors’ and Company Secretary’s share interests and interests in unvested share awards of the Company are set out in the
Remuneration Committee Report on pages 102 to 104.
Share Dealing
The Company has in place a share dealing code which gives guidance to the Directors and certain employees of the Company 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 Company 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
2018 and 26 March 2019 (being the latest practicable date before aaproval of this Annual Report), the Company had 788,783,171 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
19,182,149 Founder Shares and 19,980,000 Deferred Shares in issue at the same dates.
The percentage of the total issued share capital represented by each class of shares on the above dates was:
Share Class
Ordinary Shares
Founder Shares
Deferred Shares
% of Total
Issued Share
Capital
95.3
2.3
2.4
Further information on the Company’s share capital, including the rights attached to different classes of shares, is set out in note 17 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
18 to the consolidated financial statements.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
DIRECTORS’ REPORT CONTINUED
Substantial Shareholdings
As at 31 December 2018 and 26 March 2019 (being the latest practicable date before approval of this Annual Report), the Company had
been notified of the following details of interests of over 3% in the ordinary share capital of the Company.
Except as disclosed below, the Company has not been notified as at 26 March 2019 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.
Shareholder
FIL Investment International
BMO Global Asset Management
HSBC Holdings plc
Emerald Everleigh Limited Partnership*
Lansdowne Partners International Limited
Coltrane Asset Management
Fidelity Management & Research
Goldman Sachs Group, Inc.
Blackrock Inc.
Kames Capital
Capital World Investors
JO Hambro Capital Management Limited
Mr. Michael Stanley
Henderson Group plc
T. Rowe Price Associates, Inc.
Wellington Management Company
Total Shares in Issuance
Notified Holding
31 December 2018
72,919,641
69,998,670
50,193,991
49,641,464
47,978,257
47,612,696
42,584,978
42,437,330
38,818,514
37,573,863
33,645,649
26,721,051
25,657,409
24,252,393
24,060,558
%
9.24%
8.87%
6.36%
6.29%
6.08%
6.04%
5.40%
5.38%
4.92%
4.76%
4.27%
3.39%
3.25%
3.07%
3.05%
Below 3%
Below 3%
788,783,171
Notified Holding
26 March 2019
70,039,579
71,687,555
50,193,991
49,641,464
56,589,806
47,612,696
42,584,978
44,486,316
%
8.87%
9.09%
6.36%
6.29%
7.17%
6.04%
5.40%
5.64%
Below 3%
Below 3%
31,368,101
3.98%
Below 3%
Below 3%
26,721,051
25,657,409
24,252,393
24,060,558
23,827,813
3.39%
3.25%
3.07%
3.05%
3.02%
* 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 (Non-Executive Director of the
Company) and his spouse are the beneficiaries of that trust.
Principal Risks and Uncertainties
Under Irish company law, the Group 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 51 to 53 and are deemed to be incorporated in the Directors’ Report.
Accounting Records
The Directors are responsible for ensuring that adequate accounting records are maintained by the Group 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.
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 pages 133 to 135, substantial shareholdings above, and the disclosures on
Directors’ remuneration and interests in the Remuneration Committee Report on pages 86 to 104 are deemed to be incorporated in 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 Group, the following sections of this Annual Report shall be treated as forming
part of this Directors’ Report:
1. The Chairman’s Statement on pages 04 to 07, the Chief Executive Officer’s Review on pages 08 to 11 and the Group Finance Director’s
Review on pages 54 and 55.
2. The Corporate Governance Report on pages 68 to 77.
3. The Principal Risks and Uncertainties on pages 51 to 53.
4. Details of Earnings Per Share on pages 139 and 140.
5. Details of the Capital Structure of the Company on pages 133 to 135.
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Corporate Governance Regulations
As required by company law, the Directors have prepared a Corporate Governance Report which is set out on pages 68 to 77 and which,
for the purposes of Section 1373 of the Companies Act 2014, is deemed to be incorporated in this part of the Directors’ Report. Details of
the capital structure and employee share schemes are included in notes 17 and 18 to the consolidated financial statements respectively.
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 Group’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.
Going Concern and Longer Term Viability
The Directors’ statements on going concern and longer term viability are included in the Risk Report on page 50.
Subsidiaries
Information on the Company’s subsidiaries is set out in note 25 to the consolidated financial statements.
Political Contributions
No political contributions were made by the Group during the year that require disclosure in accordance with the Electoral Acts 1997
to 2002 and the Electoral Political Funding Act 2012.
Post Balance Sheet Events
Information in respect of events since the year end is contained in note 33 to the consolidated financial statements.
Audit & Risk Committee
The Group has an established Audit & Risk Committee comprising of three independent Non-Executive Directors. Details of the
Committee and its activities are set out on pages 78 to 81.
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 2019 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
• That 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 29 March 2019.
Signed on behalf of the Board
John Reynolds
Chairman
29 March 2019
Michael Stanley
Director
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Financial Statements
For the year ended 31 December 2018
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
109
110
114
115
116
118
119
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Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
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 66 and 67 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 2018
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
29 March 2019
Michael Stanley
Director
The Directors are responsible for preparing the Annual Report and
the consolidated and company financial statements, in accordance
with applicable law and regulations.
Company law requires the Directors to prepare consolidated and
company financial statements for each financial 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 applicable law including Article 4 of the IAS Regulation.
The Directors have elected to prepare the company financial
statements in accordance with IFRS as adopted by the European
Union, as applied in accordance with the provisions of 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 whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
• assess the Group’s and Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to
going concern; and
• use the going concern basis of accounting unless they either
intend to liquidate the Group or Company or to cease operations,
or have no realistic alternative but to do so.
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 2014 and Article 4
of the IAS Regulation. They are also responsible for 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, and have general responsibility for
safeguarding the assets of the Company and the Group, and hence
for taking reasonable steps for the prevention and detection of fraud
and other irregularities. The Directors are also responsible for
preparing a Directors’ Report that complies with the requirements
of the Companies Act 2014.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Independent Auditor’s Report
to the members of Cairn Homes plc
Report on the audit of the financial statements
Opinion
We have audited the Group and Company financial statements
of Cairn Homes plc (‘the Company’) for the year ended 31 December
2018, 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 related notes, including the summary
of significant accounting policies set out in note 3. 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.
Key audit matters: our assessment of risks
of material misstatement
Key audit matters are those matters that, in our professional
judgment, 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,
in decreasing order of audit significance, were as follows:
In our opinion:
• the financial statements give a true and fair view of the assets,
liabilities and financial position of the Group and Company as
at 31 December 2018 and of the Group’s profit for the year
then ended;
• 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 & Risk Committee.
We were appointed as auditor by the Directors on 10 June 2015.
The period of total uninterrupted engagement is the four years
ended 31 December 2018. 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 public
interest entities. No non-audit services prohibited by that standard
were provided.
Carrying values of inventories €933.4m (2017: €911.5m)
and profit recognition
Refer to page 81 (Audit & Risk Committee Report), page 123
(accounting policy for inventories) and note 14 to the consolidated
financial statements (financial disclosures – inventories)
The key audit matter
Inventories consist of 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 for
houses or apartments, 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.
How the matter was addressed in our audit
Our audit procedures included, among others:
a) We 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
testing approvals over the review and updating of selling prices
and cost forecasts and the authorisation and recording of costs
by management.
110
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 by property consultants.
• We agreed a sample of forecast costs to supplier agreements
or other relevant documentation from third parties 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 enquired as to whether there were any site-specific factors
which may indicate that an individual site could be impaired.
• 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. We agreed any
changes in planning to documentary support and recomputed the
impact of such changes on the overall profitability of the individual
development site.
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 were construction related and 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
misstatements in relation to the Group’s conclusion that inventories
are stated at the lower of cost and net realisable value and therefore
are not impaired.
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.
Revenue recognition €337.0m (2017: €149.5m)
Refer to page 81 (Audit & Risk Committee Report), page 123
(accounting policy for revenue) and note 6 to the consolidated
financial statements (financial disclosures – revenue)
The key audit matter
The following factors led us to determine that revenue recognition
was a significant audit risk in 2018:
• Substantial increase in reported revenues compared to
prior year.
• A new accounting standard, IFRS15 Revenue from Contracts
with Customers was applicable for the first time in 2018.
• As well as traditional sales of residential units to private
individuals, the Group entered into other types of sales
agreements during the year, including contracts with certain
customers for the sale of multiple units.
How the matter was addressed in our audit
Our audit procedures included, among others:
a) We documented our understanding of the processes, and
tested the design and implementation of relevant controls,
over the completeness, existence and accuracy of revenue.
b) We agreed a sample of sales of residential units and residential
sites to signed contracts and cash proceeds and examined
whether there was appropriate evidence that control over those
properties had transferred to customers prior to the year-end,
and hence that sales cut-off had been correctly applied.
c) We evaluated the approach adopted by management for the
timing and amount of revenue to be recognised in accordance
with IFRS15 from material contracts entered into with customers
for the sale of multiple units. In this regard, we independently
inspected the related contract documentation and considered
the appropriate application of the five-step revenue recognition
model under IFRS15, including whether revenue should be
recognised (i) at a point in time or (ii) over time.
Our findings
We found that the Group had appropriate processes in place in
relation to the recording of revenue.
Appropriate documentary evidence was available for all of the sample
of sales of residential units and residential sites that we tested and as
a result we found that revenue had been accurately recorded for
those sales in the year, and cut-off had been correctly applied.
We found that the approach taken in the financial statements by
the Group for the recognition of revenue from contracts for the sale
of multiple units was materially consistent with the requirements
of IFRS15.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Independent Auditor’s Report continued
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 €2.6m (2017: €2.5m). This has been calculated with
reference to a benchmark of total revenue. Materiality represents
approximately 0.77% (2017: 1.67%) 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.
We used a total revenue benchmark because sales activity increased
significantly in 2018. In assessing materiality in absolute terms for
2018 we also had regard to the level of profit and total assets.
In the prior year, our materiality was calculated with reference
to a benchmark of total assets, of which it represented 0.25%.
In assessing materiality in absolute terms for 2017 we also had
regard to the level of revenue and profit.
We report to the Audit & Risk Committee all corrected and uncorrected
misstatements we identified through our audit with a value in excess of
€0.13m (2017: €0.125m), 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 €1.8m (2017: €1.7m), determined with reference to a benchmark
of total assets, of which it represents 0.25% (2017: 0.23%).
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 50 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
Other information
The directors are responsible for the other information presented in
the Annual Report together with the financial statements. The other
information comprises the information included in the Directors’ Report,
Introduction, Highlights section, Chairman’s Statement, Chief Executive
Officer’s Review, What We Are section, At a Glance section, Our Business
Model section, Market Overview, Our Strategy section, Strategy in Action
section, Operating Review, Risk Report, Group Finance Director’s Review,
Corporate Social Responsibility section, Site Management and
Management Team sections, Board of Directors section, Corporate
Governance Report, Audit & Risk Committee Report, Nomination
Committee Report, Remuneration Committee Report and Additional
Information section. The financial statements and our auditor’s report
thereon do not comprise part of the other information. 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 our work on the other information:
• we have not identified material misstatements in the
Directors’ Report;
• 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 50 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;
• Audit & Risk Committee Report: if the section of the Annual
Report describing the work of the Audit & Risk Committee
does not appropriately address matters communicated by
us to the Audit & Risk Committee;
• 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.
112
In addition as required by the Companies Act 2014, we report,
in relation to information given in the Corporate Governance Report
on pages 68 to 77, 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/EC)) Regulations 2016 and specified for our
consideration, is consistent with the financial statements and
has been prepared in accordance with the Act;
• 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; and
• the Corporate Governance Report contains the information
required by the European Union (Disclosure of Non-Financial
and Diversity Information by certain large undertakings and
groups) Regulations 2017.
We also report that, based on work undertaken for our audit, the
information required by the Act is contained in the Corporate
Governance Report.
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 Group and Company
were sufficient to permit the financial statements to be readily and
properly audited and the financial statements are in agreement with
the accounting records.
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 Companies Act 2014 also requires us to report to you if, in our
opinion, the Company has not provided the information required by
section 5(2) to (7) of the European Union (Disclosure of Non-Financial
and Diversity Information by certain large undertakings and groups)
Regulations 2017 for the year ended 31 December 2018 as required
by the European Union (Disclosure of Non-Financial and Diversity
Information by certain large undertakings and groups (Amendment))
Regulations 2018.
The Listing Rules of Euronext Dublin and the UK Listing Authority
require us to review:
• the directors’ statements, set out on page 50, in relation to
going concern and longer-term viability;
• the part of the Corporate Governance Report on pages 68 to 77
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.
Respective responsibilities and restrictions on use
Directors’ responsibilities
As explained more fully in their statement set out on page 109,
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’s
and 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 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 and not just those directly affecting the financial
statements.
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
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
29 March 2019
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 31 December 2018
Before
Exceptional
Items
€’000
Note
2018
Exceptional
Items
(note 31)
€’000
337,021
(267,924)
69,097
–
(15,879)
53,218
3
(11,708)
–
–
–
–
–
–
Before
Exceptional
Items
€’000
2017
Exceptional
Items
(note 31)
€’000
Total
€’000
149,462
(122,325)
27,137
258
(12,414)
–
–
–
–
149,462
(122,325)
27,137
258
(497)
(12,911)
Total
€’000
337,021
(267,924)
69,097
–
(15,879)
53,218
14,981
(497)
14,484
3
(3,930)
(15,638)
17
(8,533)
–
–
17
(8,533)
41,513
(3,930)
37,583
6,465
(497)
5,968
(6,165)
31,418
–
31,418
30,764
654
31,418
4.0 cent
4.0 cent
(989)
4,979
–
4,979
4,452
527
4,979
0.6 cent
0.6 cent
Continuing operations
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Operating profit
Finance income
Finance costs
Profit before taxation
Tax charge
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Profit attributable to:
Owners of the Company
Non-controlling interests
Profit for the year
Basic earnings per share
Diluted earnings per share
6
7
8
9
9
11
26
26
114
Consolidated Statement of Financial Position
At 31 December 2018
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Restricted cash
Current 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
12
13
16
14
15
16
17
17
18
27
19
21
19
22
2018
€’000
1,358
855
–
2,213
933,355
8,033
62,232
2017
€’000
1,372
821
17,002
19,195
911,496
5,540
68,803
1,003,620
985,839
1,005,833
1,005,034
828
749,616
7,782
(6,088)
752,138
4,418
756,556
828
749,616
14,222
(44,741)
719,925
1,795
721,720
147,338
5,856
226,838
5,611
153,194
232,449
49,333
40,820
5,930
96,083
18,361
31,636
868
50,865
249,277
283,314
1,005,833
1,005,034
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
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
Total
€’000
Non-
controlling
interests
€’000
Total
equity
€’000
As at 1 January 2018
762
20
46
749,616
14,222
(44,741)
719,925
1,795
721,720
Total comprehensive
income for the year
Profit for the year
Transactions with owners
of the Company
Conversion of Founder Shares
to ordinary shares
Equity-settled share-based
payments
Dividend paid to non-
controlling shareholder
Changes in ownership
interests
Investment in subsidiary by
non-controlling shareholder
–
–
27
–
–
27
–
–
–
–
–
–
–
–
–
–
–
–
(27)
–
–
(27)
–
–
–
–
–
–
–
–
–
–
–
–
30,764
30,764
30,764
30,764
654
654
31,418
31,418
(7,889)
7,889
1,449
–
–
–
–
1,449
–
(6,440)
7,889
1,449
–
–
(527)
(527)
–
1,449
(527)
922
–
–
–
–
–
–
2,496
2,496
2,496
2,496
As at 31 December 2018
789
20
19
749,616
7,782
(6,088)
752,138
4,418
756,556
116
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
Total
€’000
Non-
controlling
interests
€’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 shareholder
–
–
34
–
39
–
73
–
–
–
–
–
–
–
–
–
–
–
4,452
4,452
4,452
4,452
527
527
4,979
4,979
–
–
–
–
–
–
–
–
(39)
–
–
–
51,883
–
–
–
–
(1,515)
51,917
(1,515)
(11,257)
11,257
700
–
–
700
(39)
51,883
(10,557)
9,742
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
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities
Profit for the year
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
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Tax paid
Net cash from/(used in) operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Interest received
Transfer from restricted cash
Net cash from investing activities
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
Settlement of contingent consideration for Argentum acquisition
Dividend paid to non-controlling shareholder
Interest and other finance costs paid
Net cash (used in)/from financing activities
Net (decrease)/increase in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
118
Cash and cash equivalents at end of the year
2018
€’000
2017
€’000
31,418
4,979
1,184
15,638
(3)
195
135
6,165
54,732
700
8,533
(17)
317
81
989
15,582
(21,351)
(184,273)
–
(2,493)
10,083
(858)
16,000
11,475
12,607
–
40,113
(128,609)
(424)
(169)
–
(795)
(417)
15
17,002
10,000
16,409
8,803
–
94,151
(145,559)
2,496
(3,250)
(527)
(10,404)
50,402
96,937
–
1,268
–
–
(5,643)
(63,093)
142,964
(6,571)
23,158
68,803
45,645
62,232
68,803
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
Basis of Preparation
Key Judgements and Estimates
Significant Accounting Policies
Measurement of Fair Values
Segmental Information
Revenue
Other Income
Administrative Expenses
Finance Income and Finance Costs
Statutory and Other Information
Taxation
Property, Plant and Equipment
Intangible Assets
Inventories
Trade and Other Receivables
Restricted Cash and Cash and Cash Equivalents
Share Capital and Share Premium
Share-Based Payments
Loans and Borrowings
Reconciliation of Movement of Liabilities to Cash Flows arising from Financing Activities
Deferred Taxation
Trade and Other Payables
Dividends
Related Party Transactions
Group Entities
Earnings Per Share
Non-Controlling Interests
Financial Instruments and Risk Management
Operating Leases
Other Commitments and Contingent Liabilities
Exceptional Items
Profit or Loss of the Parent Company
Events After the Reporting Period
Approval of Financial Statements
120
121
122
127
128
128
128
129
129
130
130
131
132
132
133
133
133
135
136
137
137
138
138
138
139
139
140
141
145
145
145
146
146
146
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
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, D02 KW81. These consolidated financial statements cover the year ended 31 December 2018 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 2018. These standards had no
material effect on the consolidated results of the Group:
• IFRS 15 Revenue from Contracts with Customers;
• IFRS 9 Financial Instruments;
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions; and
• Amendments to IAS 40 Transfers of Investment Property.
The following standards and interpretations are not yet endorsed by the EU. The potential impact of these standards on the Group
is under review:
• Amendments to IAS 28 Long-term Interest in Associates and Joint Ventures;
• Annual Improvements to IFRS Standards 2015-2017 Cycle;
• Amendments to References to Conceptual Framework in IFRS Standards;
• Amendments to IFRS 3, Definition of a Business;
• Amendments to IAS 1 and IAS 8, Definition of Material; and
• Amendments to IFRS 10 and IAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.
The following standards have been endorsed by the EU, are available for early adoption and are effective from 1 January 2019. The Group
has not adopted these standards early, and instead intends to apply them from their effective date as determined by their dates of EU
endorsement:
• IFRS 16 Leases; and
• IFRIC 23 Uncertainty over Income Tax Treatments.
Revenue recognition
IFRS 15, Revenue from Contracts with Customers, replaced IAS 18 Revenue Recognition and IAS 11 Construction Contracts for the year
ended 31 December 2018. IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers to a
customer. The Group has adopted IFRS 15 using the cumulative effect method (without practical expedients) with the effect of initially
applying this standard at the date of initial application 1 January 2018. The Group has assessed its contractual arrangements with customers
in the current and prior periods. In respect of its residential property sales and site sales contracts, control passes to customers at legal
completion and revenue is therefore recognised at that point in time. Based on the Group’s assessment of IFRS 15, it had no impact on the
residential property sales or residential site sales recognised up to the end of the prior year and the current year. The Group will continue to
review all contracts as they occur in the future to ensure that their treatment is consistent with IFRS 15.
120
1. Basis of Preparation continued
(c) New standards and interpretations continued
Financial Instruments
IFRS 9, Financial Instruments replaced IAS 39, Financial Instruments: Recognition and Measurement for the year ended 31 December 2018.
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 had no impact on financial liabilities recognised in prior
years. The Group undertook a refinancing of its loans and borrowings during the year ended 31 December 2018, which has been accounted
for in accordance with the relevant IFRS 9 accounting requirements for loan modifications and new loans (note 19). The Group considers that
there is no material impact on its financial assets which continue to be accounted for at amortised cost. In view of the arrangements with
customers where payment is ordinarily received at the point of legal completion, the Group does not generally have significant trade
receivables arising from its property sales. Accordingly, the requirements for bad debt provisions under IFRS 9 to be based on an expected
credit loss model (rather than an incurred credit loss model) do not have a significant impact on the Group. Also, the Group had no hedging
arrangements in the current or prior year.
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 support office. The Group’s outstanding operating lease
commitments as at 31 December 2018 were €1.51 million as set out in note 29. This amount is undiscounted and therefore is not an
accurate measure of the potential impact of IFRS 16 on the statement of financial position. The liability as at the date of initial application
will be measured using a discount rate based on the applicable incremental borrowing rate. While both the assets and liabilities of the
Group will increase on adoption of IFRS 16, it is not expected to have a material impact on the Group’s net assets or profit.
(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 loan 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 14).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
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 2018.
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration
transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Goodwill arising on consolidation
represents the excess of the fair value of the consideration over the fair value of the separately identifiable net assets and liabilities acquired.
Any goodwill that arises is capitalised and tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss
immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally
recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration is classified
as equity, then it is not remeasured, and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of
contingent consideration that meets the definition of a financial instrument 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.
Leases
(c)
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.
Intangible assets
(d)
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.
122
Intangible assets continued
3. Significant Accounting Policies continued
(d)
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 at the point in
time when control over the property has been transferred to the customer, which occurs at legal completion. Revenue is measured at the
transaction price agreed under the contract.
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)).
Inventories
(f)
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.
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.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
3. Significant Accounting Policies continued
(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
years. 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.
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.
The measurement of uncertain tax positions within current and deferred tax assets and liabilities requires judgement in interpreting tax
legislation and current case law in order to estimate the amount to be recognised.
(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 year 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 year are classified as
non-current assets.
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3. Significant Accounting Policies continued
(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.
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 – policy applicable from 1 January 2018
(i) Financial assets and financial liabilities
Under IFRS 9, financial assets and financial liabilities are initially recognised at fair value and are subsequently measured based on their
classification as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued,
their characteristics and the Group’s designation of such instruments. IFRS 9 requires that all financial assets and financial liabilities be
classified as fair value through profit or loss (“FVTPL”), amortised cost or fair value through other comprehensive income (“FVOCI”).
(ii) Classification of financial instruments
The following summarises the classification and measurement the Group has elected to apply to each of its significant categories
of financial instruments:
Type
Financial assets
Cash and cash equivalents
IAS 39
classification
IFRS 9
classification
Loans and receivables
Amortised cost
Trade and other receivables
Loans and receivables
Amortised cost
Financial liabilities
Loans and borrowings
Other liabilities
Trade payables and accruals
Other liabilities
Amortised cost
Amortised cost
Carrying
amount under
IAS 39
€’000
Carrying
amount under
IFRS 9
€’000
62,232
8,033
196,671
31,726
62,232
8,033
196,671
31,726
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
3. Significant Accounting Policies continued
(p) Financial instruments – policy applicable from 1 January 2018 continued
(iii) Trade and other receivables
Trade and other receivables are initially recognised when they are originated and are accounted for at amortised cost using the effective
interest method. The amortised cost is reduced by impairment losses, which are measured using an expected credit loss model. Any interest
income and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
(iv) Financial liabilities
Financial liabilities are measured at amortised cost using the effective interest method.
(v) Derecognition and modification of financial liabilities
The Group derecognises a financial liability when it is extinguished (when its contractual obligations are discharged or cancelled, or expire).
The Group also derecognises a financial liability when there is a substantial modification of the liability. A substantial modification is deemed
to have occurred when the present value of the cash flows under the modified terms, discounted using the original effective interest rate,
is at least 10% different from the discounted present value of the remaining cash flows under the original terms. If the financial liability is
deemed to have been substantially modified, a new financial liability is recognised at fair value. The difference between this fair value and
the previous carrying amount of the financial liability prior to its derecognition is recognised in profit or loss.
A non-substantial modification of a financial liability is deemed to have occurred when the present value of the cash flows under the modified terms,
discounted using the original effective interest rate, is less than 10% different from the discounted present value of the remaining cash flows under
the original terms, and there are no other qualitative factors which indicate that a substantial modification has occurred. For non-substantial
modifications, the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and any
resulting gain or loss is recognised in profit or loss. For non-substantial modifications where the impact is that the interest on floating rate liabilities
has been repriced at current market terms, the original effective interest rate is adjusted to reflect the current market terms at the time of the
modification. Any costs and fees directly attributable to the modification of the financial liability are recognised as an adjustment to the carrying
amount of the modified financial liability and amortised over its remaining term under the effective interest method. Any unamortised costs
attributable to the original financial liability, with the exception of unamortised arrangement fees, are recognised as an adjustment to the carrying
amount of the modified financial liability and amortised over the remaining term of the modified liability under the effective interest method.
Unamortised arrangement fees relating to the original financial liability are recognised in profit or loss on modification.
(vi) Offsetting
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.
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3. Significant Accounting Policies continued
(q) Financial instruments – policy applicable before 1 January 2018
The Group classifies non-derivative financial assets into the categories: (1) financial assets at fair value through profit or loss; (2) held to
maturity financial assets, (3) loans and receivables; and (4) available-for-sale financial assets. The Group classifies non-derivative financial
liabilities into the following categories: (5) financial liabilities at fair value through profit or loss and (6) other financial liabilities. During the
year ended 31 December 2017, 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
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.
(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. The Group had no derivative financial
instruments during the year ended 31 December 2017.
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).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
4. Measurement of Fair Values continued
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 year during which the change
has occurred.
Further disclosures about the assumptions made in measuring fair values are included in note 28 Financial Instruments and
Risk Management.
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
Revenue from contracts with customers
Other revenue
Income from property rental
Residential property sales
Houses
Apartments
7. Other Income
Loan income
2018
€’000
294,184
41,657
335,841
2017
€’000
131,490
16,797
148,287
1,180
1,175
337,021
149,462
2018
€’000
197,676
96,508
294,184
2018
€’000
–
–
2017
€’000
106,678
24,812
131,490
2017
€’000
258
258
Loan income during 2017 represented net income on certain loans originally acquired in the Project Clear loan portfolio in December 2015.
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8. Administrative Expenses
Employee benefits expense (note 10)
Other expenses
2018
2017
Before
Exceptional
Items
€’000
8,347
4,067
12,414
Exceptional
Items
€’000
–
497
497
Total
€’000
10,045
5,834
15,879
Total
€’000
8,347
4,564
12,911
Costs of €0.5 million, which are treated as exceptional, related to the costs incurred in connection with the Euronext Dublin listing in
July 2017. As the listing of the shares of the Company is a non-routine transaction, these costs were classified as an exceptional item.
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
Settlement of contingent consideration
Write-off of residual arrangement fees on refinancing
2018
2017
Before
Exceptional
Items
€’000
Exceptional
Items
€’000
3
(11,085)
(623)
–
–
(11,708)
–
–
–
(3,250)
(680)
(3,930)
Total
€’000
3
(11,085)
(623)
(3,250)
(680)
Total
€’000
17
(8,141)
(392)
–
–
(15,638)
(8,533)
Interest expense for the year ended 31 December 2018 includes interest and amortised arrangement fees and issue costs on the drawn term
loans, revolving credit facility and loan notes. Other finance costs include commitment fees on the undrawn element of the revolving credit
facility during the year.
Exceptional finance costs
In accordance with IFRS 3 Business Combinations, a contingent consideration settlement of €3.25 million was charged to profit or loss in the
year ended 31 December 2018 in relation to the Swords site which was acquired as part of the Argentum acquisition in 2016.
Residual unamortised arrangement fees of €0.68 million at the date of refinancing (note 19) relating to the previous term loan and revolving
credit facility were charged to profit or loss in the year ended 31 December 2018.
These charges arise from non-routine transactions and have therefore been classified as exceptional finance costs (note 31).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
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 payments 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
Auditor’s remuneration for the audit of the Company financial statements was €15,000 (2017: €10,000)
Directors’ remuneration*
Salaries, fees and other emoluments
Pension contributions – defined contribution schemes
*
Inclusive of remuneration of connected persons as defined by Companies Act 2014.
11. Taxation
Current tax charge for the year
Deferred tax charge for the year
Total tax charge
130
2018
146
2017
95
2018
€’000
13,336
1,414
634
1,449
81
16,914
(6,869)
10,045
2018
€’000
343
27
265
20
192
155
632
2,421
120
2,541
2018
€’000
5,920
245
6,165
2017
€’000
9,982
942
478
700
39
12,141
(3,794)
8,347
2017
€’000
343
5
202
20
73
144
439
2,910
108
3,018
2017
€’000
868
121
989
11. Taxation continued
The tax assessed for the year differs from the standard rate of tax in Ireland. The differences are explained below.
Profit before tax
Tax charge 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
Prior utilisation of tax losses
Adjustment in respect of prior year
Total tax charge
12. Property, Plant and Equipment
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Depreciation
At 31 December 2018
Net book value
At 31 December 2018
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
2018
€’000
37,583
4,698
204
164
886
213
6,165
Leasehold
improvements
€’000
Computers &
equipment
€’000
463
–
463
(132)
(66)
(198)
1,338
424
1,762
(297)
(372)
(669)
265
1,093
Leasehold
improvements
€’000
Computers &
equipment
€’000
460
3
463
(66)
(66)
(132)
546
792
1,338
(46)
(251)
(297)
2017
€’000
5,968
746
–
162
–
81
989
2018
Total
€’000
1,801
424
2,225
(429)
(438)
(867)
1,358
2017
Total
€’000
1,006
795
1,801
(112)
(317)
(429)
331
1,041
1,372
Depreciation of €0.243 million in relation to construction related assets was included in construction work in progress in inventories.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
13. Intangible Assets
Software
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated amortisation
At 1 January 2018
Amortisation
At 31 December 2018
Net book value
At 31 December 2018
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
14. Inventories
Land held for development
Construction work in progress
Development land collateral
2018
€’000
934
169
1,103
(113)
(135)
(248)
855
2017
€’000
517
417
934
(32)
(81)
(113)
821
2018
€’000
750,653
180,833
1,869
933,355
2017
€’000
788,791
104,492
18,213
911,496
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.
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14. Inventories continued
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 year. 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 construction 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 2018 was €1.9 million.
The total amount charged to cost of sales from inventories during the year was €266.6 million (2017: €122.0 million).
15. Trade and Other Receivables
Construction bonds
Other receivables
The carrying value of all trade and other receivables is approximate to their fair value.
16. Restricted Cash and Cash and Cash Equivalents
Non-current
Restricted cash
2018
€’000
3,963
4,070
8,033
2017
€’000
4,344
1,196
5,540
2018
€’000
2017
€’000
–
17,002
As at 31 December 2017, €17 million was required to be maintained in an interest-bearing blocked deposit for the duration of the Group’s
senior debt facilities, as part of the collateral for those facilities. All restricted cash was released to current assets as a result of the Group’s
refinancing in July 2018 (note 19).
Current
Cash and cash equivalents
2018
€’000
2017
€’000
62,232
68,803
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.
17. 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
Number
1,000,000,000
100,000,000
120,000,000
20,000
2018
€’000
Number
1,000 1,000,000,000
100,000,000
120,000,000
20,000
100
120
20
1,240
2017
€’000
1,000
100
120
20
1,240
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
17. Share Capital and Share Premium continued
Issued and fully paid
As at 31 December 2018
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
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
Number
788,783,171
19,182,149
19,980,000
–
Number
761,672,549
46,292,771
19,980,000
–
Share
Capital
€’000
Share
Premium
€’000
Total
€’000
789
19
20
–
828
749,597
750,386
19
–
–
38
20
–
749,616
750,444
Share
Capital
€’000
Share
Premium
€’000
Total
€’000
762
46
20
–
828
749,570
750,332
46
–
–
92
20
–
749,616
750,444
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 Prime
Developments Ltd (“PDL”) (the ultimate beneficiaries of PDL 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 in 2015, 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 referred to above.
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; and
• 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 46,453,268 at 31 December 2018.
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17. Share Capital and Share Premium continued
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 2018
On 16 August 2018, the Company issued 27,110,622 Ordinary Shares (through the conversion of 27,110,622 Founder Shares) to the
Founder Group of Michael Stanley, Alan McIntosh and Kevin Stanley.
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 were 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.
18. 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 17), 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 17, during the year ended 31 December 2018, 27,110,622 Founder Shares were converted to Ordinary Shares and a
proportionate amount of the €29.1 million amount referred to above, totalling €7.9 million, was transferred from the share-based payment
reserve to retained earnings.
In 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.
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 3,121,413 shares have been made to employees. 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 a three year vesting period. Awards to Executive Directors and senior
management are also subject to an additional two year holding period after vesting.
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 and 2018 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 25% per annum;
• Risk free rate of 0% per annum;
• Dividend yield of 3% per annum, effective from 2019;
• Share price at date of grant ranging between €1.088 and €1.862, depending on grant date; and
• Share price at beginning of performance period €1.35 (2017) and €1.89 (2018).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
18. Share-Based Payments continued
Long Term Incentive Plan continued
The Group recognised costs related to the LTIP during the year ended 31 December 2018 of €1.449 million (2017: €0.64 million), of which
€1.184 million (2017: €0.64 million) was charged to profit or loss and €0.265 million was included in construction work in progress in
inventories. There was a corresponding increase of €1.449 million in the share-based payment reserve in equity.
Share Options
500,000 ordinary share options were issued in the year ended 31 December 2015, to a Director at that time. 250,000 of these options
vested 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 vested 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 related charge to profit or loss during the year ended 31 December 2018 was nil (2017: €0.06 million).
19. Loans and Borrowings
Current liabilities
Bank and other loans
Repayable within one year
Non-current liabilities
Bank and other loans
Repayable as follows:
Between one and two years
Between two and five years
Greater than five years
Total borrowings
2018
€’000
2017
€’000
49,333
18,361
–
226,838
75,058
72,280
147,338
196,671
–
–
226,838
245,199
On 31 July 2018, the Group completed a debt refinancing of its existing €200 million term loan and revolving credit facility with Allied Irish
Banks plc and Ulster Bank Ireland DAC, which was repayable by 11 December 2019, into a new €277.5 million term loan and revolving credit
facility with Allied Irish Banks plc, Ulster Bank Ireland DAC and Barclays Bank Ireland plc, repayable by 31 December 2022. Additionally,
the Group completed a €72.5 million private placement of loan notes with Pricoa Capital Group, repayable on 31 July 2024 (€15 million),
31 July 2025 (€15 million) and 31 July 2026 (€42.5 million). The new debt facilities are secured by a debenture incorporating fixed and
floating charges and assignments over certain assets of the Group.
For accounting purposes, the refinancing represented (i) new borrowings from Barclays Bank Ireland plc and Pricoa Capital Group and (ii) a
non-substantial modification (as defined in IFRS 9) of the borrowings from Allied Irish Banks plc and Ulster Bank Ireland DAC which reflected
a market repricing of floating rate liabilities. Previously unamortised arrangement fees of €0.68 million at the refinance date were expensed
(note 9, note 31).
The €50 million term loan with Activate Capital, which the Group entered into on 5 July 2017, is repayable by 12 July 2019. This term loan is
secured by a fixed and floating charge over the assets of Cairn Homes Montrose Limited.
The Group had undrawn revolving credit facilities of €199 million at 31 December 2018.
The amount presented in the financial statements is net of related unamortised arrangement fees and transaction costs.
136
20. Reconciliation of Movement of Liabilities to Cash Flows arising from Financing Activities
Balance at 1 January 2018
Cash flows from financing activities
Repayment of loans
Proceeds from borrowings, net of debt issue costs
Interest and other finance costs paid
Exceptional finance costs paid
Total changes from financing cash flows
Other changes
Amortisation of borrowing costs
Interest and other finance costs for the year
Exceptional finance costs
Total other changes
Balance at 31 December 2018
21. Deferred Taxation
Movement in net deferred tax liability:
Opening balance
Charged to profit or loss
As at year end
Liabilities
Loans and
borrowings
(note 19)
€’000
Accrued
interest
€’000
Total
€’000
245,199
1,616
246,815
(145,559)
94,151
–
–
–
–
(10,404)
(3,250)
(51,408)
(13,654)
2,880
–
–
2,880
196,671
–
9,508
3,250
12,758
720
2018
€’000
5,611
245
5,856
(145,559)
94,151
(10,404)
(3,250)
(65,062)
2,880
9,508
3,250
15,638
197,391
2017
€’000
5,490
121
5,611
Deferred tax arises from temporary differences relating to tax losses (deferred tax assets) and land held for development (deferred tax liabilities).
2018
Opening balance
Recognised in profit or loss
Closing balance
Deferred tax
assets
€’000
Deferred tax
liabilities
€’000
Net deferred
tax
liability
€’000
1,325
(581)
744
(6,936)
336
(6,600)
(5,611)
(245)
(5,856)
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
21. Deferred Taxation continued
2017
Opening balance
Recognised in profit or loss
Closing balance
Deferred tax
assets
€’000
2,813
Deferred tax
liabilities
€’000
(8,303)
Net deferred
tax
liability
€’000
(5,490)
(1,488)
1,325
1,367
(6,936)
(121)
(5,611)
There are unrecognised deferred tax assets of €0.129 million at 31 December 2018 (2017: €nil).
22. Trade and Other Payables
Trade payables
Accruals
VAT liability
Other creditors
2018
€’000
16,064
15,662
7,828
1,266
40,820
2017
€’000
8,193
14,202
7,854
1,387
31,636
Other creditors represents amounts due for payroll taxes and Relevant Contracts Tax.
The carrying value of all trade and other payables is approximate to their fair value.
23. Dividends
There were no dividends declared and paid by the Company during the year and there were no dividends proposed by the Directors in
respect of the year up to the date of authorisation of these financial statements.
A dividend of €0.527 million was paid by the Company’s subsidiary, Balgriffin Cells P13-P15 DAC, to National Asset Management Agency
(“NAMA”) in respect of its 35% shareholding.
24. Related Party Transactions
For the year ended 31 December 2018, the following related party transactions have taken place requiring disclosure:
• 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
2018
€’000
2,192
102
380
2,674
2017
€’000
2,450
78
256
2,784
In the prior year ended 31 December 2017, the following related party transaction had taken place requiring disclosure:
• The Group 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. Sonbrook refunded costs incurred by the Company of €0.122 million.
138
25. Group Entities
The Company’s subsidiaries are set out below. All of the Company’s subsidiaries are resident in Ireland, with their registered address at
7 Grand Canal, Grand Canal Street Lower, Dublin 2. All Group companies operate in Ireland only.
Company’s holding
Group company
Cairn Homes Holdings Limited
Cairn Homes Properties Limited
Cairn Homes Construction Limited
Cairn Homes Butterly Limited
Cairn Homes Galway Limited
Cairn Homes Killiney Limited
Cairn Homes Navan Limited
Principal activity
Holding company
Holding of property
Construction company
Holding of property
Holding of property
Holding of property
No activity in period
Cairn Homes Finance Designated Activity Company
Financing activities
Cairn Homes Montrose Limited
Holding of property
Balgriffin Cells P13-P15 Designated Activity Company
Development of property
Balgriffin Investment No.2 HoldCo
Designated Activity Company
Cairn Homes Property Holdco Limited
Cairn Homes Property Management Limited
Cairn Homes Property Holding One Limited
Cairn Homes Property Holding Two Limited
Holding company
Holding company
No activity in period
No activity in period
No activity in period
Cairn Homes Property Holding Three Limited
Holding of property
Cairn Homes Property Holding Four Limited
Cairn Homes Property Holding Five Limited
Cairn Homes Property Holding Six Limited
No activity in period
No activity in period
No activity in period
Cairn Homes Property Holding Seven Limited
No activity in period
Cairn Homes Property Holding Eight Limited
No activity in period
Balgriffin Investment No.2 Designated Activity Company Development of property
Direct
100%
–
–
100%
100%
100%
100%
100%
100%
65%
75%
–
–
–
–
–
–
–
–
–
–
–
26. Earnings Per Share
The basic earnings per share for the year ended 31 December 2018 is based on the earnings attributable to ordinary shareholders
of €30.764 million and the weighted average number of ordinary shares outstanding for the period.
Indirect
–
100%
100%
–
–
–
–
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
2017
€’000
4,452
4,452
Profit for the year attributable to the owners of the Company
Numerator for basic and diluted earnings per share
Weighted average number of ordinary shares for year (basic)
Dilutive effect of Founder Shares and options
Denominator for diluted earnings per share
Earnings per share (cent)
– Basic
– Diluted
2018
€’000
30,764
30,764
Number of
Shares
Number of
Shares
771,848,317
197,625
724,734,096
31,665,322
772,045,942
756,399,418
4.0
4.0
0.6
0.6
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
26. Earnings Per Share continued
The diluted earnings per share calculation for the year ended 31 December 2018 reflects an estimate of the number of ordinary shares to
be issued through the Founder Share scheme in 2019. It is assumed, as is required under IAS 33, that the test period for the Founder Share
conversion calculation is from 1 September 2018 to 31 December 2018, however the actual test period for determining the Founder Share
conversion in 2019 will be from 1 March 2019 to 30 June 2019. Based on the assumed test period, no ordinary shares would be issued
through conversion of Founder Shares as the relevant Performance Condition was not met.
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 (note 17).
The diluted earnings per share calculation also reflects the dilutive impact of share options and LTIP awards.
Adjusted earnings per share
Profit attributable to owners of the Company
Exceptional items (note 31)
Tax effect of exceptional items
Adjusted profit for purposes of calculating adjusted earnings per share
Weighted average number of ordinary shares for period (basic)
Adjusted earnings per share – basic
2018
€’000
30,764
3,930
(491)
34,203
2017
€’000
4,452
497
–
4,949
771,848,317
724,734,096
4.4 cent
0.7 cent
Adjusted earnings per share is 4.4 cent (2017: 0.7 cent). The only adjustment to basic earnings per share is to exclude the exceptional items
(net of their tax effect) (note 31).
27. Non-Controlling Interests
The non-controlling interests at 31 December 2018 of €4.4 million (31 December 2017: €1.8 million) relate to the 35% share of the net
assets of a subsidiary, Balgriffin Cells P13-P15 DAC, and the 25% share of the net assets of a subsidiary, Balgriffin Investment No. 2 HoldCo
DAC, both of which are held by NAMA. Cairn Homes plc holds the other respective 65% and 75% holdings of the equity share capital in
these subsidiaries.
Ownership interest held by
non-controlling interest %
2017
35%
2018
35%
(Not active in
2017)
25%
Name
Balgriffin Cells P13-P15 DAC
Balgriffin Investment No. 2 HoldCo
DAC
Principal activities
Development of property
Country of
incorporation
Ireland
Holding company
Ireland
140
28. 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 & 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 principal financial assets are cash and cash equivalents.
Group management, in conjunction with the Board, manages the risk associated with cash and cash equivalents by depositing funds with
a number of Irish financial institutions and AAA rated international institutions. At 31 December 2018, the Group’s deposits were held in
Irish financial institutions with a credit rating of BBB-.
The maximum amount of credit exposure is therefore:
Construction bonds and other receivables
Restricted cash – non-current
Cash and cash equivalents – current
2018
€’000
8,033
–
62,232
70,265
2017
€’000
5,540
17,002
68,803
91,345
Construction bonds and other receivables of €8.0 million at 31 December 2018 were all neither past due nor impaired.
Liquidity risk
(c)
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 receivables together with expected cash outflows on trade and other payables
and commitments. All trade and other payables at 31 December 2018 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 19 and
cash and cash equivalents as detailed in note 16) against rolling cash flow forecasts. In addition, the Group’s liquidity risk management policy
involves monitoring short term and long term cash flow forecasts.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
28. Financial Instruments and Risk Management continued
(c)
Liquidity risk continued
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
2018
€’000
31,726
49,333
81,059
2017
€’000
22,395
18,361
40,756
147,338
147,338
226,838
226,838
62,232
198,927
261,159
68,803
21,500
90,303
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 2019-2021, reflecting trends experienced up to the date of preparation; and
• future revenues for 2019-2021 based on management’s assessment of trends across principal development sites.
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 2018
Trade payables and accruals
Loans and borrowings
31 December 2017
Trade payables and accruals
Loans and borrowings
142
Contractual cash flows
Carrying
amount
€’000
31,726
Total
€’000
(31,726)
6 months
or less
€’000
(31,726)
6-12
months
€’000
–
1-2
years
€’000
–
2-5
years
€’000
–
>5
years
€’000
–
196,671
(228,658)
(3,734)
(52,325)
(4,451)
(90,853)
(77,295)
228,397
(260,384)
(35,460)
(52,325)
(4,451)
(90,853)
(77,295)
Contractual cash flows
Carrying
amount
€’000
22,395
Total
€’000
(22,395)
6 months
or less
€’000
(22,395)
6-12
months
€’000
–
1-2
years
€’000
–
245,199
(266,349)
(6,249)
(22,960)
(237,140)
267,594
(288,744)
(28,644)
(22,960)
(237,140)
2-5
years
€’000
–
–
–
>5
years
€’000
–
–
–
28. Financial Instruments and Risk Management continued
(d) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return.
(i) Currency risk
The Group is not exposed to significant currency risk. The Group operates only in the Republic of Ireland.
Interest rate risk
(ii)
At 31 December 2018, the Group had the following facilities:
(a) term loan and revolving credit facilities with Allied Irish Bank plc, Ulster Bank Ireland DAC and Barclays Bank Ireland plc that had
a principal drawn balance of €77.5 million at a variable interest rate of Euribor (with a 0% floor), plus a margin of 2.6%. The Group
has an exposure to cash flow interest rate risk where there are changes in Euribor rates;
(b) a €72.5 million private placement of loan notes with Pricoa Capital which have a fixed coupon of 3.36%; and
(c) a €50 million term loan facility with Activate Capital at a variable interest rate of 1-month Euribor (with 0% floor), plus a margin
of 6%. The Group has an exposure to cash flow interest rate risk where there are changes in the prevailing 1-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 2018
Variable-rate instruments – borrowings
Cash flow sensitivity (net)
31 December 2017
Variable-rate instruments – borrowings
Cash flow sensitivity (net)
Profit or loss
Equity
100 bp
increase
€’000
100 bp
decrease
€’000
100 bp
increase
€’000
100 bp
decrease
€’000
(1,071)
(1,071)
–
–
(1,071)
(1,071)
–
–
Profit or loss
Equity
100 bp
increase
€’000
100 bp
decrease
€’000
100 bp
increase
€’000
100 bp
decrease
€’000
(707)
(707)
–
–
(707)
(707)
–
–
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 the future development of the business. The Group takes a conservative approach to bank financing and the net
debt to total asset value ratio was 13.4% at 31 December 2018 (2017: 15.9%). Net debt is defined as loans and borrowings (note 19) less
cash and cash equivalents and restricted cash (note 16). The Board intend to announce a first interim ordinary dividend of 2.5 cent per share
in September 2019. Subsequent to year end, shareholders approved a capital reorganisation resolution to reduce the Company’s share
premium account by €550 million and, subject to High Court approval, the reserves resulting from this cancellation are to be treated as
realised profits (note 33).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
28. Financial Instruments and Risk Management continued
(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.
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.
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.
Financial assets measured at amortised cost
Construction bonds and other receivables
Cash and cash equivalents – current
Financial liabilities measured at amortised cost
Trade payables and accruals
Borrowings
Financial assets measured at amortised cost
Construction bonds and other receivables
Cash and cash equivalents – current
Restricted cash – non-current
Financial liabilities measured at amortised cost
Trade payables and accruals
Borrowings
144
2018
Carrying
value
€’000
8,033
62,232
70,265
31,726
196,671
228,397
2017
Carrying
value
€’000
5,540
68,803
17,002
91,345
22,395
245,199
267,594
Fair value
Level 1
€’000
Level 2
€’000
Level 3
€’000
196,671
Fair value
Level 1
€’000
Level 2
€’000
Level 3
€’000
245,199
29. Operating Leases
Operating lease commitments
The Group’s operating lease commitments relate to the lease of its central support office.
At the year 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
2018
€’000
343
1,167
–
1,510
2017
€’000
389
1,569
–
1,958
30. 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, Balgriffin Investment No.2 HoldCo DAC and Balgriffin Investment No.2 DAC) for their
financial years ending 31 December 2018 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 25 and all subsidiaries listed there, except Balgriffin Cells P13-P15
DAC, Balgriffin Investment No.2 HoldCo DAC and Balgriffin Investment No.2 DAC are covered by the Section 357 exemption.
On 27 June 2018, the Group agreed to sell its prime Dublin City Centre premium apartment development at Six Hanover Quay
(120 apartments, a 5,000 sq. ft. restaurant and 1,400 sq. ft. cafe) on completion for a total cash consideration of €101 million (€89.7 million
excluding VAT). Construction activity is ongoing with legal completion scheduled for 2019.
At 31 December 2018, the Group had a contingent liability in respect of construction bonds in the amount of €2.2 million.
At 31 December 2018, the Group had entered into contracts to acquire two sites at a cost of €9.0 million. Subsequent to the year end,
the Group completed these transactions.
There are no other commitments or contingent liabilities that should be disclosed in these financial statements.
31. Exceptional Items
Year ended 31 December 2018
The terms of the agreements for the Argentum acquisition in 2016 included contingent consideration which could be payable in certain
circumstances in relation to the Swords site. The exceptional finance cost of €3.25 million (note 9) in 2018 relates to the settlement of this
contingent consideration which was agreed with the Argentum vendors during the year. This is required to be charged to profit or loss in the
consolidated financial statements in accordance with IFRS 3 Business Combinations.
Residual unamortised arrangement fees at the date of the refinancing (note 9, note 19) of €0.68 million relating to the previous term loan
and revolving credit facility were charged to profit or loss in the year.
These charges arise from non-routine transactions and have therefore been classified as exceptional items.
Year ended 31 December 2017
In the prior year, costs of €0.5 million, incurred in connection with the Euronext Dublin listing in July 2017, were charged to profit or loss.
As the listing of the shares of the Company is a non-routine transaction, these costs were classified as an exceptional item (note 8).
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2018
32. 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 2018, determined in
accordance with IFRS as adopted by the EU, is €4.7 million (2017: loss of €2.3 million).
33. Events After the Reporting Period
In December 2018, the Group entered into an investment venture agreement with NAMA, creating a vehicle aiming to build in excess of
550 new homes on a 14.5 acre site adjoining the Group’s Parkside development, off the Malahide Road, Dublin 13. Under the investment
venture agreement, a new company, Balgriffin Investment No. 2 HoldCo DAC, owned 75% by the Group and 25% by NAMA (note 27),
has acquired the site in January 2019.
At an extraordinary general meeting on 26 February 2019, shareholders approved a capital reorganisation resolution to reduce the Company’s
share premium account by €550 million and, subject to High Court approval, the reserves resulting from this cancellation are to be treated as
realised profits.
34. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 29 March 2019.
146
Company Financial Statements
For the year ended 31 December 2018
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
148
149
151
152
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Company Statement of Financial Position
At 31 December 2018
Note
2018
€’000
2017
€’000
2
3
4
5
6
7
7
8
9
507
855
36,640
–
38,002
687,270
336
5,146
692,752
581
821
29,151
130
30,683
674,051
648
20,113
694,812
730,754
725,495
828
749,616
7,782
(38,988)
719,238
828
749,616
14,222
(42,218)
722,448
11,516
11,516
3,047
3,047
730,754
725,495
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
148
Company Statement of Changes in Equity
For the year ended 31 December 2018
Ordinary
shares
€’000
Share Capital
Deferred
shares
€’000
Founder
shares
€’000
Share
premium
€’000
Share-based
payment
reserve
€’000
Retained
earnings
€’000
Total
€’000
As at 1 January 2018
762
20
46
749,616
14,222
(42,218)
722,448
Total comprehensive loss
for the year
Loss for the year
Transactions with owners
of the Company
Conversion of Founder Shares
to ordinary shares
Equity-settled share-based
payments
–
27
–
27
–
–
–
–
–
(27)
–
(27)
–
–
–
–
–
(4,659)
(4,659)
(4,659)
(4,659)
(7,889)
7,889
1,449
(6,440)
–
7,889
–
1,449
1,449
As at 31 December 2018
789
20
19
749,616
7,782
(38,988)
719,238
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Company Statement of Changes in Equity
For the year ended 31 December 2017
Ordinary
shares
€’000
Share Capital
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)
–
–
–
–
(11,257)
11,257
700
51,883
(10,557)
–
(1,515)
–
9,742
51,917
(1,515)
–
700
51,102
As at 31 December 2017
762
20
46
749,616
14,222
(42,218)
722,448
150
Company Statement of Cash Flows
For the year ended 31 December 2018
Cash flows from operating activities
Loss for the year
Adjustments for:
Share-based payments expense
Finance income
Depreciation of property, plant and equipment
Amortisation of intangible assets
Taxation
Increase in amounts due from group undertakings
Decrease in trade and other receivables
Increase in trade and other payables
Net cash used in operating activities
Cash flows from investing activities
Investment in shares in subsidiary undertakings
Purchases of property, plant and equipment
Purchases of intangible assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital, net of issue costs paid
Net cash from financing activities
Net decrease in cash and cash equivalents in the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2018
€’000
2017
€’000
(4,659)
(2,286)
1,184
–
195
135
130
614
(16)
141
81
(12)
(3,015)
(1,478)
(12,954)
(63,945)
312
8,469
670
405
(7,188)
(64,348)
(7,489)
(2,408)
(121)
(169)
–
(207)
(417)
16
(7,779)
(3,016)
–
–
50,402
50,402
(14,967)
20,113
(16,962)
37,075
5,146
20,113
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Company Financial Statements
For the year ended 31 December 2018
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Significant Accounting Policies
Property, Plant and Equipment
Intangible Assets
Investments in Subsidiaries
Amounts due from Subsidiary Undertakings
Trade and Other Receivables
Share Capital and Share Premium
Share-Based Payments
Trade and Other Payables
Financial Instruments
Related Party Transactions
Approval of Financial Statements
153
153
154
154
154
154
154
154
154
155
155
155
152
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 32 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 2018 is €4.7 million (2017: loss of €2.3 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.
Investments in subsidiaries
(a)
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.
Prior to 1 January 2018, share-based payments in respect of employees in subsidiaries were accounted for as an increase in the cost
of investments in subsidiaries. With effect from 1 January 2018, these costs are recharged by the Company to, and are repayable by,
the relevant subsidiary.
Intra-group guarantees
(b)
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.
2. Property, Plant and Equipment
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Depreciation
At 31 December 2018
Net book value
At 31 December 2018
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
Leasehold
improvements
€’000
Computers &
equipment
€’000
2018
Total
€’000
463
–
463
(132)
(66)
(198)
354
121
475
(104)
(129)
(233)
265
242
Leasehold
improvements
€’000
Computers &
equipment
€’000
460
3
463
(66)
(66)
(132)
150
204
354
(29)
(75)
(104)
817
121
938
(236)
(195)
(431)
507
2017
Total
€’000
610
207
817
(95)
(141)
(236)
331
250
581
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
FINANCIAL STATEMENTS
Notes to the Company Financial Statements continued
For the year ended 31 December 2018
3. Intangible Assets
For further information on Intangible Assets refer to note 13 of the consolidated financial statements.
4. Investments in Subsidiaries
At the beginning of the year
Additions during the year
Cost of share-based payments in respect of subsidiaries
At the end of the year
2018
€’000
29,151
7,489
–
36,640
2017
€’000
26,657
2,408
86
29,151
Details of subsidiary undertakings are given in note 25 of the consolidated financial statements.
Additions during 2018 relates to the investment in 75% of the equity share capital in Balgriffin Investment No.2 HoldCo DAC, further details
of which are given in note 27 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.
5. Amounts due from Subsidiary Undertakings
Amounts due from subsidiary undertakings are repayable on demand.
There are no significant expected credit losses on amounts owed by subsidiaries, and no expected credit loss provision has been recognised.
6. Trade and Other Receivables
VAT recoverable
Other receivables
7. Share Capital and Share Premium
For further information on Share Capital and Share Premium refer to note 17 of the consolidated financial statements.
8. Share-Based Payments
For further information on Share-Based Payments refer to note 18 of the consolidated financial statements.
2018
€’000
–
336
336
2018
€’000
244
2,611
7,989
672
2017
€’000
255
393
648
2017
€’000
376
2,671
–
–
11,516
3,047
9. Trade and Other Payables
Trade payables
Accruals
VAT liability
Payroll taxes
154
10. Financial Instruments
The carrying value of the Company’s financial assets and liabilities, comprising amounts due from subsidiary undertakings, other receivables,
cash and cash equivalents, trade payables and accruals are a reasonable approximation of their fair value. Relevant disclosures on Group
financial instruments and risk management are given in note 28 of the consolidated financial statements.
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 25 of the consolidated financial statements).
Key management compensation and other related party transactions are set out in note 24 of the consolidated financial statements.
12. Approval of Financial Statements
The financial statements were approved by the Board of Directors on 29 March 2019.
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STRATEGIC REPORTCORPORATE GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Directors
John Reynolds (Non-Executive Chairman)
Michael Stanley (Chief Executive Officer)
Tim Kenny (Group Finance Director)
Alan McIntosh (Non-Executive, British)
Gary Britton (Non-Executive)
Giles Davies (Non-Executive, British)
Andrew Bernhardt (Non-Executive, British)
Jayne McGivern (Non-Executive, British)
David O’Beirne (Non-Executive)
Secretary and Registered Office
Tara Grimley
7 Grand Canal
Grand Canal Street Lower
Dublin 2
D02 KW81
Registrars
Computershare Investor Services (Ireland) Limited
3100 Lake Drive
Citywest Business Campus
Dublin 24
D24 AK82
Auditor
KPMG
Chartered Accountants
1 Stokes Place
St. Stephen’s Green
Dublin 2
Website
www.cairnhomes.com
ADDITIONAL INFORMATION
Company Information
Solicitors
A&L Goodbody
IFSC
25-28 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/Lenders
Allied Irish Banks plc
Bankcentre
Ballsbridge
Dublin 4
Ulster Bank Ireland DAC
33 College Green
Dublin 2
Barclays Bank Ireland plc
Two Park Place
Hatch Street
Dublin 2
Pricoa Capital Group
One London Bridge
8th Floor
London
SE1 9BG
Activate Capital
98 St. Stephen’s Green
Dublin 2
156
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7 Grand Canal
Grand Canal Street Lower
Dublin 2
D02 KW81
T: +353 1696 4600
E: info@cairnhomes.com
www.cairnhomes.com